AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON MAY 23, 2003
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Registration No. 333-_________
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
|_| PRE-EFFECTIVE AMENDMENT NO. _ |_| POST-EFFECTIVE AMENDMENT NO. __
CREDIT SUISSE INSTITUTIONAL FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
AREA CODE AND TELEPHONE NUMBER: (212) 875-3500
466 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
HAL LIEBES, ESQ.
CREDIT SUISSE INSTITUTIONAL FUND, INC.
466 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(NAME AND ADDRESS OF AGENT FOR SERVICE)
WITH A COPY TO:
ROSE F. DIMARTINO, ESQ.
WILLKIE FARR & GALLAGHER
787 SEVENTH AVENUE
NEW YORK, NEW YORK 10019
Approximate date of public offering: Registrant proposes that the Registration
Statement become effective on June 22, 2003 pursuant to Rule 488 under the
Securities Act of 1933, as amended.
Title of Securities Being Registered: Shares of common stock, $.001 par value
per share. Registrant has registered an indefinite amount of securities pursuant
to Rule 24f-2 under the Investment Company Act of 1940, as amended; accordingly,
no fee is payable herewith in reliance upon Section 24(f).
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following pages and documents:
Front Cover
Contents Page
Letter to Shareholders
Notice of Special Meeting
Part A - Prospectus/Proxy Statement
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
CREDIT SUISSE INSTITUTIONAL INTERNATIONAL FUND, INC.
YOUR VOTE IS IMPORTANT
Dear Shareholder:
We are pleased to invite you to attend a special meeting (the "Special
Meeting") of the shareholders of Credit Suisse Institutional International Fund,
Inc. (the "Acquired Fund"). The Board of Directors of the Acquired Fund
("Board") has recently reviewed and unanimously endorsed a proposal for
acquisition of the Acquired Fund by Credit Suisse Institutional Fund, Inc. -
International Focus Portfolio (the "Acquiring Fund" and, together with the
Acquired Fund, the "Funds"), a series of Credit Suisse Institutional Fund, Inc.
The Acquiring Fund is managed by your fund's investment adviser, Credit Suisse
Asset Management, LLC ("CSAM"). Under the terms of the proposal, the Acquiring
Fund would acquire all of the assets and liabilities of the Acquired Fund.
Important Information About the Acquisition
You are being asked to vote on an Agreement and Plan of Reorganization
(the "Plan") pursuant to which the acquisition of the Acquired Fund by the
Acquiring Fund (the "Acquisition") would be effected. The Board of the Acquired
Fund and CSAM believe that the Acquisition is in the best interests of the
Acquired Fund and its shareholders.
As noted and further described in the attached Prospectus/Proxy
Statement, the Acquired Fund has the same investment objective as the Acquiring
Fund. However, there are certain differences between the investment philosophy
and policies of the Acquired Fund and the Acquiring Fund. THE MOST SIGNIFICANT
DIFFERENCES IN THE WAY THESE FUNDS ARE MANAGED ARE THAT (I) AS A FOCUS FUND, THE
ACQUIRING FUND CONCENTRATES ITS INVESTMENTS IN EQUITY SECURITIES OF 40-60
COMPANIES AND THE ACQUIRING FUND'S 15 LARGEST HOLDINGS MAY ACCOUNT FOR 40% OR
MORE OF ITS ASSETS, WHILE THE ACQUIRED FUND MAY DIVERSIFY ITS INVESTMENTS AMONG
A BROADER RANGE OF COMPANIES, (II) THE ACQUIRING FUND'S INVESTMENTS IN EMERGING
MARKETS ARE LIMITED TO 15% OF NET ASSETS, WHILE THE ACQUIRED FUND IS PERMITTED
TO INVEST 30% OF ITS TOTAL FUND ASSETS IN EMERGING MARKETS, AND (III) IN
CHOOSING EQUITY SECURITIES, THE ACQUIRED FUND'S PORTFOLIO MANAGERS COMBINE A
TOP-DOWN REGIONAL ANALYSIS WITH A BOTTOM-UP APPROACH, WHILE THE ACQUIRING FUND
UTILIZES ONLY A BOTTOM-UP APPROACH. While historically, the Funds have been
managed differently, more recently the Acquired Fund has been managed in a
manner that is very similar to the Acquiring Fund, as the portfolio management
teams have been coordinated and a more focused style of international investing
has been implemented by CSAM for the Acquired Fund.
The Acquiring Fund has the same Board of Directors, co-administrators,
distributor, custodian, transfer agent, independent accountant and counsel as
the Acquired Fund. The closing of the Acquisition (the "Closing Date") is
expected to be on or about August 22, 2003.
If shareholders of the Acquired Fund approve the Plan, the Acquired
Fund will be liquidated upon consummation of the Acquisition and subsequently
dissolved. In the event the Plan is not approved, you will continue to be a
shareholder of the Acquired Fund and the Board of the Acquired Fund will
consider other possible courses of action available to it, including
resubmitting the Acquisition proposal to shareholders.
Upon consummation of the Acquisition, shareholders of the Acquired Fund
will become shareholders of the Acquiring Fund, having received Institutional
Class shares of the Acquiring Fund with an aggregate net asset value equal to
the aggregate net asset value of such shareholder's investment in the Acquired
Fund immediately prior to the Acquisition. No sales or
other charges will be imposed in connection with the Acquisition. In the opinion
of counsel, no gain or loss will be recognized by the shareholders of the
Acquired Fund for Federal income tax purposes as a result of the Acquisition and
the Acquired Fund generally will not recognize a gain or loss for such purposes.
CSAM or its affiliates will bear all expenses incurred in connection with the
Acquisition.
The Special Meeting will be held on August 15, 2003 to consider the
Acquisition. We strongly invite your participation by asking you to review,
complete and return your proxy promptly.
Detailed information about the proposal is described in the attached
Prospectus/Proxy Statement. THE BOARD OF THE ACQUIRED FUND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL SET FORTH IN THE ACQUIRED
FUND'S NOTICE OF SPECIAL MEETING. On behalf of the Board of the Acquired Fund, I
thank you for your participation as a shareholder and urge you to please
exercise your right to vote by completing, dating and signing the enclosed proxy
card. A self-addressed, postage-paid envelope has been enclosed for your
convenience; if you prefer, you can fax the proxy card to D.F. King & Co., Inc.,
the Acquired Fund's proxy solicitor, Attn.: Dominick F. Maurillo, at
1-212-269-2796. We also encourage you to vote by telephone or through the
Internet. Proxies may be voted by telephone by calling 1-(800)-714-3312 between
the hours of 9:00 a.m. and 10:00 p.m. (Eastern time) Monday through Saturday or
through the Internet using the Internet address located on your proxy card.
Voting by fax, telephone or through the Internet will reduce the time
and costs associated with the proxy solicitation. When the Acquired Fund records
proxies by telephone or through the Internet, it will use procedures designed to
(i) authenticate shareholders' identities, (ii) allow shareholders to authorize
the voting of their shares in accordance with their instructions and (iii)
confirm that their instructions have been properly recorded. Shareholders voting
via the Internet should understand that there may be costs associated with
electronic access, such as usage charges from Internet access providers and
telephone companies, that must be borne by the shareholder. We have been advised
that Internet voting procedures that have been made available to you are
consistent with the requirements of applicable law.
Whichever voting method you choose, please read the full text of the
Prospectus/Proxy Statement before you vote.
If you have any questions regarding the proposed Acquisition, please
feel free to call D.F. King & Co., Inc. at 1-(800)-714-3314 who will be pleased
to assist you.
IT IS VERY IMPORTANT THAT YOUR VOTING INSTRUCTIONS BE RECEIVED
PROMPTLY.
Sincerely,
Hal Liebes
Vice President and Secretary
of the Acquired Fund
June 30, 2003
June 30, 2003
CREDIT SUISSE INSTITUTIONAL INTERNATIONAL FUND, INC.
IMPORTANT NEWS FOR FUND SHAREHOLDERS
While we encourage you to read the full text of the enclosed
Prospectus/Proxy Statement, here is a brief overview of the proposal you are
being asked to vote on.
Q & A: QUESTIONS AND ANSWERS
Q: WHAT IS HAPPENING?
A: Credit Suisse Asset Management, LLC ("CSAM") is proposing to combine the
assets of Credit Suisse Institutional International Fund, Inc. (the
"Acquired Fund") with Credit Suisse Institutional Fund, Inc. -
International Focus Portfolio (the "Acquiring Fund"), a series of Credit
Suisse Institutional Fund, Inc.
The shareholders of the Acquired Fund are being asked to vote on an
Agreement and Plan of Reorganization (the "Plan") for the assets and
liabilities of the Acquired Fund to be acquired by the Acquiring Fund in a
tax-free exchange of shares (the "Acquisition").
If the Plan is approved and the Acquisition consummated, you would no
longer be a shareholder of the Acquired Fund, but would become a
shareholder of the Acquiring Fund.
Q: WHAT ARE THE DIFFERENCES BETWEEN MY FUND AND THE ACQUIRING FUND?
A: As noted and further described in the attached Prospectus/Proxy Statement,
the Acquired Fund has the same investment objective as the Acquiring Fund.
However, there are certain differences between the investment philosophy
and policies of the Acquired Fund and the Acquiring Fund. THE MOST
SIGNIFICANT DIFFERENCES IN THE WAY THESE FUNDS ARE MANAGED ARE THAT (I) AS
A FOCUS FUND, THE ACQUIRING FUND CONCENTRATES ITS INVESTMENTS IN EQUITY
SECURITIES OF 40-60 COMPANIES AND THE ACQUIRING FUND'S 15 LARGEST HOLDINGS
MAY ACCOUNT FOR 40% OR MORE OF ITS ASSETS, WHILE THE ACQUIRED FUND
MAY DIVERSIFY ITS INVESTMENTS AMONG A BROADER RANGE OF COMPANIES,
(II) THE ACQUIRING FUND'S INVESTMENTS IN EMERGING MARKETS ARE LIMITED TO
15% OF NET ASSETS, WHILE THE ACQUIRED FUND IS PERMITTED TO INVEST 30% OF
ITS TOTAL FUND ASSETS IN EMERGING MARKETS, AND (III) IN CHOOSING EQUITY
SECURITIES, THE ACQUIRED FUND'S PORTFOLIO MANAGERS COMBINE A TOP-DOWN
REGIONAL ANALYSIS WITH A BOTTOM-UP APPROACH, WHILE THE ACQUIRING FUND
UTILIZES ONLY A BOTTOM-UP APPROACH. While historically, the Funds have
been managed differently, more recently the Acquired Fund has been managed
in a manner that is very similar to the Acquiring Fund, as the portfolio
management teams have been coordinated and a more focused style of
international investing has been implemented by CSAM for the Acquired
Fund.
The Acquiring Fund is a series of the Credit Suisse Institutional Fund,
Inc., which has the same Board of Directors, investment adviser,
co-administrators, distributor, custodian, transfer agent, independent
accountant and counsel as the Acquired Fund. The closing of the
Acquisition (the "Closing Date") is expected to be on or about August 22,
2003.
Q: WHAT WILL HAPPEN TO FUND EXPENSES?
A: The Acquisition will result in a slightly higher gross and lower net
expense ratio for the Acquired Fund shareholders. For the 12 months ended
October 31, 2002, the Acquired Fund's
gross and net expense ratio was 1.05% of average daily net assets. The pro
forma gross and net expense ratios of the Acquiring Fund's shares,
assuming completion of the Acquisition, are expected to be approximately
1.06% and 0.95% of average daily net assets, respectively.
Q: WHAT ARE THE BENEFITS OF THE TRANSACTION?
A: The Board of Directors of the Acquired Fund believes that shareholders may
benefit from the proposed Acquisition, in part, because the Acquisition
will result in a single larger fund with a potentially lower expense
ratio. The proposed Acquisition may result in efficiencies due to a larger
asset base. The following pages give you additional information on the
proposed Acquisition on which you are being asked to vote.
Q: WILL I INCUR TAXES AS A RESULT OF THE TRANSACTION?
A: The Acquisition is expected to be a generally tax-free event. Shareholders
of the Acquired Fund generally will not incur capital gains or losses on
the conversion from the Acquired Fund to the Acquiring Fund. Shareholders
will incur capital gains or losses if they sell their shares in the
Acquired Fund before the Acquisition becomes effective or sell (or
exchange) their Acquiring Fund shares after the Acquisition becomes
effective. Shareholders will also be responsible for tax obligations
associated with periodic dividend and capital gains distributions that
occur prior to and after the Acquisition. The Acquired Fund will pay a
dividend of any undistributed net investment income and capital gains,
which may be substantial, immediately prior to the Closing Date. Please
note that qualifying retirement accounts are exempt from such tax
consequences.
Q: WHAT HAPPENS IF THE PLAN IS NOT APPROVED?
A: In the event the Plan is not approved, you will continue to be a
shareholder of the Acquired Fund and the Board of Directors of the
Acquired Fund will consider other possible courses of action available to
it, including resubmitting the Acquisition proposal to shareholders.
Q: HOW DO THE BOARD MEMBERS OF THE ACQUIRED FUND RECOMMEND THAT I VOTE?
A: AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS OF THE ACQUIRED FUND,
INCLUDING THOSE DIRECTORS WHO ARE NOT "INTERESTED PERSONS" (AS THAT TERM
IS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED) RECOMMENDS
THAT YOU VOTE FOR THE PROPOSAL.
Q: WHOM DO I CALL FOR MORE INFORMATION?
A: Please call D.F. King & Co., Inc., the Acquired Fund's proxy solicitor, at
1-(800)-714-3314.
Q: HOW CAN I VOTE MY SHARES?
A: Please choose one of the following options to vote your shares:
o By mail, with the enclosed proxy card;
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o By telephone, with a toll-free call to the telephone number that
appears on your proxy card or, if no toll-free telephone number
appears on your proxy card, to D.F. King & Co., Inc., the Acquired
Fund's proxy solicitor, at 1-(800)-714-3312;
o By faxing the enclosed proxy card to D.F. King & Co., Inc., Attn.:
Dominick F. Maurillo, at 1-212-269-2796;
o Through the Internet, by using the Internet address located on your
proxy card and following the
instructions on the site; or
o In person at the Special Meeting.
Q: WILL THE ACQUIRED FUND PAY FOR THIS PROXY SOLICITATION?
A: No, CSAM or its affiliates will bear the costs associated with approving
the Plan.
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CREDIT SUISSE INSTITUTIONAL INTERNATIONAL FUND, INC.
466 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017-3140
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 15, 2003
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Notice is hereby given that a Special Meeting of Shareholders (the
"Special Meeting") of Credit Suisse Institutional International Fund, Inc. (the
"Acquired Fund") will be held at the offices of the Acquired Fund, 466 Lexington
Avenue, 16th Floor, New York, New York 10017 on August 15, 2003, commencing at
3:00 p.m. for the following purposes:
1. The shareholders of the Acquired Fund are being asked to
approve an Agreement and Plan of Reorganization (the "Plan")
providing that (i) the Acquired Fund would transfer to Credit
Suisse Institutional Fund, Inc. - International Focus
Portfolio (the "Acquiring Fund"), a series of Credit Suisse
Institutional Fund, Inc., all of its assets in exchange for
shares of the Acquiring Fund and the assumption by the
Acquiring Fund of the Acquired Fund's liabilities, (ii) such
shares of the Acquiring Fund would be distributed to
shareholders of the Acquired Fund in liquidation of the
Acquired Fund, and (iii) the Acquired Fund would subsequently
be dissolved; and
2. To transact such other business as may properly come before
the Special Meeting or any adjournment or adjournments
thereof.
THE BOARD OF DIRECTORS OF THE ACQUIRED FUND UNANIMOUSLY RECOMMENDS THAT
YOU VOTE FOR THE PROPOSAL.
The Board of Directors of the Acquired Fund has fixed the close of
business on June 12, 2003 as the record date for the determination of
shareholders of the Acquired Fund entitled to notice of and to vote at the
Special Meeting and any adjournment or adjournments thereof. As a convenience to
shareholders, you can now vote in any one of five ways:
o By mail, with the enclosed proxy card(s);
o By telephone, with a toll-free call to the telephone number
that appears on your proxy card or, if no toll-free telephone
number appears on your proxy card, to D.F. King & Co., Inc.,
the Acquired Fund's proxy solicitor, at 1-(800)-714-3312;
o By faxing the enclosed proxy card to D.F. King & Co., Inc.,
Attn.: Dominick F. Maurillo at 1-212-269-2796;
o Through the Internet, by using the Internet address located on
your proxy card and following the instructions on the site; or
o In person at the Special Meeting.
If you have any questions regarding the proposal, please feel free to
call D.F. King & Co., Inc. at 1-(800)-714-3314.
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE SPECIAL MEETING ARE URGED
TO (A) SIGN AND RETURN WITHOUT DELAY THE ENCLOSED PROXY CARD(S) IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, (B) VOTE BY
TELEPHONE WITH A TOLL-FREE CALL TO 1-800-714-3312, (C) VOTE THROUGH THE INTERNET
USING THE ADDRESS LOCATED ON THE PROXY CARD OR (D) FAX THE ENCLOSED PROXY
CARD(S) TO D.F. KING & CO., INC. AT 1-212-269-2796, SO THAT THEIR SHARES MAY BE
REPRESENTED AT THE SPECIAL MEETING. INSTRUCTIONS FOR THE PROPER EXECUTION OF
PROXY CARDS ARE SET FORTH ON THE FOLLOWING PAGE. PROXIES MAY BE REVOKED AT ANY
TIME BEFORE THEY ARE EXERCISED BY THE SUBSEQUENT EXECUTION AND SUBMISSION OF A
REVISED PROXY, BY GIVING WRITTEN NOTICE OF REVOCATION TO THE ACQUIRED FUND AT
ANY TIME BEFORE THE PROXY IS EXERCISED OR BY VOTING IN PERSON AT THE SPECIAL
MEETING.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY.
By Order of the Board of Directors,
Hal Liebes
Vice President and Secretary
of the Acquired Fund
June 30, 2003
YOUR PROMPT ATTENTION TO THE ENCLOSED PROXY WILL HELP TO
AVOID THE EXPENSE OF FURTHER SOLICITATION.
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INSTRUCTIONS FOR SIGNING PROXY CARD
The following general rules for signing proxy cards may be of
assistance to you and avoid the time and expense involved in validating your
vote if you fail to sign your proxy card properly.
1. Individual Accounts: Sign your name exactly as it appears in
the registration on the proxy card.
2. Joint Accounts: Either party may sign, but the name of the
party signing should conform exactly to the name shown in the
registration on the proxy card.
3. All Other Accounts: The capacity of the individual signing the
proxy card should be indicated unless it is reflected in the
form of registration. For example:
4. Registration
Corporate Accounts Valid Signatures
------------------ ----------------
(1) ABC Corp. .................................ABC Corp.
(2) ABC Corp. .................................John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer ...................John Doe
(4) ABC Corp. Profit Sharing Plan .............John Doe, Trustee
Trust Accounts
(1) ABC Trust. ................................Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee
u/t/d 12/28/78 ............................Jane B. Doe
Custodial or Estate Accounts
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(1) John B. Smith, Cust.
f/b/o John B. Smith, Jr. UGMA..............John B. Smith
(2) John B. Smith .............................John B. Smith, Jr.,
Executor
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SUBJECT TO COMPLETION, DATED MAY 22, 2003
PROSPECTUS/PROXY STATEMENT
JUNE 30, 2003
PROXY STATEMENT
CREDIT SUISSE INSTITUTIONAL INTERNATIONAL FUND, INC.
466 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(800) 927-2874
PROSPECTUS
CREDIT SUISSE INSTITUTIONAL FUND, INC. - INTERNATIONAL FOCUS PORTFOLIO,
A SERIES OF CREDIT SUISSE INSTITUTIONAL FUND, INC.
466 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(800) 927-2874
This Prospectus/Proxy Statement is being furnished to shareholders of
Credit Suisse Institutional International Fund, Inc. (the "Acquired Fund"), an
open-end, non-diversified management investment company, in connection with the
solicitation of proxies by the fund's Board of Directors for use at a Special
Meeting of Shareholders to be held on August 15, 2003 at 3:00 p.m. (the "Special
Meeting"), at the offices of the Acquired Fund located at 466 Lexington Avenue,
16th Floor, New York, New York 10017, or any adjournment(s) thereof. The only
proposals to be considered are set forth below:
1. To approve an Agreement and Plan of Reorganization (the
"Plan"); and
2. To transact such other business as may properly come before
the Special Meeting and any adjournment(s) thereof.
Pursuant to the Plan, the Acquired Fund would transfer to Credit Suisse
Institutional Fund, Inc. - International Focus Portfolio, an open-end,
diversified management investment company (the "Acquiring Fund" and, together
with the Acquired Fund, the "Funds"), all of the Acquired Fund's assets in
exchange for shares of the Acquiring Fund and the assumption by the Acquiring
Fund of the Acquired Fund's liabilities; such shares of the Acquiring Fund would
be distributed to shareholders of the Acquired Fund in liquidation of the
Acquired Fund; and the Acquired Fund would subsequently be dissolved (the
"Acquisition"). The Acquiring Fund is a series of the Credit Suisse
Institutional Fund, Inc., a Maryland corporation.
As noted and further described in the attached Prospectus/Proxy
Statement, the Acquired Fund has the same investment objective as the Acquiring
Fund. However, there are certain differences between the investment philosophy
and policies of the Acquired Fund and the Acquiring Fund. THE MOST SIGNIFICANT
DIFFERENCES IN THE WAY THESE FUNDS ARE MANAGED ARE THAT (I) AS A FOCUS FUND, THE
ACQUIRING FUND CONCENTRATES ITS INVESTMENTS IN EQUITY SECURITIES OF
40-60 COMPANIES AND THE ACQUIRING FUND'S 15 LARGEST HOLDINGS MAY ACCOUNT FOR 40%
OR MORE OF ITS ASSETS, WHILE THE ACQUIRED FUND MAY DIVERSIFY ITS INVESTMENTS
AMONG A BROADER RANGE OF COMPANIES, (II) THE ACQUIRING FUND'S INVESTMENTS IN
EMERGING MARKETS ARE LIMITED TO 15% OF NET ASSETS, WHILE THE ACQUIRED FUND IS
PERMITTED TO INVEST 30% OF ITS TOTAL FUND ASSETS IN EMERGING MARKETS, AND (III)
IN CHOOSING EQUITY SECURITIES, THE ACQUIRED FUND'S PORTFOLIO MANAGERS COMBINE A
TOP-DOWN REGIONAL ANALYSIS WITH A BOTTOM-UP APPROACH, WHILE THE ACQUIRING FUND
UTILIZES ONLY A BOTTOM-UP APPROACH. While historically, the Funds have been
managed differently, more recently the Acquired Fund has been managed in a
manner that is very similar to the Acquiring Fund, as the portfolio management
teams have been coordinated and a more focused style of international investing
has been implemented by CSAM for the Acquired Fund.
CSAM is the investment adviser for each of the Funds. CSAM's Japanese,
United Kingdom and Australian affiliates provide sub-advisory services to each
Fund. The Board of Directors, Credit Suisse Asset Management Securities, Inc.
("CSAMSI") and State Street Bank and Trust Company ("State Street"),
co-administrators of the Acquiring Fund, serve in the same capacities for each
Fund. In addition, the Acquiring Fund uses the same distributor, custodian,
transfer agent, independent accountant and counsel as the Acquired Funds.
As a result of the proposed Acquisition, shareholders of the Acquired
Fund will receive that number of Institutional Class shares of the Acquiring
Fund having an aggregate net asset value equal to the aggregate net asset value
of such shareholder's shares of the Acquired Fund immediately prior to the
Acquisition. The expenses of the Acquisition and the costs associated with this
solicitation for approval of the Plan will be borne by CSAM or its affiliates.
No sales or other charges will be imposed on the shares of the Acquiring Fund
received by the shareholders of the Acquired Fund in connection with the
Acquisition. The transaction is structured to be tax-free for Federal income tax
purposes to shareholders of the Acquired Fund and the Acquiring Fund.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the Acquiring Fund that a
prospective investor should know before voting. This Prospectus/Proxy Statement
is expected to first be sent to shareholders on or about June 30, 2003. A
Statement of Additional Information, dated June 30, 2003, relating to this
Prospectus/Proxy Statement and the Acquisition, has been filed with the
Securities and Exchange Commission (the "SEC") and is incorporated by reference
into this Prospectus/Proxy Statement. A copy of such Statement of Additional
Information is available upon oral or written request and without charge by
writing to the Acquiring Fund at P.O. Box 55030, Boston, Massachusetts
02205-5030 or by calling 1-(800) 927-2874.
The following documents, which have been filed with the SEC, are
incorporated herein in their entirety by reference.
o The current Prospectus of the Acquiring Fund, dated February
28, 2003, as supplemented as of the date hereof. The Acquiring
Fund's Prospectus accompanies this Prospectus/Proxy Statement.
o The current Prospectus of the Acquired Fund, dated January 1,
2003, as supplemented as of the date hereof. Copies may be
obtained without charge by writing to P.O. Box 55030, Boston,
Massachusetts 02205-5030 or by calling 1-(800) 927-2874.
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o The Annual Report of the Acquired Fund for the fiscal year
ended August 31, 2002 and the Semi-Annual Report of the
Acquired Fund for the semi-annual period ended February 28,
2003; and the Annual Report of the Acquiring Fund for the
fiscal year ended October 31, 2002. The Annual Report of the
Acquiring Fund accompanies this Prospectus/Proxy Statement.
Copies may be obtained without charge by writing to P.O. Box
55030, Boston, Massachusetts 02205-5030 or by calling
1-(800)-927-2874.
Accompanying this Prospectus/Proxy Statement as Exhibit A is a copy of
the form of the Plan for the proposed Acquisition.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT
AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY REFERENCE AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUNDS.
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TABLE OF CONTENTS
PAGE
PROPOSAL 1 - APPROVAL OF THE PLAN..............................................5
Summary........................................................................5
Risk Factors...................................................................8
Reasons for the Acquisition....................................................8
FEE TABLES....................................................................10
Information About the Acquisition.............................................12
Total Returns.................................................................15
Ownership of the Funds........................................................16
Comparison of Investment Objectives and Policies..............................17
Determination of Net Asset Value of Shares of the Acquiring Fund..............21
Management of Each Fund.......................................................22
Interest of CSAM in the Acquisition...........................................22
Information on Shareholders' Rights...........................................23
Conclusion....................................................................25
Required Vote.................................................................25
ADDITIONAL INFORMATION........................................................25
VOTING INFORMATION............................................................26
OTHER BUSINESS................................................................27
FINANCIAL STATEMENTS AND EXPERTS..............................................27
ADDITIONAL MATERIALS..........................................................27
LEGAL MATTERS.................................................................28
EXHIBIT A: AGREEMENT AND PLAN OF REORGANIZATION.............................A-1
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PROPOSAL 1 - APPROVAL OF THE PLAN
SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
ADDITIONAL INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT,
THE PLAN (A COPY OF THE FORM OF THE PLAN IS ATTACHED TO THIS PROSPECTUS/PROXY
STATEMENT AS EXHIBIT A), THE PROSPECTUS OF THE ACQUIRED FUND, THE STATEMENT OF
ADDITIONAL INFORMATION OF THE ACQUIRED FUND, THE PROSPECTUS OF THE ACQUIRING
FUND AND THE STATEMENT OF ADDITIONAL INFORMATION OF THE ACQUIRING FUND.
PROPOSED ACQUISITION. The Plan provides for the acquisition of all of
the assets and liabilities of the Acquired Fund by the Acquiring Fund in
exchange for Institutional Class shares of the Acquiring Fund. The Plan also
calls for the distribution of Institutional Class shares of the Acquiring Fund
to the Acquired Fund's Institutional Class shareholders in liquidation of the
Acquired Fund. As a result of the Acquisition, each shareholder of Institutional
Class shares of the Acquired Fund will become the owner of that number of full
and fractional Institutional Class shares of the Acquiring Fund having an
aggregate net asset value ("NAV") equal to the aggregate net asset value of such
shareholder's shares in the Acquired Fund as of the close of business on the
date that the Acquired Fund's assets and liabilities are exchanged for shares of
the Acquiring Fund. See "Information About the Acquisition - Agreement and Plan
of Reorganization."
Because the Acquiring Fund is a series of the Credit Suisse
Institutional Fund, Inc., it does not have a Board of Directors separate from
the other series of the Credit Suisse Institutional Fund, Inc. Accordingly, when
we refer to the "Directors of the Acquiring Fund" or the "Board of Directors of
the Acquiring Fund" elsewhere in this Prospectus/Proxy Statement, we mean the
Directors and Board of Directors of the Credit Suisse Institutional Fund, Inc.
For the reasons set forth below under "Reasons for the Acquisition,"
the Board of Directors of the Acquired Fund, including the Directors of the
Acquired Fund who are not "interested persons" (the "Independent Directors"), as
that term is defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), has unanimously concluded that the Acquisition would be in the best
interests of its shareholders and that the interests of its existing
shareholders will not be diluted as a result of the transaction contemplated by
the Acquisition. The Board of Directors of the Acquired Fund therefore has
submitted the Plan for approval by its shareholders. The Board of Directors of
the Credit Suisse Institutional Fund, Inc. has also reached similar conclusions
and approved the Acquisition with respect to the Acquiring Fund.
