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As filed with the U.S. Securities and Exchange Commission
on November 22, 2000
Securities Act File No. 33-58125
Investment Company Act File No. 811-07261
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 14 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 15 [x]
(Check appropriate box or boxes)
Warburg, Pincus Trust
................................................................................
(Exact Name of Registrant as Specified in Charter)
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466 Lexington Avenue
New York, New York 10017-3147
............................................ ......................
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 878-0600
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Hal Liebes, Esq.
Warburg, Pincus Trust
466 Lexington Avenue
New York, New York 10017-3147
...........................................................
(Name and Address of Agent for Service)
Copy to:
Rose F. DiMartino, Esq.
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019-6099
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Approximate Date of Proposed Public Offering: As soon as practicable after this
filing is declared effective.
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on [date] pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on [date] pursuant to paragraph (a)(1)
[x] 75 days after filing pursuant to paragraph (a)(2)
[ ] on [date] pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED NOVEMBER 22, 2000
[WARBURG PINCUS & CREDIT SUISSE LOGO]
PROSPECTUS
, 2000
WARBURG PINCUS TRUST
- GLOBAL TELECOMMUNICATIONS PORTFOLIO
Warburg Pincus Trust shares are not available directly to
individual investors, but may be offered only through certain
insurance products and pension and retirement plans.
As with all mutual funds, the Securities and Exchange Commission
has not approved these securities, nor has it passed upon the
adequacy or accuracy of this Prospectus. It is a criminal
offense to state otherwise.
The Trust is advised by Credit Suisse Asset Management, LLC.
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CONTENTS
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KEY POINTS........................ ......................... 4
Goal and Principal Strategies............................ 4
Investor Profile......................................... 4
A Word About Risk........................................ 5
INVESTOR EXPENSES..................... ..................... 6
Fees and Portfolio Expenses.............................. 6
Example.................................................. 6
THE PORTFOLIO IN DETAIL.................. .................. 7
The Management Firm...................................... 7
Portfolio Information Key................................ 7
Goal and Strategies...................................... 8
Portfolio Investments.................................... 8
Risk Factors............................................. 8
Portfolio Management..................................... 8
Investor Expenses........................................ 8
MORE ABOUT RISK...................... ...................... 9
Introduction............................................. 9
Types of Investment Risk................................. 9
Certain Investment Practices............................. 11
MEET THE MANAGERS..................... ..................... 13
ABOUT YOUR ACCOUNT.................... ..................... 14
Share Valuation.......................................... 14
Distributions............................................ 14
Taxes.................................................... 14
BUYING AND SELLING SHARES................. ................. 15
FOR MORE INFORMATION................... .................... back cover
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KEY POINTS
GOAL AND PRINCIPAL STRATEGIES
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PORTFOLIO/RISK FACTORS GOAL STRATEGIES
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GLOBAL TELECOMMUNICATIONS PORTFOLIO Long-term appreciation of capital - Invests in equity securities of U.S. and
Risk factors: foreign telecommunications companies
Foreign securities - May invest in companies of all sizes
Market risk
Non-diversified status
Regulatory risk
Sector concentration
Telecommunications companies
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INVESTOR PROFILE
THIS PORTFOLIO IS DESIGNED FOR INVESTORS WHO:
- are investing for long-term goals
- are willing to assume the risk of losing money in exchange for attractive
potential long-term returns
- are looking for capital appreciation
- want to diversify their portfolios into telecommunications stocks
IT MAY NOT BE APPROPRIATE IF YOU:
- are investing for a shorter time horizon
- are uncomfortable with an investment that will fluctuate in value, perhaps
dramatically
- are looking for exposure to companies in a broad variety of industries
- 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.
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A WORD ABOUT RISK
All investments involve some level of risk. Simply defined, risk is the
possibility that you will lose money or not make money.
Principal risk factors for the portfolio are discussed below. Before you
invest, please make sure you understand the risks that apply to the portfolio.
As with any mutual fund, you could lose money over any period of time.
Investments in the portfolio are not bank deposits and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
FOREIGN SECURITIES
A portfolio 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 portfolio 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 portfolio's ability to bring its capital or income back to the
U.S. Other political risks include economic-policy changes, social and
political instability, military action and war.
MARKET RISK
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 portfolio 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
portfolio may be subject to greater volatility with respect to its portfolio
securities than a portfolio that is more broadly diversified.
REGULATORY RISK
Governments, agencies or other regulatory bodies may adopt or change laws or
regulations that could adversely affect the issuer or market value of a
portfolio security, or the portfolio's performance.
SECTOR CONCENTRATION
A portfolio that invests more than 25% of its net assets in a group of
related industries (market sector) is subject to increased risk.
- Portfolio performance will largely depend upon the sector's performance,
which may differ in direction and degree from that of the overall stock
market.
- Financial, economic, business, political and other developments affecting the
sector will have a greater effect on the portfolio.
TELECOMMUNICATIONS COMPANIES
Telecommunications companies can be significantly (and adversely) affected by
governmental regulation or deregulation, obsolescence of existing technology,
falling prices and profits and competition from new market entrants.
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INVESTOR EXPENSES
FEES AND PORTFOLIO EXPENSES
This table describes the fees and expenses you may bear as a shareholder. Annual
portfolio operating expense figures are expected amounts for the fiscal year
ending December 31, 2001. The table does not reflect additional charges and
expenses which are, or may be, imposed under the variable contracts or plans;
such charges and expenses are described in the prospectus of the insurance
company separate account or in the plan documents or other informational
materials supplied by plan sponsors.
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SHAREHOLDER FEES
(paid directly from your investment)
Sales charge "load" on purchases NONE
Deferred sales charge "load" NONE
Sales charge "load" on reinvested distributions NONE
Redemption fees NONE
Exchange fees NONE
ANNUAL PORTFOLIO OPERATING EXPENSES
(deducted from fund assets)
Management fee 1.00%
Distribution and service (12b-1) fee NONE
Other expenses(1) 0.87%
TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES(2) 1.87%
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(1) Other expenses are based on estimated amounts to be charged in the current
fiscal period.
(2) Portfolio service providers have voluntarily agreed to waive some of their
fees and reimburse some expenses. These waivers and reimbursements, which
may be discontinued at any time, are expected to lower the portfolio's
expenses as follows:
EXPENSES AFTER WAIVERS AND
REIMBURSEMENTS
Management fee 0.78%
Distribution and service (12b-1) fee None
Other expenses 0.87%
TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES 1.65%
EXAMPLE
This example may help you compare the cost of investing in the portfolio 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 portfolio returns 5% annually, expense ratios
remain as listed in the table above, and you close your account at the end of
each of the time periods shown. Based on these assumptions, your cost would be:
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ONE YEAR THREE YEARS
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$190 $588
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THE PORTFOLIO IN DETAIL
THE MANAGEMENT FIRMS
CREDIT SUISSE ASSET MANAGEMENT, LLC
466 Lexington Avenue
New York, NY 10017
- Investment adviser for the portfolio
- Responsible for managing the portfolio's assets according to its goal and
strategies and supervising the activities of the sub-investment adviser for
the portfolio
- A member of Credit Suisse Asset Management, the institutional asset
management and mutual fund arm of Credit Suisse Group (Credit Suisse), one of
the world's leading banks
- Credit Suisse Asset Management companies manage approximately $68 billion in
the U.S. and $198 billion globally
- Credit Suisse Asset Management has offices in 14 countries, including
SEC-registered offices in New York and London; other offices (such as those in
Budapest, Frankfurt, Milan, Moscow, Paris, Prague, Sydney, Tokyo, Warsaw and
Zurich) are not registered with the U.S. Securities and Exchange Commission
For easier reading, Credit Suisse Asset Management, LLC will be referred to
as "CSAM" or "we" throughout this Prospectus.
CREDIT SUISSE ASSET
MANAGEMENT LIMITED
Beaufort House
15 St. Botolph Street
London, EC 3A 7JJ
- Sub-investment adviser for the portfolio
- Responsible for assisting CSAM in the management of the portfolio's
international assets according to its goal and strategies
- Also a member of Credit Suisse Asset Management
PORTFOLIO INFORMATION KEY
A concise description of the portfolio begins on the next page. The
description provides the following information:
GOAL AND STRATEGIES
The portfolio's particular investment goal and the strategies it intends to
use in pursuing that goal. Percentages of portfolio assets are based on total
assets unless indicated otherwise.
PORTFOLIO INVESTMENTS
The primary types of securities in which the portfolio invests. Secondary
investments are described in "More About Risk."
RISK FACTORS
The major risk factors associated with the portfolio. Additional risk factors
are included in "More About Risk."
PORTFOLIO MANAGEMENT
The individuals designated by the investment advisers to handle the
portfolio's day-to-day management.
INVESTOR EXPENSES
Expected expenses for the 2001 fiscal year. Actual expenses may be higher or
lower. Additional expenses are, or may be, imposed under the variable contracts
or plans.
- MANAGEMENT FEE The fee paid to the investment adviser for providing
investment advice to the portfolio and compensating the sub-investment
adviser. Expressed as a percentage of average net assets after waivers.
- OTHER EXPENSES Fees paid by the portfolio for items such as administration,
transfer agency, custody, auditing, legal and registration fees and
miscellaneous expenses. Expressed as a percentage of average net assets after
waivers, credits and reimbursements.
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GOAL AND STRATEGIES
The portfolio seeks long-term appreciation of capital. To pursue this goal,
it invests in equity securities of U.S. and foreign telecommunications
companies.
Telecommunications includes:
- communications equipment and service
- electronic components and equipment
- broadcast media
- computer equipment, mobile telecommunications, and cellular radio and paging
- electronic mail
- local and wide area networking, and linkage of work and data processing
systems
- publishing and information systems
- video and telex
- internet and other emerging technologies combining telephone, television
and/or computer systems
Under normal marketing conditions, the portfolio will invest at least 65% of
assets in equity securities of telecommunications companies from at least three
countries, including the U.S. The portfolio may invest in companies of all
sizes.
PORTFOLIO INVESTMENTS
Equity holdings may include:
- common and preferred stocks
- convertible securities
- warrants
To a limited extent, the portfolio may also engage in other investment
practices.
RISK FACTORS
This portfolio's principal risk factors are:
- foreign securities
- market risk
- non-diversified status
- regulatory risk
- sector concentration
The value of your investment generally will fluctuate in response to
stock-market movements. Because the portfolio invests internationally, it
carries additional risks, including currency, information and political risks.
These risks are defined in "More About Risk."
Because this portfolio focuses on a single sector (telecommunications), you
should expect it to be more volatile than a broadly diversified global equity
portfolio. Additionally, telecommunications companies are often subject to
regulatory risks that could hurt the portfolio's performance.
Non-diversification might cause the portfolio to be more volatile than a
diversified mutual fund. To the extent that the portfolio invests in emerging
markets and start-up and other small companies, it takes on additional risks
that could hurt its performance. "More About Risk" details these and certain
other investment practices the portfolio may use. Please read that section
carefully before you invest.
PORTFOLIO MANAGEMENT
Scott T. Lewis and Vincent J. McBride manage the portfolio. You can find out
more about the portfolio's managers in "Meet the Managers."
INVESTOR EXPENSES
Management fee 0.78%
All other expenses 0.87%
----
Total expenses 1.65%
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MORE ABOUT RISK
INTRODUCTION
The portfolio's goal and principal strategies largely determine its risk
profile. You will find a concise description of the portfolio's risk profile in
"Key Points." The preceding discussion of the portfolio contains more detailed
information. This section discusses other risks that may affect the portfolio.
The portfolio may use certain investment practices that have higher risks
associated with them. However, the portfolio 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.
The portfolio offers its shares to (i) insurance company separate accounts
that fund both variable contracts and variable life insurance contracts and (ii)
tax-qualified pension and retirement plans including participant-directed plans
which elect to make the portfolio an investment option for plan participants.
Due to differences of tax treatment and other considerations, the interests of
various variable contract owners and plan participants participating in the
portfolio may conflict. The Board of Trustees will monitor the portfolio for any
material conflicts that may arise and will determine what action, if any, should
be taken. If a conflict occurs, the Board may require one or more insurance
company separate accounts and/or plans to withdraw its investments in the
portfolio, which may cause the portfolio to sell securities at disadvantageous
prices and disrupt orderly portfolio management. The Board also may refuse to
sell shares of the portfolio to any variable contract or plan or may suspend or
terminate the offering of shares of the portfolio if such action is required by
law or regulatory authority or is in the best interests of the shareholders of
the portfolio.
TYPES OF INVESTMENT RISK
The following risks are referred to throughout this Prospectus.
ACCESS RISK Some countries may restrict the portfolio's access to investments
or offer terms that are less advantageous than those for local investors. This
could limit the attractive investment opportunities available to the portfolio.
CORRELATION RISK The risk that changes in the value of a hedging instrument
will not match those of the investment being hedged.
CREDIT RISK The issuer of a security or the counterparty to a contract may
default or otherwise become unable to honor a financial obligation.
CURRENCY RISK Fluctuations in exchange rates between the U.S. dollar and
foreign currencies may negatively affect an investment. Adverse changes in
exchange rates may erode or reverse any gains produced by foreign-
currency-denominated investments and may widen any losses.
EXPOSURE RISK The risk associated with investments (such as derivatives) or
practices (such as short selling) that increase the amount of money the
portfolio could gain or lose on an investment.
- HEDGED Exposure risk could multiply losses generated by a derivative or
practice used for hedging purposes. Such losses should be substantially
offset by gains on the hedged investment. However, while hedging can reduce
or eliminate losses, it can also reduce or eliminate gains.
- SPECULATIVE To the extent that a derivative or practice is not used as a
hedge, the portfolio is directly exposed to its risks. Gains or losses from
speculative positions in a derivative may be much greater than the
derivative's original cost. For example, potential losses from writing
uncovered call options and from speculative short sales are unlimited.
INFORMATION RISK Key information about an issuer, security or market may be
inaccurate or unavailable.
INTEREST-RATE RISK Changes in interest rates may cause a decline in the
market value of an investment. With bonds and other fixed-income securities, a
rise in interest rates typically causes a fall in values, while a fall in
interest rates typically causes a rise in values.
LIQUIDITY RISK Certain portfolio securities may be difficult or impossible to
sell at the time and the price that the portfolio would like. The portfolio may
have to lower the price, sell other securities instead or forego an investment
opportunity. Any of these could have a negative effect on portfolio management
or performance.
MARKET RISK The market value of a security may move up and down, sometimes
rapidly and unpredictably. These fluctuations, which are often referred to as
"volatility," may cause a security to be worth less than it was worth at an
earlier time. Market risk may affect a single issuer, industry, sector of the
economy, or the market as a whole. Market risk is common to most
investments--including stocks and bonds, and the mutual funds that invest in
them.
OPERATIONAL RISK Some countries have less-developed securities markets (and
related transaction, registration and
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custody practices) that could subject the portfolio to losses from fraud,
negligence, delay or other actions.
POLITICAL RISK Foreign governments may expropriate assets, impose capital or
currency controls, impose punitive taxes, or nationalize a company or industry.
Any of these actions could have a severe effect on security prices and impair
the portfolio's ability to bring its capital or income back to the U.S. Other
political risks include economic policy changes, social and political
instability, military action and war.
VALUATION RISK The lack of an active trading market may make it difficult to
obtain an accurate price for a portfolio security.
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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:
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[-] Permitted without limitation; does not indicate actual use
20% Italic type (e.g., 20%) represents an investment limitation as a percentage of NET portfolio assets; does not
indicate actual use
20% Roman type (e.g., 20%) represents an investment limitation as a percentage of TOTAL portfolio assets; does not
indicate actual use
[ ] Permitted, but not expected to be used to a significant extent
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INVESTMENT PRACTICE LIMIT
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BORROWING The borrowing of money from banks to meet
redemptions or for other temporary or emergency purposes.
Speculative exposure risk. 33 1/3%
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COUNTRY/REGION FOCUS Investing a significant portion of
portfolio assets in a single country or region. Market
swings in the targeted country or region will be likely to
have a greater effect on portfolio performance than they
would in a more geographically diversified equity portfolio.
Currency, market, political risks. [-]
-------------------------------------------------------------------------
CURRENCY HEDGING Instruments, such as options, futures,
forwards or swaps, intended to manage portfolio exposure to
currency risk or to enhance total return. Options, futures
or forwards involve the right or obligation to buy or sell a
given amount of foreign currency at a specified price and
future date. Swaps involve the right or obligation to
receive or make payments based on two different currency
rates.(1) Correlation, credit, currency, hedged exposure,
liquidity, political, speculative exposure, valuation
risks.(2) [ ]
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EMERGING MARKETS Countries generally considered to be
relatively less developed or industrialized. Emerging
markets often face economic problems that could subject the
portfolio to increased volatility or substantial declines in
value. Deficiencies in regulatory oversight, market
infrastructure, shareholder protections and company laws
could expose the portfolio to risks beyond those generally
encountered in developed countries. Access, currency,
information, liquidity, market, operational, political,
valuation risks. [-]
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FUTURES AND OPTIONS ON FUTURES Exchange-traded contracts
that enable the portfolio to hedge against or speculate on
future changes in currency values, interest rates or stock
indexes. Futures obligate the portfolio (or give it the
right, in the case of options) to receive or make payment at
a specific future time based on those future changes.(1)
Correlation, currency, hedged exposure, interest-rate,
market, speculative exposure risks.(2) [ ]
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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 portfolio may purchase or sell (write) both put and call
options for hedging or speculative purposes.(1) Correlation,
credit, hedged exposure, liquidity, market, speculative
exposure, valuation risks. [ ]
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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. [-]
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RESTRICTED AND OTHER ILLIQUID SECURITIES Certain securities
with restrictions on trading, or those not actively traded.
May include private placements. Liquidity, market, valuation
risks. 15%
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INVESTMENT PRACTICE LIMIT
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SECURITIES LENDING Lending portfolio securities to financial
institutions; the portfolio receives cash, U.S. government
securities or bank letters of credit as collateral. Credit,
liquidity, market, operational risks. 33 1/3%
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START-UP AND OTHER SMALL COMPANIES Companies with small
relative market capitalizations, including those with
continuous operations of less than three years. Information,
liquidity, market, valuation risks. 5%
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STRUCTURED INSTRUMENTS Swaps, structured securities and
other instruments that allow a fund to gain access to the
performance of a benchmark asset (such as an index or
selected stocks) that may be more attractive or accessible
than the portfolio's direct investment. Credit, currency,
information, interest-rate, liquidity, market, political,
speculative exposure, valuation risks. [ ]
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TEMPORARY DEFENSIVE TACTICS Placing some or all of the
portfolio's assets in investments such as money-market
obligations and investment-grade debt securities for
defensive purposes. Although intended to avoid losses in
adverse market, economic, political or other conditions,
defensive tactics might be inconsistent with the portfolio's
principal investment strategies and might prevent the
portfolio from achieving its goal. [ ]
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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. [ ]
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(1) The portfolio is not obligated to pursue any hedging strategy. In addition,
hedging practices may not be available, may be too costly to be used
effectively or may be unable to be used for other reasons.
(2) The portfolio is limited to 5% of net assets for initial margin and premium
amounts on futures positions considered to be speculative by the Commodity
Futures Trading Commission.
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MEET THE MANAGERS
The day-to-day portfolio management of the portfolio is the responsibility
of the Credit Suisse Asset Management Global Telecommunications Management Team.
The team consists of the following individuals:
[LEWIS PHOTO]
SCOTT T. LEWIS
Managing Director
- Team member since 1999
- With CSAM in 1999 as a result of Credit Suisse's acquisition of Warburg
Pincus Asset Management, Inc. (Warburg Pincus)
- With Warburg Pincus since 1986
[MCBRIDE PHOTO]
VINCENT J. MCBRIDE
Director
- Team member since 2000
- With CSAM since 1999 as a result of Credit Suisse's acquisition of Warburg
Pincus
- With Warburg Pincus since 1994
Job titles indicate position with the investment adviser.
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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 portfolio's total assets, less its
liabilities, by the number of shares outstanding.
The portfolio values its securities based on market quotations when it
calculates its NAV. If market quotations are not readily available, securities
and other assets are valued by another method that the Board of Trustees
believes accurately reflects fair value. Debt obligations that will mature in 60
days or less are valued on the basis of amortized cost, unless the Board
determines that using this method would not reflect an investment's value.
Some portfolio securities may be listed on foreign exchanges that are open on
days (such as U.S. holidays) when the portfolio does not compute its price. This
could cause the value of the portfolio's investments to be affected by trading
on days when you cannot buy or sell shares.