Approval of the Acquisition requires the affirmative vote of a
"majority of the outstanding voting securities" of the Acquired Fund. The term
"majority of the outstanding voting securities" as defined in the 1940 Act and
as used in this Prospectus/Proxy Statement, means the affirmative vote of the
lesser of (1) 67% of the voting securities of the Fund present at the meeting if
more than 50% of the outstanding shares of the Fund are present in person or by
proxy or (2) more than 50% of the outstanding shares of the Fund. See "Voting
Information." If shareholders of the Acquired Fund approve the Acquisition, the
Acquired Fund will be liquidated upon consummation of the Acquisition and
subsequently dissolved. In the event the Plan is not approved, the Board of
Directors of the Acquired Fund will consider other possible courses of action
available to it, including resubmitting the Acquisition proposal to
shareholders.
-5-
will consider other possible courses of action available to it, including
resubmitting the Acquisition proposal to shareholders.
TAX CONSEQUENCES. Prior to completion of the Acquisition, the Acquired
Fund and the Acquiring Fund will have received an opinion of counsel that, upon
the closing of the Acquisition, no gain or loss will be recognized by the
shareholders of the Acquired Fund for Federal income tax purposes as a result of
the exchange of Acquired Fund shares for Acquiring Fund shares, and the Acquired
Fund will not recognize gain or loss for such purposes as a result of its
transfer of assets and liabilities to the Acquiring Fund in exchange for
Acquiring Fund shares. The holding period and aggregate tax basis of the
Acquiring Fund shares received by an Acquired Fund shareholder will be the same
as the holding period and aggregate tax basis of the shares of the Acquired Fund
previously held by such shareholder. In addition, the holding period and
aggregate tax basis of the assets of the Acquired Fund in the hands of the
Acquiring Fund as a result of the Acquisition will generally be the same as in
the hands of the Acquired Fund immediately prior to the Acquisition.
DIFFERENCES BETWEEN THE INVESTMENT OBJECTIVES AND POLICIES OF THE
ACQUIRED FUND AND THE ACQUIRING FUND. As noted and further described herein, the
Acquired Fund has the same investment objective as the Acquiring Fund. The
investment objective of the Acquiring Fund is long-term capital appreciation.
The Acquiring Fund seeks to achieve its investment objective by investing under
normal circumstances at least 80% of its net assets plus any borrowings for
investment purposes in equity securities of issuers from at least three foreign
countries. The investment objective of the Acquired Fund is long-term
appreciation of capital. The Acquired Fund seeks to achieve its investment
objective by investing under normal market conditions at least 80% of assets in
equity securities of issuers from at least three foreign markets. However, there
are certain differences between the investment philosophy and policies of the
Acquired Fund and the Acquiring Fund. THE MOST SIGNIFICANT DIFFERENCES IN THE
WAY THESE FUNDS ARE MANAGED ARE THAT (I) AS A FOCUS FUND, THE ACQUIRING FUND
CONCENTRATES ITS INVESTMENTS IN EQUITY SECURITIES OF 40-60 COMPANIES AND THE
ACQUIRING FUND'S 15 LARGEST HOLDINGS MAY ACCOUNT FOR 40% OR MORE OF ITS ASSETS,
WHILE THE ACQUIRED FUND MAY DIVERSIFY ITS INVESTMENTS AMONG A BROADER RANGE OF
COMPANIES, (II) THE ACQUIRING FUND'S INVESTMENTS IN EMERGING MARKETS ARE LIMITED
TO 15% OF NET ASSETS, WHILE THE ACQUIRED FUND IS PERMITTED TO INVEST 30% OF ITS
TOTAL FUND ASSETS IN EMERGING MARKETS, AND (III) IN CHOOSING EQUITY SECURITIES,
THE ACQUIRED FUND'S PORTFOLIO MANAGERS COMBINE A TOP-DOWN REGIONAL ANALYSIS WITH
A BOTTOM-UP APPROACH, WHILE THE ACQUIRING FUND UTILIZES ONLY A BOTTOM-UP
APPROACH. The Acquired Fund invests in equity securities of companies located in
or conducting a majority of their business outside the U.S. Although it is not
an index fund and does not seek to replicate the performance of any index, the
fund expects to focus primarily, but not exclusively, on countries represented
in the Morgan Stanley Capital International Europe Australasia and Far East
(MSCI-EAFE) Index. In managing the Acquired Fund's investments, (i) the
portfolio managers combine top-down regional analysis with bottom-up company
research, (ii) look for countries, sectors and companies with solid growth
prospects and attractive market valuations and (iii) focus research efforts on
early identification of new investment opportunities while seeking to manage
risk. While historically, the Funds have been managed differently, more recently
the Acquired Fund has been managed in a manner that is very similar to the
Acquiring Fund, as the portfolio management teams have been coordinated and a
more focused style of international investing has been implemented by CSAM for
the Acquired Fund.
PURCHASE AND REDEMPTION PROCEDURES. Except as otherwise indicated in
this section, the Funds have similar policies with respect to purchases and
redemptions of shares. Shares of
-6-
each Fund may be purchased directly from the Fund or through a variety of
financial services firms. The minimum initial investment to purchase shares of
each Fund is $3,000,000. The minimum subsequent investment to purchase shares of
the Acquired Fund is $100,000 while the minimum subsequent investment to
purchase shares of the Acquiring Fund is $50,000, with certain exceptions. The
minimum initial investment for any group of related persons to purchase shares
of the Acquiring Fund is $4,000,000.
You should also note that certain brokers who distribute shares of the
Acquired Fund may not distribute shares of the Acquiring Fund. The Prospectus of
the Acquiring Fund provides additional information on purchasing shares of the
Acquiring Fund.
SALES CHARGES. Shares of each Fund are sold at NAV per share without an
initial sales charge or a contingent deferred sales charge ("CDSC") and are not
subject to a 12b-1 fee. See "Fee Table" below.
EXCHANGE PRIVILEGES. The exchange privileges available to shareholders
of the Acquiring Fund are identical to those available to shareholders of the
Acquired Fund. Shareholders of each Fund may exchange at NAV all or a portion of
their shares for shares of the same class of other mutual funds in the Credit
Suisse family of funds at their respective NAVs, provided that such fund offers
the relevant class of shares. Exchanges may be effected without a sales charge
but must satisfy the minimum dollar amount necessary for new purchases in the
fund in which shares are being purchased. The Funds reserve the right to refuse
exchange purchases by any person or group, if in CSAM's judgment, a Fund would
be unable to invest the money effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely affected.
Examples of when an exchange purchase could be refused are when a Fund receives
or anticipates receiving large exchange orders at or about the same time and/or
when a pattern of exchanges within a short period of time (often associated with
a "market timing" strategy) is discerned. The exchange privilege may be modified
or terminated at any time upon 60-days' notice to shareholders.
The exchange privilege is available to shareholders residing in any
state in which the relevant fund's shares being acquired may legally be sold.
When an investor effects an exchange of shares, the exchange is treated for
Federal income tax purposes as a redemption. Therefore, the investor may realize
a taxable gain or loss in connection with the exchange. No initial sales charge
is imposed on the shares being acquired in an exchange.
DIVIDENDS. The Acquiring Fund and the Acquired Fund distribute
substantially all of their respective net investment income and net realized
capital gains, if any, to their respective shareholders. All distributions are
reinvested in the form of additional full and fractional shares of the Fund
unless a shareholder elects otherwise. Each Fund typically distributes dividends
and capital gains annually. Each Fund may make additional distributions at other
times if necessary for the Fund to avoid a Federal tax. The Acquired Fund will
pay a dividend of undistributed net investment income and capital gains, if any,
immediately prior to the Closing Date. The amount of any dividend actually paid
prior to the Closing Date will vary depending on a number of factors, such as
changes in the value of the Acquired Fund's holdings and net redemptions of the
Acquired Fund's shares. If determined as of April 30, 2003, there would have
been no
-7-
distribution. See "Dividend and Distribution Information" in the accompanying
Prospectus of the Acquiring Fund.
APPRAISAL RIGHTS. Under the laws of the State of Maryland, shareholders
of the Acquiring Fund do not have appraisal rights in connection with a
combination or acquisition of the assets of the Acquiring Fund. In addition,
under the laws of the State of Maryland shareholders of the Acquired Fund do not
have appraisal rights in connection with a combination or acquisition of the
assets of the Acquired Fund by another entity. Shareholders of the Acquired Fund
may, however, redeem their shares at NAV prior to the date of the respective
Acquisitions (subject only to certain restrictions set forth in the 1940 Act).
See "Information on Shareholders' Rights--Voting Rights."
RISK FACTORS
Shareholders of the Acquired Fund should note that the Acquiring Fund
may be subject to greater volatility than a fund (including the Acquired Fund)
which invests in a larger number of issuers because of the Acquiring Fund's
strategy of focusing its investments in equity securities of 40-60 foreign
companies.
The investment objectives of the Acquiring Fund (i.e., long-term
capital appreciation) and the Acquired Fund (long-term appreciation of capital)
are the same and certain other investment policies and restrictions of the
Acquiring Fund are substantially similar to those of the Acquired Fund. The
principal risk factors affecting the Acquiring Fund are (i) focus risk, (ii)
foreign securities risk and (iii) market risk. The principal risk factors
affecting the Acquired Fund are (i) foreign securities risk, (ii) market risk
and (iii) non-diversified status risk. The Acquired Fund has greater exposure to
the risks associated with investing in emerging markets than the Acquiring Fund
as the Acquired Fund is permitted to invest up to 30% of its total fund assets
in emerging markets, while the Acquiring Fund may only invest up to 15% of net
assets in emerging markets. To the extent that a Fund invests in emerging
markets or focuses on a single country or region, it takes on additional risks
that may hurt its performance. Investing in emerging markets involves access,
operational and other risks not generally encountered in developed countries.
REASONS FOR THE ACQUISITION
The Board of Directors of Acquired Fund has unanimously determined
that it is in the best interest of the Acquired Fund to effect the Acquisition.
In doing so, it was aware that the Acquired Fund had significantly more assets
than the Acquiring Fund. Nevertheless, it recognized that, while historically,
the Acquired Fund was managed differently than the Acquiring Fund, more
recently, the two funds have been managed similarly, utilizing the more focused
style of international investing that CSAM has implemented for international
equity funds. Moreover, the investment management teams for the two funds have
been coordinated to facilitate managing the two funds in a like investment
style. As a result, the Acquisition can be viewed as a means of merging two very
similar funds resulting in a combined fund the investment philosophy of which
will be followed on an on-going basis.
In determining that the Acquisition is in the best interest of the
Acquired Fund, the Board considered a number of factors, including the
following:
1. the Acquisition will result in a single larger fund seeking
a limited number of non-U.S. companies;
2. the Acquisition may increase efficiencies, eliminating one of
the two sets of prospectuses, annual reports and other
documents required for two funds, although there is no
guarantee that the combined fund will realize such
efficiencies;
-8-
3. a larger asset base could provide portfolio management
benefits, such as the ability to command more attention from
brokers and underwriters of portfolio securities;
4. having a single fund rather than two eliminates confusion in
the marketplace associated with having two funds managed by
CSAM with similar investment goals and strategies;
5. the terms and conditions of the Acquisition;
6. the similarity of the investment objectives, investment
philosophies, investment policies and restrictions of the
Acquiring Fund in relation to those of the Acquired Fund;
7. that the investment adviser for the Acquiring Fund is the same
as that of the Acquired Fund;
8. the Federal tax consequences of the Acquisition, and that a
legal opinion will be rendered that no gain or loss will be
recognized by the shareholders of the Acquired Fund or by the
Acquiring Fund for Federal income tax purposes as a result of
the Acquisition and that the Acquired Fund generally will not
recognize gain or loss for such purposes;
9. that the interests of shareholders of the Acquired Fund will
not be diluted as a result of the Acquisition;
10. that the expenses of the Acquisition will be borne by CSAM or
its affiliates;
11. that no sales or other charges will be imposed in connection
with the Acquisition;
12. that the Acquiring Fund has a better 1, 3, 5 and 10-year
performance record than the Acquired Fund;
13. that the Acquisition will mitigate potential risks associated
with the Acquired Fund's ability to invest up to 30% of its
total assets in emerging markets.
The Board also considered the impact the Acquisition would have on
expenses that would be borne by the Acquired Fund shareholders as shareholders
of the Acquiring Fund. The Board specifically noted that, overall, the
Acquisition is expected to result in slightly higher gross and lower net
operating expenses for Acquired Fund shareholders.
In light of the foregoing, the Board of Directors of the Acquired Fund,
including the Independent Directors, has determined that it is in the best
interests of the Acquired Fund and its shareholders to effect the Acquisition.
The Board of Directors of the Acquired Fund has also
-9-
determined that the Acquisition would not result in dilution of the interests of
the Acquired Fund's shareholders. In making these determinations, the Board of
Directors did not give equal weight to each factor.
The Board of Directors of the Acquiring Fund has determined that it is
advantageous to the Acquiring Fund to effect the Acquisition. The Board of
Directors of the Acquiring Fund considered, among other things, the terms and
conditions of the Acquisition and representations that the Acquisition would be
effected as a tax-free reorganization. Accordingly, the Board of Directors of
the Acquiring Fund, including a majority of the Independent Directors, has
determined that the Acquisition is in the best interests of the Acquiring Fund's
shareholders and that the interests of the Acquiring Fund's shareholders would
not be diluted as a result of the Acquisition.
FEE TABLES
Following are two tables showing fees and expenses for the 12 months
ended October 31, 2002 for the Institutional Class shares of the Acquired Fund,
holders of which will receive shares of the Acquiring Fund, upon the closing of
the Acquisition, and the fees and expenses for the fiscal year ended October 31,
2002 for the shares of the Acquiring Fund before and after giving effect to the
Acquisition. The tables do not reflect charges that institutions and financial
intermediaries may impose on their customers.
BEFORE FEE WAIVERS AND/OR REIMBURSEMENTS
COMBINED
ACQUIRING PRO FORMA
ACQUIRED FUND FUND (AFTER ACQUISITION)
- ------------------------------------------------------------------------------------------
SHAREHOLDER FEES:
Sales charge (load) on purchases None None None
Deferred sales charge (load) on
reinvested distributions None None None
ANNUAL FUND OPERATING
EXPENSES (DEDUCTED FROM
FUND ASSETS)
Management Fees 0.80% 0.80% 0.80%
Distribution and Service (12b-1) fee None None None
Other Expenses 0.25% 0.54% 0.26%
TOTAL ANNUAL FUND
OPERATING EXPENSES* 1.05% 1.34% 1.06%
- ------------------------------------------------------------------------------------------
- --------
* Expected fees and expenses for the 12 months ending October 31, 2003 (after
waivers and expense reimbursements or credits) are shown below. Waivers and
expense reimbursements are voluntary and may be reduced or discontinued at
any time.
-10-
AFTER FEE WAIVERS AND/OR REIMBURSEMENTS
COMBINED
ACQUIRING PRO FORMA
ACQUIRED FUND FUND (AFTER ACQUISITION)
- ------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(DEDUCTED FROM FUND ASSETS)
Management Fees 0.80% 0.41% 0.69%
Distribution and Service (12b-1) fee None None None
Other Expenses 0.25% 0.54% 0.26%
NET ANNUAL FUND OPERATING EXPENSES 1.05% 0.95% 0.95%
- ------------------------------------------------------------------------------------------
EXAMPLES
The following examples are intended to assist an investor in
understanding the various costs that an investor in each Fund will bear directly
or indirectly. The examples assume payment of operating expenses at the levels
set forth in the table presented above (before fee waivers and expense
reimbursements) and that all dividends and distributions are reinvested. The
examples also assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
One Year Three Years Five Years 10 Years
ACQUIRED FUND $107 $334 $579 $1,283
ACQUIRING FUND $136 $425 $734 $1,613
COMBINED FUND PRO FORMA $108 $337 $585 $1,294
-11-
INFORMATION ABOUT THE ACQUISITION
AGREEMENT AND PLAN OF REORGANIZATION. The following summary of the Plan
is qualified in its entirety by reference to the form of the Plan (Exhibit A
hereto). The Plan provides that the Acquiring Fund will acquire all of the
assets of the Acquired Fund in exchange for shares of the Acquiring Fund and the
assumption by the Acquiring Fund of the liabilities of the Acquired Fund on the
Closing Date. The Closing Date is expected to be on or about August 22, 2003.
Prior to the Closing Date, the Acquired Fund will endeavor to discharge
all of its known liabilities and obligations, other than those liabilities and
obligations which would otherwise be discharged at a later date in the ordinary
course of business. The Acquiring Fund will assume all liabilities, expenses,
costs, charges and reserves, including those liabilities reflected on an
unaudited statement of assets and liabilities for the Acquired Fund, as of the
close of regular trading on The New York Stock Exchange, Inc. ("NYSE"),
currently 4:00 p.m., New York City time, on the Closing Date, in accordance with
generally accepted accounting principles consistently applied from the prior
audited period. The NAV per share of each Fund will be calculated by determining
the total assets attributable to such Fund, subtracting the pro rata share of
the actual and accrued liabilities of the Fund and the liabilities specifically
allocated to such shares, and dividing the result by the total number of
outstanding shares. Each Fund will utilize the procedures set forth in its
respective current Prospectus or Statement of Additional Information to
determine the value of its respective portfolio securities and to determine the
aggregate value of each Fund's portfolio.
On or as soon after the Closing Date as conveniently practicable, the
Acquired Fund will liquidate and distribute pro rata to shareholders of record
as of the close of business on the Closing Date the shares of the Institutional
Class of the Acquiring Fund received by the Acquired Fund. Such liquidation and
distribution will be accomplished by the establishment of accounts in the names
of the Acquired Fund's shareholders on the share records of the Acquiring Fund's
transfer agent. Each account will represent the number of shares of the
Acquiring Fund due to the Acquired Fund's shareholders calculated in accordance
with the Plan. After such distribution and the winding up of its affairs, the
Acquired Fund will terminate as a management investment company and dissolve as
a Maryland corporation.
The consummation of the Acquisition is subject to the conditions set
forth in the Plan, including approval of the Plan by the Acquired Fund's
shareholders. Notwithstanding approval by the shareholders of the Acquired Fund,
the Plan may be terminated at any time at or prior to the Closing Date: (i) by
either the Acquired Fund or the Acquiring Fund by written notice to the other;
(ii) by the Acquired Fund, in the event the Acquiring Fund shall, or by the
Acquiring Fund, in the event the Acquired Fund shall, materially breach any
representation, warranty or agreement contained in the Plan to be performed at
or prior to the Closing Date; or (iii) if a condition to the Plan expressed to
be precedent to the obligations of the terminating party has not been met and it
reasonably appears that it will not or cannot be met within a reasonable time.
Pursuant to the Plan, the Acquiring Fund has agreed to indemnify and
advance expenses to each Director or officer of the Acquired Fund against money
damages incurred in connection with any claim arising out of such person's
services as a Director or officer with respect to
-12-
matters specifically relating to the Acquisition, except by reason of such
person's willful misfeasance, bad faith, gross negligence or reckless disregard
of his or her duties in the conduct of his or her office.
Approval of the Plan requires the affirmative vote of a majority of the
outstanding voting securities of the Acquired Fund. Shareholders of the Acquired
Fund are entitled to one vote for each share. If shareholders of the Acquired
Fund approve the Acquisition, the Acquired Fund will be liquidated upon
consummation of the Acquisition and subsequently dissolved. In the event the
Plan is not approved, the Board of Directors of the Acquired Fund will consider
other possible courses of action available to it, including resubmitting the
Acquisition proposal to shareholders.
DESCRIPTION OF THE ACQUIRING FUND SHARES. Shares of the Acquiring Fund
will be issued to the Acquired Fund in accordance with the procedures detailed
in the Plan and as described in the Acquiring Fund's Prospectus and Statement of
Additional Information. The Acquiring Fund, like the Acquired Fund, will not
issue share certificates to its shareholders. See "Information on Shareholders'
Rights" and the Prospectus of the Acquiring Fund for additional information with
respect to the shares of the Acquiring Fund.
The Acquiring Fund has authorized a single class of common stock,
called Institutional Class shares. Shareholders of the Acquired Fund will be
issued Institutional Class shares of the Acquiring Fund. Shares of the Acquiring
Fund represent equal pro rata interests in the Acquiring Fund and accrue
dividends and calculate NAV and performance quotations in the same manner. The
Acquiring Fund intends to continuously offer Institutional Class shares after
consummation of the Acquisition.
FEDERAL INCOME TAX CONSEQUENCES. The exchange of the Acquired Fund
assets for shares of the Acquiring Fund, followed by the distribution of these
shares, is intended to qualify for U.S. Federal income tax purposes as a
tax-free reorganization under Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code"). As a condition to the closing of the Acquisition,
the Acquiring Fund and the Acquired Fund will receive an opinion from Willkie
Farr & Gallagher, counsel to the Funds, substantially to the effect that, on the
basis of the existing provisions of the Code, U.S. Treasury regulations issued
thereunder, current administrative rules, pronouncements and court decisions,
for Federal income tax purposes, upon consummation of the Acquisition:
(1) the transfer of the Acquired Fund assets to the Acquiring Fund in
exchange for the Acquiring Fund shares and the assumption by the Acquiring Fund
of the liabilities of the Acquired Fund, and the distribution of the Acquiring
Fund shares to the shareholders of the Acquired Fund in exchange for their
Acquired Fund shares, will constitute a "reorganization" within the meaning of
Section 368(a) of the Code, and the Acquiring Fund and the Acquired Fund will be
a "party to a reorganization" within the meaning of Section 368(b) of the Code;
(2) no gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund solely in exchange for the Acquiring
Fund shares and the assumption by the Acquiring Fund of the liabilities of the
Acquired Fund;
-13-
(3) except for consequences regularly attributable to the closing of
the Acquired Fund's taxable year, no gain or loss will be recognized by the
Acquired Fund upon the transfer of such fund's assets to the Acquiring Fund in
exchange for the Acquiring Fund shares and the assumption by the Acquiring Fund
of the liabilities of the Acquired Fund, or upon the distribution of the
Acquiring Fund shares to the Acquired Fund's shareholders;
(4) no gain or loss will be recognized by shareholders of the Acquired
Fund upon the exchange of their Acquired Fund shares for Acquiring Fund shares
or upon the assumption by the Acquiring Fund of the liabilities of the Acquired
Fund;
(5) the aggregate tax basis of the Acquiring Fund shares received by
each Acquired Fund shareholder pursuant to the Acquisition will be the same as
the aggregate tax basis of shares of the Acquired Fund held by such shareholder
immediately prior to the Acquisition, and the holding period of the Acquiring
Fund shares to be received by each shareholder of the Acquired Fund will include
the period during which the shares of the Acquired Fund exchanged therefor were
held by such shareholder (provided that the Acquired Fund shares were held as
capital assets on the date of the Acquisition); and
(6) except for assets which may be revalued as a consequence of a
termination of the Acquired Fund's taxable year, the tax basis of the Acquired
Fund's assets acquired by the Acquiring Fund will be the same as the tax basis
of such assets to the Acquired Fund immediately prior to the Acquisition, and
the holding period of the assets of the Acquired Fund in the hands of the
Acquiring Fund will include the period during which those assets were held by
the Acquired Fund.
You should recognize that an opinion of counsel is not binding on the
Internal Revenue Service ("IRS") or any court. Neither the Acquired Fund nor the
Acquiring Fund will seek to obtain a ruling from the IRS regarding the tax
consequences of the Acquisition. Accordingly, if the IRS sought to challenge the
tax treatment of the Acquisition and was successful, neither of which is
anticipated, the Acquisition could be treated, in whole or in part, as a taxable
sale of assets of the Acquired Fund, followed by the taxable liquidation
thereof.
Shareholders of the Acquired Fund should consult their tax advisors
regarding the effect, if any, of the proposed Acquisition in light of their
individual circumstances. Since the foregoing discussion only relates to the
U.S. Federal income tax consequences of the Acquisition, shareholders of the
Acquired Fund should also consult their tax advisors as to state and local tax
consequences, if any, of the Acquisition.
-14-
CAPITALIZATION
The following table shows the capitalization of the Acquired Fund and
the Acquiring Fund as of October 31, 2002 and the capitalization of the
Acquiring Fund on a pro forma basis as of the closing date of the Acquisition,
after giving effect to the Acquisition.(1)
ACQUIRED ACQUIRING PRO
FUND FUND PRO FORMA FORMA
(ACTUAL) (ACTUAL) ADJUSTMENTS(2) (COMBINED)
NET ASSETS $118,604,882 $ 44,564,819 -- 163,169,701
NET ASSET VALUE $ 8.04 $ 7.19 -- $ 7.19
SHARES OUTSTANDING 14,755,678 6,195,916 1,742,384 22,693,978
---------------
(1) Assumes the Acquisition of the Acquired Fund had been consummated on
October 31, 2002 and is for information purposes only. No assurance can
be given as to how many Acquiring Fund shares will be received by
shareholders of the Acquired Fund on the date the Acquisition takes
place, and the foregoing should not be relied upon to reflect the
number of Acquiring Fund shares that actually will be received on or
after such date.
(2) Reflects the elimination of prepaid expenses from the Acquired Fund.
TOTAL RETURNS
Performance information is shown separately for each Fund. Total return
is a measure of the change in value of an investment in a fund over the period
covered, which assumes that any dividends or capital gains distributions are
automatically reinvested in shares of the fund rather than paid to the investor
in cash. The formula for total return used by a fund is prescribed by the SEC
and includes three steps: (1) adding to the total number of shares of the fund
that would be purchased by a hypothetical $1,000 investment in the fund all
additional shares that would have been purchased if all dividends and
distributions paid or distributed during the period had been automatically
reinvested; (2) calculating the redeemable value of the hypothetical initial
investment as of the end of the period by multiplying the total number of shares
owned at the end of the period by the net asset value per share on the last
trading day of the period; and (3) dividing this account value for the
hypothetical investor by the amount of the initial investment, and annualizing
the result for periods of less than one year. Total return may be stated with or
without giving effect to any expense limitations in effect for a fund.
The following table reflects the average annual total return for the
1-year, 5-year, 10-year and since inception periods ending October 31, 2002 for
each Fund:
-15-
- ----------------------------------------------------------------------------------------------------------------------
LIFE OF
1 YEAR 5 YEARS 10 YEARS CLASS INCEPTION DATE
- ----------------------------------------------------------------------------------------------------------------------
ACQUIRED FUND
- ----------------------------------------------------------------------------------------------------------------------
(20.55)% (5.56)% 2.28% 2.18% 9/30/1992
- ------------------------------- ----------------- ---------------- ----------------- ---------------- ----------------
Return After Taxes on
Distributions (20.55)% (9.33)% (0.09)% (0.17)%
- ------------------------------- ----------------- ---------------- ----------------- ---------------- ----------------
Return After Taxes on
Distributions and Sale of
Fund Shares (12.62)% (4.19)% 1.83% 1.75%
- ----------------------------------------------------------------------------------------------------------------------
ACQUIRING FUND
- ----------------------------------------------------------------------------------------------------------------------
(11.56)% (4.22)% 4.78% 4.30% 9/01/1992
- ------------------------------- ----------------- ---------------- ----------------- ---------------- ----------------
Return After Taxes on (11.56)% (6.83)% 2.85% 2.41%
Distributions
- ------------------------------- ----------------- ---------------- ----------------- ---------------- ----------------
Return After Taxes on (7.10)% (3.22)% 3.82% 3.42%
Distributions and Sale of
Fund Shares
- ----------------------------------------------------------------------------------------------------------------------
OWNERSHIP OF THE FUNDS
As of ____________, 2003, the officers or Directors of the Acquiring
Fund and the Acquired Fund beneficially owned as a group less than 1% of the
outstanding securities of the relevant Fund. To the best knowledge of each Fund,
as of June 12, 2003, no shareholder or "group" (as that term is used in Section
13(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act")),
except as set forth below, owned beneficially or of record more than 5% of the
outstanding shares of a class of the Funds.
SHARES HELD PERCENT OF OUTSTANDING SHARES
----------- -----------------------------
NAME AND ADDRESS
- ----------------
ACQUIRED FUND
- -------------
ACQUIRING FUND
- --------------
-16-
SHARES HELD PERCENT OF OUTSTANDING SHARES
----------- -----------------------------
NAME AND ADDRESS
- ----------------
ACQUIRED FUND
- -------------
ACQUIRING FUND
- --------------
- --------------
* Each Fund believes these entities are not the beneficial
owners of shares held of record by them.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion is based upon and qualified in its entirety by
the disclosure in the respective Prospectuses and Statements of Additional
Information of the Acquiring Fund and the Acquired Fund.
INVESTMENT OBJECTIVES. The investment objective of the Acquiring Fund
is long-term capital appreciation. The investment objective of the Acquired Fund
is long-term appreciation of capital. There can be no assurance either Fund will
achieve its investment objective.
PRIMARY INVESTMENTS. As noted above, the investment objective of the
Acquiring Fund is long-term capital appreciation. To achieve its investment
objective, the Acquiring Fund invests under normal market conditions at least
80% of its net assets, plus any borrowings for investment purposes, in equity
securities of issuers from at least three major foreign markets. The Acquiring
Fund invests in securities of 40-60 foreign companies located in or conducting a
majority of their business in major foreign markets or companies whose
securities trade primarily in major foreign markets. Major foreign markets
currently consist of Australia, Austria, Belgium, Denmark, Finland, France,
Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand,
Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom.
These countries are currently, or proposed to be, represented in the Morgan
Stanley Capital International Europe, Australasia and the Far East ("EAFE")
Index. The Acquiring Fund seeks to diversify its investments across a number of
different countries, although at times, the Acquiring Fund may invest a
significant part of its assets in any single country. In addition, the Acquiring
Fund's 15 largest holdings may account for 40% or more of its assets. In
choosing equity securities, the Acquiring Fund uses a bottom-up investment
approach, seeking to invest in companies of any size whose stock price appears
to be discounted relative to earnings, assets or projected growth.
The Acquiring Fund may invest up to 15% of net assets in emerging
markets, unlike the Acquired Fund which may invest up to 30% of total assets in
emerging markets.
To pursue its goal, the Acquired Fund invests in equity securities of
companies located or conducting a majority of their business outside the U.S.
Although it is not an index fund and does not seek to replicate the performance
of any index, the Acquired Fund expects to focus primarily, but not exclusively,
on countries represented in the Morgan Stanley Capital International Europe
Australasia and Far East (MSCI-EAFE) Index. Although the Acquired Fund may
invest in emerging markets, it does not expect to invest more than 30% of assets
in securities of emerging-markets issuers. Under normal market conditions, the
Acquired Fund will
-17-
invest at least 80% of assets in equity securities of issuers from at least
three foreign countries. The Acquired Fund may invest in companies of all sizes.
In managing the Acquired Fund's investments, the portfolio managers:
(i) combine top-down regional analysis with bottom-up company research; (ii)
look for countries, sectors and companies with solid growth prospects and
attractive market valuations; and (iii) focus research efforts on early
identification of new investment opportunities while seeking to manage risk.
INVESTMENT LIMITATIONS. The Acquiring Fund and the Acquired Fund have
adopted certain fundamental and non-fundamental investment limitations.
Fundamental investment limitations may not be changed without the affirmative
vote of the holders of a majority of the outstanding voting securities of the
relevant Fund. Each Fund has substantially similar fundamental investment
limitations.
CERTAIN INVESTMENT PRACTICES. For each of the following practices, this
table shows the current applicable investment limitation. Risks are indicated
for each practice. The specific risks associated with each of the investment
practices described below are defined for the Acquiring Fund in the Acquiring
Fund's Prospectus, which accompanies this Prospectus/Proxy Statement, and for
the Acquired Fund in its Prospectuses.
KEY TO TABLE:
|X| Permitted without limitation; does not indicate actual
use
20% Italic type (e.g., 20%) represents an investment
limitation as a percentage of net fund assets; does
not indicate actual use
20% Roman type (e.g., 20%) represents an investment
limitation as a percentage of total fund assets; does
not indicate actual use
| | Permitted, but not expected to be used to a significant
extent
-- Not permitted
- --------------------------------------------------------------------------------------------------
INVESTMENT PRACTICE LIMIT
- --------------------------------------------------------------------------------------------------
ACQUIRING ACQUIRED
FUND FUND
------------------- ----------------------
BORROWING. The borrowing of money from banks to meet 33-1/3% 33-1/3%
redemptions or for other temporary or emergency
purposes. Speculative exposure risk.
- -------------------------------------------------------- ------------------- ----------------------
COUNTRY/REGION FOCUS. Investing a significant portion |X| |X|
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.
- -------------------------------------------------------- ------------------- ----------------------
-18-
- --------------------------------------------------------------------------------------------------
INVESTMENT PRACTICE LIMIT
- --------------------------------------------------------------------------------------------------
ACQUIRING ACQUIRED
FUND FUND
------------------- ----------------------
CURRENCY TRANSACTIONS. Instruments, such as options, |X| |X|
futures, forwards or swaps, intended to manage portfolio
exposure to currency risk or to enhance total return.
Options, futures or forwards involve the right or
obligation to buy or sell a given amount of foreign
currency at a specified price and future date. Swaps
involve the right or obligation to receive or make
payments based on two different currency rates.
Correlation, credit, currency, hedged exposure,
liquidity, political, speculative exposure, valuation
risks.
- -------------------------------------------------------- ------------------- ----------------------
EMERGING MARKETS. Countries generally considered to 15% 30%
be relatively less developed or industrialized.
Emerging markets often face economic problems that
could subject a portfolio to increased volatility or
substantial declines in value. Deficiencies in
regulatory oversight, market infrastructure,
shareholder protections and company laws could expose
the portfolio to risks beyond those generally
encountered in developed countries. Access, currency,
information, liquidity, market, operational,
political, valuation risks.
- -------------------------------------------------------- ------------------- ----------------------
EQUITY AND EQUITY-RELATED SECURITIES. Common stocks |X| |X|
and other securities representing or related to
ownership in a company. May also include warrants,
rights, options, preferred stocks and convertible debt
securities. These investments may go down in value due
to stock market movements or negative company or industry
events. Liquidity, market, valuation risks.
- -------------------------------------------------------- ------------------- ----------------------
FOREIGN SECURITIES. Securities of foreign issuers. May |X| |X|
include depositary receipts. Currency, information,
market, operational, political, valuation risks.
- -------------------------------------------------------- ------------------- ----------------------
FUTURES AND OPTIONS ON FUTURES. Exchange-traded contracts | | | |
that enable a fund to hedge against or speculate on
future changes in currency values, interest rates
or stock indexes. Futures obligate the fund (or give
it the right, in the case of options) to receive or
make payment at a specific future time based on those
future changes (1) Correlation, currency, hedged
exposure, interest-rate, market, speculative exposure
risks.(2)
- -------------------------------------------------------- ------------------- ----------------------
-19-
- --------------------------------------------------------------------------------------------------
INVESTMENT PRACTICE LIMIT
- --------------------------------------------------------------------------------------------------
ACQUIRING ACQUIRED
FUND FUND
------------------- ----------------------
INVESTMENT-GRADE DEBT SECURITIES. Debt securities 20% | |
rated within the four highest grades (AAA/Aaa through
BBB/Baa) by Standard & Poor's or Moody's rating
service, and unrated securities of comparable quality.
Credit, interest-rate, market risks.
- -------------------------------------------------------- ------------------- ----------------------
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Debt | | | |
securities backed by pools of mortgages, including
pass-through certificates and other senior classes of
collateralized mortgage obligations (CMOs), or other
receivables. Credit, extension, interest-rate,
liquidity, prepayment risks.
- -------------------------------------------------------- ------------------- ----------------------
NON-INVESTMENT-GRADE DEBT SECURITIES. Debt securities 5% | |
and convertible securities rated below the
fourth-highest grade (BBB/Baa) by Standard & Poor's or
Moody's rating service, and unrated securities of
comparable quality. Commonly referred to as junk
bonds. Credit, information, interest-rate, liquidity,
market, valuation risks.
- -------------------------------------------------------- ------------------- ----------------------
OPTIONS. Instruments that provide a right to buy 25% | |
(call) or sell (put) a particular security or an index
of securities at a fixed price within a certain time
period. A fund may purchase and write both put and
call options for hedging or speculative purposes.
Correlation, credit, hedged exposure, liquidity,
market, speculative exposure risks.
- -------------------------------------------------------- ------------------- ----------------------
PRIVATIZATION PROGRAMS. Foreign governments may sell all |X| |X|
or part of their interests in enterprises they own or
control. Access, currency, information, liquidity,
operational, political, valuation risks.
- -------------------------------------------------------- ------------------- ----------------------
REAL-ESTATE INVESTMENT TRUSTS (REITS). Pooled investment | | | |
vehicles that invest primarily in income-producing real
estate or real-estate-related loans or interests.
Credit, interest-rate, market risks.
- -------------------------------------------------------- ------------------- ----------------------
RESTRICTED AND OTHER ILLIQUID SECURITIES. Certain 10% 15%
securities with restrictions on trading, or those not
actively traded. May include private placements.
Liquidity, market, valuation risks.
- -------------------------------------------------------- ------------------- ----------------------
SECURITIES LENDING. Lending portfolio securities to 33-1/3% 33-1/3%
financial institutions; a fund receives cash, U.S.
government securities or bank letters of credit as
collateral. Credit, liquidity, market, operational
risks.
-20-
- --------------------------------------------------------------------------------------------------
INVESTMENT PRACTICE LIMIT
- --------------------------------------------------------------------------------------------------
ACQUIRING ACQUIRED
FUND FUND
------------------- ----------------------
- -------------------------------------------------------- ------------------- ----------------------
SHORT SALES "AGAINST THE BOX". A short sale where the | | | |
fund owns enough shares of the security involved to
cover the borrowed securities, if necessary. Liquidity,
market, speculative exposure risks.
- -------------------------------------------------------- ------------------- ----------------------
START-UP AND OTHER SMALL COMPANIES. Companies with |X| | |
small relative market capitalizations, including those
with continuous operations of less than three years.
Information, liquidity, market, valuation risks.
- -------------------------------------------------------- ------------------- ----------------------
TEMPORARY DEFENSIVE TACTICS. Placing some or all of a | | | |
fund's assets in investments such as money-market
obligations and investment-grade debt securities for
defensive purposes. Although intended to avoid losses
in adverse market, economic, political or other
conditions, defensive tactics might be inconsistent
with a fund's principal investment strategies and
might prevent a fund from achieving its goal.
- -------------------------------------------------------- ------------------- ----------------------
WARRANTS. Options issued by a company granting the 10% 15%
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.
- -------------------------------------------------------- ------------------- ----------------------
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. The 20% 25%
purchase or sale of securities for delivery at a
future date; market value may change before delivery.
Liquidity, market, speculative exposure risks.
- ------------
(1) The Funds are not obligated to pursue any hedging strategy and do not
represent that these techniques are available now or will be available at
any time in the future.
(2) Each Fund is limited to 5% of net assets for initial margin and premium
amounts on futures positions considered to be speculative by the Commodity
Futures Trading Commission.
DETERMINATION OF NET ASSET VALUE OF SHARES OF THE ACQUIRING FUND
The NAV of the shares of the Acquiring Fund is determined at the close
of regular trading on the NYSE (usually 4 p.m., New York City Time) each day the
NYSE is open for business. It is calculated by dividing the Acquiring Fund's
total assets less its liabilities, by the number of shares outstanding. The
Acquiring Fund values its securities based on market quotations when it
calculates its NAV. If market quotations are not readily available, securities
and other assets are valued by another method the Board of Directors believes
accurately reflects fair value. Debt obligations that will mature in 60 days or
less are valued on the basis of amortized cost, unless the Board determines that
using this method would not reflect an
-21-
investment's value. Some securities of the Acquiring Fund may be listed on
foreign exchanges that are open on days (such as U.S. holidays) when the
Acquiring Fund does not compute its price. This could cause the value of the
Acquiring Fund's portfolio investments to be affected by trading on days when
you cannot buy or sell shares.
MANAGEMENT OF EACH FUND
CSAM, located at 466 Lexington Avenue, 16th Floor, New York, New York
10017-3140, provides investment advisory services to each of the Funds under
separate advisory agreements. The specific persons at CSAM who are responsible
for the day-to-day management of the Acquiring Fund are described in the
Prospectus of the Acquiring Fund, which accompanies this Prospectus/Proxy
Statement. CSAM's Japanese, United Kingdom and Australian affiliates provide
sub-advisory services to each Fund.
In addition, State Street and CSAMSI provide accounting and
co-administrative services as applicable to each Fund. State Street became
co-administrator to the Acquiring Fund on August 1, 2002 and to the Acquired
Fund on June 1, 2002. Prior to that, PFPC, Inc. served as co-administrator to
the Funds. Boston Financial Data Services, Inc. acts as the shareholder
servicing agent, transfer agent and dividend disbursing agent for each Fund.
State Street serves as custodian of each of the Funds' assets pursuant to a
custodian agreement. PricewaterhouseCoopers LLP serves as independent
accountants for each of the Funds.
Each Fund pays CSAM a management fee of .80% of the Fund's average
daily net assets. In addition to the management fee, the Acquiring Fund pays a
co-administration fee to CSAMSI of .10% of its average daily net assets. Each
Fund pays State Street a fee calculated at the annual rate of its pro-rated
share of .05% of the first $5 billion in average daily net assets of the Credit
Suisse Funds Complex (the "Fund Complex"), .035% of the Fund Complex's next $5
billion in average daily net assets, and .02% of the Fund Complex's average
daily net assets in excess of $10 billion, exclusive of out-of-pocket expenses.
Each class of shares of a Fund bears its proportionate share of fees
payable to CSAM, CSAMSI and State Street in the proportion that its assets bear
to the aggregate assets of the Fund at the time of calculation. These fees are
calculated at an annual rate based on a percentage of a Fund's average daily net
assets.
INTEREST OF CSAM IN THE ACQUISITION
CSAM may be deemed to have an interest in the Plan and the Acquisition
because it provides investment advisory services to each Fund. CSAM receives
compensation from each Fund for services it provides pursuant to separate
advisory agreements. The terms and provisions of the current arrangements with
CSAM are described in each Fund's Prospectuses and Statement of Additional
Information. Future growth of the assets of the Acquiring Fund, if any, can be
expected to increase the total amount of fees payable to CSAM and its
affiliates. CSAM may also be deemed to have an interest in the Plan and the
Acquisition because, as of __________ __, 2003, it or one or more of its
affiliates possessed or shared voting power or investment power as a beneficial
owner or as a fiduciary on behalf of its customers or employees in the Acquired
Fund (see "Information About the Acquisition - Share Ownership of the Funds"
-22-
above). CSAM and its affiliates have advised the Acquired Fund that they intend
to vote the shares over which they have voting power at the Special Meeting in
the manner instructed by the customers for which such shares are held. As of
_____ __, 2003, CSAM had discretionary power to dispose of securities over
accounts which held in the aggregate _________ shares or ___% of the Acquired
Fund's outstanding shares. See "Voting Information."
CSAM may also be deemed to have an interest in the Plan and the
Acquisition because CSAMSI serves as the co-administrator and distributor for
each Fund. As such, CSAMSI receives compensation for its services.
INFORMATION ON SHAREHOLDERS' RIGHTS
GENERAL. The Acquired Fund and the Acquiring Fund are each open-end
management investment companies registered under the 1940 Act. The Acquiring
Fund is a series of Credit Suisse Institutional Fund, Inc., a Maryland
corporation that was incorporated on May 14, 1992 and is governed by its
Articles of Incorporation, Bylaws and Board of Directors. The Acquired Fund is a
Maryland corporation that was incorporated on July 31, 1998 and is governed by
its Articles of Incorporation, Bylaws and Board of Directors. Each Fund is
governed by applicable state and Federal law. The Acquired Fund has an
authorized capital of six billion shares of common stock with a par value of
$.001 per share; one billion shares are designated Common Class, one billion
shares are designated Advisor Class, one billion shares are designated
Institutional Class, one billion shares are designated Class A shares, one
billion shares are designated Class B shares and one billion shares are
designated Class C shares. The charter of the Credit Suisse Institutional Fund,
Inc. authorizes the Board of Directors to issue thirteen billion full and
fractional shares of capital stock, par value $.001 per share, one billion of
which represent shares of the Acquiring Fund. In each Fund, shares represent
interests in the assets of the relevant Fund and have identical voting,
dividend, liquidation and other rights (other than as set forth below) on the
same terms and conditions.
MULTI-CLASS STRUCTURE. The Acquired Fund is authorized to offer
multiple classes of shares. However, the Acquired Fund currently offers only
Institutional Class shares. The Acquiring Fund expects to continue to offer its
Institutional Class shares following the Acquisition.
DIRECTORS. The By-Laws of the Funds provide that the term of office of
each Director shall be from the time of his or her election and qualification
until his or her successor shall have been elected and shall have qualified.
Directors of the Funds may be removed by a majority of the shares entitled to
vote. Vacancies on the Boards of either Fund may be filled by the Directors
remaining in office, provided that no vacancy or vacancies may be filled by
action of the remaining Directors if, after the filling of the vacancy or
vacancies, fewer than two-thirds of the Directors then holding office shall have
been elected by the shareholders of the relevant Fund. A meeting of shareholders
will be required for the purpose of electing Directors whenever (a) fewer than a
majority of the Directors then in office were elected by shareholders of the
relevant Fund or (b) a vacancy exists that may not be filled by the remaining
Directors and must be filled.
-23-
VOTING RIGHTS. Neither Fund holds a meeting of shareholders annually,
and there normally is no meeting of shareholders for the purpose of electing
Directors unless and until such time as less than a majority of the Directors of
the relevant Fund holding office have been elected by shareholders or a vacancy
exists that may not be filled by the remaining Directors. At such times, the
Directors then in office will call a shareholders' meeting for the election of
Directors.
In addition, each Fund's By-Laws provide that a special meeting of
shareholders will be called at the written request of shareholders entitled to
cast at least 10% percent of the votes entitled to be cast at the meeting,
provided, however, if the matter to be considered at such special meeting is
substantially the same as another voted on at any special meeting of
stockholders held in the last twelve months, the Acquired Fund does not have to
hold the meeting unless requested to do so by a majority of the stockholders
entitled to vote. Payment by such shareholders of the reasonably estimated cost
of preparing and mailing a notice of the meeting is required in advance of the
meeting. To the extent required by law, each Fund will assist in shareholder
communications in such matters. The presence, in person or by proxy, of at least
one-third of the outstanding shares of the Acquired Fund entitled to vote at a
shareholder meeting will constitute a quorum whereas the presence, in person or
by proxy, of at least a majority of shares of the Acquiring Fund entitled to
vote at a meeting will constitute a quorum.
LIQUIDATION OR TERMINATION. In the event of the liquidation or
termination of either Fund, the shareholders of the relevant Fund are entitled
to receive, when and as declared by the Directors, the excess of the assets over
the liabilities belonging to such Fund. In either case, the assets so
distributed to shareholders will be distributed among the shareholders in
proportion to the number of shares held by them and recorded on the books of
such Fund.
INVOLUNTARY REDEMPTIONS. Each Fund is permitted to redeem shares held
by a shareholder if the Board of Directors determines that doing so is in the
best interest of the Fund. Redemption proceeds may be paid in cash or in kind.
The exercise of the power granted to the Directors under the Articles of
Incorporation to involuntarily redeem shares would be subject to the Director's
fiduciary obligation to the shareholders and any applicable provisions under the
1940 Act and the rules thereunder.
LIABILITY OF DIRECTORS. The constituent documents of each Fund provide
that its Directors and officers shall not be liable in such capacity for
monetary damages for breach of fiduciary duty as a Director or officer, except
for willful misfeasance, bad faith, gross negligence or reckless disregard of
duties in the conduct of his office or the discharge of his functions on the
part of such Director or officer. The constituent instruments of each Fund
provide that the relevant Fund shall indemnify each Director and officer and
permit advances for the payment of expenses relating to the matter for which
indemnification is sought, in the case of the Acquired Fund, to the fullest
extent permitted by applicable law and, in the case of both Funds, except for
bad faith, willful misfeasance, gross negligence or reckless disregard of duties
in the conduct of his office or the discharge of his functions on the part of
such Director or officer.
RIGHTS OF INSPECTION. Maryland law permits any shareholder of the
Acquiring Fund or the Acquired Fund or any agent of such shareholder to inspect
and copy, during usual business
-24-
hours, the By-Laws, minutes of shareholder proceedings, annual statements of the
affairs and voting trust agreements of the Acquired Fund on file at its
principal offices.
SHAREHOLDER LIABILITY. Under Maryland law, shareholders of the Funds do
not have personal liability for corporate acts and obligations.
The foregoing is only a summary of certain characteristics of the
operations of each of the Funds. The foregoing is not a complete description of
the documents cited. Shareholders should refer to the provisions of the
constituent documents and state laws governing each Fund for a more thorough
description.
CONCLUSION
The Plan was approved by the Board of Directors of the Acquiring Fund
and the Board of Directors of the Acquired Fund on May 20, 2003. The Board of
each Fund has determined that the Acquisition is in the best interests of its
shareholders and that the interests of existing shareholders of its Fund will
not be diluted as a result of the Acquisition. If the shareholders of the
Acquired Fund do not approve the Plan or if the Acquisition is not completed,
the Acquired Fund will continue to engage in business as a registered investment
company and its Board of Directors will consider other possible courses of
action available to it, including resubmitting the Acquisition proposal to
shareholders.
REQUIRED VOTE
Approval of the Plan requires the affirmative vote of a majority of the
outstanding voting securities of the Acquired Fund.
THE BOARD OF DIRECTORS OF THE ACQUIRED
FUND, INCLUDING THE DIRECTORS WHO ARE NOT
"INTERESTED PERSONS" (AS THAT TERM IS DEFINED IN THE
1940 ACT) RECOMMENDS THAT YOU VOTE FOR PROPOSAL 1.
ADDITIONAL INFORMATION
The Acquiring Fund and the Acquired Fund are each subject to the
informational requirements of the 1934 Act and the 1940 Act and in accordance
therewith file reports and other information including proxy material, reports
and charter documents, with the SEC. These materials can be inspected and copies
obtained at the Public Reference Facilities maintained by the SEC at 450 Fifth
Street, N.W, Washington, D.C. 20549 and at the New York Regional Office of the
SEC at 233 Broadway, New York, New York. Copies of such material can also be
obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Services, SEC, Washington, D.C. 20549 at prescribed rates. The
Prospectus and the Statement of Additional Information for the Acquiring Fund,
along with related information, may be found on the SEC website as well
(http://www.sec.gov).
-25-
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Directors of the Acquired Fund to be
used at the Special Meeting of Shareholders of the Acquired Fund to be held at
3:00 p.m. on August 15, 2003, at the offices of the Acquired Fund, 466 Lexington
Avenue, 16th Floor, New York, New York 10017-3140 and at any adjournment(s)
thereof. This Prospectus/Proxy Statement, along with a Notice of the Special
Meeting and proxy card(s), is first being mailed to shareholders of the Acquired
Fund on or about June 30, 2003. Only shareholders of record as of the close of
business on June 12, 2003 (the "Record Date") will be entitled to notice of, and
to vote at, the Special Meeting or any adjournment(s) thereof. As of June 12,
2003, the Acquired Fund had ______ shares outstanding. The holders of one-third
of the outstanding shares of the Acquired Fund at the close of business on the
Record Date present in person or represented by proxy will constitute a quorum
for the Special Meeting. For purposes of determining a quorum for transacting
business at the Special Meeting, abstentions and broker "non-votes" (that is,
proxies from brokers or nominees indicating that such persons have not received
instructions from the beneficial owner or other persons entitled to vote shares
on a particular matter with respect to which the brokers or nominees do not have
discretionary power) will be treated as shares that are present but which have
not been voted. Abstentions and broker non-votes will have the effect of a "no"
vote for the Proposal which requires the approval of a specified percentage of
the outstanding shares of the Acquired Fund.
Executed, but unmarked proxies (i.e., executed proxies in which there
is no indication of the shareholder's voting instructions) will be voted FOR
approval of the Proposal and FOR approval of any other matters deemed
appropriate. A proxy may be revoked at any time on or before the Special Meeting
by the subsequent execution and submission of a revised proxy, by written notice
to Hal Liebes, Secretary of the Acquired Fund, 466 Lexington Avenue, New York,
New York 10017-3140 or by voting in person at the Special Meeting.
CSAM has retained D.F. King & Co., Inc. to solicit proxies. Proxy
solicitations will be made primarily by mail, but proxy solicitations also may
be made by telephone, facsimile or personal interviews conducted by officers and
employees of CSAM and its affiliates. The expenses of the Acquisition, which are
currently estimated to be $_____, including the costs of the proxy solicitation
and the preparation of enclosures to the Prospectus/Proxy Statement,
reimbursement of expenses of forwarding solicitation material to owners of
shares of the Acquired Fund and expenses incurred in connection with the
preparation of this Prospectus/Proxy Statement, will be borne by CSAM or its
affiliates (excluding extraordinary expenses not normally associated with
transactions of this type). It is anticipated that banks, brokerage houses and
other institutions, nominees and fiduciaries will be requested to forward proxy
materials to beneficial owners and to obtain authorization for the execution of
proxies. Upon request, banks, brokerage houses and other institutions, nominees
and fiduciaries may be reimbursed for their expenses in forwarding proxy
materials to beneficial owners.
In the event that a quorum necessary to vote on the Proposal at the
Special Meeting is not present or sufficient votes to approve the proposal are
not received prior to 3:00 p.m. on August 15, 2003, the persons named as proxies
may propose one or more adjournments of the Special Meeting to permit further
solicitation of proxies to receive the vote necessary for its passage or to
-26-
obtain a quorum. If there is represented a sufficient number of votes in favor
of one or more Proposals, an act taken at the Special Meeting will be effective
irrespective of any adjournments with respect to any other Proposal. In
determining whether to adjourn the Special Meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the information
to be provided to shareholders with respect to the reasons for the solicitation.
Any such adjournment will require an affirmative vote by the holders of a
majority of the shares of the Acquired Fund present in person or by proxy and
entitled to vote at the Special Meeting. The persons named as proxies will vote
upon a decision to adjourn the Special Meeting after consideration of the best
interests of all shareholders of the Acquired Fund.
As of ________ __, 2003, CSAM (or its affiliates) possessed or shared
voting power or investment power as a fiduciary on behalf of its customers, with
respect to the Acquired Fund as set forth above under "Proposal - Information
About the Acquisition - Share Ownership of the Fund." CSAM and its affiliates
have advised the Acquired Fund that they intend to vote the shares over which
they have voting power at the Special Meeting, including shares that are held
directly or on behalf of employees, in the manner instructed by the customers or
employees for which such shares are held.
OTHER BUSINESS
The Board of Directors of the Acquired Fund knows of no other business
to be brought before the Special Meeting. However, if any other matters come
before the Special Meeting, proxies that do not contain specific restrictions to
the contrary will be voted on such matters in accordance with the judgment of
the persons named in the enclosed Proxy Card.
The approval of shareholders of the Acquiring Fund is not required in
order to affect the Acquisition and, accordingly, the votes of the shareholders
of the Acquiring Fund are not being solicited by this Prospectus/Proxy
Statement.
FINANCIAL STATEMENTS AND EXPERTS
The audited statement of assets and liabilities of the Acquiring Fund
as of October 31, 2002 and the Acquired Fund as of August 31, 2002, including
their respective schedules of portfolio investments, and the related statements
of operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended and the financial highlights
for each of the five years (or such shorter period as the relevant Fund's share
class has been in existence) in the period then ended, have been incorporated by
reference into this Prospectus/Proxy Statement in reliance upon the reports of
PricewaterhouseCoopers LLP, independent accountants to each of the Funds, given
on the authority of such firms as experts in accounting and auditing.
ADDITIONAL MATERIALS
The following additional materials, which have been incorporated by
reference into the Statement of Additional Information, dated June 30, 2003,
relating to this Prospectus/Proxy Statement and the Acquisition, will be sent to
all shareholders of the Acquired Fund requesting a copy of such Statement of
Additional Information.
-27-
1. The current Statement of Additional Information for the
Acquiring Fund, dated February 28, 2003, as supplemented as of
the date hereof.
2. The current Statement of Additional Information for the
Acquired Fund, dated January 1, 2003, as supplemented as of
the date hereof.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of the
Acquiring Fund will be passed upon by Willkie Farr & Gallagher, 787 Seventh
Avenue, New York, New York 10019-6099, counsel to the Acquiring Fund. In
rendering such opinion, Willkie Farr & Gallagher may rely on an opinion of
Venable Baetjer and Howard, LLP as to certain matters under Maryland law.
-28-
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is
made as of this ___ day of ___________, 2003, between and among Credit Suisse
Institutional Fund, Inc., a Maryland corporation, for and on behalf of its
International Focus Portfolio (the "Acquiring Fund"), and Credit Suisse
Institutional International Fund, Inc., a Maryland corporation (the "Acquired
Fund"), and, solely for purposes of Sections 4.3, 5.9 and 9.2 hereof, Credit
Suisse Asset Management, LLC, a limited liability company organized under the
laws of the State of Delaware ("CSAM").
This Agreement is intended to be and is adopted as a plan of
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"). The reorganization of the Acquired Fund
(collectively, the "Reorganization") will consist of the transfer of all of the
assets of the Acquired Fund in exchange solely for shares of common stock of the
Acquiring Fund ("Acquiring Fund Shares"), and the assumption by the Acquiring
Fund of the liabilities of the Acquired Fund, and the distribution, on or after
the Closing Date hereinafter referred to, of Acquiring Fund Shares to the
shareholders of the Acquired Fund ("Acquired Fund Shareholders") in liquidation
of the Acquired Fund as provided herein, all upon the terms and conditions
hereinafter set forth in this Agreement.
As the Acquiring Fund is a portfolio of the Credit Suisse
Institutional Fund, Inc., all parties to this Agreement acknowledge and accept
that the Acquiring Fund does not have a Board of Directors or officers separate
from the other portfolios of Credit Suisse Institutional Fund, Inc. Accordingly,
all representations, warranties, covenants and/or other obligations of any kind
made by the Acquiring Fund in this Agreement are expressly understood by all
parties to this Agreement as being made by the Directors or officers of Credit
Suisse Institutional Fund, Inc., as applicable, in their respective capacities
as Directors or officers (and not in their individual capacities) for, and on
behalf of, the Acquiring Fund.
WHEREAS, the Board of Directors of the Acquired Fund has
determined that the exchange of all of the assets of the Acquired Fund for
Acquiring Fund Shares and the assumption of the liabilities of the Acquired Fund
by the Acquiring Fund is in the best interests of the Acquired Fund and that the
interests of the existing Acquired Fund Shareholders would not be diluted as a
result of this transaction; and
WHEREAS, the Board of Directors of the Acquiring Fund has
determined that the exchange of all of the assets of the Acquired Fund for
Acquiring Fund Shares is in the best interests of the Acquiring Fund's
shareholders and that the interests of the existing shareholders of the
Acquiring Fund would not be diluted as a result of this transaction.
NOW, THEREFORE, in consideration of the premises and of the
covenants and agreements hereinafter set forth, the parties hereto covenant and
agree as follows:
1. Transfer of Assets of the Acquired Fund in Exchange for
Acquiring Fund Shares and Assumption of the Acquired Fund's Liabilities and
Liquidation of the Acquired Fund.