DISTRIBUTIONS
Investors in the portfolio are entitled to a share of the portfolio's net
income and net realized gains on investments. The portfolio passes these
earnings along to its shareholders as distributions.
The portfolio earns dividends from stocks and interest from bond,
money-market and other investments. These are passed along as dividend
distributions. The portfolio realizes capital gains whenever it sells securities
for a higher price than it paid for them. These are passed along as capital-gain
distributions.
The portfolio typically distributes dividends and capital gains annually,
usually in December. Distributions will be reinvested automatically in
additional shares of the portfolio.
TAXES
For a discussion of the tax status of a variable contract or pension plan,
refer to the prospectus of the sponsoring participating insurance company
separate account or plan documents or other informational materials supplied by
plan sponsors.
Because shares of the portfolio may be purchased only through variable
contracts and plans, income dividends or capital-gain distributions from the
portfolio are taxable, if at all, to the participating insurance companies and
plans and will be exempt from current taxation of the variable-contract owner or
plan participant if left to accumulate within the variable contract or plan.
The portfolio intends to comply with the diversification requirements
currently imposed by the Internal Revenue Service on separate accounts of
insurance companies as a condition of maintaining the tax-deferred status of
variable contracts.
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BUYING AND SELLING SHARES
You may not buy or sell shares of the portfolio directly; you may only buy or
sell shares through variable-annuity contracts and variable life insurance
contracts offered by separate accounts of certain insurance companies or through
tax-qualified pension and retirement plans. The portfolio may not be available
in connection with a particular contract or plan.
An insurance company's separate accounts buy and sell shares of the portfolio
at NAV, without any sales or other charges. Each insurance company receives
orders from its contract holders to buy or sell shares of the portfolio on any
business day that the portfolio calculates its NAV. If the order is received by
the insurance company prior to the close of regular trading on the NYSE, the
order will be executed at that day's NAV.
Plan participants may buy shares of the portfolio through their plan by
directing the plan trustee to buy shares for their account in a manner similar
to that described above for variable annuity and variable life insurance
contracts. You should contact your plan sponsor concerning the appropriate
procedure for investing in the portfolio.
The portfolio reserves the right to:
- refuse any specific purchase or exchange request, including those from any
person or group who, in the portfolio's view, is likely to engage in excessive
trading
- change or discontinue its exchange privilege after 30 days' notice to current
investors, or temporarily suspend this privilege during unusual market
conditions
- make a "redemption in kind"--payment in portfolio securities rather than
cash--for certain large redemption amounts that could hurt portfolio
operations
- suspend redemptions or postpone payment dates as permitted by the Investment
Company Act of 1940 (such as during periods other than weekends or holidays
when the NYSE is closed or trading on the NYSE is restricted, or any other
time that the SEC permits)
- stop offering the portfolio's shares for a period of time (such as when
management believes that a substantial increase in assets could adversely
affect it)
15
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<PAGE> 18
FOR MORE INFORMATION
This Prospectus is intended for use in connection with certain insurance
products and pension and retirement plans. Please refer to the prospectus of the
sponsoring participating insurance company separate account or to the plan
documents or other informational materials supplied by plan sponsors for
information regarding distributions and instructions on purchasing or selling a
variable contract and on how to select a portfolio as an investment option for a
variable contract or plan. More information about the portfolio is available
free upon request, including the following:
ANNUAL/SEMIANNUAL REPORTS TO SHAREHOLDERS
Includes financial statements, portfolio investments and detailed performance
information.
The Annual Report also contains a letter from the portfolio manager
discussing market conditions and investment strategies that significantly
affected portfolio performance during its past fiscal year.
OTHER INFORMATION
A current Statement of Additional Information (SAI), which provides more
details about the portfolio, is on file with the Securities and Exchange
Commission (SEC) and is incorporated by reference.
You may visit the SEC's Internet Web site (www.sec.gov) to view the SAI,
material incorporated by reference and other information. You can also obtain
copies by visiting the SEC's Public Reference Room in Washington, DC (phone
202-942-8090) or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009 or electronically at
[email protected].
Please contact the Trust to obtain, without charge, the SAI, Annual and
Semiannual Reports, portfolio holdings and other information and to make
shareholder inquiries:
BY TELEPHONE:
800-222-8977
BY MAIL:
Warburg Pincus Trust
P.O. Box 9030
Boston, MA 02205-9030
BY OVERNIGHT OR COURIER SERVICE:
Boston Financial
Attn: Warburg Pincus Trust
66 Brooks Drive
Braintree, MA 02184
ON THE INTERNET:
www.warburg.com
SEC FILE NUMBER:
Warburg Pincus Trust 811-07261
[WARBURG PINCUS FUNDS LOGO]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-222-8977 [-] www.warburg.com
CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC., DISTRIBUTOR. TRIEQ-1-0500
<PAGE> 19
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE
AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND
IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE
OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, NOVEMBER 22, 2000
STATEMENT OF ADDITIONAL INFORMATION
_________, 2000
WARBURG PINCUS TRUST
GLOBAL TELECOMMUNICATIONS PORTFOLIO
This Statement of Additional Information provides information about Warburg
Pincus Trust (the "Trust") relating to the Global Telecommunications Portfolio
(the "Portfolio") that supplements information in the Prospectus for the
Portfolio, dated ________, 2000, as amended or supplemented from time to time
(the "Prospectus") and is incorporated by reference in its entirety in the
Prospectus.
This Statement of Additional Information is not itself a prospectus and no
investment in shares of the Portfolio should be made solely upon the information
contained herein. Copies of the Trust's Prospectus relating to the Portfolio,
Annual Report and information regarding the Fund's current performance can be
obtained by writing or telephoning:
Warburg Pincus Funds
P.O. Box 9030
Boston, MA 02205-9030
800-WARBURG
<PAGE> 20
TABLE OF CONTENTS
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Page
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INVESTMENT OBJECTIVE AND POLICIES............................................................1
Options, Futures and Currency Exchange Transactions......................................1
Securities Options...................................................................1
Securities Index Options.............................................................4
OTC Options..........................................................................4
Futures Activities...................................................................5
Currency Exchange Transactions.......................................................7
Hedging..............................................................................9
Asset Coverage for Forward Contracts, Options, Futures and Options on Futures.......10
Additional Information on Other Investment Practices....................................11
Foreign Investments.................................................................11
U.S. Government Securities..........................................................15
Repurchase Agreements...............................................................16
Convertible Securities..............................................................16
Structured Securities...............................................................16
Debt Securities.....................................................................20
Below Investment Grade Securities...................................................21
Securities of Other Investment Companies............................................22
Lending of Portfolio Securities.....................................................22
When-Issued Securities and Delayed-Delivery Transactions............................23
Reverse Repurchase Agreements and Dollar Rolls......................................24
Rights Offering and Purchase Warrants...............................................24
Non-Publicly Traded and Illiquid Securities.........................................25
Borrowing...........................................................................26
Non-Diversified Status..............................................................26
Small Capitalization and Emerging Growth Companies; Unseasoned Issuers..............26
Temporary Investments...............................................................27
Short Sales "Against the Box".......................................................27
Section 4(2) Paper..................................................................28
Telecommunications Companies........................................................28
Other Investment Limitations............................................................29
General.............................................................................30
Portfolio Valuation.....................................................................30
Portfolio Transactions..................................................................31
Portfolio Turnover......................................................................33
MANAGEMENT OF THE TRUST.....................................................................34
Officers and Board of Trustees..........................................................34
Trustees' Compensation..................................................................38
Portfolio Managers......................................................................38
Code of Ethics..........................................................................39
Investment Advisers and Co-Administrators...............................................39
</TABLE>
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<TABLE>
<S> <C>
Custodian and Transfer Agent............................................................41
Distribution and Shareholder Servicing..................................................41
Distributor.........................................................................41
Shareholder Servicing...............................................................41
Organization of the Trust...............................................................42
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..............................................43
ADDITIONAL INFORMATION CONCERNING TAXES.....................................................43
Investment in Passive Foreign Investment Companies......................................45
DETERMINATION OF PERFORMANCE................................................................46
INDEPENDENT ACCOUNTANTS AND COUNSEL.........................................................48
MISCELLANEOUS...............................................................................48
FINANCIAL STATEMENTS........................................................................48
APPENDIX A -- DESCRIPTION OF RATINGS.......................................................A-1
</TABLE>
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INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the description of the
Portfolio's investment objective and policies in the Prospectus. The investment
objective of the Portfolio is to seek long-term appreciation of capital. There
are no assurances that the Portfolio will achieve its investment objective.
Unless otherwise indicated, the Portfolio is permitted, but not
obligated, to engage in the following investment strategies, subject to any
percentage limitations set forth below.
The Portfolio is not obligated to pursue any of the following
strategies and do not represent that these techniques are available now or will
be available at any time in the future.
Options, Futures and Currency Exchange Transactions.
The Portfolio may purchase and write (sell) options on
securities, securities indices and currencies for both hedging purposes and to
increase total return, which may involve speculation.
Securities Options. The Portfolio may write covered put and call
options on stock and debt securities and the Portfolio may purchase such options
that are traded on foreign and U.S. exchanges, as well as over-the-counter
("OTC") options.
The Portfolio realizes fees (referred to as "premiums") for
granting the rights evidenced by the options it has written. A put option
embodies the right of its purchaser to compel the writer of the option to
purchase from the option holder an underlying security at a specified price for
a specified time period or at a specified time. In contrast, a call option
embodies the right of its purchaser to compel the writer of the option to sell
to the option holder an underlying security at a specified price for a specified
time period or at a specified time.
The potential loss associated with purchasing an option is
limited to the premium paid, and the premium would partially offset any gains
achieved from its use. However, for an option writer the exposure to adverse
price movements in the underlying security or index is potentially unlimited
during the exercise period. Writing securities options may result in substantial
losses to the Portfolio, force the sale or purchase of portfolio securities at
inopportune times or at less advantageous prices, limit the amount of
appreciation the Portfolio could realize on its investments or require the
Portfolio to hold securities it would otherwise sell.
The principal reason for writing covered options on a security is
to attempt to realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. In return for a premium, the
Portfolio as the writer of a covered call option forfeits the right to any
appreciation in the value of the underlying security above the strike price for
the life of the option (or until a closing purchase transaction can be
effected). When the Portfolio writes call options it retains the risk of an
increase in the price of the underlying security. The size of the premiums that
the Portfolio may receive may be adversely affected as new or existing
institutions, including other investment companies, engage in or increase their
option-writing activities.
<PAGE> 23
If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that the
writer will also profit, because it should be able to close out the option at a
lower price. If security prices decline, the put writer would expect to suffer a
loss. This loss may be less than the loss from purchasing the underlying
instrument directly to the extent that the premium received offsets the effects
of the decline.
In the case of options written by the Portfolio that are deemed
covered by virtue of the Portfolio's holding convertible or exchangeable
preferred stock or debt securities, the time required to convert or exchange and
obtain physical delivery of the underlying common stock with respect to which
the Portfolio has written options may exceed the time within which the Portfolio
must make delivery in accordance with an exercise notice. In these instances,
the Portfolio may purchase or temporarily borrow the underlying securities for
purposes of physical delivery. By so doing, the Portfolio will not bear any
market risk, since the Portfolio will have the absolute right to receive from
the issuer of the underlying security an equal number of shares to replace the
borrowed securities, but the Portfolio may incur additional transaction costs or
interest expenses in connection with any such purchase or borrowing.
Additional risks exist with respect to certain of the securities
for which the Portfolio may write covered call options. For example, if the
Portfolio writes covered call options on mortgage-backed securities, the
mortgage-backed securities that it holds as cover may, because of scheduled
amortization or unscheduled prepayments, cease to be sufficient cover. If this
occurs, the Portfolio will compensate for the decline in the value of the cover
by purchasing an appropriate additional amount of mortgage-backed securities.
Options written by the Portfolio will normally have expiration
dates between one and nine months from the date written. The exercise price of
the options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. The Portfolio may write (i) in-the-money call
options when Credit Suisse Asset Management, LLC, the Portfolio's investment
adviser ("CSAM"), or Credit Suisse Asset Management Limited, the Portfolio's
sub-investment adviser ("CSAM Ltd.") expects that the price of the underlying
security will remain flat or decline moderately during the option period, (ii)
at-the-money call options when CSAM expects that the price of the underlying
security will remain flat or advance moderately during the option period and
(iii) out-of-the-money call options when CSAM expects that the premiums received
from writing the call option plus the appreciation in market price of the
underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. In any of the
preceding situations, if the market price of the underlying security declines
and the security is sold at this lower price, the amount of any realized loss
will be offset wholly or in part by the premium received. Out-of-the-money,
at-the-money and in-the-money put options (the reverse of call options as to the
relation of exercise price to market price) may be used in the same market
environments that such call options are used in equivalent transactions. To
secure its obligation to deliver the underlying security when it writes a call
option, the Portfolio will be required to deposit in escrow the underlying
security or other assets in accordance with the rules of the Options Clearing
Corporation (the "Clearing Corporation") and of the securities exchange on which
the option is written.
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<PAGE> 24
Prior to their expirations, put and call options may be sold in
closing sale or purchase transactions (sales or purchases by the Portfolio prior
to the exercise of options that it has purchased or, if permissible, written,
respectively, of options of the same series) in which the Portfolio may realize
a profit or loss from the sale. An option position may be closed out only where
there exists a secondary market for an option of the same series on a recognized
securities exchange or in the OTC market. When the Portfolio has purchased an
option and engages in a closing sale transaction, whether the Portfolio realizes
a profit or loss will depend upon whether the amount received in the closing
sale transaction is more or less than the premium the Portfolio initially paid
for the original option plus the related transaction costs. Similarly, in cases
where the Portfolio has written an option, it will realize a profit if the cost
of the closing purchase transaction is less than the premium received upon
writing the original option and will incur a loss if the cost of the closing
purchase transaction exceeds the premium received upon writing the original
option. The Portfolio may engage in a closing purchase transaction to realize a
profit, to prevent an underlying security with respect to which it has written
an option from being called or put or, in the case of a call option, to unfreeze
an underlying security (thereby permitting its sale or the writing of a new
option on the security prior to the outstanding option's expiration). The
obligation of the Portfolio under an option it has written would be terminated
by a closing purchase transaction, but the Portfolio would not be deemed to own
an option as a result of the transaction. So long as the obligation of the
Portfolio as the writer of an option continues, the Portfolio may be assigned an
exercise notice by the broker-dealer through which the option was sold,
requiring the Portfolio to deliver the underlying security against payment of
the exercise price. This obligation terminates when the option expires or the
Portfolio effects a closing purchase transaction. The Portfolio cannot effect a
closing purchase transaction with respect to an option once it has been assigned
an exercise notice.
There is no assurance that sufficient trading interest will exist
to create a liquid secondary market on a securities exchange for any particular
option or at any particular time, and for some options no such secondary market
may exist. A liquid secondary market in an option may cease to exist for a
variety of reasons. In the past, for example, higher than anticipated trading
activity or order flow or other unforeseen events have at times rendered certain
of the facilities of the Clearing Corporation and various securities exchanges
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be possible to
effect closing transactions in particular options. Moreover, the Portfolio's
ability to terminate options positions established in the OTC market may be more
limited than for exchange-traded options and may also involve the risk that
securities dealers participating in OTC transactions would fail to meet their
obligations to the Portfolio. The Portfolio, however, intends to purchase OTC
options only from dealers whose debt securities, as determined by CSAM, are
considered to be investment grade. If, as a covered call option writer, the
Portfolio is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security and would continue
to be at market risk on the security.
Securities exchanges generally have established limitations
governing the maximum number of calls and puts of each class which may be held
or written, or exercised within certain time periods by an investor or group of
investors acting in concert (regardless of
3
<PAGE> 25
whether the options are written on the same or different securities exchanges or
are held, written or exercised in one or more accounts or through one or more
brokers). It is possible that the Trust or the Portfolio and other clients of
CSAM and certain of its affiliates may be considered to be such a group. A
securities exchange may order the liquidation of positions found to be in
violation of these limits and it may impose certain other sanctions. These
limits may restrict the number of options the Portfolio will be able to purchase
on a particular security.
Securities Index Options. The Portfolio may purchase and write
exchange-listed and OTC put and call options on securities indexes. A securities
index measures the movement of a certain group of securities by assigning
relative values to the securities included in the index, fluctuating with
changes in the market values of the securities included in the index. Some
securities index options are based on a broad market index, such as the NYSE
Composite Index, or a narrower market index such as the Standard & Poor's 100.
Indexes may also be based on a particular industry or market segment.
Options on securities indexes are similar to options on
securities except that (i) the expiration cycles of securities index options are
monthly, while those of securities options are currently quarterly, and (ii) the
delivery requirements are different. Instead of giving the right to take or make
delivery of securities at a specified price, an option on a securities index
gives the holder the right to receive a cash "exercise settlement amount" equal
to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by (b)
a fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of the securities index upon which the option is based being
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the index and the exercise price of the option times a
specified multiple. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. Securities index options may
be offset by entering into closing transactions as described above for
securities options.
OTC Options. The Portfolio may purchase OTC or dealer options or
sell covered OTC options. Unlike exchange-listed options where an intermediary
or clearing corporation, such as the Clearing Corporation, assures that all
transactions in such options are properly executed, the responsibility for
performing all transactions with respect to OTC options rests solely with the
writer and the holder of those options. A listed call option writer, for
example, is obligated to deliver the underlying securities to the clearing
organization if the option is exercised, and the clearing organization is then
obligated to pay the writer the exercise price of the option. If the Portfolio
were to purchase a dealer option, however, it would rely on the dealer from whom
it purchased the option to perform if the option were exercised. If the dealer
fails to honor the exercise of the option by the Portfolio, the Portfolio would
lose the premium it paid for the option and the expected benefit of the
transaction.
Exchange traded options generally have a continuous liquid market
while OTC or dealer options do not. Consequently, the Portfolio will generally
be able to realize the value of a dealer option it has purchased only by
exercising it or reselling it to the dealer who issued it. Similarly, when the
Portfolio writes a dealer option, it generally will be able to close out the
option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Portfolio originally wrote the option.
Although the Portfolio will seek to enter into
4
<PAGE> 26
dealer options only with dealers who will agree to and that are expected to be
capable of entering into closing transactions with the Portfolio, there can be
no assurance that the Portfolio will be able to liquidate a dealer option at a
favorable price at any time prior to expiration. The inability to enter into a
closing transaction may result in material losses to the Portfolio. Until the
Portfolio, as a covered OTC call option writer, is able to effect a closing
purchase transaction, it will not be able to liquidate securities (or other
assets) used to cover the written option until the option expires or is
exercised. This requirement may impair the Portfolio's ability to sell portfolio
securities or, with respect to currency options, currencies at a time when such
sale might be advantageous. In the event of insolvency of the other party, the
Portfolio may be unable to liquidate a dealer option.
Futures Activities. The Portfolio may enter into future
contracts (and related options) on securities, securities indices, foreign
currencies and interest rates, and purchase and write (sell) related options
traded on exchanges designated by the Commodity Futures Trading Commission (the
"CFTC") or consistent with CFTC regulations, on foreign exchanges. These futures
contracts are standardized contracts for the future delivery of a non-U.S.
currency, an interest rate sensitive security or, in the case of index futures
contracts or certain other futures contracts, a cash settlement with reference
to a specified multiplier times the change in the index. An option on a futures
contract gives the purchaser the right, in return for the premium paid, to
assume a position in a futures contract.
These transactions may be entered into for "bona fide hedging"
purposes as defined in CFTC regulations and other permissible purposes including
hedging against changes in the value of portfolio securities due to anticipated
changes in currency values, interest rates and/or market conditions as well as
for the purpose of increasing total return, which may involve speculation.
The Portfolio will not enter into futures contracts and related
options for which the aggregate initial margin and premiums (discussed below)
required to establish positions other than those considered to be "bona fide
hedging" by the CFTC exceed 5% of the Portfolio's net asset value after taking
into account unrealized profits and unrealized losses on any such contracts it
has entered into. The Portfolio reserves the right to engage in transactions
involving futures contracts and options on futures contracts to the extent
allowed by CFTC regulations in effect from time to time and in accordance with
the Portfolio's policies. There is no overall limit on the percentage of
Portfolio assets that may be at risk with respect to futures activities.