1.1. Subject to the terms and conditions herein set forth and
on the basis of the representations and warranties contained herein, the
Acquired Fund agrees to transfer its assets as set forth in paragraph 1.2 to the
Acquiring Fund, and the Acquiring Fund agrees in exchange therefor: (i) to
deliver to the Acquired Fund the number of Acquiring Fund Shares, including
fractional Acquiring Fund Shares, determined by dividing the value of the
Acquired Fund's net assets, computed in the manner and as of the time and date
set forth in paragraph 2.1, by the net asset value of one Acquiring Fund Share;
and (ii) to assume the liabilities of the Acquired Fund, as set forth in
paragraph 1.3. Such transactions shall take place at the closing provided for in
paragraph 3.1 (the "Closing").
1.2. (a) The assets of the Acquired Fund to be acquired by the
Acquiring Fund shall consist of all property including, without limitation, all
cash, securities and dividend or interest receivables that are owned by or owed
to the Acquired Fund and any deferred or prepaid expenses shown as an asset on
the books of the Acquired Fund on the Closing date provided in paragraph 3.1
(the "Closing Date").
(b) The Acquired Fund has provided the Acquiring Fund with a
list of all of the Acquired Fund's assets as of the date of execution of this
Agreement. The Acquired Fund reserves the right to sell any of these securities
but will not, without the prior approval of the Acquiring Fund, acquire any
additional securities other than securities of the type in which the Acquiring
Fund is permitted to invest. The Acquired Fund will, within a reasonable time
prior to the Closing Date, furnish the Acquiring Fund with a list of the
securities, if any, on the Acquired Fund's list referred to in the first
sentence of this paragraph which do not conform to the Acquiring Fund's
investment objective, policies and restrictions. In the event that the Acquired
Fund holds any investments which the Acquiring Fund may not hold, the Acquired
Fund will dispose of such securities prior to the Closing Date. In addition, if
it is determined that the portfolios of the Acquired Fund and the Acquiring
Fund, when aggregated, would contain investments exceeding certain percentage
limitations imposed upon the Acquiring Fund with respect to such investments or
would contain investments exceeding the number CSAM considers appropriate given
the Acquiring Fund's focused investment approach, the Acquired Fund, if
requested by the Acquiring Fund, will dispose of and/or reinvest a sufficient
amount of such investments as may be necessary to avoid violating such
limitations or investment policy as of the Closing Date.
1.3. The Acquired Fund will endeavor to discharge all of the
known liabilities and obligations of the Acquired Fund prior to the Closing
Date, other than those liabilities and obligations which would otherwise be
discharged at a later date in the ordinary course of business. The Acquiring
Fund shall assume all liabilities, expenses, costs, charges and reserves,
including those liabilities reflected on unaudited statements of assets and
liabilities of the Acquired Fund and the Acquiring Fund prepared by State Street
Bank and Trust Company ("State Street"), the accounting agent of each Fund, as
of the Valuation Date (as defined in paragraph 2.1), in accordance with
generally accepted accounting principles consistently applied from the prior
audited period. The Acquiring Fund shall also assume any liabilities, expenses,
costs or charges incurred by or on behalf of the Acquired Fund specifically
arising from or relating to the operations and/or transactions of the Acquired
Fund prior to and including the Closing Date but which are not reflected on the
above-mentioned statement of assets and liabilities, including any liabilities,
expenses, costs or charges arising under paragraph 5.7 hereof.
-2-
1.4. As soon on or after the Closing Date as is conveniently
practicable (the "Liquidation Date"), the Acquired Fund will liquidate and
distribute pro rata to the Acquired Fund's Shareholders of record determined as
of the close of business on the Closing Date the Acquiring Fund Shares it
receives pursuant to paragraph 1.1. Such liquidation and distribution will be
accomplished by the transfer of the Acquiring Fund Shares then credited to the
account of the Acquired Fund on the books of the Acquiring Fund to open accounts
on the share records of the Acquiring Fund in the name of the Acquired Fund
Shareholders representing the respective pro rata number of the Acquiring Fund
Shares due such shareholders. All issued and outstanding shares of the Acquired
Fund("Acquired Fund Shares") will simultaneously be canceled on the books of the
Acquired Fund, although share certificates representing interests in the
Acquired Fund will represent a number of Acquiring Fund Shares after the Closing
Date as determined in accordance with Section 2.2. The Acquiring Fund shall not
issue certificates representing the Acquiring Fund Shares in connection with
such exchange.
1.5. Ownership of Acquiring Fund Shares will be shown on the
books of the Acquiring Fund's transfer agent. Acquiring Fund Shares will be
issued in the manner described in the Acquiring Fund's current prospectuses and
statement of additional information.
1.6. Any transfer taxes payable upon issuance of the Acquiring
Fund Shares in a name other than the registered holder of the Acquired Fund
Shares on the books of the Acquired Fund as of that time shall, as a condition
of such issuance and transfer, be paid by the person to whom such Acquiring Fund
Shares are to be issued and transferred.
1.7. Any reporting responsibility of the Acquired Fund is and
shall remain the responsibility of the Acquired Fund up to and including the
applicable Closing Date and such later date on which the Acquired Fund is
terminated.
2. Valuation
2.1. The value of the Acquired Fund's assets to be acquired
hereunder shall be the value of such assets computed as of the close of regular
trading on The New York Stock Exchange, Inc. (the "NYSE") on the Closing Date
(such time and date being hereinafter called the "Valuation Date"), using the
valuation procedures set forth in the Acquired Fund's then current prospectus or
statement of additional information.
2.2. The number of Acquiring Fund Shares to be issued
(including fractional shares, if any) in exchange for Acquired Fund Shares shall
be determined by dividing the value of the net assets of the Acquired Fund
Shares determined using the same valuation procedures referred to in paragraph
2.1, by the per share net asset value of the Acquiring Fund Shares computed as
of the close of regular trading on the NYSE on the Closing Date, using the
valuation procedures set forth in the Acquiring Fund's then current prospectus
or statement of additional information.
2.3. All computations of value with respect to the Acquiring
Fund and the Acquired Fund shall be made by State Street in accordance with its
regular practice as pricing agent for the Acquiring Fund.
-3-
3. Closing and Closing Date
3.1. The Closing Date for the Reorganization shall be
_________, 2003, or such other date as the parties to such Reorganization may
agree to in writing. All acts taking place at the Closing shall be deemed to
take place simultaneously as of the close of trading on the NYSE on the Closing
Date unless otherwise provided. The Closing shall be held as of 10:00 a.m., at
the offices of Willkie Farr & Gallagher or at such other time and/or place as
the parties may agree.
3.2. State Street, the custodian for the Acquiring Fund, shall
deliver as soon as practicable after the Closing a certificate of an authorized
officer stating that: (a) the Acquired Fund's portfolio securities, cash and any
other assets have been delivered in proper form to the Acquiring Fund on the
Closing Date and (b) all necessary taxes, including all applicable federal and
state stock transfer stamps, if any, have been paid, or provision for payment
has been made, in conjunction with the delivery of portfolio securities.
3.3. In the event that on the Valuation Date (a) the NYSE or
another primary trading market for portfolio securities of the Acquiring Fund or
the Acquired Fund shall be closed to trading or trading thereon shall be
restricted or (b) trading or the reporting of trading on the NYSE or elsewhere
shall be disrupted so that accurate appraisal of the value of the net assets of
the Acquiring Fund or the Acquired Fund is impracticable, the applicable Closing
Date shall be postponed until the first business day after the day when trading
shall have been fully resumed and reporting shall have been restored.
3.4. The Acquired Fund shall deliver at the Closing a list of
the names and addresses of the Acquired Fund's Shareholders and the number of
outstanding Acquired Fund Shares owned by each such shareholder immediately
prior to the Closing or provide evidence that such information has been provided
to the Acquiring Fund's transfer agent. The Acquiring Fund shall issue and
deliver a confirmation evidencing the Acquiring Fund Shares to be credited to
the Acquired Fund's account on the Closing Date to the Secretary of the Acquired
Fund or provide evidence satisfactory to the Acquired Fund that such Acquiring
Fund Shares have been credited to the Acquired Fund's account on the books of
the Acquiring Fund. At the Closing, each party shall deliver to the relevant
other parties such bills of sale, checks, assignments, share certificates, if
any, receipts or other documents as such other party or its counsel may
reasonably request.
4. Representations and Warranties
4.1. The Acquired Fund represents and warrants to the
Acquiring Fund as follows:
(a) The Acquired Fund is a duly organized, validly existing
corporation in good standing under the laws of the State of Maryland;
(b) The Acquired Fund is a registered investment company
classified as a management company of the open-end type and its registration
with the Securities and Exchange Commission (the "Commission") as an investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
is in full force and effect;
-4-
(c) The Acquired Fund is not, and the execution, delivery and
performance of this Agreement by the Acquired Fund will not result, in a
violation of the Acquired Fund's Articles of Incorporation or By-Laws or any
material agreement, indenture, instrument, contract, lease or other undertaking
to which the Acquired Fund is a party or by which the Acquired Fund or its
property is bound or affected;
(d) There are no contracts or other commitments (other than
this Agreement) of the Acquired Fund which will be terminated with liability to
the Acquired Fund prior to the Closing Date;
(e) Except as previously disclosed in writing to and accepted
by the Acquiring Fund, no litigation or administrative proceeding or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against the Acquired Fund or any of its
properties or assets which, if adversely determined, would materially and
adversely affect its financial condition or the conduct of its business. Except
as previously disclosed in writing to and accepted by the Acquiring Fund, the
Acquired Fund knows of no facts which might form the basis for the institution
of such proceedings and is not party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which materially and
adversely affects its business or the business of the Acquired Fund or its
ability to consummate the transactions herein contemplated;
(f) The Statements of Assets and Liabilities of the Acquired
Fund as of August 31, 2002, including the Schedule of Investments and the
related Statement of Operations for the year then ended, the Statement of
Changes in Net Assets for each of the two years in the period then ended, and
the Financial Highlights for each of the five years in the period then ended
have been audited by PricewaterhouseCoopers LLP (or one of its legacy firms),
independent accountants, and are in accordance with generally accepted
accounting principles consistently applied, and such statements (copies of which
have been furnished to the Acquiring Fund) fairly reflect the financial
condition of the Acquired Fund as of such dates, and there are no known
contingent liabilities as of August 31, 2002 not disclosed therein;
(g) Since August 31, 2002, there has not been any material
adverse change in the Acquired Fund's financial condition, assets, liabilities
or business other than changes occurring in the ordinary course of business, or
any incurrence by the Acquired Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred except as otherwise disclosed to
and accepted in writing by the Acquiring Fund. For purposes of this subsection
(g), a decline in the per share net asset value of the Acquired Fund Shares due
to declines in market values of securities in the Acquired Fund's portfolio, the
discharge of Fund liabilities, or the redemption of the Acquired Fund Shares by
Acquired Fund shareholders shall not constitute a material adverse change;
(h) At the date hereof and the Closing Date, all federal and
other tax returns and reports, including extensions, of the Acquired Fund
required by law to have been filed by such dates shall have been filed, and all
federal and other taxes shall have been paid so far as due, or provision shall
have been made for the payment thereof and, to the best of the Acquired Fund's
knowledge, no such return is currently under audit and no assessment has been
asserted with respect to such returns;
-5-
(i) For each taxable year of its operation (including the
taxable year ending on the Closing Date), the Acquired Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company; all of the issued and outstanding Acquired Fund
Shares have been offered and sold in compliance in all material respects with
applicable federal and state securities laws;
(j) All issued and outstanding Acquired Fund Shares are, and
at the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable. All of the issued and outstanding Acquired Fund Shares will,
at the time of Closing, be held by the persons and in the amounts set forth in
the records of the transfer agent as provided in paragraph 3.4. The Acquired
Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any Acquired Fund Shares, nor is there outstanding any
security convertible into any Acquired Fund Shares;
(k) At the Closing Date, the Acquired Fund will have good and
marketable title to the Acquired Fund's assets to be transferred to the
Acquiring Fund pursuant to paragraph 1.2 and full right, power and authority to
sell, assign, transfer and deliver such assets hereunder and, upon delivery and
payment for such assets, the Acquiring Fund will acquire good and marketable
title thereto, subject to no restrictions on the full transfer thereof, except
such restrictions as might arise under the Securities Act of 1933, as amended
(the "1933 Act"), and the 1940 Act with respect to privately placed or otherwise
restricted securities that the Acquired Fund may have acquired in the ordinary
course of business and of which the Acquiring Fund has received notice and
necessary documentation at or prior to the Closing;
(l) The execution, delivery and performance of this Agreement
has been duly authorized by all necessary actions on the part of the Acquired
Fund's Board of Directors, and subject to the approval of the Acquired Fund
Shareholders, this Agreement will constitute a valid and binding obligation of
the Acquired Fund enforceable in accordance with its terms, subject to the
effect of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other laws relating to or affecting creditors' rights and to
general equity principles;
(m) The information to be furnished by the Acquired Fund for
use in applications for orders, registration statements or proxy materials or
for use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the NASD, Inc.), which may be necessary in
connection with the transactions contemplated hereby, shall be accurate and
complete in all material respects and shall comply in all material respects with
federal securities and other laws and regulations applicable thereto;
(n) The current prospectus and statement of additional
information of the Acquired Fund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading; and
(o) Insofar as the following relate to the Acquired Fund, the
registration statement filed by the Acquiring Fund on Form N-14 relating to
Acquiring Fund Shares that will
-6-
be registered with the Commission pursuant to this Agreement, which, without
limitation, shall include a proxy statement of the Acquired Fund (the "Proxy
Statement") and the prospectus of the Acquiring Fund with respect to the
transactions contemplated by this Agreement, and any supplement or amendment
thereto, and the documents contained or incorporated therein by reference
(collectively, the "N-14 Registration Statement"), on the effective date of the
N-14 Registration Statement, at the time of any shareholders' meeting referred
to herein, on the Valuation Date and on the Closing Date: (i) shall comply in
all material respects with the provisions of the 1933 Act, the Securities
Exchange Act of 1934 (the "1934 Act") and the 1940 Act and the rules and
regulations under those Acts, and (ii) shall not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; provided, however,
that the representations and warranties in this section shall not apply to
statements in or omissions from the Proxy Statement and the N-14 Registration
Statement made in reliance upon and in conformity with information that was
furnished or should have been furnished by the Acquiring Fund for use therein.
4.2. The Acquiring Fund represents and warrants to the
Acquired Fund as follows:
(a) The Acquiring Fund is a duly established portfolio of the
Credit Suisse Institutional Fund, Inc., a duly organized, validly existing
corporation in good standing under the laws of the State of Maryland;
(b) The Credit Suisse Institutional Fund, Inc. is a registered
investment company classified as a management company of the open-end type and
its registration with the Commission as an investment company under the 1940 Act
is in full force and effect;
(c) The current prospectus and statement of additional
information filed as part of the Acquiring Fund registration statement on Form
N-1A (the "Acquiring Fund Registration Statement") conform in all material
respects to the applicable requirements of the 1933 Act and the 1940 Act and the
rules and regulations of the Commission under those Acts and do not include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not materially misleading;
(d) At the Closing Date, the Acquiring Fund will have good and
marketable title to its assets;
(e) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in a violation of the Acquiring
Fund Articles of Incorporation or By-Laws of Credit Suisse Institutional Fund,
Inc. or any material agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquiring Fund is a party or by which the Acquiring
Fund or its property is bound;
(f) Except as previously disclosed in writing to and accepted
by the Acquired Fund, no litigation or administrative proceeding or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against the Acquiring
-7-
Fund or any of its properties or assets which, if adversely determined, would
materially and adversely affect its financial condition or the conduct of its
business. The Acquiring Fund knows of no facts which might form the basis for
the institution of such proceedings and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental body
which materially and adversely affects its business or its ability to consummate
the transactions contemplated herein;
(g) Since October 31, 2002, there has not been any material
adverse change in the Acquiring Fund's financial condition, assets, liabilities
or business other than changes occurring in the ordinary course of business, or
any incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred except as otherwise disclosed to
and accepted in writing by the Acquired Fund. For purposes of this subsection
(g), a decline in the per share net asset value of the Acquiring Fund Shares due
to declines in market values of securities in the Acquiring Fund's portfolio,
the discharge of Acquiring Fund liabilities, or the redemption of Acquiring Fund
Shares by Acquiring Fund Shareholders shall not constitute a material adverse
change;
(h) At the Closing Date, all federal and other tax returns and
reports, including extensions, of the Acquiring Fund required by law then to be
filed shall have been filed, and all federal and other taxes shown as due on
said returns and reports shall have been paid or provision shall have been made
for the payment thereof;
(i) For each taxable year of its operation (including the
taxable year which includes the Closing Date), the Acquiring Fund has met the
requirements of Subchapter M of the Code for qualification as a regulated
investment company and has elected to be treated as such, has been eligible to
and has computed its federal income tax under Section 852 of the Code;
(j) At the date hereof, all issued and outstanding Acquiring
Fund Shares are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable. The Acquiring Fund does not have
outstanding any options, warrants or other rights to subscribe for or purchase
any Acquiring Fund Shares, nor is there outstanding any security convertible
into any Acquiring Fund Shares;
(k) The execution, delivery and performance of this Agreement
has been duly authorized by all necessary actions on the part of the Acquiring
Fund's Board of Directors, and this Agreement will constitute a valid and
binding obligation of the Acquiring Fund enforceable in accordance with its
terms, subject to the effect of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other laws relating to or affecting creditors'
rights and to general equity principles;
(l) The Acquiring Fund Shares to be issued and delivered to
the Acquired Fund, for the account of the Acquired Fund Shareholders, pursuant
to the terms of this Agreement, will at the Closing Date have been duly
authorized and when so issued and delivered, will be duly and validly issued
Acquiring Fund Shares, and will be fully paid and non-assessable;
-8-
(m) Insofar as the following relate to the Acquiring Fund, the
N-14 Registration Statement, on the effective date of the N-14 Registration
Statement, at the time of any shareholders' meeting referred to herein, on the
Valuation Date and on the Closing Date: (i) shall comply in all material
respects with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and
the rules and regulations under those Acts, and (ii) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading;
provided, however, that the representations and warranties in this section shall
not apply to statements in or omissions from the Proxy Statement and the N-14
Registration Statement made in reliance upon and in conformity with information
that was furnished or should have been furnished by the Acquired Fund for use
therein; and
(n) The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the 1940 Act
and such of the state Blue Sky or securities laws as it may deem appropriate in
order to continue its operations after the Closing Date.
4.3. CSAM represents and warrants to the Acquiring Fund as
follows: To the knowledge of CSAM (i) there are no claims, actions, suits or
proceedings pending against the Acquired Fund, and (ii) there are no claims,
actions, suits or proceedings threatened, or circumstances that have been
identified by the Management Committee of CSAM and the Secretary thereof as
reasonably likely to give rise to any claims, actions, suits or proceedings,
against the Acquired Fund that would materially adversely affect the Acquired
Fund or its assets or business other than those disclosed in writing to and
accepted by the Acquiring Fund.
5. Covenants of the Acquired Fund and the Acquiring Fund
5.1. The Acquiring Fund and the Acquired Fund will operate
their respective businesses in the ordinary course between the date hereof and
the Closing Date. It is understood that such ordinary course of business will
include the declaration and payment of customary dividends and distributions.
5.2. The Acquired Fund will call a meeting of the Acquired
Fund Shareholders to consider and act upon this Agreement and to take all other
actions necessary to obtain approval of the transactions contemplated herein.
5.3. The Acquired Fund covenants that the Acquiring Fund
Shares to be issued hereunder are not being acquired for the purpose of making
any distribution thereof other than in accordance with the terms of this
Agreement.
5.4. The Acquired Fund will assist the Acquiring Fund in
obtaining such information as the Acquiring Fund reasonably requests concerning
the beneficial ownership of the Acquired Fund Shares.
5.5. Subject to the provisions of this Agreement, the
Acquiring Fund and the Acquired Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement.
-9-
5.6. The Acquired Fund will provide the Acquiring Fund with
information reasonably necessary for the preparation of a prospectus (the
"Prospectus") which will include the Proxy Statement referred to in paragraph
4.1(o), all to be included in the N-14 Registration Statement, in compliance
with the 1933 Act, the 1934 Act and the 1940 Act in connection with the meeting
of the Acquired Fund Shareholders to consider approval of this Agreement and the
transactions contemplated herein.
5.7. The Acquiring Fund agrees to indemnify and advance
expenses to each person who at the time of the execution of this Agreement
serves as a Director or Officer ("Indemnified Person") of the Acquired Fund,
against money damages actually and reasonably incurred by such Indemnified
Person in connection with any claim that is asserted against such Indemnified
Person arising out of such person's service as a Director or officer of the
Acquired Fund with respect to matters specifically relating to the
Reorganization, provided that such indemnification and advancement of expenses
shall be permitted to the fullest extent that is available under applicable law.
This paragraph 5.7 shall not protect any such Indemnified Person against any
liability to the Acquired Fund, the Acquiring Fund or their respective
shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or from reckless disregard of the
duties involved in the conduct of his office. An Indemnified Person seeking
indemnification shall be entitled to advances from the Acquiring Fund for
payment of the reasonable expenses incurred by him in connection with the matter
as to which he is seeking indemnification in the manner and to the fullest
extent permissible under applicable law. Such Indemnified Person shall provide
to the Acquiring Fund a written affirmation of his good faith belief that the
standard of conduct necessary for indemnification by the Acquiring Fund under
this paragraph has been met and a written undertaking to repay any advance if it
should ultimately be determined that the standard of conduct has not been met.
In addition, at least one of the following additional conditions shall be met:
(a) the Indemnified Person shall provide security in form and amount acceptable
to the Acquiring Fund for its undertaking; (b) the Acquiring Fund is insured
against losses arising by reason of the advance; or (c) either a majority of a
quorum of disinterested non-party Directors of the Acquiring Fund (collectively,
the "Disinterested Directors"), or independent legal counsel experienced in
mutual fund matters, selected by the Indemnified Person, in a written opinion,
shall have determined, based on a review of facts readily available to the
Acquiring Fund at the time the advance is proposed to be made, that there is
reason to believe that the Indemnified Person will ultimately be found to be
entitled to indemnification.
5.8. The Acquiring Fund agrees to take no action that would
adversely affect the qualification of the Reorganization as a reorganization
under Section 368(a) of the Code. In this regard, the Acquiring Fund covenants
that, following the Reorganization, it (a) will (i) continue the historic
business of the Acquired Fund or (ii) use a significant portion of the Acquired
Fund's historic business assets, and (b) will not sell or otherwise dispose of
any of the assets of the Acquired Fund, except for dispositions in the ordinary
course of business or transfers to a corporation (or other entity classified for
federal income tax purposes as an association taxable as a corporation) that is
"controlled" by the Acquiring Fund within the meaning of Section 368(c) of the
Code.
5.9. CSAM agrees that the Credit Suisse Institutional Fund,
Inc., on behalf of the Acquiring Fund, will succeed to
all rights that the Acquired Fund has, or would have but
for
-10-
the Reorganization, against CSAM or its affiliates by
reason of any act or failure to act by CSAM or any of its
affiliates prior to the Closing Date.
6. Conditions Precedent to Obligations of the Acquired Fund
The obligations of the Acquired Fund to consummate the
transactions provided for herein shall be subject, at its election, to the
performance by the Acquiring Fund of all of the obligations to be performed by
it hereunder on or before the Closing Date and, in addition thereto, the
following further conditions:
6.1. All representations and warranties of the Acquiring Fund
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and, except as they may be affected by the actions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date;
6.2. The Acquiring Fund shall have delivered to the Acquired
Fund a certificate executed in its name by its Chairman, President, Vice
President, Secretary, Treasurer or Assistant Treasurer, in a form reasonably
satisfactory to the Acquired Fund and dated as of the Closing Date, to the
effect that the representations and warranties of the Acquiring Fund made in
this Agreement are true and correct at and as of the Closing Date, except as
they may be affected by the transactions contemplated by this Agreement and as
to such other matters as the Acquired Fund shall reasonably request; and
6.3. The Acquired Fund shall have received on the Closing Date
a favorable opinion from Willkie Farr & Gallagher, counsel to the Acquiring
Fund, dated as of the Closing Date, in a form reasonably satisfactory to the
Acquired Fund, covering the following points:
That (a) the Credit Suisse Institutional Fund, Inc. is a
validly existing corporation and in good standing under the laws of the State of
Maryland, and has the corporate power to own all of its properties and assets
and to carry on its business as a registered investment company; (b) the
Agreement has been duly authorized, executed and delivered by the Credit Suisse
Institutional Fund, Inc. on behalf of the Acquiring Fund and the Acquiring Fund
is a duly established portfolio of the Credit Suisse Institutional Fund, Inc.
and, assuming due authorization, execution and delivery of the Agreement by the
other parties thereto, is a valid and binding obligation of the Credit Suisse
Institutional Fund, Inc. enforceable against the Acquiring Fund in accordance
with its terms, subject to the effect of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles; (c)
the Acquiring Fund Shares to be issued to the Acquired Fund Shareholders as
provided by this Agreement are duly authorized and upon such delivery will be
validly issued and outstanding and are fully paid and non-assessable, and no
shareholder of the Acquiring Fund has any preemptive rights to subscription or
purchase in respect thereof; (d) the execution and delivery of this Agreement
did not, and the consummation of the transactions contemplated hereby will not,
conflict with the Credit Suisse Institutional Fund, Inc.'s Articles of
Incorporation or By-Laws or result in a material violation of any provision of
any material agreement (known to such counsel) to which the Credit Suisse
Institutional Fund, Inc. is a party or by which it or its property is bound or,
to the knowledge of such counsel, result in the acceleration of any obligation
or the imposition of any penalty, under
-11-
any material agreement, judgment or decree to which the Credit Suisse
Institutional Fund, Inc. is a party or by which it or its property is bound; (e)
to the knowledge of such counsel, no consent, approval, authorization or order
of any court or governmental authority of the United States or the State of
Maryland is required for the consummation by the Acquiring Fund of the actions
contemplated herein, except such as have been obtained under the 1933 Act, the
1934 Act and the 1940 Act, and such as may be required under state securities
laws; (f) only insofar as they relate to the Acquiring Fund, the descriptions in
the Proxy Statement of statutes, legal and governmental proceedings,
investigations, orders, decrees or judgments of any court or governmental body
in the United States and contracts and other documents, if any, are accurate and
fairly present the information required to be shown; (g) to the knowledge of
such counsel, there is no legal, administrative or governmental proceeding,
investigation, order, decree or judgment of any court or governmental body, only
insofar as they relate to the Acquiring Fund or its assets or properties,
pending, threatened or otherwise existing on or before the effective date of the
N-14 Registration Statement or the Closing Date, which are required to be
described in the N-14 Registration Statement or to be filed as an exhibit to the
N-14 Registration Statement which is not described and filed as required or
which materially and adversely affect the Acquiring Fund's business; (h) the
Credit Suisse Institutional Fund, Inc. is registered as an investment company
under the 1940 Act and, to the knowledge of such counsel, its registration with
the Commission as an investment company under the 1940 Act is in full force and
effect; and (i) the Proxy Statement, as of its date, appeared on its face to be
appropriately responsive in all material respects to the requirements of the
1933 Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder; provided, however, that such counsel shall be entitled to state that
it does not assume any responsibility for the accuracy, completeness or fairness
of the Proxy Statement.
With respect to all matters of Maryland law, such counsel
shall be entitled to state that, with the approval of the Acquired Fund, they
have relied upon the opinion of Venable, Baetjer and Howard, LLP, and that their
opinion is subject to the same assumptions, qualifications and limitations with
respect to such matters as are contained in the opinion of Venable, Baetjer and
Howard, LLP. Such opinion also shall include such other matters incident to the
transaction contemplated hereby as the Acquired Fund may reasonably request.
In this paragraph 6.3, references to the Proxy Statement
include and relate only to the text of such Proxy Statement and not, except as
specifically stated above, to any exhibits or attachments thereto or to any
documents incorporated by reference therein.
6.4. The Board of Directors of the Acquiring Fund, including a
majority of the directors who are not "interested persons" of the Acquiring Fund
(as defined in the 1940 Act), shall have determined that this Agreement and the
transactions contemplated hereby are in the best interests of the Acquiring Fund
and that the interests of the shareholders in the Acquiring Fund would not be
diluted as a result of such transactions, and the Acquiring Fund shall have
delivered to the Acquired Fund at the Closing, a certificate, executed by an
officer, to the effect that the condition described in this subparagraph has
been satisfied.