Futures Contracts. A foreign currency futures contract provides
for the future sale by one party and the purchase by the other party of a
certain amount of a specified non-U.S. currency at a specified price, date, time
and place. An interest rate futures contract provides for the future sale by one
party and the purchase by the other party of a certain amount of a specific
interest rate sensitive financial instrument (debt security) at a specified
price, date, time and place. Securities indexes are capitalization weighted
indexes which reflect the market value of the securities represented in the
indexes. A securities index futures contract is an agreement to be settled by
delivery of an amount of cash equal to a specified multiplier times the
difference between the value of the index at the close of the last trading day
on the contract and the price at which the agreement is made.
5
<PAGE> 27
No consideration is paid or received by the Portfolio upon
entering into a futures contract. Instead, the Portfolio is required to
segregate with its custodian an amount of cash or securities acceptable to the
broker, such as U.S. government securities or other liquid high-grade debt
obligations, equal to approximately 1% to 10% of the contract amount (this
amount is subject to change by the exchange on which the contract is traded, and
brokers may charge a higher amount). This amount is known as "initial margin"
and is in the nature of a performance bond or good faith deposit on the contract
which is returned to the Portfolio upon termination of the futures contract,
assuming all contractual obligations have been satisfied. The broker will have
access to amounts in the margin account if the Portfolio fails to meet its
contractual obligations. Subsequent payments, known as "variation margin," to
and from the broker, will be made daily as the currency, financial instrument or
securities index underlying the futures contract fluctuates, making the long and
short positions in the futures contract more or less valuable, a process known
as "marking-to-market." The Portfolio will also incur brokerage costs in
connection with entering into futures transactions.
At any time prior to the expiration of a futures contract, the
Portfolio may elect to close the position by taking an opposite position, which
will operate to terminate the Portfolio's existing position in the contract.
Positions in futures contracts and options on futures contracts (described
below) may be closed out only on the exchange on which they were entered into
(or through a linked exchange). No secondary market for such contracts exists.
Although the Portfolio may enter into futures contracts only if there is an
active market for such contracts, there is no assurance that an active market
will exist at any particular time. Most futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit or trading may be suspended for
specified periods during the day. It is possible that futures contract prices
could move to the daily limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of futures positions at an
advantageous price and subjecting the Portfolio to substantial losses. In such
event, and in the event of adverse price movements, the Portfolio would be
required to make daily cash payments of variation margin. In such situations, if
the Portfolio had insufficient cash, it might have to sell securities to meet
daily variation margin requirements at a time when it would be disadvantageous
to do so. In addition, if the transaction is entered into for hedging purposes,
in such circumstances the Portfolio may realize a loss on a futures contract or
option that is not offset by an increase in the value of the hedged position.
Losses incurred in futures transactions and the costs of these transactions will
affect the Portfolio's performance.
Options on Futures Contracts. The Portfolio may purchase and
write put and call options on foreign currency, interest rate and stock index
futures contracts and may enter into closing transactions with respect to such
options to terminate existing positions. There is no guarantee that such closing
transactions can be effected; the ability to establish and close out positions
on such options will be subject to the existence of a liquid market.
An option on a currency, interest rate or securities index
futures contract, as contrasted with the direct investment in such a contract,
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time prior
to the expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long
6
<PAGE> 28
position if the option is a put). Upon exercise of an option, the delivery of
the futures position by the writer of the option to the holder of the option
will be accompanied by delivery of the accumulated balance in the writer's
futures margin account, which represents the amount by which the market price of
the futures contract exceeds, in the case of a call, or is less than, in the
case of a put, the exercise price of the option on the futures contract. The
potential loss related to the purchase of an option on a futures contract is
limited to the premium paid for the option (plus transaction costs). Because the
value of the option is fixed at the point of sale, there are no daily cash
payments by the purchaser to reflect changes in the value of the underlying
contract; however, the value of the option does change daily and that change
would be reflected in the net asset value of the Portfolio.
Currency Exchange Transactions. The value in U.S. dollars of the
assets of the Portfolio that are invested in foreign securities may be affected
favorably or unfavorably by changes in exchange control regulations, and the
Portfolio may incur costs in connection with conversion between various
currencies. Currency exchange transactions may be from any non-U.S. currency
into U.S. dollars or into other appropriate currencies. The Portfolio will
conduct its currency exchange transactions (i) on a spot (i.e., cash) basis at
the rate prevailing in the currency exchange market, (ii) through entering into
futures contracts or options on such contracts (as described above), (iii)
through entering into forward contracts to purchase or sell currency or (iv) by
purchasing exchange-traded currency options. 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 Portfolio may engage in currency
exchange transactions for both hedging purposes and to increase total return
which may involve speculation.
Forward Currency Contracts. The Portfolio may use forward
currency contracts to protect against uncertainty in the level of future
exchange rates and to enhance total return. The Portfolio will not invest more
than 50% of its respective total assets in such contracts for the purpose of
enhancing total return. There is no limit on the amount of assets that the
Portfolio may invest in such transactions for hedging purposes.
The Portfolio may also enter into forward currency contracts with
respect to specific transactions. For example, when the Portfolio anticipates
the receipt in a foreign currency of interest payments on a security that it
holds, the Portfolio may desire to "lock-in" the U.S. dollar price of the
security or the U.S. dollar equivalent of such payment, as the case may be, by
entering into a forward contract for the purchase or sale, for a fixed amount of
U.S. dollars, of the amount of foreign currency involved in the underlying
transaction. The Portfolio will thereby be able to protect itself against a
possible loss resulting from an adverse change in the relationship between the
currency exchange rates during the period between the date on which the security
is purchased or sold, or on which the payment is declared, and the date on which
such payments are made or received.
A forward currency contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract as agreed upon by the parties, at a price set at
the time of the contract. These contracts are entered
7
<PAGE> 29
into in the interbank market conducted directly between currency traders
(usually large commercial banks and brokers) and their customers. Forward
currency contracts are similar to currency futures contracts, except that
futures contracts are traded on commodities exchanges and are standardized as to
contract size and delivery date.
At or before the maturity of a forward contract, the Portfolio
may either sell a portfolio security and make delivery of the currency, or
retain the security and fully or partially offset its contractual obligation to
deliver the currency by negotiating with its trading partner to enter into an
offsetting transaction. If the Portfolio retains the portfolio security and
engages in an offsetting transaction, the Portfolio, at the time of execution of
the offsetting transaction, will incur a gain or a loss to the extent that
movement has occurred in forward contract prices.
Currency Options. The Portfolio may purchase exchange-traded put
and call options on foreign currencies. Put options convey the right to sell the
underlying currency at a price which is anticipated to be higher than the spot
price of the currency at the time the option is exercised. Call options convey
the right to buy the underlying currency at a price which is expected to be
lower than the spot price of the currency at the time the option is exercised.
Currency Hedging. The Portfolio's currency hedging will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is the purchase or sale of forward currency with
respect to specific receivables or payables of the Portfolio generally accruing
in connection with the purchase or sale of its portfolio securities. Position
hedging is the sale of forward currency with respect to portfolio security
positions. The Portfolio may not position hedge to an extent greater than the
aggregate market value (at the time of entering into the hedge) of the hedged
securities.
A decline in the U.S. dollar value of a foreign currency in which
the Portfolio's securities are denominated will reduce the U.S. dollar value of
the securities, even if their value in the foreign currency remains constant.
The use of currency hedges does not eliminate fluctuations in the underlying
prices of the securities, but it does establish a rate of exchange that can be
achieved in the future. For example, in order to protect against diminutions in
the U.S. dollar value of non-dollar denominated securities it holds, the
Portfolio may purchase foreign currency put options. If the value of the
currency does decline, the Portfolio will have the right to sell the foreign
currency for a fixed amount in dollars and will thereby offset, in whole or in
part, the adverse effect on the U.S. dollar value of its securities that
otherwise would have resulted. Conversely, if a rise in the U.S. dollar value of
a currency in which securities to be acquired are denominated is projected,
thereby potentially increasing the cost of the securities, the Portfolio may
purchase call options on the particular currency. The purchase of these options
could offset, at least partially, the effects of the adverse movements in
exchange rates. The benefit to the Portfolio derived from purchases of currency
options, like the benefit derived from other types of options, will be reduced
by premiums and other transaction costs. Because transactions in currency
exchange are generally conducted on a principal basis, no fees or commissions
are generally involved. Currency hedging involves some of the same risks and
considerations as other transactions with similar instruments. Although currency
hedges limit the risk of loss due to a decline in the value of a hedged
currency, at the same time, they also limit any potential gain that might result
should the value of the currency increase. If a
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devaluation is generally anticipated, the Portfolio may not be able to contract
to sell a currency at a price above the devaluation level it anticipates.
While the values of currency futures and options on futures,
forward currency contracts and currency options may be expected to correlate
with exchange rates, they will not reflect other factors that may affect the
value of the Portfolio's investments and a currency hedge may not be entirely
successful in mitigating changes in the value of the Portfolio's investments
denominated in that currency. A currency hedge, for example, should protect a
Yen-denominated bond against a decline in the Yen, but will not protect the
Portfolio against a price decline if the issuer's creditworthiness deteriorates.
Hedging. In addition to entering into options, futures and
currency exchange transactions for other purposes, including generating current
income to offset expenses or increase return, the Portfolio may enter into these
transactions as hedges to reduce investment risk, generally by making an
investment expected to move in the opposite direction of a portfolio position. A
hedge is designed to offset a loss in a portfolio position with a gain in the
hedged position; at the same time, however, a properly correlated hedge will
result in a gain in the portfolio position being offset by a loss in the hedged
position. As a result, the use of options, futures and currency exchange
transactions for hedging purposes could limit any potential gain from an
increase in the value of the position hedged. In addition, the movement in the
portfolio position hedged may not be of the same magnitude as movement in the
hedge. With respect to futures contracts, since the value of portfolio
securities will far exceed the value of the futures contracts sold by the
Portfolio, an increase in the value of the futures contracts could only
mitigate, but not totally offset, the decline in the value of the Portfolio's
assets.
In hedging transactions based on an index, whether the Portfolio
will realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of prices in the securities market generally
or, in the case of certain indexes, in an industry or market segment, rather
than movements in the price of a particular security. The risk of imperfect
correlation increases as the composition of the Portfolio's portfolio varies
from the composition of the index. In an effort to compensate for imperfect
correlation of relative movements in the hedged position and the hedge, the
Portfolio's hedge positions may be in a greater or lesser dollar amount than the
dollar amount of the hedged position. Such "over hedging" or "under hedging" may
adversely affect the Portfolio's net investment results if market movements are
not as anticipated when the hedge is established. Securities index futures
transactions may be subject to additional correlation risks. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions which
would distort the normal relationship between the securities index and futures
markets. Secondly, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market also may cause temporary price distortions. Because of the
possibility of price distortions in the futures market and the imperfect
correlation between movements in 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.
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The Portfolio will engage in hedging transactions only when
deemed advisable by CSAM, and successful use by the Portfolio of hedging
transactions will be subject to CSAM's ability to predict trends in currencies,
interest rates or securities markets, as the case may be, and to predict
correctly movements in the directions of the hedge and the hedged position and
the correlation between them, which predictions could prove to be inaccurate.
This requires different skills and techniques than predicting changes in the
price of individual securities, and there can be no assurance that the use of
these strategies will be successful. Even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or trends.
Losses incurred in hedging transactions and the costs of these transactions will
affect the Portfolio's performance.
To the extent that the Portfolio engages in the strategies
described above, the Portfolio 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
Portfolio may be unable to close out a position without incurring substantial
losses, if at all. The Portfolio is also subject to the risk of a default by a
counterparty to an off-exchange transaction.
Asset Coverage for Forward Contracts, Options, Futures and
Options on Futures. The Portfolio will comply with guidelines established by the
U.S. Securities and Exchange Commission (the "SEC") and other applicable
regulatory bodies with respect to coverage of forward currency contracts;
options written by the Portfolio on securities and securities indexes; and
currency, interest rate and index futures contracts and options on these futures
contracts. These guidelines may, in certain instances, require segregation by
the Portfolio of cash or liquid securities with its custodian or a designated
sub-custodian to the extent the Portfolio's obligations with respect to these
strategies are not otherwise "covered" through ownership of the underlying
security, financial instrument or currency or by other portfolio positions or by
other means consistent with applicable regulatory policies. Segregated assets
cannot be sold or transferred unless equivalent assets are substituted in their
place or it is no longer necessary to segregate them. As a result, there is a
possibility that segregation of a large percentage of the Portfolio's assets
could impede portfolio management or the Portfolio's ability to meet redemption
requests or other current obligations.
For example, a call option written by the Portfolio on securities
may require the Portfolio to hold the securities subject to the call (or
securities convertible into the securities without additional consideration) or
to segregate assets (as described above) sufficient to purchase and deliver the
securities if the call is exercised. A call option written by the Portfolio on
an index may require the Portfolio to own portfolio securities that correlate
with the index or to segregate assets (as described above) equal to the excess
of the index value over the exercise price on a current basis. A put option
written by the Portfolio may require the Portfolio to segregate assets (as
described above) equal to the exercise price. The Portfolio could purchase a put
option if the strike price of that option is the same or higher than the strike
price of a put option sold by the Portfolio. If the Portfolio holds a futures or
forward contract, the Portfolio could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. The Portfolio may enter into fully or partially offsetting
transactions so that its net position, coupled with any segregated assets (equal
to any
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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
Foreign Investments. Investors should recognize that investing in
foreign companies involves certain risks, including those discussed below, in
addition to those associated with investing in U.S. issuers. Individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, and balance of payments positions. In
addition, foreign investments by the Portfolio are subject to the risk that
natural disasters (such as an earthquake) will weaken a country's economy and
cause investments in that country to lose money. Natural disaster risks are, of
course, not limited to foreign investments and may apply to the Portfolio's
domestic investments as well. The Portfolio may invest in securities of foreign
governments (or agencies or instrumentalities thereof), and many, if not all, of
the foregoing considerations apply to such investments as well.
For the purposes of this investment policy, foreign investments
include investments in companies located or conducting a majority of their
business outside of the U.S., companies which have issued securities traded
principally outside of the U.S., or non-U.S. governments, governmental entities
or political subdivisions.
Depositary Receipts. The assets of the Portfolio may be invested
in the securities of foreign issuers in the form of American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") and International Depositary
Receipts ("IDRs"). These securities may not necessarily be denominated in the
same currency as the securities into which they may be converted. ADRs are
receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. EDRs, which
are sometimes referred to as Continental Depositary Receipts ("CDRs"), are
receipts issued in Europe, and IDRs, which are sometimes referred to as Global
Depositary Receipts ("GDRs"), are issued outside the United States. EDRs (CDRs)
and IDRs (GDRs) are typically issued by non-U.S. banks and trust companies and
evidence ownership of either foreign or domestic securities. Generally, ADRs in
registered form are designed for use in U.S. securities markets and EDRs (CDRs)
and IDRs (GDRs) in bearer form are designed for use in European and non-U.S.
securities markets, respectively.
Foreign Currency Exchange. Since the Portfolio may invest in
securities denominated in currencies other than the U.S. dollar, and since the
Portfolio may temporarily hold funds in bank deposits or other money market
investments denominated in foreign currencies, the Portfolio'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 Portfolio's
assets denominated in that foreign currency. Changes in foreign currency
exchange rates may also affect the value of dividends and interest earned, gains
and losses realized on the sale of securities and net investment income and
gains, if any, to be distributed by the Portfolio with respect to its foreign
investments. The rate of exchange between the U.S. dollar and other currencies
is determined by
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the forces of supply and demand in the foreign exchange markets. Changes in the
exchange rate may result over time from the interaction of many factors directly
or indirectly affecting economic and political conditions in the United States
and a particular foreign country, including economic and political developments
in other countries. Of particular importance are rates of inflation, interest
rate levels, the balance of payments and the extent of government surpluses or
deficits in the United States and the particular foreign country, all of which
are in turn sensitive to the monetary, fiscal and trade policies pursued by the
governments of the United States and foreign countries important to
international trade and finance. Governmental intervention may also play a
significant role. National governments rarely voluntarily allow their currencies
to float freely in response to economic forces. Sovereign governments use a
variety of techniques, such as intervention by a country's central bank or
imposition of regulatory controls or taxes, to affect the exchange rates of
their currencies. The Portfolio may use hedging techniques with the objective of
protecting against loss through the fluctuation of the valuation of foreign
currencies against the U.S. dollar, particularly the forward market in foreign
exchange, currency options and currency futures.
Information. The majority of the foreign securities held by the
Portfolio will not be registered with, nor the issuers thereof be subject to
reporting requirements of, the SEC. Accordingly, there may be less publicly
available information about the securities and about the foreign company or
government issuing them than is available about a domestic company or government
entity. Foreign companies are generally subject to financial reporting
standards, practices and requirements that are either not uniform or less
rigorous than those applicable to U.S. companies.
Political Instability. With respect to some foreign countries,
there is the possibility of expropriation or confiscatory taxation, limitations
on the removal of funds or other assets of the Portfolio, political or social
instability, or domestic developments which could affect U.S. investments in
those and neighboring countries.
Foreign Markets. Securities of some foreign companies are less
liquid and their prices are more volatile than securities of comparable U.S.
companies. Certain foreign countries are known to experience long delays between
the trade and settlement dates of securities purchased or sold, which may result
in increased exposure to market and foreign exchange fluctuations and increased
illiquidity.
Increased Expenses. The operating expenses of the Portfolio, 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 Portfolio associated with foreign investing, such as cost of converting
foreign currency into U.S. dollars, the payment of fixed brokerage commissions
on foreign exchanges, custodial costs, valuation costs and communication costs,
as well as the rate of the investment advisory fees, though similar to such
expenses of some other international funds, are higher than those costs incurred
by other investment companies not investing in foreign securities. In addition,
foreign securities may be subject to foreign government taxes that would reduce
the net yield on such securities.
Foreign Debt Securities. The returns on foreign debt securities
reflect interest rates and other market conditions prevailing in those countries
and the effect of gains and losses
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in the denominated currencies against the U.S. dollar, which have had a
substantial impact on investment in foreign fixed income securities. The
relative performance of various countries' fixed income markets historically has
reflected wide variations relating to the unique characteristics of each
country's economy. Year-to-year fluctuations in certain markets have been
significant, and negative returns have been experienced in various markets from
time to time.
The foreign government securities in which the Portfolio may
invest generally consist of obligations issued or backed by national, state or
provincial governments or similar political subdivisions or central banks in
foreign countries. Foreign government securities also include debt obligations
of supranational entities, which include international organizations designated
or backed by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples include the International Bank for Reconstruction and Development (the
"World Bank"), the European Coal and Steel Community, the Asian Development Bank
and the InterAmerican Development Bank.
Foreign government securities also include debt securities of
"quasi-governmental agencies" and debt securities denominated in multinational
currency units of an issuer (including supranational issuers). Debt securities
of quasi-governmental agencies are issued by entities owned by either a
national, state or equivalent government or are obligations of a political unit
that is not backed by the national government's full faith and credit and
general taxing powers. An example of a multinational currency unit is the euro,
the new single currency for eleven Economic and Monetary Union member states.
The euro represents specified amounts of the currencies of certain member states
of the Economic and Monetary Union and was introduced on January 1, 1999.
National currencies of the eleven member states participating in the euro will
become subdivisions of the euro, but will continue to circulate as legal tender
until January 1, 2002, when they will be withdrawn permanently.
Dollar-Denominated Debt Securities of Foreign Issuers. The
returns on foreign debt securities reflect interest rates and other market
conditions prevailing in those countries. The relative performance of various
countries' fixed income markets historically has reflected wide variations
relating to the unique characteristics of each country's economy. Year-to-year
fluctuations in certain markets have been significant, and negative returns have
been experienced in various markets from time to time.
Brady Bonds. The Portfolio may invest in so-called "Brady Bonds,"
which are securities created through the exchange of existing commercial bank
loans to public and private entities for new bonds in connection with debt
restructurings under a debt restructuring plan announced by former U.S.
Secretary of the Treasury Nicholas F. Brady. Brady Bonds may be collateralized
or uncollateralized, are issued in various currencies (primarily the U.S.
dollar) and are currently actively traded in the OTC secondary market for debt
instruments. 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.