-12-
7. Conditions Precedent to Obligations of the Acquiring Fund
The obligations of the Acquiring Fund to complete the
transactions provided for herein shall be subject, at its election, to the
performance by the Acquired Fund of all the obligations to be performed by it
hereunder on or before the Closing Date and, in addition thereto, the following
conditions:
7.1. All representations and warranties by or on behalf of the
Acquired Fund contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date with the
same force and effect as if made on and as of the Closing Date;
7.2. The Acquired Fund shall have delivered to the Acquiring
Fund a statement of the Acquired Fund's assets and liabilities as of the Closing
Date, certified by the Treasurer or Assistant Treasurer of the Acquired Fund;
7.3. The Acquired Fund shall have delivered to the Acquiring
Fund on the Closing Date a certificate executed in its name by its Chairman,
President, Vice President, Secretary, Treasurer or Assistant Treasurer, in form
and substance satisfactory to the Acquiring Fund and dated as of the Closing
Date, to the effect that the representations and warranties of the Acquired Fund
made in this Agreement are true and correct at and as of the Closing Date,
except as they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as the Acquiring Fund shall reasonably
request; and
7.4. The Acquiring Fund shall have received on the Closing
Date a favorable opinion of Willkie Farr & Gallagher, counsel to the Acquired
Fund, in a form satisfactory to the Secretary of the Acquiring Fund, covering
the following points:
That (a) the Acquired Fund is a validly existing corporation
and in good standing under the laws of the State of Maryland and has the
corporate power to own all of its properties and assets and to carry on its
business as a registered investment company; (b) the Agreement has been duly
authorized, executed and delivered by the Acquired Fund and, assuming due
authorization, execution and delivery of the Agreement by the other parties
hereto, is a valid and binding obligation of the Acquired Fund enforceable
against the Acquired Fund in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles; (c) the execution and delivery of the Agreement did not, and
the consummation of the transactions contemplated hereby will not, conflict with
the Acquired Fund's Articles of Incorporation or By-Laws or result in a material
violation of any provision of any material agreement (known to such counsel) to
which the Acquired Fund is a party or by which it or its property is bound or,
to the knowledge of such counsel, result in the acceleration of any obligation
or the imposition of any penalty, under any material agreement, judgment, or
decree to which the Acquired Fund is a party or by which it or its property is
bound; (d) to the knowledge of such counsel, no consent, approval, authorization
or order of any court or governmental authority of the United States or the
State of Maryland is required for the consummation by the Acquired Fund of the
transactions contemplated herein, except such as have been obtained under the
1933 Act, the 1934 Act and the 1940 Act, and such as may be
-13-
required under state securities laws; (e) the Proxy Statement (except as to
financial and statistical data contained therein, as to which no opinion need be
given), as of its date, appeared on its face to be appropriately responsive in
all material respects to the 1934 Act and the 1940 Act and the rules and
regulations thereunder; provided, however, that such counsel shall be entitled
to state that it does not assume any responsibility for the accuracy,
completeness or fairness of the Proxy Statement; (f) to the knowledge of such
counsel, there is no legal, administrative or governmental proceeding,
investigation, order, decree or judgment of any court or governmental body, only
insofar as they relate to the Acquired Fund or its assets or properties,
pending, threatened or otherwise existing on or before the effective date of the
N-14 Registration Statement or the Closing Date, which is required to be
described in the N-14 Registration Statement or to be filed as an exhibit to the
N-14 Registration Statement which is not described or filed as required or which
materially and adversely affect the Acquired Fund's business; and (g) the
Acquired Fund is registered as an investment company under the 1940 Act, and, to
the knowledge of such counsel, its registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
With respect to all matters of Maryland law, such counsel
shall be entitled to state that, with the approval of the Acquiring Fund, they
have relied upon the opinion of Venable, Baetjer and Howard, LLP and that their
opinion is subject to the same assumptions, qualifications and limitations with
respect to such matters as are contained in the opinion of Venable, Baetjer and
Howard, LLP. Such opinion also shall include such other matters incident to the
transaction contemplated hereby as the Acquiring Fund may reasonably request.
In this paragraph 7.4, references to the Proxy Statement
include and relate only to the text of such Proxy Statement and not to any
exhibits or attachments thereto or to any documents incorporated by reference
therein.
7.5. The Acquiring Fund shall have received from
PricewaterhouseCoopers LLP a letter addressed to the Acquiring Fund dated as of
the effective date of the N-14 Registration Statement in form and substance
satisfactory to the Acquiring Fund, to the effect that:
(a) they are independent public accountants with respect to
the Acquired Fund within the meaning of the 1933 Act and the applicable
regulations thereunder; and
(b) in their opinion, the financial statements and financial
highlights of the Acquired Fund included or incorporated by reference in the
N-14 Registration Statement and reported on by them comply as to form in all
material aspects with the applicable accounting requirements of the 1933 Act and
the rules and regulations thereunder.
7.6. The Acquired Fund shall have received from
PricewaterhouseCoopers LLP a letter addressed to the Acquired Fund dated as of
the effective date of the N-14 Registration Statement in form and substance
satisfactory to the Acquired Fund, to the effect that:
(a) they are independent public accountants with respect to
the Acquiring Fund within the meaning of the 1933 Act and the applicable
regulations thereunder; and
-14-
(b) in their opinion, the financial statements and financial
highlights of the Acquiring Fund included or incorporated by reference in the
N-14 Registration Statement and reported on by them comply as to form in all
material aspects with the applicable accounting requirements of the 1933 Act and
the rules and regulations thereunder.
7.7. The Acquiring Fund and the Acquired Fund shall have
received from PricewaterhouseCoopers LLP a letter addressed to both Funds and
dated as of the effective date of the N-14 Registration Statement in form and
substance satisfactory to each Fund, to the effect that: on the basis of limited
procedures agreed upon by the Acquiring Fund and the Acquired Fund and described
in such letter (but not an examination in accordance with generally accepted
auditing standards), specified information relating to each Fund appearing in
the N-14 Registration Statement and the Proxy Statement has been obtained from
the accounting records of each Fund or from schedules prepared by officers of
each Fund having responsibility for financial and reporting matters and such
information is in agreement with such records, schedules or computations made
therefrom.
7.8. The Acquired Fund shall have delivered to the Acquiring
Fund, pursuant to paragraph 4.1(f), copies of financial statements of the
Acquired Fund as of and for the fiscal year ended August 31, 2002.
7.9. The Acquiring Fund shall have received from
PricewaterhouseCoopers LLP a letter addressed to the Acquiring Fund and dated as
of the Closing Date stating that, as of a date no more than three (3) business
days prior to the Closing Date, PricewaterhouseCoopers LLP performed limited
procedures and that on the basis of those procedures it confirmed the matters
set forth in paragraph 7.6.
7.10. The Board of Directors of the Acquired Fund, including a
majority of the directors who are not "interested persons" of the Acquired Fund
(as defined by the 1940 Act), shall have determined that this Agreement and the
transactions contemplated hereby are in the best interests of the Acquired Fund
and that the interests of the shareholders in the Acquired Fund would not be
diluted as a result of such transactions, and the Acquired Fund shall have
delivered to the Acquiring Fund at the Closing, a certificate, executed by an
officer, to the effect that the condition described in this subparagraph has
been satisfied.
8. Further Conditions Precedent to Obligations of the
Acquiring Fund and the Acquired Fund
If any of the conditions set forth below do not exist on or
before the Closing Date with respect to the Acquiring Fund, the Acquired Fund
shall, and if any of such conditions do not exist on or before the Closing Date
with respect to the Acquired Fund, the Acquiring Fund shall, at their respective
option, not be required to consummate the transactions contemplated by this
Agreement.
8.1. The Agreement and the transactions contemplated herein
shall have been approved by the requisite vote of the holders of the outstanding
Acquired Fund Shares in accordance with the provisions of the Acquired Fund's
Articles of Incorporation and applicable law and certified copies of the votes
evidencing such approval shall have been delivered to the Acquiring Fund.
-15-
8.2. On the Closing Date no action, suit or other proceeding
shall be pending before any court or governmental agency in which it is sought
to restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein.
8.3. All consents of other parties and all other consents,
orders and permits of federal, state and local regulatory authorities (including
those of the Commission and of state blue sky and securities authorities,
including "no-action" positions of and exemptive orders from such federal and
state authorities) deemed necessary by the Acquiring Fund or the Acquired Fund
to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to obtain any
such consent, order or permit would not involve a risk of a material adverse
effect on the assets or properties of the Acquiring Fund or the Acquired Fund,
provided that either party hereto may for itself waive any of such conditions.
8.4. The N-14 Registration Statement and the Acquiring Fund
Registration Statement shall each have become or be effective under the 1933 Act
and no stop orders suspending the effectiveness thereof shall have been issued
and, to the best knowledge of the parties hereto, no investigation or proceeding
for that purpose shall have been instituted or be pending, threatened or
contemplated under the 1933 Act.
8.5. The parties shall have received a favorable opinion of
Willkie Farr & Gallagher, addressed to, and in form and substance satisfactory
to, the Acquired Fund and the Acquiring Fund, substantially to the effect that
for U.S. federal income tax purposes:
(a) The transfer of all of the Acquired Fund's assets to the
Acquiring Fund in exchange for the Acquiring Fund Shares and the assumption by
the Acquiring Fund of the liabilities of the Acquired Fund, and the distribution
of such Acquiring Fund Shares to Acquired Fund Shareholders in exchange for
their Acquired Fund Shares, will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and the Acquiring Fund and the Acquired
Fund will each be a "party to a reorganization" within the meaning of Section
368(b) of the Code; (b) no gain or loss will be recognized by the Acquiring Fund
on the receipt of the assets of the Acquired Fund solely in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of the
liabilities of the Acquired Fund; (c) except for gain or loss regularly
attributable to the termination of the Acquired Fund's taxable year, no gain or
loss will be recognized by the Acquired Fund upon the transfer of the Acquired
Fund's assets to the Acquiring Fund in exchange for the Acquiring Fund Shares
and the assumption by the Acquiring Fund of the liabilities of the Acquired Fund
or upon the distribution of the Acquiring Fund Shares to the Acquired Fund
Shareholders in exchange for their Acquired Fund Shares; (d) no gain or loss
will be recognized by the Acquired Fund Shareholders upon the exchange of their
Acquired Fund Shares for the Acquiring Fund Shares; (e) the aggregate tax basis
of the Acquiring Fund Shares received by each of the Acquired Fund Shareholders
pursuant to the Reorganization will be the same as the aggregate tax basis of
the Acquired Fund Shares held by such shareholder immediately prior to the
Reorganization, and the holding period of the Acquiring Fund Shares to be
received by each Acquired Fund Shareholder will include the period during which
the Acquired Fund Shares exchanged therefor were held by such shareholder
(provided that such Acquired Fund Shares were held as capital assets on the date
of the Reorganization); and (f) except for assets which may be revalued as a
consequence of a
-16-
termination of the Acquired Fund's taxable year, the tax basis of the Acquired
Fund's assets acquired by the Acquiring Fund will be the same as the tax basis
of such assets to the Acquired Fund immediately prior to the Reorganization and
the holding period of the assets of the Acquired Fund in the hands of the
Acquiring Fund will include the period during which those assets were held by
the Acquired Fund.
Notwithstanding anything herein to the contrary, neither the
Acquiring Fund nor the Acquired Fund may waive the conditions set forth in this
paragraph 8.5.
9. Brokerage Fees and Expenses; Other Agreements
9.1. The Acquiring Fund represents and warrants to the
Acquired Fund, and the Acquired Fund represents and warrants to the Acquiring
Fund, that there are no brokers or finders or other entities to receive any
payments in connection with the transactions provided for herein.
9.2. CSAM or its affiliates agrees to bear the reasonable
expenses incurred in connection with the transactions contemplated by this
Agreement, whether or not consummated (excluding extraordinary expenses such as
litigation expenses, damages and other expenses not normally associated with
transactions of the type contemplated by this Agreement). These expenses consist
of: (i) expenses associated with preparing this Agreement, the N-14 Registration
Statement and expenses of the shareholder meetings insofar as they relate to
approval of this Agreement and the transactions contemplated thereby; (ii)
expenses associated with preparing and filing the N-14 Registration Statement
covering the Acquiring Fund Shares to be issued in the Reorganization insofar as
they relate to approval of this Agreement and the transactions contemplated
thereby; (iii) registration or qualification fees and expenses of preparing and
filing such forms, if any, necessary under applicable state securities laws to
qualify the Acquiring Fund Shares to be issued in connection with the
Reorganization; (iv) postage; printing; accounting fees; and legal fees incurred
by the Acquiring Fund and by the Acquired Fund in connection with the
transactions contemplated by this Agreement; (v) solicitation costs incurred in
connection with the shareholders meeting referred to in clause (i) above and
paragraph 5.2 hereof insofar as they relate to approval of this Agreement and
the transactions contemplated thereby and (vi) any other reasonable
Reorganization expenses.
9.3. Any other provision of this Agreement to the contrary
notwithstanding, any liability of either Fund under this Agreement, or in
connection with the transactions contemplated herein with respect to such Fund,
shall be discharged only out of the assets of such Fund.
10. Entire Agreement; Survival of Warranties
10.1. The Acquiring Fund and the Acquired Fund agree that
neither party has made any representation, warranty or covenant not set forth
herein and that this Agreement constitutes the entire agreement among the
parties.
10.2. The representations, warranties and covenants contained
in this Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
hereunder.
-17-
11. Termination
11.1. This Agreement may be terminated at any time at or prior
to the Closing Date by: (1) either the Acquired Fund or the Acquiring Fund by
written notice to the other; (2) the Acquired Fund in the event the Acquiring
Fund shall, or the Acquiring Fund, in the event the Acquired Fund shall,
materially breach any representation, warranty or agreement contained herein to
be performed at or prior to the Closing Date; or (3) the Acquired Fund or the
Acquiring Fund in the event a condition herein expressed to be precedent to the
obligations of the terminating party or parties has not been met and it
reasonably appears that it will not or cannot be met within a reasonable time.
11.2. In the event of any such termination, there shall be no
liability for damages on the part of either the Acquiring Fund, the Credit
Suisse Institutional Fund, Inc. or the Acquired Fund, or their respective
Directors or officers, to the other party or parties.
12. Amendments
This Agreement may be amended, modified or supplemented in
writing in such manner as may be mutually agreed upon by the authorized officers
of the Acquired Fund and the Acquiring Fund; provided, however, that following
the meeting of the Acquired Fund Shareholders called by the Acquired Fund
pursuant to paragraph 5.2 of this Agreement no such amendment may have the
effect of changing the provisions for determining the number of the Acquiring
Fund Shares to be issued to the Acquired Fund's Shareholders under this
Agreement to the detriment of such shareholders without their further approval.
13. Notices
13.1. Any notice, report, statement or demand required or
permitted by any provisions of this Agreement shall be in writing and shall be
given by prepaid telegraph, telecopy or certified mail addressed to the
Acquiring Fund at:
466 Lexington Avenue
New York, NY 10017
Attention: Hal Liebes, Esq.
or to the Acquired Fund at:
466 Lexington Avenue
New York, NY 10017
Attention: Hal Liebes, Esq.
14. Headings; Counterparts; Governing Law; Assignment;
Limitation of Liability
14.1. The article and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
-18-
14.2. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
14.3. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
14.4. This Agreement shall bind and inure to the benefit of
the parties hereto and their respective successors and assigns, but no
assignment or transfer hereof or of any rights or obligations hereunder shall be
made by any party without the written consent of the other party. Except as
provided in Section 5.7, nothing herein expressed or implied is intended or
shall be construed to confer upon or give any person, firm or corporation, other
than the parties hereto and their respective successors and assigns, any rights
or remedies under or by reason of this Agreement.
14.5. Notice is hereby given that this Agreement is entered
into on behalf of the Acquiring Fund by an officer of the Credit Suisse
Institutional Fund, Inc., and on behalf of the Acquired Fund by an officer of
the Acquired Fund, in each case in such officer's capacity as an officer and not
individually. It is understood and expressly stipulated that none of the
Directors, officers or shareholders of the Credit Suisse Institutional Fund,
Inc. or the Acquired Fund are personally liable hereunder. All persons dealing
with the Acquiring Fund should look solely to the property of the Acquiring Fund
for the enforcement of any claims against the Acquiring Fund.
-19-
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its Chairman, President, Vice President or Managing
Director and attested to by its Vice President, Secretary or Assistant
Secretary.
CREDIT SUISSE INSTITUTIONAL FUND, INC.
For and on Behalf of its INTERNATIONAL FOCUS PORTFOLIO
By:
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Name:
Title:
Attestation By:
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Name:
Title:
CREDIT SUISSE INSTITUTIONAL INTERNATIONAL FUND, INC.
By:
-----------------------------------------------------------------------------
Name:
Title:
Attestation By:
-----------------------------------------------------------------
Name:
Title:
Solely with respect to paragraphs 4.3, 5.9 and 9.2 hereof:
CREDIT SUISSE ASSET MANAGEMENT, LLC
By:
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Name:
Title:
Attestation By:
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Name:
Title:
CREDIT SUISSE INSTITUTIONAL INTERNATIONAL FUND, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON AUGUST 15, 2003 AT 3:00 P.M.
I hereby appoint Rocco DelGuercio and Gregory Bressler, and each of them, each
with the full power of substitution, as proxies for the undersigned to vote the
shares of Credit Suisse Institutional International Fund, Inc. (the "Fund"), as
to which I am entitled to vote, as shown on the reverse side, at a Special
Meeting of the Shareholders of the Fund to be held on Friday, August 15, 2003,
at 3:00 p.m., Eastern Time, at the offices of the Fund, 466 Lexington Avenue,
New York, New York 10017, 16th Floor, and any adjournments thereof (the
"Meeting"), as follows:
I hereby revoke any and all proxies with respect to such shares previously given
by me. I acknowledge receipt of the Proxy Statement dated June 30, 2003. THIS
PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY WILL
BE VOTED "FOR" THE PROPOSAL.
This instruction may be revoked at any time prior to its exercise at the Meeting
by execution of a subsequent proxy card, by written notice to the Secretary of
the Fund or by voting in person at the Meeting.
- -------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
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- -------------------------------------------------------------------------------
Please sign exactly as your name appears on the books of the Funds. Joint owners
should each sign personally. Directors and other fiduciaries should indicate the
capacity in which they sign, and where more than one name appears, a majority
must sign. If a corporation, this signature should be that of an authorized
officer who should state his or her title.
- -------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- --------------------------------- -------------------------------
- --------------------------------- -------------------------------
- --------------------------------- -------------------------------
- --------------------------------- -------------------------------
- --------------------------------- -------------------------------
- --------------------------------- -------------------------------
X PLEASE MARK VOTES
AS IN THIS EXAMPLE
- ------------------------------------------------- THE BOARD OF DIRECTORS OF THE FUND UNANIMOUSLY RECOMMENDS A
CREDIT SUISSE INVESTMENT GRADE BOND FUND, INC. VOTE FOR THE PROPOSAL
- -------------------------------------------------- ---
VOTE THIS CARD TODAY For Against Abstain
By mail; phone (1-800-714-3312); 1. To approve an Agreement
fax (212-269-2796); or and Plan of Reorganization (the [ ] [ ] [ ]
ONLINE AT WWW.CREDITSUISSEFUNDS.COM "Plan") providing that
(CLICK ON THE PROXY BUTTON) Credit Suisse
Institutional Fund,
Inc. (the "Acquired
Fund"), would transfer
all of its assets in
exchange for shares of
Credit Suisse
Institutional Fund,
Inc. - International
Focus Portfolio (the
"Acquiring Fund"), and
the assumption by the
Acquiring Fund of the
Acquired Fund's
liabilities, (ii) such
shares of the Acquiring
Fund would be
distributed to
shareholders of the
Acquired Fund in
liquidation of the
Acquired Fund, and
(iii) the Acquired Fund
would subsequently be
dissolved.
Please be sure to sign and date this Proxy. Date Mark box at right if an address change [ ]
- ------------------------------------------ ------- or comment has been noted on the reverse
side of this card.
- ----------------------------- ----------------------
Shareholder sign here Co-owner sign here RECORD DATE SHARES:
[CREDIT SUISSE ASSET MANAGEMENT LOGO]
CREDIT SUISSE INSTITUTIONAL FUND
Prospectus
February 28, 2003
CREDIT SUISSE INSTITUTIONAL FUND, INC.
- INTERNATIONAL FOCUS PORTFOLIO
As with all mutual funds, the Securities and Exchange Commission has
not approved the portfolio, nor has it passed upon the adequacy or
accuracy of this Prospectus. It is a criminal offense to state
otherwise.
Credit Suisse Institutional Fund is advised by Credit Suisse
Asset Management, LLC.
CONTENTS
<Table>
KEY POINTS................... .................... 4
Goal and Principal Strategies.................. 4
A Word About Risk.............................. 4
Investor Profile............................... 5
PERFORMANCE SUMMARY............... ............... 6
Year-by-Year Total Returns..................... 6
Average Annual Total Returns................... 7
INVESTOR EXPENSES................ ................ 8
Fees and Portfolio Expenses.................... 8
Example........................................ 9
THE PORTFOLIO IN DETAIL............. ............. 10
The Management Firm............................ 10
Portfolio Information Key...................... 11
Goal and Strategies............................ 12
Portfolio Investments.......................... 12
Risk Factors................................... 13
Portfolio Management........................... 13
Financial Highlights........................... 14
MORE ABOUT RISK................. ................. 16
Introduction................................... 16
Types of Investment Risk....................... 16
Certain Investment Practices................... 18
MEET THE MANAGERS................ ................ 21
ABOUT YOUR ACCOUNT............... ................ 23
Share Valuation................................ 23
Account Statements............................. 23
Distributions.................................. 23
Taxes.......................................... 24
BUYING SHARES.................. .................. 25
SELLING SHARES................. .................. 27
OTHER POLICIES................. .................. 29
FOR MORE INFORMATION............... .............. back cover
</Table>
3
KEY POINTS
GOAL AND PRINCIPAL STRATEGIES
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------
GOAL PRINCIPAL STRATEGIES PRINCIPAL RISK FACTORS
- ----------------------------------------------------------------------------------------------------
Long-term capital - Invests at least 80% of its net assets, plus any - Focus risk
appreciation borrowings for investment purposes, in equity - Foreign securities
securities from at least three foreign countries - Market risk
- Diversifies its investments across countries,
including emerging markets
- Favors stocks with discounted valuations, using
a value-based, bottom-up investment approach
- ----------------------------------------------------------------------------------------------------
</Table>
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.
FOCUS RISK
The portfolio generally invests 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 investments than a portfolio
that invests in a larger number of securities.
FOREIGN SECURITIES
Since the portfolio invests in foreign securities, it 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
4
political risks include economic policy changes, social and political
instability, military action and war.
MARKET RISK
The market value of a security may fluctuate, 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.
INVESTOR PROFILE
THIS PORTFOLIO IS DESIGNED FOR INVESTORS WHO:
- have longer time horizons
- are willing to assume the risk of losing money in exchange for attractive
potential long-term returns
- are investing for capital appreciation
- want to diversify their portfolios internationally
IT MAY NOT BE APPROPRIATE IF YOU:
- are investing for a shorter time horizon
- are uncomfortable with an investment that has a higher degree of volatility
- want to limit your exposure to foreign securities
- are looking for income
You should base your investment decision on your own goals, risk preferences
and time horizon.
5
PERFORMANCE SUMMARY
The bar chart below and the table on the next page provide an indication of the
risks of investing in the portfolio. The bar chart shows you how the portfolio's
performance has varied from year to year for up to 10 years. The table compares
the portfolio's performance (before and after taxes) over time to that of a
broad based securities market index. As with all mutual funds, past performance
(before and after taxes) is not a prediction of the future.
YEAR-BY-YEAR TOTAL RETURNS
[INTERNATIONAL FOCUS PORTFOLIO BAR GRAPHIC]
<Table>
Year Ended 12/31:
1993 52.36
1994 0.86
1995 9.91
1996 11.23
1997 -2.57
1998 6.15
1999 57.69
2000 -24.34
2001 -19.91
2002 -17.66
</Table>
Best quarter: 33.60% (Q4 99)
Worst Quarter: -20.71% (Q3 02)
Inception date: 9/1/92
6
AVERAGE ANNUAL TOTAL RETURNS
<Table>
<Caption>
ONE YEAR FIVE YEARS TEN YEARS LIFE OF INCEPTION
PERIOD ENDED 12/31/02: 2002 1997-2002 1992-2002 PORTFOLIO DATE
RETURN BEFORE TAXES -17.66% -3.54% 4.34% 4.23% 9/1/92
RETURN AFTER TAXES ON
DISTRIBUTIONS -17.72% -5.69% 2.43% 2.36%
RETURN AFTER TAXES ON
DISTRIBUTIONS AND SALE OF
FUND SHARES -10.69% -2.57% 3.46% 3.37%
MSCI ALL COUNTRY WORLD FREE
EXCLUDING US INDEX(2) -14.67% -2.66% 4.17% 3.51%(1)
</Table>
(1) Performance since August 31, 1992.
(2) The Morgan Stanley Capital International All Country World Free Ex-USA Index
is a free float-adjusted market capitalization index that is designed to measure
equity-market performance in the global developed and emerging markets,
excluding the U.S. It is the exclusive property of Morgan Stanley Capital
International Inc.
UNDERSTANDING PERFORMANCE
- - TOTAL RETURN tells you how much an investment in a portfolio has changed in
value over a given time period. It assumes that all dividends and capital
gains (if any) were reinvested in additional shares. The change in value can
be stated either as a cumulative return or as an average annual rate of
return.
- - A CUMULATIVE TOTAL RETURN is the actual return of an investment for a
specified period. The year-by-year total returns in the bar chart are examples
of one-year cumulative total returns.
- - An AVERAGE ANNUAL TOTAL RETURN applies to periods longer than one year. It
smooths out the variations in year-by-year performance to tell you what
constant annual return would have produced the investment's actual cumulative
return. This gives you an idea of an investment's annual contribution to your
portfolio, assuming you held it for the entire period.
- - Because of compounding, the average annual total returns in the table cannot
be computed by averaging the returns in the bar chart.
- - AFTER-TAX RETURNS are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation
and may differ from those shown, and after-tax returns shown are not relevant
to investors who hold their fund shares through tax-deferred arrangements,
such as 401(k) plans or individual retirement accounts.
7
INVESTOR EXPENSES
FEES AND PORTFOLIO EXPENSES
This table describes the fees and expenses you may pay as a shareholder. Annual
portfolio operating expenses figures are for the fiscal year ended October 31,
2002.
<Table>
<Caption>
- -----------------------------------------------------------------------------------
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 0.80%
- -----------------------------------------------------------------------------------
Distribution and service (12b-1) fee NONE
- -----------------------------------------------------------------------------------
Other expenses 0.54%
- -----------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES* 1.34%
- -----------------------------------------------------------------------------------
</Table>
* Actual fees and expenses for the fiscal year ended October 31, 2002 are shown
below. Fee waivers and expense reimbursements or credits reduced expenses for
the portfolio during 2002 but may be discontinued at any time.
<Table>
<Caption>
EXPENSES AFTER WAIVERS
AND REIMBURSEMENTS
Management fee 0.41%
Distribution and service (12b-1) fee NONE
Other expenses 0.54%
----
NET ANNUAL PORTFOLIO OPERATING EXPENSES 0.95%
</Table>
8
EXAMPLE
This example may help you compare the cost of investing in this 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 first table on the opposite page (before fee waivers and
expense reimbursements and credits), and you close your account at the end of
each of the time periods shown. Based on these assumptions, your cost would be:
<Table>
<Caption>
-------------------------------------------------------------------
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------------------------------------------------------------------
$136 $425 $734 $1,613
-------------------------------------------------------------------
</Table>
9
THE PORTFOLIO IN DETAIL
THE MANAGEMENT FIRM
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 advisers for
the portfolio
- A member of Credit Suisse Asset Management, the institutional and mutual fund
asset management arm of Credit Suisse First Boston, the investment banking
business of Credit Suisse Group (Credit Suisse). Under the management of
Credit Suisse First Boston, Credit Suisse Asset Management provides asset
management products and services to global corporate, institutional and
government clients
- Credit Suisse Asset Management companies manage approximately $55.8 billion
in the U.S. and $284.3 billion globally
- Credit Suisse Asset Management has offices in 14 countries, including
SEC-registered offices in New York, London, Sydney and Tokyo; other offices
(such as those in Budapest, Frankfurt, Milan, Moscow, Paris, Prague, Warsaw
and Zurich) are not registered with the U.S. Securities and Exchange
Commission. For the 2002 fiscal year, the portfolio paid CSAM 0.41% of its
average net assets for advisory services.
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, EC3A 7JJ
United Kingdom
- 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
For easier reading, CSAM's U.K. affiliate will be referred to as "CSAM U.K."
throughout this Prospectus.
CREDIT SUISSE ASSET MANAGEMENT LIMITED
Shiroyama JT Mori Bldg. 3-1
Toranomon 4-Chome
Minato-Ku
Tokyo 105-6026
Japan
- 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
10
- Also a member of Credit Suisse Asset Management
CREDIT SUISSE ASSET MANAGEMENT LIMITED
Level 32 Gateway
1 Macquarie Place
Sydney 2001
Australia
- 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 follows. 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 principal types of securities in which the portfolio invests. Secondary
investments are described in "More About Risk."
RISK FACTORS
The principal risk factors associated with the portfolio. Additional risk
factors are included in "More About Risk."
PORTFOLIO MANAGEMENT
The individuals designated by the investment adviser to handle the
portfolio's day-to-day management.
FINANCIAL HIGHLIGHTS
A table showing the portfolio's audited financial performance for up to five
years.
- TOTAL RETURN How much you would have earned on an investment in the
portfolio, assuming you had reinvested all dividend and capital-gain
distributions.
- PORTFOLIO TURNOVER An indication of trading frequency. The portfolio may sell
securities without regard to the length of time they have been held. A high
turnover rate may increase the portfolio's transaction costs and negatively
affect its performance. Portfolio turnover may also result in capital-gain
distributions that could raise your income-tax liability.
The Annual Report includes the auditor's report, along with the portfolio's
financial statements. It is available free upon request.
11
GOAL AND STRATEGIES
The portfolio seeks long-term capital appreciation. To pursue this goal, it
invests in equity securities of approximately 40 to 60 companies located in or
conducting a majority of their business in major foreign markets or companies
whose securities trade primarily in major foreign markets.