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Emerging Markets. The Portfolio may invest in securities of
issuers located in "emerging markets" (less developed countries located outside
of the U.S.). Investing in emerging markets involves not only the risks
described above with respect to investing in foreign securities, but also other
risks, including exposure to economic structures that are generally less diverse
and mature than, and to political systems that can be expected to have less
stability than, those of developed countries. For example, many investments in
emerging markets experienced significant declines in value due to political and
currency volatility in emerging markets countries during the latter part of 1997
and the first half of 1998. Other characteristics of emerging markets that may
affect investment include certain national policies that may restrict investment
by foreigners in issuers or industries deemed sensitive to relevant national
interests and the absence of developed structures governing private and foreign
investments and private property. The typically small size of the markets of
securities of issuers located in emerging markets and the possibility of a low
or nonexistent volume of trading in those securities may also result in a lack
of liquidity and in price volatility of those securities.
Sovereign Debt. Investments in sovereign debt involve special
risks. The issuer of the debt or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal or interest
when due in accordance with the terms of such debt, and the Portfolio may have
limited legal recourse in the event of a default.
Sovereign debt differs from debt obligations issued by private
entities in that, generally, remedies for defaults must be pursued in the courts
of the defaulting party. Legal recourse is therefore somewhat limited. Political
conditions, especially a sovereign entity's willingness to meet the terms of its
debt obligations, are of considerable significance. Also, there can be no
assurance that the holders of commercial bank loans to the same sovereign entity
may not contest payments to the holders of sovereign debt in the event of
default under commercial bank loan agreements.
A sovereign debtor's willingness or ability to repay principal
and pay interest in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's policy
toward principal international lenders and the political constraints to which a
sovereign debtor may be subject. Increased protectionism on the part of a
country's trading partners, or political changes in those countries, could also
adversely affect its exports. Such events could diminish a country's trade
account surplus, if any, or the credit standing of a particular local government
or agency.
The occurrence of political, social or diplomatic changes in one
or more of the countries issuing sovereign debt could adversely affect the
Portfolio's investments. 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 Portfolio in a
manner that will minimize the exposure to such risks, there can be no assurance
that adverse political changes will not cause the Portfolio to suffer a loss of
interest or principal on any of its holdings.
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Investors should also be aware that certain sovereign debt
instruments in which the Portfolio may invest involve great risk. Sovereign debt
issued by issuers in many emerging markets generally is deemed to be the
equivalent in terms of quality to securities rated below investment grade by
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings
Services ("S&P"). Such securities are regarded as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligations and involve major risk exposure to
adverse conditions. Some of such sovereign debt, which may not be paying
interest currently or may be in payment default, may be comparable to securities
rated "D" by S&P or "C" by Moody's. The Portfolio may have difficulty disposing
of certain sovereign debt obligations because there may be a limited trading
market for such securities. Because there is no liquid secondary market for many
of these securities, the Portfolio anticipates that such securities could be
sold only to a limited number of dealers or institutional investors. The lack of
a liquid secondary market may have an adverse impact on the market price of such
securities and the Portfolio's ability to dispose of particular issues when
necessary to meet the Portfolio's liquidity needs or in response to a specific
economic event, such as a deterioration in the creditworthiness of the issuer.
The lack of a liquid secondary market for certain securities also may make it
more difficult for the Portfolio to obtain accurate market quotations for
purposes of valuing the Portfolio's portfolio and calculating its net asset
value. When and if available, fixed income securities may be purchased by the
Portfolio at a discount from face value. However, the Portfolio does not intend
to hold such securities to maturity for the purpose of achieving potential
capital gains, unless current yields on these securities remain attractive. From
time to time, the Portfolio may purchase securities not paying interest at the
time acquired if, in the opinion of CSAM, such securities have the potential for
future income or capital appreciation.
U.S. Government Securities. The obligations issued or guaranteed
by the U.S. government in which the Portfolio may invest include direct
obligations of the U.S. Treasury and obligations issued by U.S. government
agencies and instrumentalities. Included among direct obligations of the United
States are Treasury Bills, Treasury Notes and Treasury Bonds, which differ in
terms of their interest rates, maturities and dates of issuance. Treasury Bills
have maturities of less than one year, Treasury Notes have maturities of one to
10 years and Treasury Bonds generally have maturities of greater than 10 years
at the date of issuance. Included among the obligations issued by agencies and
instrumentalities of the United States are instruments that are supported by the
full faith and credit of the United States (such as certificates issued by the
Government National Mortgage Association ("GNMA")); instruments that are
supported by the right of the issuer to borrow from the U.S. Treasury (such as
securities of Federal Home Loan Banks); and instruments that are supported by
the credit of the instrumentality (such as Federal National Mortgage Association
("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC") bonds).
Other U.S. government securities the Portfolio may invest in
include securities issued or guaranteed by the Federal Housing Administration,
Farmers Home Loan Administration, Export-Import Bank of the United States, Small
Business Administration, Government National Mortgage Association, General
Services Administration, Central Bank for Cooperatives, Federal Farm Credit
Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal
Intermediate Credit Banks, Federal Land Banks, Federal National Mortgage
Association, Federal Maritime Administration, Tennessee Valley Authority,
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District of Columbia Armory Board and Student Loan Marketing Association. Each
Portfolio may also invest in instruments that are supported by the right of the
issuer to borrow from the U.S. Treasury and instruments that are supported by
the credit of the instrumentality. Because the U.S. government is not obligated
by law to provide support to an instrumentality it sponsors, the Portfolio will
invest in obligations issued by such an instrumentality only if CSAM determines
that the credit risk with respect to the instrumentality does not make its
securities unsuitable for investment by the Portfolio.
Repurchase Agreements. The Portfolio may invest in repurchase
agreement transactions with member banks of the Federal Reserve System and
certain non-bank dealers. Repurchase agreements are contracts under which the
buyer of a security simultaneously commits to resell the security to the seller
at an agreed-upon price and date. Under the terms of a typical repurchase
agreement, the Portfolio would acquire any underlying security for a relatively
short period (usually not more than one week) subject to an obligation of the
seller to repurchase, and the Portfolio to resell, the obligation at an
agreed-upon price and time, thereby determining the yield during the Portfolio's
holding period. This arrangement results in a fixed rate of return that is not
subject to market fluctuations during the Portfolio's holding period. The value
of the underlying securities will at all times be at least equal to the total
amount of the purchase obligation, including interest. The Portfolio bears a
risk of loss in the event that the other party to a repurchase agreement
defaults on its obligations or becomes bankrupt and the Portfolio is delayed or
prevented from exercising its right to dispose of the collateral securities,
including the risk of a possible decline in the value of the underlying
securities during the period in which the Portfolio seeks to assert this right.
CSAM monitors the creditworthiness of those bank and non-bank dealers with which
the Portfolio enters into repurchase agreements to evaluate this risk. A
repurchase agreement is considered to be a loan under the Investment Company Act
of 1940, as amended (the "1940 Act").
Convertible Securities. Convertible securities in which the
Portfolio may invest, including both convertible debt and convertible preferred
stock, may be converted at either a stated price or stated rate into underlying
shares of common stock. Because of this feature, convertible securities enable
an investor to benefit from increases in the market price of the underlying
common stock. Convertible securities provide higher yields than the underlying
equity securities, but generally offer lower yields than non-convertible
securities of similar quality. The value of convertible securities fluctuates in
relation to changes in interest rates like bonds and, in addition, fluctuates in
relation to the underlying common stock. Subsequent to purchase by the
Portfolio, convertible securities may cease to be rated or a rating may be
reduced below the minimum required for purchase by the Portfolio. Neither event
will require sale of such securities, although CSAM will consider such event in
its determination of whether the Portfolio should continue to hold the
securities.
Structured Securities. The Portfolio may purchase any type of
publicly traded or privately negotiated fixed income security, including
mortgage-backed securities; structured notes, bonds or debentures; and
assignments of and participations in loans.
Mortgage-Backed Securities. The Portfolio may invest in
mortgage-backed securities, such as those issued by GNMA, FNMA and FHLMC.
Non-government issued mortgage-backed securities may offer higher yields than
those issued by government entities, but
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may be subject to greater price fluctuations. Mortgage-backed securities
represent direct or indirect participations in, or are secured by and payable
from, mortgage loans secured by real property. The mortgages backing these
securities include, among other mortgage instruments, conventional 30-year
fixed-rate mortgages, 15-year fixed-rate mortgages, graduated payment mortgages
and adjustable rate mortgages. Although there may be government or private
guarantees on the payment of interest and principal of these securities, the
guarantees do not extend to the securities' yield or value, which are likely to
vary inversely with fluctuations in interest rates, nor do the guarantees extend
to the yield or value of the Portfolio's shares. These securities generally are
"pass-through" instruments, through which the holders receive a share of all
interest and principal payments from the mortgages underlying the securities,
net of certain fees. Some mortgage-backed securities, such as collateralized
mortgage obligations ("CMOs"), make payments of both principal and interest at a
variety of intervals; others make semiannual interest payments at a
predetermined rate and repay principal at maturity (like a typical bond).
Yields on pass-through securities are typically quoted by
investment dealers and vendors based on the maturity of the underlying
instruments and the associated average life assumption. The average life of
pass-through pools varies with the maturities of the underlying mortgage loans.
A pool's term may be shortened by unscheduled or early payments of principal on
the underlying mortgages. The occurrence of mortgage prepayments is affected by
various factors, including the level of interest rates, general economic
conditions, the location, scheduled maturity and age of the mortgage and other
social and demographic conditions. Because prepayment rates of individual pools
vary widely, it is not possible to predict accurately the average life of a
particular pool. For pools of fixed-rate 30-year mortgages, a common industry
practice in the U.S. has been to assume that prepayments will result in a
12-year average life. At present, pools, particularly those with loans with
other maturities or different characteristics, are priced on an assumption of
average life determined for each pool. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of a pool of mortgage-related securities. Conversely, in periods of rising rates
the rate of prepayment tends to decrease, thereby lengthening the actual average
life of the pool. However, these effects may not be present, or may differ in
degree, if the mortgage loans in the pools have adjustable interest rates or
other special payment terms, such as a prepayment charge. Actual prepayment
experience may cause the yield of mortgage-backed securities to differ from the
assumed average life yield. Reinvestment of prepayments may occur at higher or
lower interest rates than the original investment, thus affecting the
Portfolio's yield. In addition, mortgage-backed securities issued by certain
non-government entities and collateralized mortgage obligations may be less
marketable than other securities.
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.
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Asset-Backed Securities. The Portfolio may invest in asset-backed
securities, which represent participations in, or are secured by and payable
from, assets such as motor vehicle installment sales, installment loan
contracts, leases of various types of real and personal property and receivables
from revolving credit (credit card) agreements. Such assets are securitized
through the use of trusts and special purpose corporations. Payments or
distributions of principal and interest may be guaranteed up to certain amounts
and for a certain time period by a letter of credit or a pool insurance policy
issued by a financial institution unaffiliated with the trust or corporation.
Payments or distributions of principal and interest may be guaranteed up to
certain amounts and for a certain time period by a letter of credit or a pool
insurance policy issued by a financial institution unaffiliated with the trust
or corporation. In certain circumstances, asset-backed securities may be
considered illiquid securities subject to the percentage limitations described
herein. Asset-backed securities are considered an industry for industry
concentration purposes, and the Portfolio will therefore not purchase any
asset-backed securities which would cause 25% or more of the Portfolio's net
assets at the time of purchase to be invested in asset-backed securities.
Asset-backed securities present certain risks that are not
presented by other securities in which the Portfolio may invest. Automobile
receivables generally are secured by automobiles. Most issuers of automobile
receivables permit the loan servicers to retain possession of the underlying
obligations. If the servicer were to sell these obligations to another party,
there is a risk that the purchaser would acquire an interest superior to that of
the holders of the asset-backed securities. In addition, because of the large
number of vehicles involved in a typical issuance and technical requirements
under state laws, the trustee for the holders of the automobile receivables may
not have a proper security interest in the underlying automobiles. Therefore,
there is the possibility that recoveries on repossessed collateral may not, in
some cases, be available to support payments on these securities. Credit card
receivables are generally unsecured, and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts owed on the credit cards,
thereby reducing the balance due. In addition, there is no assurance that the
security interest in the collateral can be realized. The remaining maturity of
any asset-backed security the Portfolio invests in will be 397 days or less. The
Portfolio may purchase asset-backed securities that are unrated.
Structured Notes, Bonds or Debentures. Typically, the value of
the principal and/or interest on these instruments is determined by reference to
changes in the value of specific currencies, interest rates, commodities,
indexes or other financial indicators (the "Reference") or the relevant change
in two or more References. The interest rate or the principal amount payable
upon maturity or redemption may be increased or decreased depending upon changes
in the applicable Reference. The terms of the structured securities may provide
that in certain circumstances no principal is due at maturity and, therefore,
may result in the loss of the Portfolio's entire investment. The value of
structured securities may move in the same or the opposite direction as the
value of the Reference, so that appreciation of the Reference may produce an
increase or decrease in the interest rate or value of the security at maturity.
In addition, the change in interest rate or the value of the security at
maturity may be a multiple of the change in the value of the Reference so that
the security may be more or less volatile than the Reference, depending on the
multiple. Consequently, structured securities may entail a greater degree of
market risk and volatility than other types of debt obligations.
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Loan Participations and Assignments. The Portfolio may invest in
fixed and floating rate loans ("Loans") arranged through private negotiations
between a foreign government (a "Borrower") and one or more financial
institutions ("Lenders"). The majority of the Portfolio's investments in Loans
are expected to be in the form of participations in Loans ("Participations") and
assignments of portions of Loans from third parties ("Assignments"). The
Portfolio currently anticipates that it will not invest more than 5% of its net
assets in Loan Participations and Assignments.
Participations typically will result in the Portfolio having a
contractual relationship only with the Lender, not with the Borrower. The
Portfolio will have the right to receive payments of principal, interest and any
fees to which it is entitled only from the Lender selling the Participation and
only upon receipt by the Lender of the payments from the Borrower. In connection
with purchasing Participations, the Portfolio generally will have no right to
enforce compliance by the Borrower with the terms of the loan agreement relating
to the Loan, nor any rights of set-off against the Borrower, and the Portfolio
may not directly benefit from any collateral supporting the Loan in which it has
purchased the Participation. As a result, the Portfolio will assume the credit
risk of both the Borrower and the Lender that is selling the Participation. In
the event of the insolvency of the Lender selling a Participation, the Portfolio
may be treated as a general creditor of the Lender and may not benefit from any
set-off between the Lender and the Borrower. The Portfolio will acquire
Participations only if the Lender interpositioned between the Portfolio and the
Borrower is determined by CSAM to be creditworthy.
Collateralized Mortgage Obligations. The Portfolio may also
purchase CMOs issued by a U.S. Government instrumentality which are backed by a
portfolio of mortgages or mortgage-backed securities. The issuer's obligations
to make interest and principal payments is secured by the underlying portfolio
of mortgages or mortgage-backed securities. Generally, CMOs are partitioned into
several classes with a ranked priority by which the classes of obligations are
redeemed. These securities may be considered mortgage derivatives. The Portfolio
may only invest in CMOs issued by FHLMC, FNMA or other agencies of the U.S.
Government or instrumentalities established or sponsored by the U.S. Government.
CMOs provide an investor with a specified interest in the cash
flow of a pool of underlying mortgages or other mortgage-related securities.
Issuers of CMOs frequently elect to be taxed as pass-through entities known as
real estate mortgage investment conduits ("REMICs"). CMOs are issued in multiple
classes, each with a specified fixed or floating interest rate and a final
distribution date. Coupons can be fixed or variable. If variable, they can move
with or in the reverse direction of interest rates. The coupon changes could be
a multiple of the actual rate change and there may be limitations on what the
coupon can be. Cash flows of pools can also be divided into a principal only
class and an interest only class. In this case the principal only class will
only receive principal cash flows from the pool. All interest cash flows go to
the interest only class. The relative payment rights of the various CMO classes
may be structured in many ways, either sequentially or by other rules of
priority. Generally, payments of principal are applied to the CMO classes in the
order of their respective stated maturities, so that no principal payments will
be made on a CMO class until all other classes having an earlier stated maturity
date are paid in full. Sometimes, however, CMO classes are "parallel pay" (i.e.
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payments of principal are made to two or more classes concurrently). CMOs may
exhibit more or less price volatility and interest rate risk than other types of
mortgaged-related obligations.
The CMO structure returns principal to investors sequentially,
rather than according to the pro rata method of a pass-through. In the
traditional CMO structure, all classes (called tranches) receive interest at a
stated rate, but only one class at a time receives principal. All principal
payments received on the underlying mortgages or securities are first paid to
the "fastest pay" tranche. After this tranche is retired, the next tranche in
the sequence becomes the exclusive recipient of principal payments. This
sequential process continues until the last tranche is retired. In the event of
sufficient early repayments on the underlying mortgages, the "fastest-pay"
tranche generally will be retired prior to its maturity. Thus the early
retirement of a particular tranche of a CMO held by the Portfolio would have the
same effect as the prepayment of mortgages underlying a mortgage-backed
pass-through security as described above.
Zero Coupon Securities. The Portfolio may invest in "zero coupon"
U.S. Treasury, foreign government and U.S. and foreign corporate debt
securities, which are bills, notes and bonds that have been stripped of their
unmatured interest coupons and receipts or certificates representing interests
in such stripped debt obligations and coupons. The Portfolio currently
anticipates that zero coupon securities will not exceed 5% of its net assets.
A zero coupon security pays no interest to its holder prior to
maturity. Accordingly, such securities usually trade at a deep discount from
their face or par value and will be subject to greater fluctuations of market
value in response to changing interest rates than debt obligations of comparable
maturities that make current distributions of interest. The Portfolio
anticipates that they will not normally hold zero coupon securities to maturity.
Federal tax law requires that a holder of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year,
even though the holder receives no interest payment on the security during the
year.
Debt Securities. The Portfolio may invest in investment debt
grade debt securities (other than money market obligations) for the purpose of
seeking capital appreciation. The Portfolio may also invest to a limited extent
in zero coupon securities and government zero coupon securities, which may
result in taxable income to shareholders in the Portfolio. Debt obligations of
corporations in which the Portfolio may invest include corporate bonds,
debentures 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. 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. The market value of debt obligations may also be expected to
vary depending upon, among other factors, the ability of the issuer to repay
principal and interest, any change in investment rating and general economic
conditions.
A security will be deemed to be investment grade if it is rated
within the four highest grades by Moody's or S&P or, if unrated, is determined
to be of comparable quality by CSAM. Securities rated in the fourth highest
grade may have speculative characteristics and
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changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case
with higher grade bonds. Subsequent to its purchase by the Portfolio, an issue
of securities may cease to be rated or its rating may be reduced below the
minimum required for purchase by the Portfolio. Neither event will require sale
of such securities, although CSAM will consider such event in its determination
of whether the Portfolio should continue to hold the securities. Any percentage
limitation on the Portfolio's ability to invest in debt securities will not be
applicable during periods when the Portfolio pursues a temporary defensive
strategy as discussed below.
Below Investment Grade Securities. Below investment grade debt
securities may be rated as low as C by Moody's or D by S&P, or be deemed by
CSAM to be of equivalent quality. Securities that are rated C by Moody's are
the lowest rated class and can be regarded as having extremely poor prospects
of ever attaining any real investment standing. A security rated D by S&P is in
default or is expected to default upon maturity or payment date. Investors
should be aware that ratings are relative and subjective and are not absolute
standards of quality.
Below investment grade securities (commonly referred to as "junk
bonds"), (i) will likely have some quality and protective characteristics that,
in the judgment of the rating organizations, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (ii) are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. The market
values of certain of these securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
investment grade securities. In addition, these securities generally present a
higher degree of credit risk. The risk of loss due to default is significantly
greater because these securities generally are unsecured and frequently are
subordinated to the prior payment of senior indebtedness.
While the market values of medium- and lower-rated securities and
unrated securities of comparable quality tend to react less to fluctuations in
interest rate levels than do those of higher-rated securities, the market values
of certain of these securities also tend to be more sensitive to individual
corporate developments and changes in economic conditions than higher-quality
securities. In addition, medium- and lower-rated securities and comparable
unrated securities generally present a higher degree of credit risk. Issuers of
medium- and lower-rated securities and unrated securities are often highly
leveraged and may not have more traditional methods of financing available to
them so that their ability to service their obligations during an economic
downturn or during sustained periods of rising interest rates may be impaired.
The risk of loss due to default by such issuers is significantly greater because
medium- and lower-rated securities and unrated securities generally are
unsecured and frequently are subordinated to the prior payment of senior
indebtedness.
An economic recession could disrupt severely the market for such
securities and may adversely affect the value of such securities and the ability
of the issuers of such securities to repay principal and pay interest thereon.