Major foreign markets currently consist of Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan,
Malaysia, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain,
Sweden, Switzerland and the United Kingdom. These countries are currently, or
proposed to be, represented in the Morgan Stanley Capital International Europe,
Australasia and Far East (EAFE(R)) Index.
The "top fifteen" (largest company holdings) in the portfolio may account for
40% or more of the portfolio's assets.
Under normal market conditions, the portfolio will invest at least 80% of net
assets plus any borrowings for investment purposes in equity securities of
issuers from at least three foreign countries.
The portfolio is not an index fund and will not seek to match the performance
or weightings of the EAFE Index.
The portfolio intends to diversify its investments across a number of
different countries. However, at times the portfolio may invest a significant
part of its assets in a single country. The portfolio may invest up to 15% of
its assets in emerging markets.
In choosing equity securities, the portfolio's portfolio managers use a
bottom-up investment approach that begins with an analysis of individual
companies. The managers look for companies of any size whose stocks appear to be
discounted relative to earnings, assets or projected growth. The portfolio
managers determine value based upon research and analysis, taking all relevant
factors into account.
PORTFOLIO INVESTMENTS
Equity holdings may consist of:
- common stocks
- warrants
- securities convertible into or exchangeable for common stocks
The portfolio may invest up to 20% of its net assets in debt securities,
including up to 5% of net assets in debt securities rated below investment
grade.
To a limited extent, the portfolio may also engage in other investment
practices.
12
RISK FACTORS
This portfolio's principal risk factors are:
- focus risk
- foreign securities
- market risk
Because the portfolio invests a greater proportion of its assets in the
securities of a smaller number of issuers, it may be subject to greater
volatility than a portfolio that invests in a larger number of securities.
The value of your investment generally will fluctuate in response to
stock-market movements. Because the portfolio invests internationally, it
carries additional risks, including currency, information and political risks.
These risks are defined in "More About Risk."
To the extent that it focuses on a single country or region, the portfolio
may take on increased volatility or may not perform as well as a more
geographically diversified equity fund. "More About Risk" details certain other
investment practices the fund may use. Please read that section carefully before
you invest.
PORTFOLIO MANAGEMENT
Todd D. Jacobson, Vincent J. McBride and Nancy Nierman manage the portfolio.
Anne S. Budlong, Harry M. Jaffe, Greg Norton-Kidd and Todor Petrov assist them.
You can find out more about them in "Meet the Managers."
13
FINANCIAL HIGHLIGHTS
The figures below have been audited by the portfolio's independent auditors,
PricewaterhouseCoopers LLP, whose report on the portfolio's financial statements
is included in the Annual Report.
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------
PERIOD ENDED: 10/02 10/01 10/00 10/99 10/98
PER SHARE DATA
- -----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.13 $17.61 $18.85 $14.41 $16.51
- -----------------------------------------------------------------------------------------------------
Investment operations:
Net investment income 0.07(1) 0.09 0.22(1) 0.20(1) 0.21
Net gain (loss) on investments and
foreign currency related items (both
realized and unrealized) (1.01) (3.18) (0.46) 4.38 (0.91)
- -----------------------------------------------------------------------------------------------------
Total from investment operations (0.94) (3.09) (0.24) 4.58 (0.70)
- -----------------------------------------------------------------------------------------------------
Less Dividends and Distributions:
Dividends from net investment income -- (0.21) (0.78) (0.14) (0.18)
Distributions from net realized gains -- (6.18) (0.22) 0.00 (1.22)
- -----------------------------------------------------------------------------------------------------
Total dividends and distributions -- (6.39) (1.00) (0.14) (1.40)
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $7.19 $8.13 $17.61 $18.85 $14.41
- -----------------------------------------------------------------------------------------------------
Total return(2) (11.56)% (26.56)% (1.98)% 32.02% (4.11)%
- -----------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------
Net assets, end of year
(000s omitted) $44,565 $95,622 $356,004 $551,830 $1,019,242
Ratio of expenses to average net
assets 0.95% 0.95%(3) 0.97%(3) 0.96%(3) 0.95%(3)
Ratio of net investment income to
average net assets 0.87% 0.61% 0.74% 1.23% 1.21%
Decrease reflected in above operating
expense ratios due to waivers/
reimbursement 0.39% 0.23% 0.19% 0.17% 0.13%
Portfolio turnover rate 161% 134% 111% 120% 114%
- -----------------------------------------------------------------------------------------------------
</Table>
(1) Per share information is calculated using the average share outstanding
method.
(2) Total returns are historical and assume changes in share price and
reinvestments of all dividends and distributions. Had certain expenses not
been reduced during the period shown, total returns would have been lower.
(3) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expense. These arrangements resulted in a reduction to
the net expense ratio by .00%, .02%, .01% and .00% for the years ended
October 31, 2001, 2000, 1999, and 1998, respectively. The net operating
expense ratio after these arrangements was .95% for the years ended October
31, 2001, 2000, 1999, and 1998, respectively.
14
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15
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 discussions of the portfolio contain more detailed
information. This section discusses other risks that may affect the portfolio.
The "Certain Investment Practices" table in this section takes a more
detailed look at certain investment practices the portfolio may use. Some of
these practices may have higher risks associated with them. However, the
portfolio has limitations and policies designed to reduce many of the risks.
TYPES OF INVESTMENT RISK
The following risks are referred to throughout this Prospectus.
ACCESS RISK Some countries may restrict 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.
EXTENSION RISK An unexpected rise in interest rates may extend the life of a
16
mortgage-backed security beyond the expected prepayment time, typically reducing
the security's value.
INFORMATION RISK Key information about an issuer, security or market may be
inaccurate or unavailable.
INTEREST-RATE RISK Changes in interest rates may cause a decline in the
market value of an investment. With bonds and other fixed-income securities, a
rise in interest rates typically causes a fall in values.
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 forgo 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 fluctuate, sometimes rapidly
and unpredictably. These fluctuations, which are often referred to as
"volatility," may cause a security to be worth less than it was worth at an
earlier time. Market risk may affect a single issuer, industry, sector of the
economy, or the market as a whole. Market risk is common to most
investments-including stocks and bonds, and the mutual funds that invest in
them.
OPERATIONAL RISK Some countries have less-developed securities markets (and
related transaction, registration and custody practices) that could subject 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.
17
CERTAIN INVESTMENT PRACTICES
For each of the following practices, this table shows the applicable investment
limitation. Risks are indicated for each practice.
KEY TO TABLE:
<Table>
[X] Permitted without limitation; does not indicate actual use
20% Italic type (e.g., 20%) represents an investment
limitation as a percentage of NET portfolio assets;
does not indicate actual use
20% Roman type (e.g., 20%) represents an investment
limitation as a percentage of TOTAL portfolio assets;
does not indicate actual use
[ ] Permitted, but not expected to be used to a
significant extent
- -- Not permitted
</Table>
<Table>
<Caption>
- -----------------------------------------------------------------------
INVESTMENT PRACTICE LIMIT
- -----------------------------------------------------------------------
BORROWING The borrowing of money from banks to meet
redemptions or for other temporary or emergency purposes.
Speculative exposure risk. 30%
- -----------------------------------------------------------------------
COUNTRY/REGION FOCUS Investing a significant portion of
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. [X]
- -----------------------------------------------------------------------
CURRENCY TRANSACTIONS Instruments, such as options, futures,
forwards or swaps, intended to manage portfolio exposure to
currency risk or to enhance total return. Options, futures
or forwards involve the right or obligation to buy or sell a
given amount of foreign currency at a specified price and
future date. Swaps involve the right or obligation to
receive or make payments based on two different currency
rates. Correlation, credit, currency, hedged exposure,
liquidity, political, speculative exposure, valuation
risks.(1) [X]
- -----------------------------------------------------------------------
EMERGING MARKETS Countries generally considered to be
relatively less developed or industrialized. Emerging
markets often face economic problems that could subject a
portfolio to increased volatility or substantial declines in
value. Deficiencies in regulatory oversight, market
infrastructure, shareholder protections and company laws
could expose the portfolio to risks beyond those generally
encountered in developed countries. Access, currency,
information, liquidity, market, operational, political,
valuation risks. 15%
- -----------------------------------------------------------------------
EQUITY AND EQUITY RELATED SECURITIES Common stocks and other
securities representing or related to ownership in a
company. May also include warrants, rights, options,
preferred stocks and convertible debt securities. These
investments may go down in value due to stock market
movements or negative company or industry events. Liquidity,
market, valuation risks. [X]
- -----------------------------------------------------------------------
FOREIGN SECURITIES Securities of foreign issuers. May
include depository receipts. Currency, information,
liquidity, market, operational, political, valuation risks. [X]
- -----------------------------------------------------------------------
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) [ ]
- -----------------------------------------------------------------------
</Table>
18
<Table>
<Caption>
- -----------------------------------------------------------------------
INVESTMENT PRACTICE LIMIT
- -----------------------------------------------------------------------
INVESTMENT-GRADE DEBT SECURITIES Debt securities rated
within the four highest grades (AAA/Aaa through BBB/Baa) by
Standard & Poor's or Moody's rating service, and unrated
securities of comparable quality. Credit, interest-rate,
market risks. 20%
- -----------------------------------------------------------------------
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES Debt securities
backed by pools of mortgages, including passthrough
certificates and other senior classes of collateralized
mortgage obligations (CMOs), and other receivables. Credit,
extension, interest-rate, liquidity, prepayment risks. [ ]
- -----------------------------------------------------------------------
NON-INVESTMENT-GRADE DEBT SECURITIES Debt securities and
convertible securities rated below the fourth-highest grade
(BBB/Baa) by Standard & Poor's or Moody's rating service,
and unrated securities of comparable quality. Commonly
referred to as junk bonds. Credit, information,
interest-rate, liquidity, market, valuation risks. 5%
- -----------------------------------------------------------------------
OPTIONS Instruments that provide a right to buy (call), a
particular security, currency or an 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. 25%
- -----------------------------------------------------------------------
PRIVATIZATION PROGRAMS Foreign governments may sell all or
part of their interests in enterprises they own or control.
Access, currency, information, liquidity, operational,
political, valuation risks. [-]
- -----------------------------------------------------------------------
REAL-ESTATE INVESTMENT TRUSTS (REITS) Pooled investment
vehicles that invest primarily in income producing
real-estate-related loans or interests. Credit,
interest-rate, market risks. [ ]
- -----------------------------------------------------------------------
RESTRICTED AND OTHER ILLIQUID SECURITIES Certain securities
with restrictions on trading, or those not actively traded.
May include private placements. Liquidity, market, valuation
risks. 10%
- -----------------------------------------------------------------------
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 risks. 33 1/3%
- -----------------------------------------------------------------------
SHORT SALES "AGAINST THE BOX" A short sale when the
portfolio owns enough shares of the security involved to
cover the borrowed securities, if necessary. Liquidity,
market, speculative exposure risks. [ ]
- -----------------------------------------------------------------------
</Table>
19
<Table>
<Caption>
- -----------------------------------------------------------------------
INVESTMENT PRACTICE LIMIT
- -----------------------------------------------------------------------
START-UP AND OTHER SMALL COMPANIES Companies with small
relative market capitalizations, including those with
continuous operations of less than three years. Information,
liquidity, market, valuation risks. [X]
- -----------------------------------------------------------------------
SWAPS A contract between the portfolio and another party in
which the parties agree to exchange streams of payments
based on certain benchmarks. For example, the portfolio may
use swaps to gain access to the performance of a benchmark
asset (such as an index or one or more stocks) where the
fund's direct investment is restricted. Credit, currency,
interest-rate, liquidity, market, political, speculative
exposure, valuation risks. [ ]
- -----------------------------------------------------------------------
TEMPORARY DEFENSIVE TACTICS Placing some or all of the
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 a
portfolio from achieving its goal. [ ]
- -----------------------------------------------------------------------
WARRANTS Options issued by a company granting the holder the
right to buy certain securities, generally common stock, at
a specified price and usually for a limited time. Liquidity,
market, speculative exposure risks. 10%
- -----------------------------------------------------------------------
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The purchase
or sale of securities for delivery at a future date; market
value may change before delivery. Liquidity, market,
speculative exposure risks. 20%
- -----------------------------------------------------------------------
</Table>
(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.
20
MEET THE MANAGERS
The following individuals are responsible for the day-to-day management of the
portfolio:
VINCENT J. MCBRIDE, Managing Director, has been Co-Portfolio Manager of the
portfolio since April 1998. He came to CSAM in 1999 as a result of Credit
Suisse's acquisition of Warburg Pincus Asset Management, Inc. (Warburg Pincus).
Prior to joining Warburg Pincus in 1994, Mr. McBride was an international equity
analyst at Smith Barney, an international equity analyst at General Electric
Investments, a portfolio manager/analyst at United Jersey Bank, and a portfolio
manager at First Fidelity Bank. He holds a B.S. in Economics from the University
of Delaware and an M.B.A. in Finance from Rutgers University.
NANCY NIERMAN, Director, has been Co-Portfolio Manager of the portfolio since
October 2000. She joined Warburg Pincus in 1996 and came to CSAM in 1999 when
Credit Suisse acquired Warburg Pincus. Previously, she was a vice president at
Fiduciary Trust Company International from 1992 to 1996. Ms. Nierman holds a
B.B.A. in International Business from Baruch College, City University of New
York.
TODD D. JACOBSON, CFA, Director, has been Co-Portfolio Manager of the portfolio
since August 2002. He came to CSAM in 1999 as a result of Credit Suisse's
acquisition of Warburg Pincus. Prior to joining Warburg Pincus in 1997, Mr.
Jacobson was an analyst with Brown Brothers Harriman from 1993 to 1997. He holds
a B.A. in Economics from the State University of New York at Binghamton and an
M.B.A. in Finance from the University of Pennsylvania's Wharton School.
ANNE S. BUDLONG, Director, has been Associate Portfolio Manager of the portfolio
since August 2002. Ms. Budlong joined CSAM in 2000 from Baring Asset Management
in London, where, during 1999 she was an Assistant Director and co-managed a
European small-capitalization equity retail fund and institutional portfolio.
From 1991 to 1999, she worked as an analyst focusing on large- and mid-cap
European equities at Clay Finlay in London and New York and, prior to that, as a
financial analyst at Oppenheimer & Co. Ms. Budlong holds a B.A. from Williams
College with a double major in economics and Asian studies.
HARRY M. JAFFE, Vice President, has been Associate Portfolio Manager of the
portfolio since August 2002. Mr. Jaffe joined Warburg Pincus in 1998 and came to
CSAM in 1999 when it acquired Warburg Pincus. Previously, he was an associate in
portfolio management at Scudder Kemper Investments from 1996 to 1998, an
accountant at Continuum Health Partners from 1995 to 1996 and, prior to that, an
assistant broker at Shearson Lehman. Mr. Jaffe holds a B.A. in economics from
the
21
American University and studied international economics at Cambridge
University's Institute for Economic and Political Studies. He is a member of the
Society of Quantitative Analysts.
GREG NORTON-KIDD, Director, has been assistant Portfolio Manager of the
portfolio since August 2002. He joined CSAM in 1999 from the Flemings group,
where he was a senior Japanese equity salesman in London, Tokyo and New York
from 1990 to 1999. Mr. Norton-Kidd holds an M.A. in Natural Sciences from
Cambridge University.
TODOR PETROV, Vice President, has been assistant Portfolio Manager of the
portfolio since August 2002. He joined CSAM in 1999 after graduating in May of
that year with an M.B.A. in finance from the University of Maryland. In 1997,
Mr. Petrov received a B.A. in applied economics and business administration from
the American University in Bulgaria.
Job titles indicate position with the investment adviser.
22
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 in the portfolio.
The portfolio values its securities based on market quotations when it
calculates its NAV. If market quotations are not readily available, the fair
value of the securities and other assets is determined in good faith by or under
the direction of the Board of Directors. Debt obligations that will mature in 60
days or less are valued on the basis of amortized cost, unless it is determined
that using this method would not reflect an investment's fair 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 prices.
This could cause the value of the portfolio's investments to be affected by
trading on days when you cannot buy or sell shares.
ACCOUNT STATEMENTS
In general, you will receive account statements or notices as follows:
- after every transaction that affects your account balance (except for
distribution reinvestments and automatic transactions)
- after any changes of name or address of the registered owner(s)
- otherwise, every calendar quarter
You will receive annual and semiannual financial reports.
DISTRIBUTIONS
As an investor in the portfolio, you will receive 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. The portfolios may make additional distributions at other
times if necessary for the portfolios to avoid a federal tax.
23
Distributions may be reinvested unless you choose on your account application
to have a check for your distributions mailed to you or sent by electronic
transfer.
Estimated year-end distribution information, including record and payment
dates, generally will be available late in the year by calling 800-222-8977.
Investors are encouraged to consider the potential tax consequences of
distributions prior to buying or selling shares of the portfolio.
TAXES
As with any investment, you should consider how your investment in the
portfolio will be taxed. If your account is not a tax-advantaged retirement
account, you should be especially aware of the following tax implications.
Please consult your tax professional concerning your own tax situation.
TAXES ON DISTRIBUTIONS
As long as the portfolio continues to meet the requirements for being a tax-
qualified regulated investment company, the portfolio pays no federal income tax
on the earnings and gains, if any, it distributes to shareholders.
Distributions you receive from the portfolio, whether reinvested or taken in
cash, are generally considered taxable. Distributions from the portfolio's
long-term capital gains are taxed as long-term capital gains regardless of how
long you have held portfolio shares. Distributions from other sources (including
the portfolio's short-term capital gains) are generally taxed as ordinary
income.
If you buy shares shortly before or on the "record date"-the date that
establishes you as the person to receive the upcoming distribution-you may
receive a portion of the money you just invested in the form of a taxable
distribution.
The Form 1099-DIV that is mailed to you every January details your
distributions and their federal-tax category.
TAXES ON TRANSACTIONS
Any time you sell or exchange shares, it is considered a taxable event for
you. Depending on the purchase price and the sale price of the shares you sell
or exchange, you may have a gain or loss on the transaction. You are responsible
for any tax liabilities generated by your transactions.
24
BUYING SHARES
OPENING AN ACCOUNT
Your account application provides us with key information we need to set up
your account correctly. It also lets you authorize services that you may find
convenient in the future.
If you need an application, call our Institutional Services Center to receive
one by mail or fax.
You can make your initial investment by wire. The "By Wire" method in the
table enables you to buy shares on a particular day at that day's closing NAV.
BUYING AND SELLING SHARES
The Institutional Fund is open on those days when the NYSE is open, typically
Monday through Friday. If we receive your request in proper form by the close of
the NYSE (usually 4 p.m. Eastern Time), your transaction will be priced at that
day's NAV. If we receive it after that time, it will be priced at the next
business day's NAV. "Proper form" means the fund or your financial-services
firm, as the case may be, has received a completed purchase application and
payment for shares (as described in this Prospectus).
Minimum Initial Investment $3,000,000
Minimum Subsequent Investment $50,000
The minimum initial investment for any group of related persons is an
aggregate of $4,000,000. Certain retirement plans for which recordkeeping is
performed on an omnibus basis for multiple participants are not subject to
investment minimums.
INVEST BY PURCHASES IN KIND
With CSAM's permission, investors may acquire shares in exchange for
portfolio securities. The portfolio securities must meet the following
requirements:
- Match the investment objectives and policies of the portfolio to be purchased
- Be considered by the portfolio's adviser to be an appropriate portfolio
investment
- Be easily valued, liquid and not subject to restrictions on transfer
You may have to pay administrative or custody costs if you make purchases in
kind and the execution of your purchase order may be delayed.
FINANCIAL-SERVICES FIRMS
You may be able to buy and sell portfolio shares through financial-services
firms such as banks, brokers and financial advisors. The portfolio may authorize
these firms (and other intermediaries that the firms may designate) to accept
orders. When an authorized firm or its designee has received your order, it is
considered received by the portfolio and will be priced at the next-computed
NAV.
25
Financial-services firms may charge transaction fees or other fees that you
could avoid by investing directly with the portfolio. Please read the firm's
program materials for any special provisions or additional service features that
may apply to your investment. Certain features of the portfolio, such as the
minimum initial investment amounts, may be modified.
ADDING TO AN ACCOUNT
You can add to your account in a variety of ways, as shown in the table.
<Table>
<Caption>
- ----------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
BY EXCHANGE
- ----------------------------------------------------------------------------------------
- - Call our Institutional Services Center - Call our Institutional Services Center
to request an exchange from another to request an exchange from another
Credit Suisse Fund or portfolio. Be Credit Suisse Fund or portfolio.
sure to read the current Prospectus for
the new fund or portfolio. - If you do not have telephone
privileges, mail or fax a letter of
- - If you do not have telephone instruction.
privileges, mail or fax a letter of
instruction.
- ----------------------------------------------------------------------------------------
BY WIRE
- ----------------------------------------------------------------------------------------
- - Complete and sign the New Account - Call our Institutional Services Center
Application. by 4 p.m. Eastern Time to inform us of
the incoming wire. Please be sure to
- - Call our Institutional Services Center specify the account registration,
and fax the signed New Account account number and the fund and
Application by 4 p.m. Eastern Time. portfolio name on your wire advice.
- - Institutional Services will telephone - Wire the money for receipt that day.
you with your account number. Please be
sure to specify the account
registration, account number and the
fund and portfolio name on your wire
advice.
- - Wire your initial investment for receipt that day.
- ----------------------------------------------------------------------------------------
</Table>
INSTITUTIONAL SERVICES CENTER
800-222-8977
MONDAY - FRIDAY, 8 A.M. - 6 P.M. ET
26
SELLING SHARES
<Table>
<Caption>
- ----------------------------------------------------------------------------------------
SELLING SOME OR ALL OF YOUR SHARES CAN BE USED FOR
BY MAIL
- ----------------------------------------------------------------------------------------
Write us a letter of instruction that - Sales of any amount.
includes:
- - your name(s) and signature(s)
- - the fund and portfolio name and account
number
- - the dollar amount you want to sell - how to send the proceeds Obtain a
signature guarantee or other documentation, if required (see "Selling Shares in
Writing").
Mail the materials to Credit Suisse Institutional Fund, Inc. If only a letter of
instruction is required, you can fax it to the Institutional Services Center
(unless a signature guarantee is required).
- ----------------------------------------------------------------------------------------
BY EXCHANGE
- ----------------------------------------------------------------------------------------
- - Call our Institutional Services Center - Accounts with telephone privileges.
to request an exchange into another If you do not have telephone privileges,
Credit Suisse Fund or portfolio. Be sure mail or fax a letter of instruction to
to read the current Prospectus for the exchange shares.
new fund or portfolio.
- ----------------------------------------------------------------------------------------
BY PHONE
- ----------------------------------------------------------------------------------------
Call our Institutional Services Center to - Accounts with telephone privileges.
request a redemption. You can receive the
proceeds as:
- - a check mailed to the address of record - a wire to your bank See "By Wire"
for details.
- ----------------------------------------------------------------------------------------
BY WIRE
- ----------------------------------------------------------------------------------------
- - Complete the "Wire Instructions" or - Requests by phone or mail.
"ACH on Demand" section of your New
Account Application.
- - For federal-funds wires, proceeds will
be wired on the next business day.
- ----------------------------------------------------------------------------------------
</Table>
27
HOW TO REACH US
INSTITUTIONAL SERVICES CENTER
Toll free: 800-222-8977
Fax: 646-354-5026
MAIL:
Credit Suisse Institutional Fund, Inc.
P.O. Box 55030
Boston, MA 02205-5030
OVERNIGHT/COURIER SERVICE:
Boston Financial Data Services, Inc.
Attn: Credit Suisse Institutional Fund, Inc.
66 Brooks Drive
Braintree, MA 02184
WIRE INSTRUCTIONS
State Street Bank and Trust Company
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
Credit Suisse Institutional Fund, Inc.
[Institutional Fund Portfolio Name]
DDA# 9904-649-2
F/F/C: [Account Number and Registration]
SELLING SHARES IN WRITING
Some circumstances require a written sell order, along with a signature
guarantee. These include:
- accounts whose address of record has been changed within the past 30 days
- redemption in certain large accounts (other than by exchange)
- requests to send the proceeds to a different payee or address than on record
- shares represented by certificates, which must be returned with your sell
order
A signature guarantee helps protect against fraud. You can obtain one from
most banks or securities dealers, but not from a notary public.
RECENTLY PURCHASED
SHARES
For portfolio shares purchased other than by bank wire, bank check, U.S.
Treasury check, certified check or money order, the portfolio will delay payment
of your cash redemption proceeds until the check or other purchase payment
clears, which generally takes up to 10 calendar days from the day of purchase.
At any time during this period, you may exchange into another portfolio.
INSTITUTIONAL SERVICES CENTER
800-222-8977
MONDAY - FRIDAY, 8 A.M. - 6 P.M. ET
28
OTHER POLICIES
TRANSACTION DETAILS
You are entitled to capital-gain and earned-dividend distributions as soon as
your purchase order is executed.
Your purchase order will be canceled if you place a telephone order by 4 p.m.
Eastern Time and we do not receive your wire that day. Your purchase order will
be canceled and you may be liable for losses or fees incurred by the Portfolio
if your investment check or Automated Clearing House transfer does not clear.
If you wire money without first calling our Institutional Services Center to
place an order, and your wire arrives after the close of regular trading on the
NYSE, then your order will not be executed until the end of the next business
day. In the meantime, your payment will be held uninvested. Your bank or other
financial-services firm may charge a fee to send or receive wire transfers.
While we monitor telephone-servicing resources carefully, during periods of
significant economic or market change it may be difficult to place orders by
telephone.
Uncashed redemption or distribution checks do not earn interest.
ACCOUNT CHANGES
Call our Institutional Services Center to update your account records
whenever you change your address. Institutional Services Center can also help
you change your account information or privileges.
SPECIAL SITUATIONS
The Institutional Fund reserves the right to:
- refuse any purchase or exchange request, including those from any person or
group who, in the fund's view, is likely to engage in excessive trading. For
exchanges, your redemption will be priced at the next-determined NAV. In
determining whether to accept or reject a purchase or exchange request, the
fund considers the historical trading activity of the account making the
trade, as well as the potential impact of any specific transaction on the
fund and its shareholders
- change or discontinue its exchange privilege after 60 days' notice to current
investors, or temporarily suspend this privilege during unusual market
conditions
- change the minimum account balance necessary to keep accounts open after 15
days' notice to current investors of any increases
- charge a wire-redemption fee
29
- 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 law (such as
during periods other than weekends or holidays when the NYSE is closed or
trading on the NYSE is restricted, or any other time that the SEC permits)
- modify or waive its minimum investment requirements for employees and clients
of CSAM and CSAM's affiliates
- stop offering its shares for a period of time (such as when management
believes that a substantial increase in assets could adversely affect it)
INSTITUTIONAL SERVICES CENTER
800-222-8977
MONDAY - FRIDAY, 8 A.M. - 6 P.M. ET
30
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31
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32
FOR MORE INFORMATION
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's managers
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 20549-0102 or electronically at
publicinfo@sec.gov.
Please contact Credit Suisse Institutional Fund, Inc. to obtain, without
charge, the SAI, Annual and Semiannual Reports and portfolio holdings and other
information, and to make shareholder inquiries:
BY TELEPHONE:
800-222-8977
BY FACSIMILE:
646-354-5026
BY MAIL:
Credit Suisse Institutional Fund, Inc.
P.O. Box 55030
Boston, MA 02205-5030
BY OVERNIGHT OR COURIER SERVICE:
Boston Financial Data Services, Inc.
Attn: Credit Suisse Institutional Fund, Inc.
66 Brooks Drive
Braintree, MA 02184
ON THE INTERNET:
www.CreditSuisseFunds.com
SEC FILE NUMBER:
Credit Suisse Institutional Fund, Inc. 811-6670
[CREDIT SUISSE ASSET MANAGEMENT LOGO]
P.O. BOX 55030, BOSTON, MA 02205-5030 800-222-8977 - www.CreditSuisseFunds.com
CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC., DISTRIBUTOR. CSINI-1-0203
PART B
INFORMATION REQUIRED IN THE
STATEMENT OF ADDITIONAL INFORMATION
SUBJECT TO COMPLETION, DATED MAY 23, 2003
STATEMENT OF ADDITIONAL INFORMATION
466 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017-3140
(800) 927-2874
RELATING TO THE ACQUISITION BY THE CREDIT SUISSE INSTITUTIONAL FUND, INC. -
INTERNATIONAL FOCUS PORTFOLIO (THE "ACQUIRING FUND")
OF THE ASSETS OF THE CREDIT SUISSE INSTITUTIONAL INTERNATIONAL FUND, INC. (THE
"ACQUIRED FUND").
Dated: June 30, 2003
This Statement of Additional Information, relating specifically to the
proposed transfer of all of the assets of the Acquired Fund to the Acquiring
Fund, in exchange for shares of the Acquiring Fund and the assumption by the
Acquiring Fund of the stated liabilities of the Acquired Fund, consists of this
cover page and the following described documents, each of which accompanies this
Statement of Additional Information and is incorporated herein by reference.
1. Statement of Additional Information for the Acquiring Fund,
dated February 28, 2003, as supplemented as of the date
hereof.
2. Statement of Additional Information for the Acquired Fund,
dated January 31, 2003, as supplemented as of the date hereof.
3. Annual Report of the Acquiring Fund for the year ended October
31, 2002.
4. Annual Report of the Acquired Fund for the year ended August
31, 2002.
5. Semi-Annual Report of the Acquired Fund for the semi-annual
period ended February 28, 2003.