The Portfolio may have difficulty disposing of certain of these securities
because there may be a thin trading market. Because there is no established
retail secondary market for many of these securities, the Portfolio anticipates
that these securities could be sold only to a limited number of dealers or
institutional investors. To the extent a secondary trading market for these
securities does exist, it generally is not as liquid
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as the secondary market for higher-rated securities. The lack of a liquid
secondary market, as well as adverse publicity and investor perception with
respect to these securities, may have an adverse impact on market price and the
Portfolio's ability to dispose of particular issues when necessary to meet the
Portfolio's liquidity needs or in response to a specific economic event such as
a deterioration in the creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities also may make it more difficult for the
Portfolio to obtain accurate market quotations for purposes of valuing the
Portfolio and calculating its net asset value.
The market value of securities in medium- and lower-rated
categories is also more volatile than that of higher quality securities. Factors
adversely impacting the market value of these securities will adversely impact
the Portfolio's net asset value. The Portfolio will rely on the judgment,
analysis and experience of 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 the
Portfolio, an issue of securities may cease to be rated or its rating may be
reduced. Neither event will require sale of such securities, although CSAM will
consider such event in its determination of whether the Portfolio should
continue to hold the securities. Normally, medium- and lower-rated and
comparable unrated securities are not intended for short-term investment. The
Portfolio may incur additional expenses to the extent it is required to seek
recovery upon a default in the 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.
Securities of Other Investment Companies. The Portfolio may
invest in securities of other investment companies to the extent permitted under
the Investment Company Act of 1940, as amended (the "1940 Act"). As a
shareholder of another investment company, the Portfolio would bear, along with
other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that the Portfolio bears directly in connection with
its own operations.
Lending of Portfolio Securities. The Portfolio may lend portfolio
securities to brokers, dealers and other financial organizations that meet
capital and other credit requirements or other criteria established by the
Trust's Board of Trustees (the "Board"). These loans, if and when made, may not
exceed 33 1/3% of the Portfolio's total assets taken at value (including the
loan collateral). The Portfolio will not lend portfolio securities to CSAM or
its affiliates unless it has applied for and received specific authority to do
so from the SEC. Loans of portfolio securities will be collateralized by cash or
liquid securities which are segregated at all times in an amount equal to at
least 102% (105% in the case of foreign securities) of the current market value
of the loaned securities. Any gain or loss in the market price of the securities
loaned that might occur during the term of the loan would be for the account of
the Portfolio involved. From time to time, the Portfolio may return a part of
the interest earned from the investment of collateral received for securities
loaned to the borrower and/or a third party that is unaffiliated with the
Portfolio and that is acting as a "finder."
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By lending its securities, the Portfolio can increase its income
by continuing to receive interest and any dividends on the loaned securities as
well as by either investing the collateral received for securities loaned in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. Government Securities are used as collateral. Although the
generation of income is not an investment objective of the Portfolio, income
received could be used to pay the Portfolio's expenses and would increase an
investor's total return. The Portfolio will adhere to the following conditions
whenever its portfolio securities are loaned: (i) the Portfolio must receive at
least 100% cash collateral or equivalent securities of the type discussed in the
preceding paragraph from the borrower; (ii) the borrower must increase such
collateral whenever the market value of the securities rises above the level of
such collateral; (iii) the Portfolio must be able to terminate the loan at any
time; (iv) the Portfolio must receive reasonable interest on the loan, as well
as any dividends, interest or other distributions on the loaned securities and
any increase in market value; (v) the Portfolio may pay only reasonable
custodian fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower, provided, however, that if a material event
adversely affecting the investment occurs, the Board must terminate the loan and
regain the right to vote the securities. Loan agreements involve certain risks
in the event of default or insolvency of the other party including possible
delays or restrictions upon the Portfolio's ability to recover the loaned
securities or dispose of the collateral for the loan.
When-Issued Securities and Delayed-Delivery Transactions. The
Portfolio may urchase securities on a "when-issued" basis or on a forward
commitment basis, or it may purchase or sell securities for delayed delivery
(i.e., payment or delivery occur beyond the normal settlement date at a stated
price and yield). The Portfolio currently anticipates that when-issued
securities will not exceed 25% of its net assets. The Portfolio does not intend
to engage in when-issued purchases and forward commitments for speculative
purposes but only in furtherance of its investment objectives.
In these transactions, payment for and delivery of the securities occur
beyond the regular settlement dates, normally within 30-45 days after the
transaction. The Portfolio will not enter into a when-issued or delayed-delivery
transaction for the purpose of leverage, but may sell the right to acquire a
when-issued security prior to its acquisition or dispose of its right to deliver
or receive securities in a delayed-delivery transaction before the settlement
date if CSAM deems it advantageous to do so. The payment obligation and the
interest rate that will be received on when-issued and delayed-delivery
transactions are fixed at the time the buyer enters into the commitment. Due to
fluctuations in the value of securities purchased or sold on a when-issued or
delayed-delivery basis, the prices obtained on such securities may be higher or
lower than the prices available in the market on the dates when the investments
are actually delivered to the buyers. The Portfolio will establish a segregated
account with its custodian consisting of cash or liquid securities in an amount
equal to its when-issued and delayed-delivery purchase commitments and will
segregate the securities underlying commitments to sell securities for delayed
delivery.
When the Portfolio agrees to purchase when-issued or
delayed-delivery securities, its custodian will set aside cash or liquid
securities equal to the amount of the commitment. Normally, the custodian will
set aside portfolio securities to satisfy a purchase commitment, and in such a
case the Portfolio may be required subsequently to segregate
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additional assets in order to ensure that the value of the segregated assets
remains equal to the amount of the Portfolio's commitment. It may be expected
that the Portfolio's net assets will fluctuate to a greater degree when it sets
aside portfolio securities to cover such purchase commitments than when it sets
aside cash. When the Portfolio engages in when-issued or delayed-delivery
transactions, it relies on the other party to consummate the trade. Failure of
the seller to do so may result in the Portfolio's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
Reverse Repurchase Agreements and Dollar Rolls. The Portfolio
may enter into reverse repurchase agreements member banks of the Federal Reserve
System with respect to portfolio securities for temporary purposes (such as to
obtain cash to meet redemption requests when the liquidation of portfolio
securities is deemed disadvantageous or inconvenient by CSAM) and "dollar
rolls." The Portfolio does not presently intend to invest more than 5% of net
assets in reverse repurchase agreements or dollar rolls during the coming year.
Reverse repurchase agreements involve the sale of securities held
by the Portfolio pursuant to its agreement to repurchase them at a mutually
agreed upon date, price and rate of interest. At the time the Portfolio enters
into a reverse repurchase agreement, it will segregate cash or liquid securities
having a value not less than the repurchase price (including accrued interest).
The segregated assets will be marked-to-market daily and additional assets will
be segregated on any day in which the assets fall below the repurchase price
(plus accrued interest). The Portfolio's liquidity and ability to manage its
assets might be affected when it sets aside cash or portfolio securities to
cover such commitments. Reverse repurchase agreements involve the risk that the
market value of the securities retained in lieu of sale may decline below the
price of the securities the Portfolio has sold but is obligated to repurchase.
In the event the buyer of securities under a reverse repurchase agreement files
for bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Portfolio's
obligation to repurchase the securities, and the Portfolio's use of the proceeds
of the reverse repurchase agreement may effectively be restricted pending such
decision.
The Portfolio also may enter into "dollar rolls," in which the
Portfolio sells fixed-income securities for delivery in the current month and
simultaneously contracts to repurchase similar but not identical (same type,
coupon and maturity) securities on a specified future date. During the roll
period, the Portfolio would forego principal and interest paid on such
securities. The Portfolio would be compensated by the difference between the
current sales price and the forward price for the future purchase, as well as by
the interest earned on the cash proceeds of the initial sale. At the time the
Portfolio enters into a dollar roll transaction, it will segregate with an
approved custodian cash or liquid securities having a value not less than the
repurchase price (including accrued interest) and will subsequently monitor the
segregated assets to ensure that their value is maintained. Reverse repurchase
agreements and dollar rolls that are accounted for as financings are considered
to be borrowings under the 1940 Act.
Rights Offering and Purchase Warrants. Rights offerings and
purchase warrants are privileges issued by a corporation which enable the owner
to subscribe to and purchase a specified number of shares of the corporation at
a specified price during a specified period of time. Subscription rights
normally have a short lifespan to expiration. The purchase of rights or warrants
involves the risk that the Portfolio could lose the purchase value of a right or
warrant if
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the right to subscribe to additional shares is not executed prior to
the rights and warrants expiration. Also, the purchase of rights and/or warrants
involves the risk that the effective price paid for the right and/or warrant
added to the subscription price of the related security may exceed the value of
the subscribed security's market price such as when there is no movement in the
level of the underlying security.
Non-Publicly Traded and Illiquid Securities. The Portfolio is
authorized to, but does not presently intend to, invest up to 15% of its net
assets in illiquid securities, including securities that are illiquid by virtue
of the absence of a readily available market, repurchase agreements which have a
maturity of longer than seven days, time deposits maturing in more than seven
days and certain Rule 144A Securities (as defined below), and time deposits
maturing in more than seven days. Securities that have legal or contractual
restrictions on resale but have a readily available market are not considered
illiquid for purposes of this limitation. Repurchase agreements subject to
demand are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Companies whose securities are not publicly traded
may not be subject to the disclosure and other investor protection requirements
applicable to companies whose securities are publicly traded. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days without borrowing. A mutual
fund might also have to register such restricted securities in order to dispose
of them resulting in additional expense and delay. Adverse market conditions
could impede such a public offering of securities.
In recent years, however, a large institutional market has
developed for certain securities that are not registered under the Securities
Act including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.
Rule 144A Securities. Rule 144A under the Securities Act adopted
by the SEC allows for a broader institutional trading market for securities
otherwise subject to restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the Securities
Act for resales of certain securities to qualified institutional buyers. CSAM
anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and use of automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc.
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An investment in Rule 144A Securities will be considered illiquid
and therefore subject to the Portfolio's limit on the purchase of illiquid
securities unless the Board or its delegates determines that the Rule 144A
Securities are liquid. In reaching liquidity decisions, the Board or its
delegates may consider, inter alia, the following factors: (i) the unregistered
nature of the security; (ii) the frequency of trades and quotes for the
security; (iii) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (iv) dealer undertakings to make a
market in the security and (v) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer).
Investing in Rule 144A Securities could have the effect of
increasing the level of illiquidity in the Portfolio to the extent that
qualified institutional buyers are unavailable or uninterested in purchasing
such securities from the Portfolio. The Board has adopted guidelines and
delegated to CSAM the daily function of determining and monitoring the
illiquidity of Rule 144A Securities, although the Board will retain ultimate
responsibility for liquidity determinations.
Borrowing. The Portfolio may borrow up to 33-1/3% of its total
assets for temporary or emergency purposes, including to meet portfolio
redemption requests so as to permit the orderly disposition of portfolio
securities or to facilitate settlement transactions on portfolio securities.
Additional investments (including roll-overs) will not be made when borrowings
exceed 5% of the Portfolio's total assets. Although the principal of such
borrowings will be fixed, the Portfolio's assets may change in value during the
time the borrowing is outstanding. The Portfolio expects that some of its
borrowings may be made on a secured basis. In such situations, either the
custodian will segregate the pledged assets for the benefit of the lender or
arrangements will be made with a suitable sub-custodian, which may include the
lender.
Non-Diversified Status. The Portfolio is classified as
non-diversified within the meaning of the 1940 Act, which means that the
Portfolio is not limited by such Act in the proportion of its assets that it may
invest in securities of a single issuer. As a non-diversified fund, the
Portfolio may invest a greater proportion of its assets in the obligations of a
smaller number of issuers and, as a result, may be subject to greater risk with
respect to portfolio securities. The Portfolio'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"). See "Additional
Information Concerning Taxes." To qualify, the Portfolio will comply with
certain requirements, including limiting its investments so that at the close of
each quarter of the taxable year (i) not more than 25% of the market value of
its total assets will be invested in the securities of a single issuer, and (ii)
with respect to 50% of the market value of its total assets, not more than 5% of
the market value of its total assets will be invested in the securities of a
single issuer and the Portfolio will not own more than 10% of the outstanding
voting securities of a single issuer.
Small Capitalization and Emerging Growth Companies; Unseasoned
Issuers. The Portfolio will not invest in securities of unseasoned issuers,
including equity securities of unseasoned issuers which are not readily
marketable, if the aggregate investment in such securities would exceed 5% of
the Portfolio's net assets. The term "unseasoned" refers to issuers which,
together with their predecessors, have been in operation for less than three
years.
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Such investments involve considerations that are not applicable
to investing in securities of established, larger-capitalization issuers,
including reduced and less reliable information about issuers and markets, less
stringent financial disclosure requirements, illiquidity of securities and
markets, higher brokerage commissions and fees and greater market risk in
general. In addition, securities of these companies may involve greater risks
since these securities may have limited marketability and, thus, may be more
volatile.
Although investing in securities of unseasoned issuers offers
potential for above-average returns if the companies are successful, the risk
exists that the companies will not succeed and the prices of the companies'
shares could significantly decline in value. Therefore, an investment in the
Portfolio may involve a greater degree of risk than an investment in other
mutual funds that seek growth of capital or capital appreciation by investing in
better-known, larger companies.
Temporary Investments. To the extent permitted by its investment
objectives and policies, the Portfolio may hold cash or cash equivalents pending
investment or to meet redemption requests. In addition, for defensive purposes
due to abnormal market conditions or economic situations as determined by CSAM,
the Portfolio may reduce its holdings in other securities and invest up to 100%
of its assets in cash or certain short-term (less than twelve months to
maturity) and medium-term (not greater than five years to maturity)
interest-bearing instruments or deposits of the United States and foreign
issuers. The short-term and medium-term debt securities in which the Portfolio
may invest for temporary defensive purposes consist of: (a) obligations of the
United States or foreign governments, their respective agencies or
instrumentalities; (b) bank deposits and bank obligations (including
certificates of deposit, time deposits and bankers' acceptances) of U.S. or
foreign banks denominated in any currency; (c) floating rate securities and
other instruments denominated in any currency issued by international
development agencies; (d) finance company and corporate commercial paper and
other short-term corporate debt obligations of U.S. and foreign corporations;
and (e) repurchase agreements with banks and broker-dealers with respect to such
securities.
Short Sales "Against the Box". In a short sale, the Portfolio sells a
borrowed security and has a corresponding obligation to the lender to return
the identical security. The seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. While a short sale is made by selling a security the Portfolio does not
own, a short sale is "against the box" to the extent that the Portfolio
contemporaneously owns or has the right to obtain, at no added cost, securities
identical to those sold short. It may be entered into by the Portfolio, for
example, to lock in a sales price for a security the Portfolio does not wish to
sell immediately. If the Portfolio engages in a short sale, the collateral for
the short position will be maintained by the Portfolio's custodian or qualified
sub-custodian. While the short sale is open, the Portfolio will maintain in a
segregated account an amount of securities equal in kind and amount to the
securities sold short or securities convertible into or exchangeable for such
equivalent securities. These securities constitute the Portfolio's long
position.
The Portfolio may make a short sale as a hedge when it believes
that the price of a security may decline, causing a decline in the value of a
security owned by the Portfolio (or a security convertible or exchangeable for
such security). In such case, any future losses in the Portfolio's long position
should be offset by a gain in the short position and, conversely, any gain
27
<PAGE> 49
in the long position should be reduced by a loss in the short position. The
extent to which such gains or losses are reduced will depend upon the amount of
the security sold short relative to the amount the Portfolio owns. There will be
certain additional transactions costs associated with short sales against the
box, but the Portfolio will endeavor to offset these costs with the income from
the investment of the cash proceeds of short sales.
If the Portfolio effects a short sale of securities at a time
when it has an unrealized gain on the securities, it may be required to
recognize that gain as if it had actually sold the securities (as a
"constructive sale") on the date it effects the short sale. However, such
constructive sale treatment may not apply if the Portfolio closes out the short
sale with securities other than the appreciated securities held at the time of
the short sale and if certain other conditions are satisfied. Uncertainty
regarding the tax consequences of effecting short sales may limit the extent to
which the Portfolio may effect short sales.
The Portfolio does not presently intend to invest more than 5% of
net assets in short sales against the box.
Section 4(2) Paper. "Section 4(2) paper" is commercial paper which
is issued in reliance on the "private placement" exemption from registration
which is afforded by Section 4(2) of the Securities Act of 1933. Section 4(2)
paper is restricted as to disposition under the federal securities laws and is
generally sold to institutional investors such as the Portfolio which agree
that they are purchasing the paper for investment and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper normally is resold to other institutional investors through
or with the assistance of investment dealers who make a market in the Section
4(2) paper, thereby providing liquidity. See "Illiquid Securities" above. See
Appendix "A" for a list of commercial paper ratings.
Telecommunications Companies. Telecommunications companies in both
developed and emerging countries are undergoing significant change due to
varying and evolving levels of governmental regulation or deregulation and
other factors. As a result, competitive pressures are intense and the
securities of such companies may be subject to rapid price volatility.
Telecommunications regulation typically limits rates charged, returns earned,
providers of services, types of services, ownership, areas served and terms for
dealing with competitors and customers. Telecommunications regulation generally
has tended to be less stringent for newer services than for traditional
telephone service, although there can be no assurances that such newer services
will not be heavily regulated in the future. Regulation may also limit the use
of new technologies and hamper efficient depreciation of existing assets. If
regulation limits the use of new technologies by established carriers or forces
cross-subsidies, large private networks may emerge. Service providers may also
be subject to regulations regarding ownership and control, providers of
services, subscription rates and technical standards.
Companies offering telephone services are experiencing increasing
competition from cellular telephones, and the cellular telephone industry,
because it has a limited operating history, faces uncertainty concerning the
future of the industry and demand for cellular telephones. All
telecommunications companies in both developed and emerging countries are
subject to the additional risk that technological innovations will make their
products and services obsolete. While telephone companies in developed countries
and certain emerging countries
28
<PAGE> 50
may pay an above average dividend, the Portfolio's investment decisions are
based upon capital appreciation potential rather than income considerations.
Other Investment Limitations
The investment limitations numbered 1 through 6 may not be
changed without the affirmative vote of the holders of a majority of the
Portfolio's outstanding shares. Such majority is defined as the lesser of (i)
67% or more of the shares present at the meeting, if the holders of more than
50% of the outstanding shares of the Portfolio are present or represented by
proxy, or (ii) more than 50% of the outstanding shares. Investment limitations 7
through 9 may be changed by a vote of the Board at any time.
The Portfolio may not:
1. Borrow money, except from banks, and only if after such
borrowing there is asset coverage of at least 300% for all borrowings of the
Portfolio; or mortgage, pledge or hypothecate any of its assets except in
connection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 33 1/3% of the value of the Portfolio's total
assets at the time of such borrowing;
2. Issue any senior securities, except as permitted under
the 1940 Act;
3. Act as an underwriter of securities within the meaning
of the Securities Act, except insofar as it might be deemed to be an underwriter
upon disposition of certain portfolio securities acquired within the limitation
on purchases of restricted securities;
4. Purchase or sell real estate (including real estate
limited partnership interests), provided that the Portfolio may invest in
securities secured by real estate or interests therein or issued by companies
that invest in real estate or interests therein;
5. Purchase or sell commodities or commodity contracts,
except that the Portfolio may deal in forward foreign exchange transactions and
purchase and sell options, futures and options on such futures;
6. Make loans, except through loans of portfolio
instruments and repurchase agreements, provided that for purposes of this
restriction the acquisition of bonds, debentures or other debt instruments or
interests therein and investment in government obligations, Loan Participations
and Assignments, short-term commercial paper, certificates of deposit and
bankers' acceptances shall not be deemed to be the making of a loan; and
7. Make investments for the purpose of exercising control
or management, but investments by the Portfolio in wholly-owned investment
entities created under the laws of certain countries will not be deemed the
making of investments for the purpose of exercising control or management;
8. Purchase securities on margin, except for short-term
credits necessary for clearance of portfolio transactions, and except that the
Portfolio may make margin deposits in
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<PAGE> 51
connection with its use of options, futures contracts, options on futures
contracts and forward contracts; and
9. Purchase or sell interests in mineral leases, oil,
gas or other mineral exploration or development programs, except that the
Portfolio may invest in securities issued by companies that engage in oil, gas
or other mineral exploration or development activities.
General. For purposes of Investment Limitation No. 1, collateral
arrangements with respect to, if applicable, the writing of options, futures
contracts, options on futures contracts, forward currency contracts and
collateral arrangements with respect to initial and variation margin are not
deemed to be a pledge of assets and neither such arrangements nor the purchase
or sale of futures or related options are deemed to be the issuance of a senior
security for purposes of Investment Limitation No. 2. If a percentage limitation
(other than the percentage limitation set forth in investment restriction No. 1
above) is adhered to at the time of an investment, a later increase or decrease
in the percentage of assets resulting from a change in the values of portfolio
securities or in the amount of the Portfolio's assets will not constitute a
violation of such restriction.
Securities held by the Portfolio generally may not be purchased
from, sold or loaned to CSAM or its affiliates or any of their directors,
officers or employees, acting as principal, unless pursuant to a rule or
exemptive order under the 1940 Act.
Portfolio Valuation
The following is a description of the procedures used by the
Portfolio in valuing its assets.
Securities listed on an exchange or traded in an over-the-counter
market will be valued at the closing price on the exchange or market on which
the security is primarily traded (the "Primary Market") at the time of valuation
(the "Valuation Time"). If the security did not trade on the Primary Market, the
security will be valued at the closing price on another exchange or market where
it trades at the Valuation Time. If there are no such sales prices, the security
will be valued at the most recent bid quotation as of the Valuation Time or at
the lowest asked quotation in the case of a short sale of securities. If there
are no such quotations, the value of the security will be taken to be the most
recent bid quotation on the exchange or market. In determining the market value
of portfolio investments, the Portfolio may employ outside organizations (each,
a "Pricing Service") which may use a matrix, formula or other objective method
that takes into consideration market indexes, matrices, yield curves and other
specific adjustments. The procedures of Pricing Services are reviewed
periodically by the officers of the Trust under the general supervision and
responsibility of the Board, which may replace a Pricing Service at any time. If
a Pricing Service is not able to supply closing prices and bid/asked quotations,
and there are two or more dealers, brokers or market makers in the security, the
security will be valued at the mean between the highest bid and the lowest
asked quotations from at least two dealers, brokers or market makers or, if
such dealers, brokers or market makers only provide bid quotations, at the mean
between the highest and the lowest bid quotations provided. If a Pricing
Service is not able to supply closing prices and bid/asked quotations, and
there is only one dealer, broker or market maker in the security, the security
will be valued at the mean
30
<PAGE> 52
between the bid and the asked quotations provided, unless the dealer, broker or
market maker can only provide a bid quotation in which case the security will
be valued at such bid quotation. Options contracts will be valued similarly.
Futures contracts will be valued at the most recent settlement price at the
time of valuation. Short-term obligations with maturities of 60 days or less
are valued at amortized cost, which constitutes fair value as determined by the
Board. Amortized cost involves valuing a portfolio instrument at its initial
cost and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. The amortized cost method of valuation may
also be used with respect to other debt obligations with 60 days or less
remaining to maturity. Securities, options, futures contracts and other assets
which cannot be valued pursuant to the foregoing will be valued at their fair
value as determined in good faith pursuant to consistently applied procedures
established by the Board. In addition, the Board or its delegates may value a
security at fair value if it determines that such security's value determined
by the methodology set forth above does not reflect its fair value.
Trading in securities in certain foreign countries is completed
at various times prior to the close of business on each business day in New York
(i.e., a day on which The New York Stock Exchange, Inc. (the "NYSE") is open for
trading). In addition, securities trading in a particular country or countries
may not take place on all business days in New York. Furthermore, trading takes
place in various foreign markets on days which are not business days in New York
and days on which the Portfolio's net asset value is not calculated. As a
result, calculation of the Portfolio's net asset value may not take place
contemporaneously with the determination of the prices of certain foreign
portfolio securities used in such calculation. All assets and liabilities
initially expressed in foreign currency values will be converted into U.S.
dollar values at the prevailing rate as quoted by a Pricing Service as of 12:00
noon (Eastern time). If such quotations are not available, the rate of exchange
will be determined in good faith pursuant to consistently applied procedures
established by the Board.
Portfolio Transactions
CSAM is responsible for establishing, reviewing and, where
necessary, modifying the Portfolio's investment program to achieve its
investment objective and has retained CSAM Ltd. to act as sub-investment adviser
to the Portfolio. Purchases and sales of newly issued portfolio securities are
usually principal transactions without brokerage commissions effected directly
with the issuer or with an underwriter acting as principal. Other purchases and
sales may be effected on a securities exchange or over-the-counter, depending on
where it appears that the best price or execution will be obtained. The purchase
price paid by the Portfolio to underwriters of newly issued securities usually
includes a concession paid by the issuer to the underwriter, and purchases of
securities from dealers, acting as either principals or agents in the after
market, are normally executed at a price between the bid and asked price, which
includes a dealer's mark-up or mark-down. Transactions on U.S. stock exchanges
and some foreign stock exchanges involve the payment of negotiated brokerage
commissions. On exchanges on which commissions are negotiated, the cost of
transactions may vary among different brokers. On most foreign exchanges,
commissions are generally fixed. There is generally no stated commission in the
case of securities traded in domestic or foreign OTC markets, but the price of
securities traded in OTC markets includes an undisclosed commission or mark-up.
U.S. Government Securities are generally purchased from underwriters or dealers,
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<PAGE> 53
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.
CSAM will select specific portfolio investments and effect transactions
for the Portfolio. In selecting broker-dealers, CSAM does business exclusively
with those broker-dealers that, in CSAM's judgment, can be expected to provide
the best service. The service has two main aspects: the execution of buy and
sell orders and the provision of research. In negotiating commissions with
broker-dealers, CSAM will pay no more for execution and research services than
it considers either, or both together, to be worth. The worth of execution
service depends on the ability of the broker-dealer to minimize costs of
securities purchased and to maximize prices obtained for securities sold. The
worth of research depends on its usefulness in optimizing portfolio composition
and its changes over time. Commissions for the combination of execution and
research services that meet CSAM's standards may be higher than for execution
services alone or for services that fall below CSAM's standards. CSAM believes
that these arrangements may benefit all clients and not necessarily only the
accounts in which the particular investment transactions occur that are so
executed. Further, CSAM will only receive brokerage or research service in
connection with securities transactions that are consistent with the "safe
harbor" provisions of Section 28(e) of the Securities Exchange Act of 1934 when
paying such higher commissions. Research services may include research on
specific industries or companies, macroeconomic analyses, analyses of national
and international events and trends, evaluations of thinly traded securities,
computerized trading screening techniques and securities ranking services, and
general research services. Research received from brokers or dealers is
supplemental to CSAM's own research program. The fees to CSAM under its advisory
agreements with the Portfolio are not reduced by reason of its receiving any
brokerage and research services.
All orders for transactions in securities or options on behalf of the
Portfolio are placed by CSAM with broker-dealers that it selects, including
Credit Suisse Asset Management Securities Inc. ("CSAMSI") and affiliates of
Credit Suisse Group ("Credit Suisse"). The Portfolio may utilize CSAMSI or
affiliates of Credit Suisse in connection with a purchase or sale of securities
when CSAM believes that the charge for the transaction does not exceed usual and
customary levels and when doing so is consistent with guidelines adopted by the
Board.
Investment decisions for the Portfolio concerning specific portfolio
securities are made independently from those for other clients advised by CSAM.
Such other investment clients may invest in the same securities as the
Portfolio. When purchases or sales of the same security are made at
substantially the same time on behalf of such other clients, transactions are
averaged as to price and available investments allocated as to amount, in a
manner which CSAM believes to he equitable to each client, including the
Portfolio. In some instances, this investment procedure may adversely affect the
price paid or received by the Portfolio or the size of the position obtained or
sold for the Portfolio. To the extent permitted by law, securities to he sold or
purchased for the Portfolio may be aggregated 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, CSAM Ltd., CSAMSI or Credit Suisse First Boston ("CS First Boston") or any
affiliated person
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<PAGE> 54
of the foregoing entities except as permitted by SEC exemptive order or by
applicable law. In addition, the Portfolio will not give preference to any
institutions with whom the Portfolio enters into distribution or shareholder
servicing agreements concerning the provision of distribution services or
support services.
Transactions for the Portfolio may he effected on foreign securities
exchanges. In transactions for securities not actively traded on a foreign
securities exchange, the Portfolio will deal directly with the dealers who make
a market in the securities involved, except in those circumstances where better
prices and execution are available elsewhere. Such dealers usually are acting as
principal for their own account. On occasion, securities may be purchased
directly from the issuer. Such portfolio securities are generally traded on a
net basis and do not normally involve brokerage commissions. Securities firms
may receive brokerage commissions on certain portfolio transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon exercise of options.
The Portfolio may participate, if and when practicable, in bidding for
the purchase of securities for the Portfolio's portfolio directly from an issuer
in order to take advantage of the lower purchase price available to members of
such a group. The Portfolio will engage in this practice, however, only when
CSAM, in its sole discretion, believes such practice to be otherwise in the
Portfolio's interest.
Portfolio Turnover
The Portfolio does not intend to seek profits through short-term
trading, but the rate of turnover will not be a limiting factor when the
Portfolio deems it desirable to sell or purchase securities. The Portfolio's
portfolio turnover rate is calculated by dividing the lesser of purchases or
sales of its portfolio securities for the year by the monthly average value of
the portfolio securities. Securities with remaining maturities of one year or
less at the date of acquisition are excluded from the calculation.
Certain practices that may be employed by the Portfolio could result in
high portfolio turnover. For example, options on securities may be sold in
anticipation of a decline in the price of the underlying security (market
decline) or purchased in anticipation of a rise in the price of the underlying
security (market rise) and later sold. To the extent that its portfolio is
traded for the short-term, the Portfolio will be engaged essentially in trading
activities based on short-term considerations affecting the value of an issuer's
stock instead of long-term investments based on fundamental valuation of
securities. Because of this policy, portfolio securities may be sold without
regard to the length of time for which they have been held. Consequently, the
annual portfolio turnover rate of the Portfolio may be higher than mutual funds
having similar objectives that do not utilize these strategies.
It is not possible to predict the Portfolio's 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.
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<PAGE> 55
MANAGEMENT OF THE TRUST
Officers and Board of Trustees
The business and affairs of the Trust are managed by the Board of
Trustees in accordance with the laws of the Commonwealth of Massachusetts. The
Board elects officers who are responsible for the day-to-day operations of the
Trust and who execute policies authorized by the Board. Under the Trust's
Declaration of Trust, the Board may classify or reclassify any unissued shares
of the Trust into one or more additional classes by setting or changing in any
one or more respects their relative rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption. The Board may similarly classify or reclassify any class of its
shares into one or more series and, without shareholder approval, may increase
the number of authorized shares of the Trust.
The names (and ages) of the Trust's Trustees and officers, their
addresses, present positions and principal occupations during the past five
years and other affiliations are set forth below.
<TABLE>
<S> <C>
Richard H. Francis (67) Trustee
40 Governor Road Currently retired; Executive Vice President and
Short Hills, New Jersey 07078 Chief Financial Officer of Pan Am Corporation
and Pan American World Airways, Inc. from 1988
to 1991; Director of The Infinity Mutual Funds,
BISYS Group Incorporated; Director/Trustee of
other Warburg Pincus Funds and other
CSAM-advised investment companies.
Jack W. Fritz (72) Trustee
2425 North Fish Creek Road Private investor; Consultant and Director of Fritz
P.O. Box 483 Broadcasting, Inc. and Fritz Communications
Wilson, Wyoming 83014 (developers and operators of radio stations);
Director/Trustee of other Warburg Pincus Funds.
James S. Pasman, Jr. (69) Trustee
29 The Trillium Currently retired; President and Chief Operating
Pittsburgh, Pennsylvania 15238 Officer of National InterGroup, Inc. from April
1989 to March 1991; Chairman of Permian Oil
Co. from April 1989 to March 1991; Director of
Education Management Corp., Tyco International
Ltd.; Trustee, BT Insurance Funds Trust;
Director/Trustee of other Warburg Pincus Funds
and other CSAM-advised investment companies.
</TABLE>
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<PAGE> 56
<TABLE>
<S> <C>
William W. Priest* (58) Chairman of the Board
466 Lexington Avenue Chairman- Management Committee, Chief
New York, New York 10017 Executive Officer and Managing Director
of CSAM since 1990; Director/Trustee of
other Warburg Pincus Funds and other
CSAM-advised investment companies.
Steven N. Rappaport (51) Trustee
40 East 52nd Street President of Loanet, Inc. (on-line accounting
New York, New York 10022 service) since 1997; Executive Vice President
of Loanet, Inc. from 1994 to 1997; Director,
President, North American Operations, and
former Executive Vice President from 1992 to
1993 of Worldwide Operations of Metallurg Inc.;
Executive Vice President, Telerate, Inc. from
1987 to 1992; Partner in the law firm of
Hartman & Craven until 1987; Director/Trustee
of other Warburg Pincus Funds and other
CSAM-advised investment companies.
Alexander B. Trowbridge (70) Trustee
1317 F Street, N.W., 5th Floor President of Trowbridge Partners, Inc. (business
Washington, DC 20004 consulting) since January 1990; Director or
Trustee of New England Mutual Life Insurance
Co., ICOS Corporation (biopharmaceuticals), IRI
International (energy services), The Rouse
Company (real estate development), Harris Corp.
(electronics and communications equipment), The
Gillette Co. (personal care products) and Sunoco,
Inc. (petroleum refining and marketing);
Director/Trustee of other Warburg Pincus Funds.
Eugene L. Podsiadlo (42) President
466 Lexington Avenue Managing Director of CSAM; Associated with
New York, New York 10017-3147 CSAM since Credit Suisse acquired the
Portfolio's predecessor adviser in July 1999; with
the predecessor adviser since 1991; Vice President
of Citibank, N.A. from 1987 to 1991; Officer of
CSAMSI and of other Warburg Pincus Funds.
</TABLE>
------------------------
* Indicates a Trustee who is an "interested person" of the Fund as defined in
the 1940 Act.
35
<PAGE> 57
<TABLE>
<CAPTION>
<S> <C>
Hal Liebes, Esq. (35) Vice President and Secretary
466 Lexington Avenue Managing Director and General
New York, New York 10017-3147 Counsel of CSAM; Associated with
Lehman Brothers, Inc. from 1996
to 1997; Associated with CSAM
from 1995 to 1996; Associated
with CS First Boston Investment
Management from 1994 to 1995;
Associated with Division of
Enforcement, U.S. Securities and
Exchange Commission from 1991 to
1994; Officer of CSAMSI, other Warburg Pincus
Funds and other CSAM-advised investment
companies.
Michael A. Pignataro (40) Treasurer and Chief Financial Officer
466 Lexington Avenue Vice President and Director of Fund
New York, New York 10017-3147 Administration of CSAM; Associated with CSAM
since 1984; Officer of other Warburg Pincus
Funds and other CSAM-advised investment
companies.
Stuart J. Cohen, Esq. (31) Assistant Secretary
466 Lexington Avenue Vice President and Legal Counsel
New York, New York 10017-3147 of CSAM; Associated with CSAM
since Credit Suisse acquired the
Portfolio's predecessor adviser
in July 1999; with the
predecessor adviser since
1997; Associated with the law firm of Gordon
Altman Butowsky Weitzen Shalov & Wein from 1995
to 1997; Officer of other Warburg Pincus Funds.
Gregory N. Bressler, Esq. (34) Assistant Secretary
466 Lexington Avenue Vice President and Legal Counsel of CSAM since
New York, New York 10017 January 2000; Associated with the law firm of
Swidler Berlin Shereff Friedman LLP from 1996
to 2000; Officer of other CSAM-advised
investment companies.
Rocco A. DelGuercio (36) Assistant Treasurer
466 Lexington Avenue Assistant Vice President and Administrative
New York, New York 10017-3147 Officer of CSAM; Associated with CSAM since
June 1996; Assistant Treasurer, Bankers Trust
Co. -- 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>
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<PAGE> 58
<TABLE>
<S> <C>
Joseph Parascondola (37) Assistant Treasurer
466 Lexington Avenue Assistant Vice President - Fund Administration
New York, New York 10017 of CSAM since April 2000; Assistant Vice
President, Deutsche Asset Management from
January 1999 to April 2000; Assistant Vice
President, Weiss, Peck & Greer LLC from
November 1995 to December 1998; Officer of
other CSAM-advised investment companies.
</TABLE>
No employee of CSAM, CSAM Ltd., PFPC Inc. ("PFPC") or CSAMSI, the
Fund's co-administrators, or any of their affiliates receives any compensation
from the Trust for acting as an officer or Trustee of the Trust. Each Trustee
who is not a director, trustee, officer or employee of CSAM, CSAM Ltd., PFPC or
CSAMSI or any of their affiliates receives an annual fee of $750 for his
services as Trustee, $250 for each meeting of the Board attended and $250 for
serving on the Audit Committee ($325 for the Chairman of the Audit Committee),
and is reimbursed for expenses incurred in connection with his attendance at
Board meetings.
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<PAGE> 59
Trustees' Compensation
(for the fiscal year ended December 31, 1999)
<TABLE>
<CAPTION>
Total Compensation from
Total all Investment Companies
Compensation from in Warburg Pincus Fund
Name of Trustee Trust Complex(1)
-------------------------------- ----------------------- --------------------------
<S> <C> <C>
William W. Priest(2) None None
Arnold M. Reichman(3) None None
Richard N. Cooper(4) $1,125 $47,500
Richard H. Francis(5) $1,000 $38,250
Jack W. Fritz $2,250 $94,250
Jeffrey E. Garten(3) $2,250 $94,250
Thomas A. Melfe(4) $1,375 $40,750
James S. Pasman, Jr.(5) $1,000 $38,250
Steven N. Rappaport(5) $1,000 $38,250
Alexander B. Trowbridge $2,325 $97,100
</TABLE>
-------------
1 Each Trustee also serves as a Director or Trustee of 45 investment
companies in the Warburg Pincus family of funds, except for Mr. Garten,
who serves as a Director or Trustee of 14 investment companies in the
Warburg Pincus family of funds.
2 Mr. Priest receives compensation as an affiliate of CSAM, and,
accordingly, receives no compensation from the Trust or any other
investment company in the Warburg Pincus family of funds.
3 Mr. Reichman resigned as Trustee of the Trust effective August 18, 1999.
Mr. Garten resigned as a Trustee of the Trust effective February 3,
2000.
4 Messrs. Cooper and Melfe resigned as Trustees of the Trust effective
July 6, 1999.
5 Messrs. Francis, Pasman and Rappaport became Trustees of the Trust
effective July 6, 1999.
Portfolio Managers
The Co-Portfolio Managers of the Portfolio are Scott T. Lewis and
Vincent J. McBride.
Mr. Lewis has been associated with CSAM since Credit Suisse
acquired Warburg Pincus Asset Management, Inc. ("Warburg") in July 1999 and
joined Warburg in 1986. Prior to that Mr. Lewis was an assistant portfolio
manager at Bench Corporation from 1984 to 1985 and a trader at Atlanta/Sosnoff
Management Corp. from 1984 to 1985 and a trader at E.F. Hutton & Co. from 1982
to 1984. Mr. Lewis received a M.B.A. and a B.S. degree from New York University.
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<PAGE> 60
Mr. McBride has been associated with CSAM since Credit Suisse
acquired Warburg in July 1999 and joined Warburg in 1994. Previously, Mr.
McBride was an international equity analyst at Smith Barney Inc. from 1993 to
1994 and at General Electric Investment Corporation from 1992 to 1993. He was
also a portfolio manager/analyst at United Jersey Bank from 1989 to 1992 and a
portfolio manager at First Fidelity Bank from 1987 to 1989. Mr. McBride earned a
B.S. degree from the University of Delaware and an M.B.A. degree from Rutgers
University.
Code of Ethics
The Trust, CSAM, CSAM Ltd. and CSAMSI have each adopted a written
Code of Ethics (the "Code"), which permits personnel covered by the Code
("Covered Persons") to invest in securities, including securities that may be
purchased or held by the Portfolio. The Code also contains provisions designed
to address the conflicts of interest that could arise from personal trading by
advisory personnel, including: (1) all Covered Persons must report their
personal securities transactions at the end of each quarter; (2) with certain
limited exceptions, all Covered Persons must obtain preclearance before
executing any personal securities transactions; (3) Covered Persons may not
execute personal trades in a security if there are any pending orders in that
security by the Portfolio; and (4) Covered Persons may not invest in initial
public offerings.