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement, dated June 30, 2003, relating to the
above-referenced matter may be obtained without charge by calling or writing the
Acquiring Fund at the telephone number or address set forth above. This
Statement of Additional Information should be read in conjunction with the
Prospectus/Proxy Statement.
FINANCIAL STATEMENTS
The Annual Report of the Acquired Fund for the year ended August 31,
2002 and the Acquiring Fund for the year ended October 31, 2002, in each case
including audited financial statements, notes to the financial statements and
report of the independent auditors, are incorporated by reference herein. To
obtain a copy of the Annual Reports (and any more recent semi-annual report)
without charge, please call (800) 927-2874.
PRO FORMA FINANCIAL STATEMENTS
The following tables set forth the unaudited pro forma condensed
Statement of Assets and Liabilities and Schedule of Investments as of October
31, 2002 and the unaudited pro forma condensed Statement of Operations for the
fiscal year ended October 31, 2002 for each of the Acquiring Fund and the
Acquired Fund, as adjusted, giving effect to the Acquisition.
CREDIT SUISSE INSTITUTIONAL INTERNATIONAL FUND INTO CREDIT SUISSE
INSTITUTIONAL FUND, INC. - INTERNATIONAL FOCUS PORTFOLIO
PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2002 (UNAUDITED)
ACQUIRED FUND ACQUIRING FUND
CS INSTITUTIONAL FUND-
CS INSTITUTIONAL INTERNATIONAL FOCUS
INTERNATIONAL FUND PORTFOLIO ADJUSTMENTS PRO FORMA
--------------------------- ----------------------- ----------- --------------------------
COST VALUE COST VALUE COST VALUE
ASSETS
Investments at
value ............. 121,740,347 $117,981,235 46,166,772 $43,787,105 167,907,119 $161,768,340
Cash............... - 228 - 606 - 834
Foreign currency at
value.............. 22,413 22,353 719,904 720,939 742,317 743,292
Receivable for
investment sold
unsettled.......... - 888,046 - 140,084 - 1,028,130
Receivable for Fund
shares sold........ - 3,775 335 4,110
Dividends and
interest receivable - 517,238 - 207,994 - 725,232
Prepaid expenses... - 18,902 - 12,948 (18,902) (a) - 12,948
Due from Advisor... - - - - 18,902 (a) - 18,902
----------- ----------- ------------
Total Assets.... 119,431,777 44,870,011 164,301,788
----------- ----------- ------------
LIABILITIES
Payable for
investments
purchased unsettled 601,188 231,103 832,291
Advisory fee payable 78,105 22,811 100,916
Administration fee
payable............ 472 9,025 9,497
Distribution fee
payable............ 370 - 370
Payable for Fund
shares redeemed.... 40,595 - 40,595
Accrued expenses
payable............ 106,165 42,253 148,418
----------- ----------- ------------
Total Liabilities 826,895 305,192 1,132,087
----------- ----------- ------------
NET ASSETS............ 118,604,882 44,564,819 - 163,169,701
=========== =========== ============
Net Assets......... 118,604,882 44,564,819 - 163,169,701
Shares outstanding. 14,755,678 6,195,916 1,742,384 (b) 22,693,978
Net assets value,
offering price and
redemption price
per share.......... 8.04 7.19 7.19
3
ACQUIRED FUND ACQUIRING FUND
PRO FORMA SCHEDULE OF INVESTMENTS PRO FORMA SCHEDULE OF INVESTMENTS
AS OF OCTOBER 31, 2002 (UNAUDITED) AS OF OCTOBER 31, 2002 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------
MARKET MARKET
SECURITY NAME SHARES VALUE SECURITY NAME SHARES VALUE
- -------------- -------- ------- -------------- -------- -------
COMMON STOCKS (91.7%) COMMON STOCKS (91.7%)
Allied Irish Banks PLC 98,725 $1,388,318 Allied Irish Banks PLC 87,000 $1,223,436
Amersham PLC 78,716 710,582
Asahi Breweries, Ltd.* 241,000 1,585,603 Asahi Breweries, Ltd.* 96,000 631,609
ASML Holding NV* 221,448 1,940,835 ASML Holding NV* 79,010 692,467
Assicurazioni Generali SpA 70,716 1,260,561
AstraZeneca PLC 58,058 2,166,336 AstraZeneca PLC 22,060 823,132
Australia & New Zealand Banking
Group, Ltd. 62,899 657,363
Axa 233,942 3,491,364 Axa 102,190 1,525,089
Bank of Ireland 122,388 1,357,471 Bank of Ireland 48,299 535,710
BG Group PLC 286,219 1,141,863 BG Group PLC 271,800 1,084,339
BNP Paribas SA 69,465 2,769,577 BNP Paribas SA 23,650 942,928
BP PLC 242,282 1,554,105
Brambles Industries PLC 263,665 866,258
BT Group PLC 349,679 992,937
BYD Company Limited 292,500 598,194
Cadbury Schweppes PLC* 255,220 1,661,053 Cadbury Schweppes PLC* 196,080 1,276,151
Canon, Inc. 78,000 2,877,897 Canon, Inc. 19,000 701,026
China Mobile, Ltd.* 248,300 611,270
China Steel Corp. 46,000 24,751
Compagnie Generale des
Etablissements Michelin Class B 22,800 662,925
Companhia Vale do Rio Doce ADR * 34,668 913,502 Companhia Vale do Rio Doce ADR* 13,180 347,293
Companhia Vale do Rio Doce * 22,700 578,850 Companhia Vale do Rio Doce* 13,600 346,800
Cosco Pacific Ltd 908,000 727,648
Credit Agricole SA 68,748 1,124,719
DaimlerChrysler AG 18,600 640,090
DBS Group Holdings, Ltd. 134,018 941,183
Diageo PLC* 130,082 1,466,313 Diageo PLC * 76,079 857,579
DnB Holding ASA 292,887 1,350,920 DnB Holding ASA 259,400 1,196,464
E.ON AG 30,226 1,355,978 E.ON AG 13,500 605,628
ENI SpA 157,227 2,182,975
Foster's Group, Ltd. 1,269,198 3,346,064
Grupo Televisa SA ADR* 15,900 446,790 Grupo Televisa SA ADR* 24,300 682,830
Hang Seng Bank, Ltd. 12 129
HBOS PLC 122,397 1,354,792
Honda Motor Company, Ltd. 60,800 2,178,765 Honda Motor Company, Ltd. 17,600 630,695
Hongkong Electric Holdings, Ltd. 344,000 1,398,212 Hongkong Electric Holdings, Ltd. 318,700 1,295,378
HSBC Holdings PLC 79,607 886,761
IHC Caland NV 14,694 651,916
ING Groep NV* 78,423 1,311,737
ISS A/S* 17,000 548,209
Ito-Yokado Co., Ltd. 51,000 1,590,288
Koninklijke (Royal) KPN NV* 168,011 1,064,857 Koninklijke (Royal) KPN NV* 124,400 788,450
Kookmin Bank ADR 32,423 1,048,884
Mitsui Fudosan Company, Ltd. 213,000 1,632,629 Mitsui Fudosan Company, Ltd. 86,000 659,184
National Australia Bank, Ltd. 108,317 2,066,272 National Australia Bank, Ltd. 35,057 668,753
Nestle SA 15,412 3,304,384 Nestle SA 3,310 709,675
Nintendo Company, Ltd. 15,300 1,473,723 Nintendo Company, Ltd. 6,300 606,827
Nippon Yusen Kabushiki Kaisha 318,000 942,271
Nissan Motor Co., Ltd. 274,100 2,105,430
Nokia Oyj* 94,585 1,606,423
Nomura Holdings, Inc. 100,000 1,150,963
Novartis AG 86,061 3,282,256 Novartis AG 31,130 1,187,258
NSK, Ltd.* 275,000 662,212 NSK, Ltd.* 217,800 524,472
NTT DoCoMo, Inc.* 904 1,667,705
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS
AS OF OCTOBER 31, 2002 (UNAUDITED)
- -----------------------------------------------------------
MARKET
SECURITY NAME SHARES VALUE
- -------------- -------- -------
COMMON STOCKS (91.7%)
Allied Irish Banks PLC 185,725 $ 2,611,754
Amersham PLC 78,716 710,582
Asahi Breweries, Ltd.* 337,000 2,217,212
ASML Holding NV* 300,458 2,633,302
Assicurazioni Generali SpA 70,716 1,260,561
AstraZeneca PLC 80,118 2,989,468
Australia & New Zealand Banking
Group, Ltd. 62,899 657,363
Axa 336,132 5,016,453
Bank of Ireland 170,687 1,893,181
BG Group PLC 558,019 2,226,202
BNP Paribas SA 93,115 3,712,505
BP PLC 242,282 1,554,105
Brambles Industries PLC 263,665 866,258
BT Group PLC 349,679 992,937
BYD Company Limited 292,500 598,194
Cadbury Schweppes PLC* 451,300 2,937,204
Canon, Inc. 97,000 3,578,923
China Mobile, Ltd.* 248,300 611,270
China Steel Corp. 46,000 24,751
Compagnie Generale des
Etablissements Michelin Class B 22,800 662,925
Companhia Vale do Rio Doce ADR * 47,848 1,260,795
Companhia Vale do Rio Doce * 36,300 925,650
Cosco Pacific Ltd 908,000 727,648
Credit Agricole SA 68,748 1,124,719
DaimlerChrysler AG 18,600 640,090
DBS Group Holdings, Ltd. 134,018 941,183
Diageo PLC* 206,161 2,323,892
DnB Holding ASA 552,287 2,547,384
E.ON AG 43,726 1,961,606
ENI SpA 157,227 2,182,975
Foster's Group, Ltd. 1,269,198 3,346,064
Grupo Televisa SA ADR* 40,200 1,129,620
Hang Seng Bank, Ltd. 12 129
HBOS PLC 122,397 1,354,792
Honda Motor Company, Ltd. 78,400 2,809,460
Hongkong Electric Holdings, Ltd. 662,700 2,693,590
HSBC Holdings PLC 79,607 886,761
IHC Caland NV 14,694 651,916
ING Groep NV* 78,423 1,311,737
ISS A/S* 17,000 548,209
Ito-Yokado Co., Ltd. 51,000 1,590,288
Koninklijke (Royal) KPN NV* 292,411 1,853,307
Kookmin Bank ADR 32,423 1,048,884
Mitsui Fudosan Company, Ltd. 299,000 2,291,813
National Australia Bank, Ltd. 143,374 2,735,025
Nestle SA 18,722 4,014,059
Nintendo Company, Ltd. 21,600 2,080,550
Nippon Yusen Kabushiki Kaisha 318,000 942,271
Nissan Motor Co., Ltd. 274,100 2,105,430
Nokia Oyj* 94,585 1,606,423
Nomura Holdings, Inc. 100,000 1,150,963
Novartis AG 117,191 4,469,514
NSK, Ltd.* 492,800 1,186,684
NTT DoCoMo, Inc.* 904 1,667,705
4
OTP Bank 117,000 1,036,119
PSA Peugeot Citroen 36,561 1,551,105
Rio Tinto, Ltd. 162,599 2,883,367 Rio Tinto PLC 35,970 649,977
Riunione Adriatica di Sicurta Riunione Adriatica di Sicurta SpA
SpA (RAS) 95,600 1,191,001 (RAS) 77,940 970,990
Royal Bank of Scotland Group
PLC 70,746 1,664,659 Royal Bank of Scotland Group PLC 33,830 796,023
Royal Dutch Petroleum Co. 27,260 1,179,185
Sage Group PLC 366,045 836,109 Sage Group PLC 381,900 872,324
Samsung Electronics Company,
Ltd. GDR, Rule 144A*++ 12,608 1,799,792
Samsung Electronics Company, Ltd. 3,040 860,758
Scottish & Newcastle PLC 60,061 465,129
Scottish Power PLC 362,996 1,993,354 Scottish Power PLC 135,700 745,182
Shell Transport & Trading Co.
PLC 309,496 1,988,878
Shinhan Financial Group Company,
Ltd. 39,200 413,407
Shiseido Company, Ltd. 101,000 1,122,899 Shiseido Company, Ltd. 63,000 700,422
SKF AB Series B 39,300 984,420 SKF AB Series B 29,400 736,436
SMC Corp. 14,400 1,140,188
Smiths Group PLC 102,967 1,181,609 Smiths Group PLC 85,000 975,426
Sony Corp. 38,500 1,656,203
Stora Enso Oyj 33,263 345,879
Suez SA 55,386 973,581
Sumitomo Corp. 251,000 1,087,954
Taiwan Semiconductor
Manufacturing Company, Ltd. ADR 48,400 378,488
Takeda Chemical Industries,
Ltd.* 66,600 2,767,160 Takeda Chemical Industries, Ltd. * 24,300 1,009,640
TDC A/S 54,489 1,176,266 TDC A/S 43,758 944,613
Telecom Corporation Of New
Zealand, Ltd. 221,600 545,193
Telefonos de Mexico SA de CV
ADR 21,700 661,850
Television Broadcasts, Ltd. 231,100 792,646
Total Fina Elf SA 16,738 2,305,708 Total Fina Elf SA 6,820 939,475
TPG NV 68,105 1,103,408
UBS AG* 41,705 1,987,513
United Overseas Bank, Ltd. 189,896 1,441,151 United Overseas Bank, Ltd. 126,317 958,640
Vinci SA 20,267 1,131,989 Vinci SA 17,350 969,064
Vodafone Group PLC 1,226,756 1,972,039 Vodafone Group PLC 574,206 923,050
Yamada Denki Company, Ltd. W/I* 27,200 659,428
Yamada Denki Company, Ltd.* 11,900 293,357
WARRANTS (0.0%)
Wysdom, Inc.* 358,500 0
SHORT-TERM INVESTMENT (6.1%) SHORT-TERM INVESTMENT (6.6%)
State Street Bank & Trust Co. State Street Bank & Trust Co. Time
Time Deposit, 1.750%, 11/01/02 $7,195 7,195,000 Deposit, 1.750%, 11/01/02 $2,944 2,944,000
--------- ---------
TOTAL INVESTMENTS AT VALUE $117,981,235 TOTAL INVESTMENTS AT VALUE $43,787,105
(Cost $121,740,347) =========== (Cost $46,166,772) ==========
OTP Bank 117,000 1,036,119
PSA Peugeot Citroen 36,561 1,551,105
Rio Tinto, Ltd. 198,569 3,533,344
Riunione Adriatica di Sicurta SpA
(RAS) 173,540 2,161,991
Royal Bank of Scotland Group PLC 104,576 2,460,682
Royal Dutch Petroleum Co. 27,260 1,179,185
Sage Group PLC 747,945 1,708,433
Samsung Electronics Company, Ltd.
GDR, Rule 144A*++ 12,608 1,799,792
Samsung Electronics Company, Ltd. 3,040 860,758
Scottish & Newcastle PLC 60,061 465,129
Scottish Power PLC 498,696 2,738,536
Shell Transport & Trading Co. PLC 309,496 1,988,878
Shinhan Financial Group Company,
Ltd. 39,200 413,407
Shiseido Company, Ltd. 164,000 1,823,321
SKF AB Series B 68,700 1,720,856
SMC Corp. 14,400 1,140,188
Smiths Group PLC 187,967 2,157,035
Sony Corp. 38,500 1,656,203
Stora Enso Oyj 33,263 345,879
Suez SA 55,386 973,581
Sumitomo Corp. 251,000 1,087,954
Taiwan Semiconductor Manufacturing
Company, Ltd. ADR 48,400 378,488
Takeda Chemical Industries, Ltd.* 90,900 3,776,800
TDC A/S 98,247 2,120,879
Telecom Corporation Of New Zealand,
Ltd. 221,600 545,193
Telefonos de Mexico SA de CV ADR 21,700 661,850
Television Broadcasts, Ltd. 231,100 792,646
Total Fina Elf SA 23,558 3,245,183
TPG NV 68,105 1,103,408
UBS AG* 41,705 1,987,513
United Overseas Bank, Ltd. 316,213 2,399,791
Vinci SA 37,617 2,101,053
Vodafone Group PLC 1,800,962 2,895,089
Yamada Denki Company, Ltd. W/I* 27,200 659,428
Yamada Denki Company, Ltd.* 11,900 293,357
WARRANTS (0.0%)
Wysdom, Inc.* 358,500 0
PAR
SHORT-TERM INVESTMENT (6.1%) VALUE
State Street Bank & Trust Co. Time -------
Deposit, 1.750%, 11/01/02 $10,139 10,139,000
-----------
TOTAL INVESTMENTS AT VALUE $161,768,340
(Cost $167,907,119) ===========
++ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At October 31,
2002, these securities amounted to a value of $1,799,792 or 1.5% of net
assets.
* Non income producing security
CREDIT SUISSE INSTITUTIONAL INTERNATIONAL FUND INTO CREDIT SUISSE
INTERNATIONAL FOCUS PORTFOLIO
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE 12 MONTHS ENDED OCTOBER 31, 2002 (UNAUDITED)
ACQUIRED FUND ACQUIRING FUND ADJUSTMENTS PRO-FORMA
---------------------------------------------------------------
INVESTMENT INCOME
Dividends........................................... $ 3,818,488 $ 1,216,673 - $ 5,035,161
Interest............................................ 87,131 79,539 - 166,670
Securities Lending.................................. 232,280 - - 232,280
Foreign tax withheld................................ (556,623) (129,810) - (686,433)
------------ ------------ ---------- ------------
Total Investment Income........................... 3,581,276 1,166,402 - 4,747,678
------------ ------------ ---------- ------------
EXPENSES
Investment advisory services........................ 1,587,727 513,725 (233) (c) 2,101,219
Distribution fees - Class A......................... 2 - (2) (d) -
Distribution fees - Class B......................... 97 - (97) (e) -
Distribution fees - Class C......................... 171 - (171) (f) -
Transfer agent...................................... 15,749 10,319 (11,094) (g) 14,974
Custodian........................................... 98,916 50,105 (75,908) (h) 73,113
Administrative and accounting fees.................. 148,465 120,154 154,251 (i) 422,870
Registration fees................................... 6,379 23,809 (6,379) (j) 23,809
Interest ........................................... 1,512 17,690 (1,512) (j) 17,690
Legal............................................... 390 37,364 (390) (j) 37,364
Directors' fees..................................... 23,546 4,255 (23,546) (j) 4,255
Audit............................................... 35,012 20,707 (35,012) (j) 20,707
Printing............................................ 90,758 47,762 (90,758) (j) 47,762
Insurance expense................................... 59,321 12,261 (59,321) (j) 12,261
Miscellaneous....................................... 12,782 3,806 (12,782) (j) 3,806
2,080,827 861,957 (162,953) 2,779,831
Less: Expenses waived and reimbursed by CSAM........ - (251,908) (32,725) (k) (284,633)
Less: Expenses offset by Transfer Agent............. (47) - 47 (l) -
------------ ------------ ---------- ----------
Net Expenses........................................ 2,080,780 610,049 (195,631) 2,495,198
------------ ------------ ---------- ------------
Net Investment Income.................................. 1,500,496 556,353 195,631 2,252,480
------------ ------------ ---------- ------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) FROM
INVESTMENTS:
Net realized gain/(loss) from investments........... 2,752,661 (17,964,394) - (15,211,733)
Net realized gain from foreign currency transactions 641,645 41,353 - 682,998
Net change in unrealized
appreciation/(depreciation) from investments...... 20,145,535 12,012,517 - 32,158,052
Net change in unrealized
appreciation/(depreciation) from
foreign currency translations..................... (144,834) 67,681 - (77,153)
------------ ------------ ---------- ------------
Net realized and unrealized gain/(loss) from investments 23,395,007 (5,842,843) - 17,552,164
------------ ------------ ---------- ------------
Net increase (decrease) in net assets resulting from
operations............................................. $ 24,895,503 $ (5,286,490) $ 195,631 $ 19,804,644
============ ============ ========== ============
See notes to pro forma financial statements.
CREDIT SUISSE INSTITUTIONAL INTERNATIONAL FUND, INC.
CREDIT SUISSE INSTITUTIONAL FUND, INC. - INTERNATIONAL FOCUS PORTFOLIO
NOTES TO PRO FORMA FINANCIAL STATEMENTS
OCTOBER 31, 2002 (UNAUDITED)
1. BASIS OF COMBINATION
The unaudited Pro Forma Combined Portfolio of Investments, Pro Forma
Combined Statement of Assets and Liabilities and Pro Forma Combined Statement of
Operations give effect to the proposed merger of the Credit Suisse Institutional
International Fund ("Acquired Fund") into the Credit Suisse Institutional Fund,
Inc. - International Focus Portfolio ("Acquiring Fund"). The proposed merger
will be accounted for by the method of accounting for tax-free mergers of
investment companies. The merger provides for the transfer of all or
substantially all of the assets of the Acquired Fund to the Acquiring Fund and
the subsequent liquidation of the Acquired Fund. The accounting survivor in the
proposed merger will be the Acquiring Fund. This is because although the
Acquired Fund has the same investment objective as the Acquiring Fund, the
surviving fund will invest in a style that is similar to the way in which the
Acquiring Fund is currently operated (including hedging and investment in debt
securities).
The pro forma combined statements should be read in conjunction with
the historical financial statements of the constituent fund and the notes
thereto incorporated by reference in the Registration Statement filed on Form
N-14.
The Acquired Fund and the Acquiring Fund are both, open-end, management
investment companies registered under the Investment Company Act of 1940, as
amended.
PRO FORMA ADJUSTMENTS:
The Pro Forma adjustments below reflect the impact of the merger
between the Acquired Fund and the Acquiring Fund.
(a)1. Elimination of Prepaid expenses from the Acquired Fund.
(b)2. Redemption of Acquired Fund's shares from Acquired Fund and
purchase of shares in Acquiring Fund.
(c)3. To decrease Investment Advisory Services Fee to reflect combined
assets 22nd rounding effect.
(d)4. To eliminate12B-1 fees in Class A shares.
(e)5. To eliminate12B-1 fees in Class B shares.
(f)6. To eliminate 12B-1 fees for Class C shares.
(g)7. Adjustment based on the contractual agreement with the transfer agent
for the combined fund.
(h)8. Adjustment based on the contractual agreements with the custodian for
the combined fund.
(i)9. Adjustment to increase co-administration fee based upon combined
assets.
(j)10. Assumes elimination of duplicate charges in combination, and reflects
management's estimates of combined pro-forma operations.
(k)11. Adjustment to increase CSAM waiver.
(l)12. Assumes elimination of transfer agent credits.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CREDIT SUISSE INSTITUTIONAL INTERNATIONAL FUND, INC.
CREDIT SUISSE INSTITUTIONAL FUND, INC. - INTERNATIONAL FOCUS PORTFOLIO
NOTES TO PRO FORMA FINANCIAL STATEMENTS
OCTOBER 31, 2002 (UNAUDITED)
Following is a summary of significant accounting policies, which are
consistently followed by the Acquiring Fund and the Acquired Fund in the
preparation of their financial statements. The policies are in conformity with
accounting principles generally accepted in the United States of America.
Preparation of the financial statements includes the use of management
estimates. Actual results could differ from those estimates.
SECURITY VALUATION - The net asset value of each Fund is determined
daily as of the close of regular trading on the New York Stock Exchange, Inc.
Each Fund's equity investments are valued at market value, which is generally
determined using the last reported sales price. If no sales are reported,
investments are generally valued at the last reported bid price. Debt securities
are valued on the basis of broker quotations or valuations provided by a pricing
service which may use a matrix, formula or other objective method that takes
into consideration market indices, yield curves and other specific adjustments.
Securities and other assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of the Board of Directors under procedures established by the Board of
Directors in the absence of readily ascertainable market values. Debt
obligations that will mature in 60 days or less are valued on the basis of
amortized cost, which approximate market value, unless the Board determines that
using this method would not reflect an investment's fair value.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions
are accounted for on a trade date basis. Interest income is recorded on the
accrual basis. Dividends are recorded on the ex-dividend date. Income, expenses
(excluding class-specific expenses) and realized/unrealized gains/losses are
allocated proportionately to each class of shares based upon the relative net
asset value of outstanding shares of that class. The cost of investments sold is
determined by use of the specific identification method for both financial
reporting and income tax purposes.
FOREIGN CURRENCY TRANSACTIONS - The books and records of each Fund are
maintained in U.S. dollars. Transactions denominated in foreign currencies are
recorded at the current prevailing exchange rates. All assets and liabilities
denominated in foreign currencies are translated into U.S. dollar amounts at the
current exchange rate at the end of the period. Translation gains or losses
resulting from changes in the exchange rate during the reporting period and
realized gains and losses on the settlement of foreign currency transactions are
reported in the results of operations for the current period. Each Fund does not
isolate that portion of realized gains and losses on investments in equity
securities which is due to changes in the foreign exchange rate from that which
is due to changes in market prices of equity securities. Each Fund isolates that
portion of realized gains and losses on investments in debt securities which is
due to changes in the foreign exchange rate from that which is due to changes in
market prices of debt securities.
FEDERAL INCOME TAXES - The Acquired Fund and the Acquiring Fund intend
to qualify for tax treatment applicable to regulated investment companies under
the Internal Revenue Code
CREDIT SUISSE INSTITUTIONAL INTERNATIONAL FUND, INC.
CREDIT SUISSE INSTITUTIONAL FUND, INC. - INTERNATIONAL FOCUS PORTFOLIO
NOTES TO PRO FORMA FINANCIAL STATEMENTS
OCTOBER 31, 2002 (UNAUDITED)
of 1986 (the "Code"), as amended, and distribute all of its taxable income to
its shareholders. Therefore, no provision has been recorded for Federal income
or excise taxes.
DISTRIBUTIONS TO SHAREHOLDERS - Distributions from net investment
income and net realized capital gains, if any, are declared and paid at least
annually.
THE STATEMENT OF ADDITIONAL
INFORMATION OF THE ACQUIRING FUND DATED FEBRUARY 28, 2003; AND
THE ANNUAL REPORT OF THE ACQUIRING FUND
DATED OCTOBER 31, 2002.
STATEMENT OF ADDITIONAL INFORMATION
February 28, 2003
CREDIT SUISSE INSTITUTIONAL FUND, INC.
LARGE CAP VALUE PORTFOLIO
SMALL CAP GROWTH PORTFOLIO
INTERNATIONAL FOCUS PORTFOLIO
This Statement of Additional Information provides information about Credit
Suisse Institutional Fund, Inc. (the "Fund"), relating to the Large Cap Value
and Small Cap Growth Portfolios (each a "U.S. Portfolio" and collectively the
"U.S. Portfolios") and relating to the International Focus Portfolio (the
"International Focus Portfolio," and, together with the U.S. Portfolios, the
"Portfolios") that supplements information contained in the Prospectus for the
U.S. Portfolios and the Prospectus for the International Focus Portfolio
(collectively, the "Prospectuses"), each dated February 28, 2003.
The Fund's audited Annual Report, dated October 31, 2002, which either
accompanies this Statement of Additional Information or has previously been
provided to the investor to whom this Statement of Additional Information is
being sent, is incorporated herein by reference.
This Statement of Additional Information is not itself a Prospectus and no
investment in shares of the Portfolios should be made solely upon the
information contained herein. Copies of the Fund's Prospectuses, Annual Report
and information regarding each Portfolio's current performance may be obtained
by writing or telephoning:
Credit Suisse Institutional Fund
P.O. Box 55030
Boston, MA 02205-5030
1-800-222-8977
CONTENTS
Page
----
INVESTMENT OBJECTIVES AND POLICIES...................................................................... 1
General Investment Strategies..................................................................... 1
Options, Futures and Currency Exchange Transactions............................................... 1
Securities Options........................................................................... 1
Securities Index Options..................................................................... 4
OTC Options.................................................................................. 5
Currency Exchange Transactions............................................................... 5
Forward Currency Contracts.............................................................. 5
Currency Options........................................................................ 6
Currency Hedging........................................................................ 6
Futures Activities........................................................................... 7
Futures Contracts....................................................................... 7
Options on Futures Contracts............................................................ 8
Hedging Generally............................................................................ 9
Swaps (International Focus Portfolio)................................................... 10
Asset Coverage for Forward Contracts, Options, Futures and Options on Futures and Swaps...... 10
Foreign Investments.......................................................................... 11
Foreign Currency Exchange............................................................... 11
Information............................................................................. 12
Political Instability................................................................... 12
Foreign Markets......................................................................... 12
Increased Expenses...................................................................... 12
Privatizations.......................................................................... 12
Foreign Debt Securities................................................................. 12
Brady Bonds............................................................................. 13
Depository Receipts..................................................................... 13
Emerging Markets........................................................................ 14
U.S. Government Securities........................................................................ 14
Money Market Obligations.......................................................................... 15
Repurchase Agreements........................................................................ 15
Money Market Mutual Funds.................................................................... 15
Debt Securities................................................................................... 15
Below Investment Grade Securities............................................................ 16
Structured Securities........................................................................ 17
Mortgage-Backed Securities................................................................... 18
Asset-Backed Securities...................................................................... 19
Structured Notes, Bonds or Debentures........................................................ 19
Loan Participations and Assignments.......................................................... 19
Temporary Defensive Strategies.................................................................... 20
Securities of Other Investment Companies.......................................................... 20
Lending of Portfolio Securities................................................................... 20
When-Issued Securities and Delayed-Delivery Transactions.......................................... 21
Short Sales Against the Box.................................................................. 22
i
Convertible Securities............................................................................ 23
Warrants.......................................................................................... 23
Non-Publicly Traded and Illiquid Securities....................................................... 23
Rule 144A Securities......................................................................... 24
Emerging Growth and Smaller Capitalization Companies; Unseasoned Issuers.......................... 25
"Special Situation Companies"..................................................................... 25
Borrowing......................................................................................... 25
Reverse Repurchase Agreements and Dollar Rolls.................................................... 25
REITs 26
Non-Diversified Status (Small Cap Growth Portfolio)............................................... 26
INVESTMENT RESTRICTIONS................................................................................. 27
All Portfolios.................................................................................... 27
Large Cap Value and Small Cap Growth Portfolios................................................... 27
International Focus Portfolio..................................................................... 28
PORTFOLIO VALUATION..................................................................................... 30
PORTFOLIO TRANSACTIONS.................................................................................. 31
PORTFOLIO TURNOVER...................................................................................... 34
MANAGEMENT OF THE FUND.................................................................................. 34
Officers and Board of Directors................................................................... 34
Information Concerning Committees and Meetings of Directors....................................... 41
Directors' Compensation........................................................................... 42
Investment Advisory Agreements.................................................................... 42
Board Approval of Advisory Agreements............................................................. 44
Administration Agreements......................................................................... 45
Code of Ethics.................................................................................... 46
Custodian and Transfer Agent...................................................................... 46
Distribution and Shareholder Servicing............................................................ 47
Organization of the Fund.......................................................................... 47
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.......................................................... 48
EXCHANGE PRIVILEGE...................................................................................... 48
ADDITIONAL INFORMATION CONCERNING TAXES................................................................. 49
The Portfolios and Their Investments.............................................................. 49
Passive Foreign Investment Companies.............................................................. 51
Dividends and Distributions....................................................................... 52
Sales of Shares................................................................................... 53
Foreign Taxes..................................................................................... 53
Backup Withholding................................................................................ 53
Notices........................................................................................... 54
Other Taxation.................................................................................... 54
ii
DETERMINATION OF PERFORMANCE............................................................................ 54
Average Annual Total Returns................................................................. 54
After-Tax Return............................................................................. 56
INDEPENDENT ACCOUNTANTS AND COUNSEL..................................................................... 60
MISCELLANEOUS........................................................................................... 60
FINANCIAL STATEMENTS.................................................................................... 62
Appendix -- Description of Ratings A-1
iii
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the descriptions of each
Portfolio's investment objective and policies in the Prospectuses. There are no
assurances that the Portfolios will achieve their investment objectives.