The Board reviews the administration of the Code at least
annually and may impose sanctions for violations of the Code.
Investment Advisers and Co-Administrators
CSAM renders advisory and administrative services to the
Portfolio pursuant to an Investment Advisory Agreement and CSAM Ltd. serves as
sub-investment adviser to the Portfolio pursuant to a Sub-investment Advisory
Agreement (collectively, the "Advisory Agreements").
CSAM, located at 466 Lexington Avenue, New York, New York 10017,
serves as investment adviser to the Portfolio. CSAM Ltd., located at Beaufort
House, 15 St. Botolph Street, London, EC 3A 7JJ, serves as sub-investment
adviser to the Fund. CSAM and CSAM Ltd. are indirect wholly-owned subsidiaries
of Credit Suisse Group ("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.
CSAM has investment discretion for the Portfolio and will make
all decisions affecting assets in the Portfolio under the supervision of the
Trust's Board of Trustees and in
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accordance with the Portfolio's stated policies. CSAM will select investments
for the Portfolio and will place purchase and sale orders on behalf of the
Portfolio.
For the services provided by CSAM, the Trust pays CSAM a monthly
fee computed at an annual rate equal to 1.00% of the Portfolio's average daily
net assets (out of which CSAM pays CSAM Ltd. for its sub-investment advisory
services). CSAM and CSAM Ltd. may voluntarily waive a portion of their fees from
time to time and temporarily limit the expenses to be borne by the Portfolio.
Under the Advisory Agreements, neither CSAM nor CSAM Ltd. will be
liable for any error of judgment or mistake of law or for any loss suffered by
the Portfolio in connection with the matters to which the Advisory Agreements
relate. The Advisory Agreements for the Portfolio were approved on November 16,
2000 by vote of the Trust's Board of Trustees, including a majority of those
Trustees who are not parties to the Advisory Agreements or interested persons
(as defined in the 1940 Act) of such parties. The Advisory Agreements were also
approved by the Portfolio's initial shareholder. The CSAM Advisory Agreement is
terminable by vote of the Trust's Board of Trustees or by the holders of a
majority of the outstanding voting securities of the Portfolio, and at any time
without penalty, on 60 days' written notice to CSAM. The CSAM Advisory Agreement
may also be terminated by CSAM on 90 days' written notice to the Portfolio. The
CSAM Advisory Agreement terminates automatically in the event of an assignment.
The CSAM Ltd. Sub-Advisory Agreement is terminable by CSAM on 60 days' written
notice to the Portfolio and CSAM Ltd., by vote of the Trust's Board of Trustees
or by the holders of a majority of the outstanding voting securities of the
Portfolio on 60 days' written notice to CSAM and CSAM Ltd., or by CSAM Ltd. upon
60 days' written notice to the Portfolio and CSAM. The CSAM Ltd. Sub-Advisory
Agreement terminates automatically in the event of an assignment.
CSAMSI and PFPC, an indirect, wholly owned subsidiary of PNC Bank
Corp., both serve as co-administrators to the Portfolio pursuant to separate
written agreements (the "CSAMSI Co-Administration Agreement" and the "PFPC
Co-Administration Agreement", respectively). CSAMSI provides shareholder liaison
services to the Portfolio including responding to shareholder inquiries and
providing information on shareholder investments. CSAMSI also performs a variety
of other services, including furnishing certain executive and administrative
services, acting as liaison between the Portfolio and its various service
providers, furnishing 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 Portfolio.
As compensation, the Portfolio pays CSAMSI a fee calculated at an annual rate of
.10% of the Portfolio's average daily net assets.
As a co-administrator, PFPC calculates the Portfolio's net asset
value, provides all accounting services for the Portfolio and assists in related
aspects of the Portfolio's operations. As compensation, the Portfolio pays PFPC
a fee calculated at an annual rate of .11% of the Portfolio's first $500 million
in average daily net assets, .09% of the next $1 billion in average daily net
assets, and .07% of average daily net assets over $1.5 billion. PFPC has its
principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.
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Each of the Portfolio's co-administrators may voluntarily waive a
portion of its fees from time to time and temporarily limit the expenses to be
borne by the Portfolio.
Custodian and Transfer Agent
State Street Bank and Trust Company ("State Street") serves as
custodian for the Portfolio and also act as the custodian for the Portfolio's
non-U.S. assets pursuant to a custodian agreement (the "Custodian Agreement").
Under the Custodian Agreement, State Street (i) maintains a separate account or
accounts in the name of the Portfolio, (ii) holds and transfers portfolio
securities on account of the Portfolio, (iii) makes receipts and disbursements
of money on behalf of the Portfolio, (iv) collects and receives all income and
other payments and distributions on account of the Portfolio's portfolio
securities held by it and (v) makes periodic reports to the Board concerning the
Trust's custodial arrangements. State Street is authorized to select one or more
foreign banking institutions and foreign securities depositaries as
sub-custodian on behalf of the Portfolio. The principal business address of
State Street is 225 Franklin Street, Boston, Massachusetts 02110.
State Street also serves as the shareholder servicing, transfer
and dividend disbursing agent of the Trust pursuant to a Transfer Agency and
Service Agreement, under which State Street (i) issues and redeems shares of the
Portfolio, (ii) addresses and mails all communications by the Trust to record
owners of Portfolio shares, including reports to shareholders, dividend and
distribution notices and proxy material for its meetings of shareholders, (iii)
maintains shareholder accounts and, if requested, sub-accounts and (iv) makes
periodic reports to the Board concerning the transfer agent's operations with
respect to the Trust. State Street has delegated to Boston Financial Data
Services, Inc., an affiliate of State Street ("BFDS"), responsibility for most
shareholder servicing functions. BFDS's principal business address is 2 Heritage
Drive, Boston, Massachusetts 02171.
Distribution and Shareholder Servicing
Distributor. CSAMSI acts as the distributor of the Portfolio.
CSAMSI offers the Portfolio's shares on a continuous basis. No compensation is
payable by the Portfolio to CSAMSI for distribution services. CSAMSI's principal
business address is 466 Lexington Avenue, New York, New York 10017-3147.
Shareholder Servicing. The Trust has authorized certain
insurance companies ("Service Organizations") or, if applicable, their designees
to enter confirmed purchase and redemption orders on behalf of their clients and
customers, with payment to follow no later than the Portfolio's pricing on the
following business day. If payment is not received by such time, the Service
Organization could be held liable for resulting fees or losses. The Trust 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 Trust in proper form will be priced at the
Portfolio's net asset value next computed after they are accepted by the Service
Organization or its authorized designee. Service Organizations may impose
transaction or administrative charges or other direct fees, which charges or
fees would not be imposed if the Portfolio's shares are purchased directly from
the Trust.
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For administration, subaccounting, transfer agency and/or other
services, CSAM or its affiliates may pay Service Organizations a fee of up to
.35% of the average annual value of accounts with the Trust maintained by such
Service Organizations. Service Organizations may also be reimbursed for
marketing costs. The Service Fee payable to any one Service Organization is
determined based upon a number of factors, including the nature and quality of
services provided, the operations processing requirements of the relationship
and the standardized fee schedule of the Service Organization or recordkeeper.
Organization of the Trust
The Trust was organized on March 15, 1995 under the laws of the
Commonwealth of Massachusetts as a "Massachusetts business trust." The Trust's
Declaration of Trust authorizes the Board to issue an unlimited number of full
and fractional shares of beneficial interest, $.001 par value per share. Shares
of seven series have been authorized, one of which constitutes the interests in
the Portfolio. The Board may classify or reclassify any of its shares into one
or more additional series without shareholder approval.
When matters are submitted for shareholder vote, shareholders of
the Portfolio will have one vote for each full share held and fractional votes
for fractional shares held. Generally, shares of the Trust will vote by
individual series on all matters except where otherwise required by law. There
will normally be no meetings of shareholders for the purpose of electing
Trustees unless and until such time as less than a majority of the members
holding office have been elected by shareholders. Shareholders of record of no
less than two-thirds of the outstanding shares of the Trust may remove a Trustee
through a declaration in writing or by vote cast in person or by proxy at a
meeting called for that purpose. A meeting will be called for the purpose of
voting on the removal of a Trustee at the written request of holders of 10% of
the Trust's outstanding shares. Under current law, a Participating Insurance
Company is required to request voting instructions from Variable Contract owners
and must vote all Trust shares held in the separate account in proportion to the
voting instructions received. Plans may or may not pass through voting rights to
Plan participants, depending on the terms of the Plan's governing documents. For
a more complete discussion of voting rights, refer to the sponsoring
Participating Insurance Company separate account prospectus or the Plan
documents or other informational materials supplied by Plan sponsors.
Massachusetts law provides that shareholders could, under certain
circumstances, be held personally liable for the obligations of the Portfolio.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a Trustee. The Declaration of Trust provides for indemnification from the
Portfolio's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which the Portfolio would be unable to meet its
obligations, a possibility that CSAM believes is remote and immaterial. Upon
payment of any liability incurred by the Trust, the shareholder paying the
liability will be entitled to reimbursement from the general assets of the
Portfolio. The Trustees intend to conduct the operations of the Trust in such a
way so as to avoid, as far as possible, ultimate liability of the shareholders
for liabilities of the Trust.
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All shareholders of the Portfolio, upon liquidation, will
participate ratably in the Portfolio's net assets. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Trustees can elect all Trustees. Shares are transferable but
have no preemptive, conversion or subscription rights.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Portfolio may not be purchased or redeemed by
individual investors directly but may be purchased or redeemed only through
Variable Contracts offered by separate accounts of Participating Insurance
Companies and through Plans, including participant-directed Plans which elect to
make the Portfolio an investment option for Plan participants. The offering
price of the Portfolio's shares is equal to its per share net asset value.
Under the 1940 Act, the Portfolio may suspend the right of
redemption or postpone the date of payment upon redemption for any period during
which the NYSE is closed, other than customary weekend and holiday closings, or
during which trading on the NYSE is restricted, or during which (as determined
by the SEC) an emergency exists as a result of which disposal or fair valuation
of portfolio securities is not reasonably practicable, or for such other periods
as the SEC may permit. (The Portfolio may also suspend or postpone the
recordation of an exchange of its shares upon the occurrence of any of the
foregoing conditions.)
If conditions exist which make payment of redemption proceeds
wholly in cash unwise or undesirable, the Portfolio may make payment wholly or
partly in securities or other investment instruments which may not constitute
securities as such term is defined in the applicable securities laws. If a
redemption is paid wholly or partly in securities or other property, a
shareholder would incur transaction costs in disposing of the redemption
proceeds. The Trust has elected, however, to be governed by Rule 18f-1 under the
1940 Act as a result of which the Portfolio is obligated to redeem shares, with
respect to any one shareholder during any 90 day period, solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the Portfolio at the
beginning of the period.
ADDITIONAL INFORMATION CONCERNING TAXES
The discussion set out below of tax considerations generally
affecting the Portfolio and its shareholders is intended to be only a summary
and is not intended as a substitute for careful tax planning by prospective
shareholders. Shareholders are advised to consult the sponsoring Participating
Insurance Company separate account prospectus or the Plan documents or other
informational materials supplied by Plan sponsors and their own tax advisers
with respect to the particular tax consequences to them of an investment in the
Portfolio.
The Portfolio intends to continue to qualify to be treated as a
regulated investment company each taxable year under the Code. If it qualifies
as a regulated investment company, the Portfolio will effectively pay no federal
income taxes on its taxable net investment income (that is, taxable income other
than net realized capital gains) and on its net realized capital gains to the
extent that such income and gains are distributed to Shareholders. To so
qualify, the Portfolio must, among other things: (a) derive at least 90% of its
gross income in each taxable year from dividends, interest, payments with
respect to securities loans and gains
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from the sale or other disposition of stock, securities or foreign currencies,
or other income (including, but not limited to, gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies; and (b) diversify its holdings so that, at the
end of each quarter of the Portfolio's taxable year, (i) at least 50% of the
market value of the Portfolio's assets is represented by cash, securities of
other regulated investment companies, U.S. Government securities and other
securities, with such other securities limited, in respect of any one issuer, to
an amount not greater than 5% of the Portfolio's assets and not greater than 10%
of the outstanding voting securities of such issuer and (ii) not more than 25%
of the value of its assets is invested in the securities (other than U.S.
Government Securities or securities of other regulated investment companies) of
any one issuer or any two or more issuers that the Portfolio controls and are
determined to be engaged in the same or similar trades or businesses or related
trades or businesses.
If, in any taxable year, the Portfolio fails to qualify as a
regulated investment company under the Code or fails to meet the distribution
requirement, it would be taxed in the same manner as an ordinary corporation and
distributions to its shareholders would not be deductible by the Portfolio in
computing its taxable income. In addition, in the event of a failure to qualify,
the Portfolio's distributions, to the extent derived from the Portfolio's
current or accumulated earnings and profits would constitute dividends (eligible
for the corporate dividends-received deduction) which are taxable to
shareholders as ordinary income, even though those distributions might otherwise
(at least in part) have been treated in the shareholders' hands as long-term
capital gains. If the Portfolio fails to qualify as a regulated investment
company in any year, it must pay out its earnings and profits accumulated in
that year in order to qualify again as a regulated investment company. In
addition, if the Portfolio failed to qualify as a regulated investment company
for a period greater than one taxable year, the Portfolio may be required to
recognize any net built-in gains with respect to certain of its assets (the
excess of the aggregate gains, including items of income, over aggregate losses
that would have been realized if it had been liquidated) in order to qualify as
a regulated investment company in a subsequent year.
In addition, the Portfolio intends to comply with the
diversification requirements of Section 817(h) of the Code related to the
tax-deferred status of insurance company separate accounts. To comply with
regulations under Section 817(h) of the Code, the Portfolio will be required to
diversify its investments so that on the last day of each calendar quarter no
more than 55% of the value of its assets is represented by any one investment,
no more than 70% is represented by any two investments, no more than 80% is
represented by any three investments and no more than 90% is represented by any
four investments. Generally, all securities of the same issuer are treated as a
single investment. For the purposes of Section 817(h), obligations of the United
States Treasury and each U.S. government agency or instrumentality are treated
as securities of separate issuers. The Treasury Department has indicated that it
may issue future pronouncements addressing the circumstances in which a Variable
Contract owner's control of the investments of a separate account may cause the
Variable Contract owner, rather than the Participating Insurance Company, to be
treated as the owner of the assets held by the separate account. If the Variable
Contract owner is considered the owner of the securities underlying the separate
account, income and gains produced by those securities would be included
currently in the Variable Contract owner's gross income. It is not known what
standards will be set forth in such pronouncements or when, if at all, these
pronouncements may be issued. In the event that
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rules or regulations are adopted, there can be no assurance that the Portfolio
will be able to operate as currently described, or that the Trust will not have
to change the investment goal or investment policies of the Portfolio. While the
Portfolio's investment goal is fundamental and may be changed only by a vote of
a majority of the Portfolio's outstanding shares, the Board reserves the right
to modify the investment policies of the Portfolio as necessary to prevent any
such prospective rules and regulations from causing a Variable Contract owner to
be considered the owner of the shares of the Portfolio underlying the separate
account.
The Portfolio's short sales against the box, if any, and
transactions in foreign currencies, forward contracts, options and futures
contracts (including options and futures contracts on foreign currencies) will
be subject to special provisions of the Code that, among other things, may
affect the character of gains and losses realized by the Portfolio (i.e., may
affect whether gains or losses are ordinary or capital), accelerate recognition
of income to the Portfolio and defer Portfolio losses. These rules could
therefore affect the character, amount and timing of distributions to
shareholders. These provisions also (a) will require the Portfolio to
mark-to-market certain types of the positions in its portfolio (i.e., treat them
as if they were closed out) and (b) may cause the Portfolio to recognize income
without receiving cash with which to pay dividends or make distributions in
amounts necessary to satisfy the distribution requirements for avoiding income
and excise taxes. The Portfolio will monitor its transactions, will make the
appropriate tax elections and will make the appropriate entries in its books and
records when it acquires any foreign currency, forward contract, option, futures
contract or hedged investment in order to mitigate the effect of these rules and
prevent disqualification of the Portfolio as a regulated investment company.
Investments by the Portfolio in zero coupon securities may create
special tax consequences. Zero coupon securities do not make periodic interest
payments, although a portion of the difference between a zero coupon security's
face value and its purchase price is imputed as income to the Portfolio each
year even though the Portfolio receives no cash distribution until maturity.
Under the U.S. federal tax laws, the Portfolio will not be subject to tax on
this income if it pays dividends to its shareholders substantially equal to all
the income received from, or imputed with respect to, its investments during the
year, including its zero coupon securities. These dividends ordinarily will
constitute taxable income to the shareholders of the Portfolio.
Because shares of the Portfolio may only be purchased through
Variable Contracts and Plans, it is anticipated that dividends and distributions
will be exempt from current taxation if left to accumulate within the Variable
Contracts or Plans.
Investment in Passive Foreign Investment Companies
If the Portfolio purchases shares in certain foreign entities
classified under the Code as "passive foreign investment companies" ("PFICs"),
the Portfolio may be subject to federal income tax on a portion of an "excess
distribution" or gain from the disposition of the shares, even though the income
may have to be distributed by the Portfolio to its shareholders, the Variable
Contracts and Plans. In addition, gain on the disposition of shares in a PFIC
generally is treated as ordinary income even though the shares are capital
assets in the hands of
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the Portfolio. Certain interest charges may be imposed on the Portfolio with
respect to any taxes arising from excess distributions or gains on the
disposition of shares in a PFIC.
The Portfolio may be eligible to elect Qualified Electing Fund
treatment, which would require the Portfolio to include in its gross income its
share of earnings of a PFIC on a current basis. Generally, the election would
eliminate the interest charge and the ordinary income treatment on the
disposition of stock, but such an election may have the effect of accelerating
the recognition of income and gains by the Portfolio compared to a fund that did
not make the election. In addition, information required to make such an
election may not be available to the Portfolio.
Alternatively, the Portfolio may make a mark-to-market election
that will result in the Portfolio being treated as if it had sold and
repurchased all of the PFIC stock at the end of each year. In this case, the
Portfolio 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 Portfolio,
unless revoked with the consent of the IRS. By making the election, the
Portfolio could potentially ameliorate the adverse tax consequences with respect
to its ownership of shares in a PFIC, but in any particular year may be required
to recognize income in excess of the distributions it receives from PFICs and
its proceeds from dispositions of PFIC stock. The Portfolio may have to
distribute this "phantom" income and gain to satisfy its distribution
requirement and to avoid imposition of a 4% excise tax. The Portfolio will make
the appropriate tax elections, if possible, and take any additional steps that
are necessary to mitigate the effect of these rules.
DETERMINATION OF PERFORMANCE
From time to time, the Portfolio may quote its total return in
advertisements or in reports and other communications to shareholders.
These total return figures show the average percentage change in
value of an investment in the Portfolio from the beginning of the measurement
period to the end of the measurement period. The figures reflect changes in the
price of the Portfolio's shares assuming that any income dividends and/or
capital gain distributions made by the Portfolio during the period were
reinvested in shares of the Portfolio. Total return will be shown for recent
one-, five- and ten-year periods, and may be shown for other periods as well
(such as from commencement of the Portfolio's operations or on a year-by-year,
quarterly or current year-to-date basis).
Total return is calculated by finding the average annual
compounded rates of return for the one-, five-, and ten- (or such shorter period
as the Portfolio has been offered) year periods that would equate the initial
amount invested to the ending redeemable value according to the following
formula: P (1 + T)n = ERV. For purposes of this formula, "P" is a hypothetical
investment of $1,000; "T" is average annual total return; "n" is number of
years; and "ERV" is the ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the one-, five- or ten-year periods (or fractional
portion thereof). Total return or "T" is computed by finding the average annual
change in the value of an initial $1,000 investment over the period and assumes
that all dividends and distributions are reinvested during the period.
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When considering average total return figures for periods longer
than one year, it is important to note that the annual total return for one year
in the period might have been greater or less than the average for the entire
period. When considering total return figures for periods shorter than one year,
investors should bear in mind that such return may not be representative of the
Portfolio's return over a longer market cycle. The Portfolio may also advertise
aggregate total return figures for various periods, representing the cumulative
change in value of an investment in the Portfolio for the specific period.
Aggregate and average total returns may be shown by means of schedules, charts
or graphs, and may indicate various components of total return (i.e., change in
value of initial investment, income dividends and capital gain distributions).
The Portfolio may advertise, from time to time, comparisons of
its performance with that of one or more other mutual funds with similar
investment objectives. The Portfolio may advertise average annual
calendar-year-to-date and calendar quarter returns, which are calculated
according to the formula set forth in the preceding paragraph, except that the
relevant measuring period would be the number of months that have elapsed in the
current calendar year or most recent three months, as the case may be. Investors
should note that this performance may not be representative of the Portfolio's
total return in longer market cycles.
The Portfolio's performance will vary from time to time depending
upon market conditions, the composition of its portfolio and operating expenses
allocable to it. As described above, total return is based on historical
earnings and is not intended to indicate future performance. Consequently, any
given performance quotation should not be considered as representative of
performance for any specified period in the future. Performance information may
be useful as a basis for comparison with other investment alternatives. However,
the Portfolio's performance will fluctuate, unlike certain bank deposits or
other investments which pay a fixed yield for a stated period of time.
Performance quotations for the Portfolio include the effect of deducting the
Portfolio's expenses, but may not include charges and expenses attributable to
any particular Variable Contract or Plan, which would reduce the returns
described in this section.
The Portfolio may compare its performance with (i) that of other
mutual funds with similar investment objectives and policies, which may be based
on the rankings prepared by Lipper Analytical Services, Inc. or similar
investment services that monitor the performance of mutual funds; (ii) which
appropriate indexes prepared by Frank Russell Company relating to securities
represented in the Portfolio; or (iii) other appropriate indexes of investment
securities or with data developed by CSAM derived from such indexes. The
Portfolio may also include evaluations of the Portfolio published by nationally
recognized ranking services and by financial publications such as Barron's,
Business Week, Financial Times, Forbes, Fortune, Inc., Institutional Investor,
Investor's Business Daily, Money, Morningstar, Mutual Fund Magazine, SmartMoney,
The Wall Street Journal and Worth. Morningstar, Inc. rates funds in broad
categories based on risk/reward analyses over various time periods. In addition,
the Portfolio may from time to time compare its expense ratio to that of
investment companies with similar objectives and policies, based on data
generated by Lipper Analytical Services, Inc. or similar investment services
that monitor mutual funds.
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In reports or other communications to investors or in
advertising, the Portfolio may also describe the general biography or work
experience of the portfolio managers of the Portfolio and may include quotations
attributable to the portfolio managers describing approaches taken in managing
the Portfolio's investments, research methodology underlying stock selection or
the Portfolio's investment objective. In addition, the Portfolio and its
portfolio managers may render updates of Portfolio activity, which may include a
discussion of significant portfolio holdings; analysis of holdings by industry,
country, credit quality and other characteristics; and comparison and analysis
of the Portfolio with respect to relevant market and industry benchmarks. The
Portfolio may also discuss measures of risk, the continuum of risk and return
relating to different investments and the potential impact of foreign stocks on
a portfolio otherwise composed of domestic securities.
INDEPENDENT ACCOUNTANTS AND COUNSEL
PricewaterhouseCoopers LLP ("PwC"), with principal offices at
2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as independent
accountants for the Trust. The financial statements for the Trust that are
incorporated by reference in this Statement of Additional Information have been
audited by PwC, and have been included herein in reliance upon the report of
such firm of independent accountants given upon their authority as experts in
accounting and auditing.
Willkie Farr & Gallagher serves as counsel for the Trust and
provides legal services from time to time for CSAM and CSAMSI.
MISCELLANEOUS
The Portfolio and the Trust 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 Portfolio or any member of
the public regarding the advisability of investing in securities generally or in
the Portfolio 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 Portfolio's net asset value, nor is
Warburg, Pincus & Co. a distributor of the Portfolio. Warburg, Pincus & Co. has
no obligation or liability in connection with the administration, marketing or
trading of the Portfolio.
FINANCIAL STATEMENT
The Portfolio's financial statement follows the Report of
Independent Accountants.
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APPENDIX A
DESCRIPTION OF RATINGS
Commercial Paper Ratings
Commercial paper rated A-1 by Standard and Poor's Ratings
Services ("S&P") indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign designation. Capacity for timely
payment on commercial paper rated A-2 is satisfactory, but the relative degree
of safety is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating
assigned by Moody's Investors Service, Inc. ("Moody's"). Issuers rated Prime-1
(or related supporting institutions) are considered to have a superior capacity
for repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics of issuers rated Prime-1 but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
Corporate Bond Ratings
The following summarizes the ratings used by S&P for corporate
bonds:
AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB - This is the lowest investment grade. Debt rated BBB is
regarded as having an adequate capacity to pay interest and repay principal.
Although it normally exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this category than for
bonds in higher rated categories.
BB, B and CCC - Debt rated BB and B are regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB represents a lower
degree of speculation than B, and CCC the highest degree of speculation. While
such bonds will likely have some quality and
A-1
<PAGE> 71
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
BB - Debt rated BB has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which could
lead to inadequate capacity to meet timely interest and principal payments. The
BB rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B - Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability
to default and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC - This rating is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating.
C - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
Additionally, the rating CI is reserved for income bonds on which
no interest is being paid. Such debt is rated between debt rated C and debt
rated D.
To provide more detailed indications of credit quality, the
ratings may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
D - Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
The following summarizes the ratings used by Moody's for
corporate bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While
A-2
<PAGE> 72
the various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds that are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to
the bonds rated "Aa" through "B." The modifier 1 indicates that the bond being
rated ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the bond ranks
in the lower end of its generic rating category.
Caa - Bonds that are rated Caa are of poor standing. These issues
may be in default or present elements of danger may exist with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C comprise the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
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<PAGE> 73
PART C
OTHER INFORMATION
Item 23. Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
a(1) Declaration of Trust.(1)
(2) Amendment to Declaration of Trust.(2)
(3) Amendment to Declaration of Trust.(3)
(4) Amendment to Declaration of Trust.(3)
(5) Designation of Series relating to addition of Post-Venture
Capital and Emerging Markets Portfolios.(4)
(6) Designation of Series relating to addition of Growth & Income
Portfolio.(5)
(7) Designation of Series relating to addition of Emerging Growth
Portfolio.(6)
(8) Designation of Series relating to addition of Global
Telecommunications Portfolio.
b(1) By-Laws.(1)
</TABLE>
-------
1 Incorporated by reference to Registrant's Registration Statement on
Form N-1A filed with the Commission on March 17, 1995.
2 Incorporated by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A filed with the
Commission on June 14, 1995.
3 Incorporated by reference to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A filed with the
Commission on April 26, 2000.
4 Incorporated by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A, filed with the
Commission on April 18, 1996.
5 Incorporated by reference to Post-Effective Amendment No. 4 to
Registrant's Registration Statement on Form N-1A, filed with the
Commission on August 11, 1997.
6 Incorporated by reference to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A, filed with the
Commission on April 16, 1999.
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<PAGE> 74
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
(2) Amendment to By-Laws.(7)
c Form of Share Certificate.(2)
d(1) Forms of Investment Advisory Agreements pertaining to the
International Equity and Small Company Growth Portfolios.(2)
(2) Forms of Investment Advisory Agreements pertaining to the
Post-Venture Capital and Emerging Markets Portfolios.(4)
(3) Form of Investment Advisory Agreement pertaining to the Growth
& Income Portfolio.(5)
(4) Form of Investment Advisory Agreements pertaining to the
Emerging Growth Portfolio.(6)
(5) Form of Investment Advisory Agreement.(8)
(6) Form of Sub-Investment Advisory Agreement pertaining to the
Global Post-Venture Capital Portfolio.(8)
(7) Form of Investment Advisory Agreements pertaining to the
Global Telecommunications Portfolio.
(8) Form of Sub-Investment Advisory Agreement pertaining to the
Global Telecommunications Portfolio.(9)
e(1) Form of Distribution Agreement with Credit Suisse Asset
Management Securities, Inc.(10)
</TABLE>
--------
7 Incorporated by reference; material provisions of this exhibit are
substantially similar to those of the corresponding exhibit to
Post-Effective Amendment No. 19 to the Registration Statement on Form
N-1A of Warburg, Pincus Capital Appreciation Fund filed on February 23,
1998 (Securities Act File No. 33-12344; Investment Company Act File No.
811-5041).
8 Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in the
Registration Statement on Form N-14 of Warburg, Pincus Global
Post-Venture Capital Fund, Inc. filed November 4, 1999 (Securities Act
File No. 333-90341).
9 Incorporated by reference to the Registrant's Definitive Proxy Statement
filed June 1, 2000.
10 Incorporated by reference to Post-Effective Amendment No. 19 to the
Registration Statement on Form N-1A of Credit Suisse Institutional Fund,
Inc. filed May 30, 2000 (Securities Act File No. 33-47880).
C-2
<PAGE> 75
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
(2) Form of Letter Agreement pertaining to inclusion of the Global
Telecommunications Portfolio to the existing Distribution
Agreement.
f Not applicable
g(1) Custodian Agreement with State Street Bank and
Trust Company.
(2) Form of Letter Agreement pertaining to inclusion of the Global
Telecommunications Portfolio to the existing Custodian
Agreement.
h(1) Form of Transfer Agency and Service Agreement.(2)
(2) Form of Co-Administration Agreement with Credit Suisse Asset
Management Securities, Inc.(11)
(3) Form of Co-Administration Agreement with PFPC Inc.(2)
(4) Form of Letter Agreement between Registrant and PFPC Inc.
pertaining to inclusion of the Post-Venture Capital and Emerging
Markets Portfolios to the existing Co-Administration
Agreement.(4)
(5) Form of Participation Agreement.(2)
(6) Form of Co-Administration Agreement between Registrant and
PFPC Inc. pertaining to inclusion of the Growth & Income
Portfolio.(5)
(7) Form of Letter Agreement between Registrant and State Street
pertaining to the inclusion of the Growth & Income Portfolio
under the Transfer Agency and Service Agreement.(5)
(8) Form of Letter Agreement between Registrant and State Street
pertaining to the inclusion of the Emerging Growth Portfolio
under the Transfer Agency and Service Agreement.(6)
</TABLE>
--------
11 Incorporated by reference to the Registration Statement on Form N-14 of
Warburg, Pincus Global Post-Venture Capital Fund, Inc., filed November
4, 1999 (Securities Act File No. 333-90341).
C-3
<PAGE> 76
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
(9) Form of Letter Agreement pertaining to inclusion of the Global
Telecommunications Portfolio to the existing Transfer Agency
and Service Agreement.
(10) Form of Letter Agreement between Registrant and CSAMSI
pertaining to inclusion of the Global Telecommunications
Portfolio to the existing Co-Administration Agreement.
(11) Form of Letter Agreement between Registrant and PFPC Inc.
pertaining to inclusion of the Global Telecommunications
Portfolio to the existing Co-Administration Agreement.
(12) Fee Agreement with PFPC Inc.(12)
i(1) Opinion and Consent of Willkie Farr & Gallagher, counsel to
the Trust.
(2) Opinion and Consent of Sullivan & Worcester, Massachusetts
counsel to the Trust.
j(1) Powers of Attorney.(11)
l(1) Purchase Agreement pertaining to the International Equity and
Small Company Growth Portfolios.(2)
(2) Form of Purchase Agreement pertaining to the Post-Venture
Capital and Emerging Markets Portfolios.(4)
(3) Form of Purchase Agreement pertaining to the Growth & Income
Portfolio.(5)
(4) Form of Purchase Agreement pertaining to the Emerging Growth
Portfolio.(6)
(5) Form of Purchase Agreement pertaining to the Global
Telecommunications Portfolio.
m Not applicable.
n Not applicable
</TABLE>
------
12 Incorporated by reference to Post-Effective Amendment No. 21 to the
Registration Statement on Form N-1A of Credit Suisse Institutional Fund,
Inc. filed August 30, 2000 (Securities Act File No. 33-47880).
C-4
<PAGE> 77
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
o Not applicable.
p(1) Form of Code of Ethics.(3)
(2) Amended Form of Code of Ethics.(12)
(3) Form of Code of Ethics for Abbott Capital Management, LLC.(3)
(4) Form of Code of Ethics for Credit Suisse Asset Management
Limited.(12)
</TABLE>
Item 24. Persons Controlled by or Under Common Control
with Registrant
All of the outstanding shares of beneficial interest of the
Global Telecommunications Portfolio on the date this filing becomes effective
will be owned by Credit Suisse Asset Management, LLC ("CSAM, LLC"). CSAM, LLC
has three wholly-owned subsidiaries: Warburg, Pincus Asset Management
International, Inc., a Delaware corporation; Warburg Pincus Asset Management
(Japan), Inc., a Japanese corporation; and Warburg Pincus Asset Management
(Dublin) Limited, an Irish corporation.
Item 25. Indemnification
Registrant, and officers and directors of CSAM, LLC, Credit
Suisse Asset Management Securities, Inc. ("CSAM Securities") and Registrant are
covered by insurance policies indemnifying them for liability incurred in
connection with the operation of Registrant. Discussion of this coverage is
incorporated by reference to Item 27 of Part C of the Trust's Registration
Statement filed on March 17, 1995 (Securities Act File No. 33-58125).
Item 26. Business and Other Connections of Investment
Adviser
CSAM, LLC acts as investment adviser to Registrant. CSAM, LLC
renders investment advice to a wide variety of individual and institutional
clients. The list required by this Item 26 of officers and directors of CSAM,
LLC, together with information as to their other business, profession, vocation
or employment of a substantial nature during the past two years, is incorporated
by reference to Schedules A and D of Form ADV filed by CSAM, LLC (SEC File No.
801-37170).
Abbott Capital Management, LLC ("Abbott") acts as sub-investment
adviser for the Global Post-Venture Capital Portfolio. Abbott renders investment
advice and provides full-service private equity programs to clients. The list
required by this Item 26 of Officers and Directors of Abbott, together with
information as to their other business, profession, vocation, or employment of a
substantial nature during the past two years, is incorporated by reference to
Schedules A and D of Form ADV filed by Abbott (SEC File No. 801-27914).
C-5
<PAGE> 78
Credit Suisse Asset Management Limited ("CSAM U.K.") act as
sub-investment adviser for the Registrant. CSAM U.K. renders investment advice
and provides full-service private equity programs to clients. The list required
by this Item 26 of officers and partners of CSAM U.K., together with information
as to their other business, profession, vocation or employment of a substantial
nature during the past two years, is incorporated by reference to schedules A
and D of Form ADV filed by CSAM U.K. (SEC File No. 801-40177).
Item 27. Principal Underwriter
(a) CSAM Securities acts as distributor for Registrant, as
well as for Credit Suisse Institutional International Growth Fund; Credit Suisse
Institutional Strategic Global Fixed Income Fund; Credit Suisse Institutional
U.S. Core Equity Fund; Credit Suisse Institutional U.S. Core Fixed Income Fund;
Warburg Pincus Global Financial Services Fund, Warburg Pincus/CSFB Global New
Technologies Fund, Warburg Pincus/CSFB Technology Index Fund, Warburg Pincus
Aggressive Growth Fund, Credit Suisse Institutional Fund, Warburg Pincus Value
Fund, Warburg Pincus Balanced Fund; Warburg Pincus Capital Appreciation Fund;
Warburg Pincus Cash Reserve Fund; Warburg Pincus Central & Eastern Europe Fund;
Warburg Pincus Emerging Growth Fund; Warburg Pincus Emerging Markets Fund;
Warburg Pincus European Equity Fund; Warburg Pincus Fixed Income Fund; Warburg
Pincus Focus Fund; Warburg Pincus Global Fixed Income Fund; Warburg Pincus
Global Health Sciences Fund; Warburg Pincus Global Post-Venture Capital Fund;
Warburg Pincus Global Telecommunications Fund; Warburg Pincus High Yield Fund;
Warburg Pincus Intermediate Maturity Government Fund; Warburg Pincus
International Equity Fund; Warburg Pincus International Small Company Fund;
Warburg Pincus Japan Growth Fund; Warburg Pincus Japan Small Company Fund;
Warburg Pincus Long-Short Market Neutral Fund; Warburg Pincus Major Foreign
Markets Fund; Warburg Pincus Municipal Bond Fund; Warburg Pincus New York
Intermediate Municipal Fund; Warburg Pincus New York Tax Exempt Fund; Warburg
Pincus Small Company Growth Fund; Warburg Pincus Small Company Value Fund;
Warburg Pincus Trust; Warburg Pincus Trust II; Warburg Pincus Value Fund;
Warburg Pincus WorldPerks Money Market Fund and Warburg Pincus WorldPerks Tax
Free Money Market Fund.
(b) For information relating to each director, officer or
partner of CSAM Securities, reference is made to Form BD (SEC File No. 8-32482)
filed by CSAM Securities under the Securities Exchange Act of 1934.
(c) None.
Item 28. Location of Accounts and Records
(1) Warburg, Pincus Trust
466 Lexington Avenue
New York, New York 10017-3147
(Trust's Declaration of Trust, by-laws and minute books)
C-6
<PAGE> 79
(2) Credit Suisse Asset Management Securities, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as co-administrator
and distributor)
(3) PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as co-administrator)
(4) Credit Suisse Asset Management, LLC
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as investment adviser)
(5) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(records relating to its functions as custodian,
shareholder servicing agent, transfer agent and dividend
disbursing agent)
(6) Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, Massachusetts 02171
(records relating to its functions as shareholder
servicing agent, transfer agent and
dividend disbursing agent)
(7) Credit Suisse Asset Management Limited
Beaufort House
15 St Botolph
London, EC3A7JJ
(records relating to its functions as sub-investment
adviser)
Item 29. Management Services
Not applicable.
Item 30. Undertakings
Not applicable.
C-7
<PAGE> 80
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), and the Investment Company Act of 1940, as
amended, the Registrant certifies that it meets all of the requirements for
effectiveness of this Amendment to the Registration Statement pursuant to Rule
485(a)(2) under the Securities Act, and has duly caused this Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York and the State of New York, on the 22nd day of November, 2000.
WARBURG, PINCUS TRUST
By:/s/Eugene L. Podsiadlo
--------------------------------
Eugene L. Podsiadlo
President
Pursuant to the requirements of the Securities Act, this
Amendment has been signed below by the following persons in the capacities and
on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/William W. Priest* Chairman of the Board of November 22, 2000
--------------------- Trustees
William W. Priest
/s/Eugene L. Podsiadlo President November 22, 2000
-----------------------
Eugene L. Podsiadlo
/s/Michael A. Pignataro Treasurer and Chief November 22, 2000
----------------------- Financial Officer
Michael A. Pignataro
/s/Richard H. Francis* Trustee November 22, 2000
-----------------------
Richard H. Francis
/s/Jack W. Fritz* Trustee November 22, 2000
-----------------------
Jack W. Fritz
/s/James S. Pasman, Jr.* Trustee November 22, 2000
------------------------
James S. Pasman, Jr.
--------------------
/s/Steven N. Rappaport* Trustee November 22, 2000
------------------------
Steven N. Rappaport
/s/Alexander B. Trowbridge* Trustee November 22, 2000
---------------------------
Alexander B. Trowbridge
*By /s/Michael A. Pignataro
---------------------------
Michael A. Pignataro as
Attorney-in-Fact
</TABLE>
C-8
<PAGE> 81
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
a(8) Designation of Series relating to addition of Global Telecommunications Portfolio.
d(7) Form of Sub-Investment Advisory Agreement pertaining to the Global Telecommunications
Portfolio.
e(2) Form of Letter Agreement pertaining to inclusion of the Global Telecommunications
Portfolio to the existing Distribution Agreement.
g(1) Custodian Agreement with State Street Bank and Trust Company.
g(2) Form of Letter Agreement pertaining to inclusion of the Global Telecommunications
Portfolio to the existing Custodian Agreement.
h(9) Form of Letter Agreement pertaining to inclusion of the Global Telecommunications
Portfolio to the existing Transfer Agency and Service Agreement.
h(10) Form of Letter Agreement between Registrant and CSAMSI pertaining to
inclusion of the Global Telecommunications Portfolio to the existing Co-
Administration Agreement.
h(11) Form of Letter Agreement between Registrant and PFPC Inc. pertaining to inclusion of
the Global Telecommunications Portfolio to the existing Co-Administration Agreement.
i(1) Opinion and Consent of Willkie Farr & Gallagher, counsel to the Trust.
i(2) Opinion and Consent of Sullivan & Worcester, Massachusetts counsel to the Trust.
l(5) Form of Purchase Agreement pertaining to the Global Telecommunications Portfolio.
</TABLE>