The investment objective of the Large Cap Value Portfolio is
total return. The Large Cap Value Portfolio will invest, under normal
circumstances, at least 80% of its net assets, plus any borrowings for
investment purposes, in equity securities of U.S. companies with large market
capitalizations, which are defined as companies with market capitalizations
equal to or greater than the smallest company in the Russell 1000 Index. The
investment objective of the Small Cap Growth Portfolio is capital growth. The
Small Cap Growth Portfolio will invest, under normal circumstances, at least 80%
of its net assets, plus any borrowings for investment purposes in equity
securities of small U.S. companies. The portfolio considers a "small" company to
be one whose market capitalization is within the range of capitalization of
companies in the Russell 2000 Index. The investment objective of the
International Focus Portfolio is long-term capital appreciation. The
International Focus Portfolio will invest, under normal circumstances, at least
80% of its net assets plus any borrowings for investment purposes in equity
securities of issuers from at least three foreign countries. The 80% investment
policies will not be applicable during periods when a Portfolio pursues a
temporary defensive strategy, as discussed below. The Portfolios' 80% investment
policies are non-fundamental and may be changed by the Board of Directors of the
Fund to become effective upon 60 days' notice to shareholders of the applicable
Portfolio prior to any such change.
General Investment Strategies
Unless otherwise indicated, all of the Portfolios are
permitted, but not obligated, to engage in the following investment strategies,
subject to any percentage limitations set forth below. Any percentage limitation
on a Portfolio's ability to invest in debt securities will not be applicable
during periods when the Portfolio pursues a temporary defensive strategy as
discussed below.
The Portfolios 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
Each Portfolio may purchase and write (sell) options on
securities, securities indices and currencies for hedging purposes or to
increase total return. Each Portfolio may enter into futures contracts and
options on futures contracts on securities, securities indices and currencies
and may engage in currency exchange transactions for these same purposes, which
may involve speculation. Up to 20% of the Portfolio's total assets may be at
risk in connection with investing in options on securities, securities indices
and, if applicable, currencies. The amount of assets considered to be "at risk"
in these transactions is, in the case of purchasing options, the amount of the
premium paid, and, in the case of writing options, the value of the underlying
obligation.
Securities Options. Each Portfolio may write covered put and
call options on stock and debt securities and each Portfolio may purchase such
options that are traded on foreign
and U.S. exchanges, as well as OTC options. A Portfolio realizes fees (referred
to as "premiums") for granting the rights evidenced by the options it has
written. A put option embodies the right of its purchaser to compel the writer
of the option to purchase from the option holder an underlying security at a
specified price for a specified time period or at a specified time. In contrast,
a call option embodies the right of its purchaser to compel the writer of the
option to sell to the option holder an underlying security at a specified price
for a specified time period or at a specified time.
The potential loss associated with purchasing an option is
limited to the premium paid, and the premium would partially offset any gains
achieved from its use. However, for an option writer the exposure to adverse
price movements in the underlying security or index is potentially unlimited
during the exercise period. Writing securities options may result in substantial
losses to a Portfolio, force the sale or purchase of portfolio securities at
inopportune times or at less advantageous prices, limit the amount of
appreciation the Portfolio could realize on its investments or require the
Portfolio to hold securities it would otherwise sell.
The principal reason for writing covered options on a security
is to attempt to realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. In return for a premium, a Portfolio
as the writer of a covered call option forfeits the right to any appreciation in
the value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). A Portfolio
that writes call options retains the risk of an increase in the price of the
underlying security. The size of the premiums that the Portfolio may receive may
be adversely affected as new or existing institutions, including other
investment companies, engage in or increase their option-writing activities.
If security prices rise, a put writer would generally expect
to profit, although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that the
writer will also profit, because it should be able to close out the option at a
lower price. If security prices decline, the put writer would expect to suffer a
loss. This loss may be less than the loss from purchasing the underlying
instrument directly to the extent that the premium received offsets the effects
of the decline.
In the case of options written by a Portfolio that are deemed
covered by virtue of the Portfolio's holding convertible or exchangeable
preferred stock or debt securities, the time required to convert or exchange and
obtain physical delivery of the underlying common stock with respect to which
the Portfolio has written options may exceed the time within which the Portfolio
must make delivery in accordance with an exercise notice. In these instances,
the Portfolio may purchase or temporarily borrow the underlying securities for
purposes of physical delivery. By so doing, the Portfolio will not bear any
market risk, since the Portfolio will have the absolute right to receive from
the issuer of the underlying security an equal number of shares to replace the
borrowed securities, but the Portfolio may incur additional transaction costs or
interest expenses in connection with any such purchase or borrowing.
Additional risks exist with respect to certain of the
securities for which a Portfolio may write covered call options. For example, if
a Portfolio writes covered call options on mortgage-backed securities, the
mortgage-backed securities that it holds as cover may, because of scheduled
amortization or unscheduled prepayments, cease to be sufficient cover. If this
2
occurs, the Portfolio will compensate for the decline in the value of the cover
by purchasing an appropriate additional amount of mortgage-backed securities.
Options written by a Portfolio will normally have expiration
dates between one and nine months from the date written. The exercise price of
the options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. The Portfolios may write (i) in-the-money call
options when Credit Suisse Asset Management, LLC ("CSAM"), the Portfolios'
investment adviser, expects that the price of the underlying security will
remain flat or decline moderately during the option period, (ii) at-the-money
call options when CSAM expects that the price of the underlying security will
remain flat or advance moderately during the option period and (iii)
out-of-the-money call options when CSAM expects that the premiums received from
writing the call option plus the appreciation in market price of the underlying
security up to the exercise price will be greater than the appreciation in the
price of the underlying security alone. In any of the preceding situations, if
the market price of the underlying security declines and the security is sold at
this lower price, the amount of any realized loss will be offset wholly or in
part by the premium received. Out-of-the-money, at-the-money and in-the-money
put options (the reverse of call options as to the relation of exercise price to
market price) may be used in the same market environments that such call options
are used in equivalent transactions. To secure its obligation to deliver the
underlying security when it writes a call option, a Portfolio will be required
to deposit in escrow the underlying security or other assets in accordance with
the rules of the Options Clearing Corporation (the "Clearing Corporation") and
of the securities exchange on which the option is written.
Prior to their expirations, put and call options may be sold
in closing sale or purchase transactions (sales or purchases by the Portfolio
prior to the exercise of options that it has purchased or written, respectively,
of options of the same series) in which the Portfolio may realize a profit or
loss from the sale. An option position may be closed out only where there exists
a secondary market for an option of the same series on a recognized securities
exchange or in the OTC market. When the Portfolio has purchased an option and
engages in a closing sale transaction, whether the Portfolio realizes a profit
or loss will depend upon whether the amount received in the closing sale
transaction is more or less than the premium the Portfolio initially paid for
the original option plus the related transaction costs. Similarly, in cases
where the Portfolio has written an option, it will realize a profit if the cost
of the closing purchase transaction is less than the premium received upon
writing the original option and will incur a loss if the cost of the closing
purchase transaction exceeds the premium received upon writing the original
option. The Portfolio may engage in a closing purchase transaction to realize a
profit, to prevent an underlying security with respect to which it has written
an option from being called or put or, in the case of a call option, to unfreeze
an underlying security (thereby permitting its sale or the writing of a new
option on the security prior to the outstanding option's expiration). The
obligation of the Portfolio under an option it has written would be terminated
by a closing purchase transaction (the Portfolio would not be deemed to own an
option as a result of the transaction). So long as the obligation of the
Portfolio as the writer of an option continues, the Portfolio may be assigned an
exercise notice by the broker-dealer through which the option was sold,
requiring the Portfolio to deliver the underlying security against payment of
the exercise price. This obligation terminates when the option expires or the
Portfolio effects a
3
closing purchase transaction. A Portfolio cannot effect a closing purchase
transaction with respect to an option once it has been assigned an exercise
notice.
There is no assurance that sufficient trading interest will
exist to create a liquid secondary market on a securities exchange for any
particular option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an option may cease to
exist for a variety of reasons. In the past, for example, higher than
anticipated trading activity or order flow or other unforeseen events have at
times rendered certain of the facilities of the Clearing Corporation and various
securities exchanges inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. Moreover,
a Portfolio's ability to terminate options positions established in the OTC
market may be more limited than for exchange-traded options and may also involve
the risk that securities dealers participating in OTC transactions would fail to
meet their obligations to the Portfolio. The Portfolio, however, intends to
purchase OTC options only from dealers whose debt securities, as determined by
CSAM, are considered to be investment grade. If, as a covered call option
writer, the Portfolio is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security and would
continue to be at market risk on the security.
Securities exchanges generally have established limitations
governing the maximum number of calls and puts of each class which may be held
or written, or exercised within certain time periods by an investor or group of
investors acting in concert (regardless of whether the options are written on
the same or different securities exchanges or are held, written or exercised in
one or more accounts or through one or more brokers). It is possible that the
Fund or a Portfolio and other clients of CSAM and certain of its affiliates may
be considered to be such a group. A securities exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose certain other sanctions. These limits may restrict the number of options
a Portfolio will be able to purchase on a particular security.
Securities Index Options. Each Portfolio may purchase (in the
case of each of the U.S. Portfolios, with respect to up to 10% of its total
assets) and each Portfolio may write exchange-listed and OTC put and call
options on securities indexes. A securities index measures the movement of a
certain group of securities by assigning relative values to the securities
included in the index, fluctuating with changes in the market values of the
securities included in the index. Some securities index options are based on a
broad market index, such as the NYSE Composite Index, or a narrower market index
such as the Standard & Poor's 100. Indexes may also be based on a particular
industry or market segment.
Options on securities indexes are similar to options on
securities except that (i) the expiration cycles of securities index options are
monthly, while those of securities options are currently quarterly, and (ii) the
delivery requirements are different. Instead of giving the right to take or make
delivery of securities at a specified price, an option on a securities index
gives the holder the right to receive a cash "exercise settlement amount" equal
to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by (b)
a fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of the
4
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 Portfolios may purchase OTC or dealer options
or sell covered OTC options. Unlike exchange-listed options where an
intermediary or clearing corporation, such as the Clearing Corporation, assures
that all transactions in such options are properly executed, the responsibility
for performing all transactions with respect to OTC options rests solely with
the writer and the holder of those options. A listed call option writer, for
example, is obligated to deliver the underlying securities to the clearing
organization if the option is exercised, and the clearing organization is then
obligated to pay the writer the exercise price of the option. If a Portfolio
were to purchase a dealer option, however, it would rely on the dealer from whom
it purchased the option to perform if the option were exercised. If the dealer
fails to honor the exercise of the option by the Portfolio, the Portfolio would
lose the premium it paid for the option and the expected benefit of the
transaction.
Exchange-traded options generally have a continuous liquid
market while OTC or dealer options do not. Consequently, the Portfolio will
generally be able to realize the value of a dealer option it has purchased only
by exercising it or reselling it to the dealer who issued it. Similarly, when
the Portfolio writes a dealer option, it generally will be able to close out the
option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Portfolio originally wrote the option.
Although the Portfolios will seek to enter into dealer options only with dealers
who will agree to and that are expected to be capable of entering into closing
transactions with the Portfolios, there can be no assurance that the Portfolio
will be able to liquidate a dealer option at a favorable price at any time prior
to expiration. The inability to enter into a closing transaction may result in
material losses to a Portfolio. Until the Portfolio, as a covered OTC call
option writer, is able to effect a closing purchase transaction, it will not be
able to liquidate securities (or other assets) used to cover the written option
until the option expires or is exercised. This requirement may impair the
Portfolio's ability to sell portfolio securities or, with respect to currency
options, currencies at a time when such sale might be advantageous.
Currency Exchange Transactions. The value in U.S. dollars of
the assets of a Portfolio that are invested in foreign securities may be
affected favorably or unfavorably by changes in a variety of factors not
applicable to investment in U.S. securities, and the Portfolio may incur costs
in connection with conversion between various currencies. Currency exchange
transactions may be from any non-U.S. currency into U.S. dollars or into other
appropriate currencies. Each Portfolio will conduct its currency exchange
transactions (i) on a spot (i.e., cash) basis at the rate prevailing in the
currency exchange market, (ii) through entering into futures contracts or
options on such contracts (as described above), (iii) through entering into
forward contracts to purchase or sell currency or (iv) by purchasing
exchange-traded currency options.
Forward Currency Contracts. A forward currency contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract as agreed
upon by the parties, at a price set at the time of the contract. These contracts
are entered into in the interbank market conducted directly
5
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.
Forward currency contracts are highly volatile, and a
relatively small price movement in a forward currency contract may result in
substantial losses to a Portfolio. To the extent a Portfolio engages in forward
currency contracts to generate current income, the Portfolio will be subject to
these risks which the Portfolio might otherwise avoid (e.g., through the use of
hedging transactions).
Currency Options. The Portfolios may purchase exchange-traded
put and call options on foreign currencies. Put options convey the right to sell
the underlying currency at a price which is anticipated to be higher than the
spot price of the currency at the time the option is exercised. Call options
convey the right to buy the underlying currency at a price which is expected to
be lower than the spot price of the currency at the time the option is
exercised.
Currency Hedging. The Portfolios' currency hedging will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is the purchase or sale of forward currency with
respect to specific receivables or payables of a Portfolio generally accruing in
connection with the purchase or sale of its portfolio securities. Position
hedging is the sale of forward currency with respect to portfolio security
positions. A Portfolio may not position hedge to an extent greater than the
aggregate market value (at the time of entering into the hedge) of the hedged
securities.
A decline in the U.S. dollar value of a foreign currency in
which the Portfolio's securities are denominated will reduce the U.S. dollar
value of the securities, even if their value in the foreign currency remains
constant. The use of currency hedges does not eliminate fluctuations in the
underlying prices of the securities, but it does establish a rate of exchange
that can be achieved in the future. For example, in order to protect against
diminutions in the U.S. dollar value of non-dollar denominated securities it
holds, a Portfolio may purchase foreign currency put options. If the value of
the foreign currency does decline, the Portfolio will have the right to sell the
currency for a fixed amount in dollars and will thereby offset, in whole or in
part, the adverse effect on the U.S. dollar value of its securities that
otherwise would have resulted. Conversely, if a rise in the U.S. dollar value of
a currency in which securities to be acquired are denominated is projected,
thereby potentially increasing the cost of the securities, the Portfolio may
purchase call options on the particular currency. The 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
6
the risk of loss due to a decline in the value of a hedged currency, at the same
time, they also limit any potential gain that might result should the value of
the currency increase. If a devaluation is generally anticipated, the Portfolio
may not be able to contract to sell a currency at a price above the devaluation
level it anticipates.
While the values of currency futures and options on futures,
forward currency contracts and currency options may be expected to correlate
with exchange rates, they will not reflect other factors that may affect the
value of the Portfolio's investments and a currency hedge may not be entirely
successful in mitigating changes in the value of the Portfolio's investments
denominated in that currency. A currency hedge, for example, should protect a
Yen-denominated bond against a decline in the Yen, but will not protect the
Portfolio against a price decline if the issuer's creditworthiness deteriorates.
Futures Activities. Each Portfolio may enter into foreign
currency, interest rate and securities index futures contracts and purchase and
write (sell) related options traded on exchanges designated by the Commodity
Futures Trading Commission (the "CFTC") or consistent with CFTC regulations on
foreign exchanges. These futures contracts are standardized contracts for the
future delivery of foreign currency or an interest rate sensitive security or,
in the case of stock index and certain other futures contracts, a cash
settlement with reference to a specified multiplier times the change in the
specified index, exchange rate or interest rate. An option on a futures contract
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract.
These transactions may be entered into for "bona fide hedging"
purposes as defined in CFTC regulations and other permissible purposes including
hedging against changes in the value of portfolio securities due to anticipated
changes in currency values, interest rates and/or market conditions and
increasing return. Aggregate initial margin and premiums (discussed below)
required to establish positions other than those considered to be "bona fide
hedging" by the CFTC will not exceed 5% of a Portfolio's net asset value after
taking into account unrealized profits and unrealized losses on any such
contracts it has entered into. The Portfolios reserve the right to engage in
transactions involving futures contracts and options on futures contracts to the
extent allowed by CFTC regulations in effect from time to time and in accordance
with a Portfolio's policies.
Futures Contracts. A foreign currency futures contract
provides for the future sale by one party and the purchase by the other party of
a certain amount of a specified non-U.S. currency at a specified price, date,
time and place. An interest rate futures contract provides for the future sale
by one party and the purchase by the other party of a certain amount of a
specific interest rate sensitive financial instrument (debt security) at a
specified price, date, time and place. Securities indexes are capitalization
weighted indexes which reflect the market value of the securities represented in
the indexes. A securities index futures contract is an agreement to be settled
by delivery of an amount of cash equal to a specified multiplier times the
difference between the value of the index at the close of the last trading day
on the contract and the price at which the agreement is made.
No consideration is paid or received by a Portfolio upon
entering into a futures contract. Instead, the Portfolio is required to
segregate with its custodian an amount of cash or securities acceptable to the
broker equal to approximately 1% to 10% of the contract amount (this amount is
subject to change by the exchange on which the contract is traded, and brokers
7
may charge a higher amount). This amount is known as "initial margin" and is in
the nature of a performance bond or good faith deposit on the contract which is
returned to the Portfolio upon termination of the futures contract, assuming all
contractual obligations have been satisfied. The broker will have access to
amounts in the margin account if the Portfolio fails to meet its contractual
obligations. Subsequent payments, known as "variation margin," to and from the
broker, will be made daily as the currency, financial instrument or securities
index underlying the futures contract fluctuates, making the long and short
positions in the futures contract more or less valuable, a process known as
"marking-to-market." The Portfolios will also incur brokerage costs in
connection with entering into futures transactions.
At any time prior to the expiration of a futures contract, a
Portfolio may elect to close the position by taking an opposite position, which
will operate to terminate the Portfolio's existing position in the contract.
Positions in futures contracts and options on futures contracts (described
below) may be closed out only on the exchange on which they were entered into
(or through a linked exchange). No secondary market for such contracts exists.
Although the Portfolios may enter into futures contracts only if there is an
active market for such contracts, there is no assurance that an active market
will exist at any particular time. Most futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit or trading may be suspended for
specified periods during the day. It is possible that futures contract prices
could move to the daily limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of futures positions at an
advantageous price and subjecting a Portfolio to substantial losses. In such
event, and in the event of adverse price movements, the Portfolio would be
required to make daily cash payments of variation margin. In such situations, if
the Portfolio had insufficient cash, it might have to sell securities to meet
daily variation margin requirements at a time when it would be disadvantageous
to do so. In addition, if the transaction is entered into for hedging purposes,
in such circumstances the Portfolio may realize a loss on a futures contract or
option that is not offset by an increase in the value of the hedged position.
Losses incurred in futures transactions and the costs of these transactions will
affect the Portfolio's performance.
Options on Futures Contracts. Each Portfolio may purchase and
write put and call options on foreign currency, interest rate and stock index
futures contracts and may enter into closing transactions with respect to such
options to terminate existing positions. There is no guarantee that such closing
transactions can be effected; the ability to establish and close out positions
on such options will be subject to the existence of a liquid market.
An option on a currency, interest rate or securities index
futures contract, as contrasted with the direct investment in such a contract,
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time prior
to the expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Upon exercise of
an option, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on a
futures contract is limited to the premium paid for the option (plus transaction
costs). Because the value of the option is fixed at the point of sale, there are
no daily
8
cash payments by the purchaser to reflect changes in the value of the underlying
contract; however, the value of the option does change daily and that change
would be reflected in the net asset value of the Portfolio.
Hedging Generally. In addition to entering into options and
futures transactions for other purposes, including generating current income to
offset expenses or increase return, each Portfolio may enter into these
transactions as hedges to reduce investment risk, generally by making an
investment expected to move in the opposite direction of a portfolio position. A
hedge is designed to offset a loss in a portfolio position with a gain in the
hedged position; at the same time, however, a properly correlated hedge will
result in a gain in the portfolio position being offset by a loss in the hedged
position. As a result, the use of options and futures transactions for hedging
purposes could limit any potential gain from an increase in the value of the
position hedged. In addition, the movement in the portfolio position hedged may
not be of the same magnitude as movement in the hedge. With respect to futures
contracts, since the value of portfolio securities will far exceed the value of
the futures contracts sold by the Portfolio, an increase in the value of the
futures contracts could only mitigate, but not totally offset, the decline in
the value of the Portfolio's assets.
In hedging transactions based on an index, whether a Portfolio
will realize a gain or loss depends upon movements in the level of securities
prices in the stock market generally or, in the case of certain indexes, in an
industry or market segment, rather than movements in the price of a particular
security. The risk of imperfect correlation increases as the composition of the
Portfolio's portfolio varies from the composition of the index. In an effort to
compensate for imperfect correlation of relative movements in the hedged
position and the hedge, the Portfolio's hedge positions may be in a greater or
lesser dollar amount than the dollar amount of the hedged position. Such "over
hedging" or "under hedging" may adversely affect the Portfolio's net investment
results if market movements are not as anticipated when the hedge is
established. Securities index futures transactions may be subject to additional
correlation risks. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which would distort the normal relationship between the
securities index and futures markets. Secondly, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market also may cause temporary
price distortions. Because of the possibility of price distortions in the
futures market and the imperfect correlation between movements in the securities
index and movements in the price of securities index futures, a correct forecast
of general market trends by CSAM still may not result in a successful hedging
transaction.
A Portfolio will engage in hedging transactions only when
deemed advisable by CSAM, and successful use by the Portfolio of hedging
transactions will be subject to CSAM's ability to predict trends in currency,
interest rate or securities markets, as the case may be, and to predict
correctly movements in the directions of the hedge and the hedged position and
the correlation between them, which predictions could prove to be inaccurate.
This requires different skills and techniques than predicting changes in the
price of individual securities, and there can be no assurance that the use of
these strategies will be successful. Even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or trends.
Losses incurred in hedging transactions and the costs of these transactions will
affect the Portfolio's performance.
9
Swaps (International Focus Portfolio). The International Focus
Portfolio may enter into swaps relating to indexes, interest rates, currencies
and equity and debt interests of foreign issuers. A swap transaction is an
agreement between a Portfolio and a counterparty to act in accordance with the
terms of the swap contract. Index swaps involve the exchange by the Portfolio
with another party of the respective amounts payable with respect to a notional
principal amount related to one or more indexes. Interest rate swaps involve the
exchange by the Portfolios with another party of their respective commitments to
pay or receive interest, such as an exchange of fixed rate payments for floating
rate payments. Currency swaps involve the exchange of cash flows on a notional
amount of two or more currencies based on their relative future values. An
equity or debt swap is an agreement to exchange streams of payments computed by
reference to a notional amount based on the performance of a securities index, a
basket of securities or a single security. A Portfolio may enter into these
transactions for hedging purposes, such as to preserve a return or spread on a
particular investment or portion of its assets, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Portfolio anticipates purchasing at a
later date. The Portfolios may also use these transactions for speculative
purposes to increase total return, such as to obtain the price performance of a
security without actually purchasing the security in circumstances where, for
example, the subject security is illiquid, is unavailable for direct investment
or available only on less attractive terms. Swaps have risks associated with
them, including possible default by the counterparty to the transaction,
illiquidity and, where swaps are used as hedges, the risk that the use of a swap
could result in losses greater than if the swap had not been employed.
A Portfolio will usually enter into swaps on a net basis,
i.e., the two payment streams are netted out in a cash settlement on the payment
date or dates specified in the agreement, with the Portfolio receiving or
paying, as the case may be, only the net amount of the two payments. Swaps do
not involve the delivery of securities, other underlying assets or principal.
Accordingly, the risk of loss with respect to swaps is limited to the net amount
of payments that the Portfolio is contractually obligated to make. If the
counterparty to a swap defaults, the Portfolio's risk of loss consists of the
net amount of payments that the Portfolio is contractually entitled to receive.
Where swaps are entered into for good faith hedging purposes, CSAM believes such
obligations do not constitute senior securities under the Investment Company Act
of 1940, as amended (the "1940 Act"), and, accordingly, will not treat them as
being subject to a Portfolio's borrowing restrictions. Where swaps are entered
into for other than hedging purposes, a Portfolio will segregate an amount of
cash or liquid securities having a value equal to the accrued excess of its
obligations over its entitlements with respect to each swap on a daily basis.
Asset Coverage for Forward Contracts, Options, Futures and
Options on Futures and Swaps. Each Portfolio will comply with guidelines
established by the Securities and Exchange Commission (the "SEC") with respect
to coverage of forward currency contracts; options written by the Portfolio on
currencies, securities and indexes; currency, interest rate and index futures
contracts and options on these futures contracts and, in the case of the
International Focus Portfolio, swaps. These guidelines may, in certain
instances, require segregation by the Portfolio of cash or liquid securities
with its custodian or a designated sub-custodian to the extent the Portfolio's
obligations with respect to these strategies are not otherwise "covered" through
ownership of the underlying security, financial instrument or currency or by
other portfolio positions or by other means consistent with applicable
regulatory policies. Segregated assets
10
cannot be sold or transferred unless equivalent assets are substituted in their
place or it is no longer necessary to segregate them. As a result, there is a
possibility that segregation of a large percentage of a Portfolio's assets could
impede portfolio management or the Portfolio's ability to meet redemption
requests or other current obligations.
For example, a call option written by the Portfolio on
securities may require the Portfolio to hold the securities subject to the call
(or securities convertible into the securities without additional consideration)
or to segregate assets (as described above) sufficient to purchase and deliver
the securities if the call is exercised. A call option written by the Portfolio
on an index may require the Portfolio to own portfolio securities that correlate
with the index or to segregate assets (as described above) equal to the excess
of the index value over the exercise price on a current basis. A put option
written by the Portfolio may require the Portfolio to segregate assets (as
described above) equal to the exercise price. The Portfolio could purchase a put
option if the strike price of that option is the same or higher than the strike
price of a put option sold by the Portfolio. If the Portfolio holds a futures or
forward contract, the Portfolio could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. The Portfolio may enter into fully or partially offsetting
transactions so that its net position, coupled with any segregated assets (equal
to any remaining obligation), equals its net obligation. Asset coverage may be
achieved by other means when consistent with applicable regulatory policies.
Foreign Investments
The International Focus Portfolio will invest, under normal
market conditions, at least 80% of its net assets in securities of issuers from
at least three foreign countries. The Large Cap Value and the Small Cap Value
Portfolios may invest up to 20% and 10%, respectively, of their net assets in
securities of foreign issuers. Investors should recognize that investing in
foreign companies involves certain risks, including those discussed below, which
are in addition to those associated with investing in U.S. issuers. Individual
foreign economies may differ favorably or unfavorably from the U.S. economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments positions. A
Portfolio may invest in securities of foreign governments (or agencies or
instrumentalities thereof), and many, if not all, of the foregoing
considerations apply to such investments as well.
Foreign Currency Exchange. Since the International Focus
Portfolio will, and the U.S. Portfolios may, be investing in securities
denominated in currencies other than the U.S. dollar, and since a Portfolio may
temporarily hold funds in bank deposits or other money market investments
denominated in foreign currencies, each Portfolio may be affected favorably or
unfavorably by exchange control regulations or changes in the exchange rate
between such currencies and the dollar. A change in the value of a foreign
currency relative to the U.S. dollar will result in a corresponding change in
the dollar value of a Portfolio's assets denominated in that foreign currency.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by a Portfolio with respect to its foreign investments. Unless
otherwise contracted, the rate of exchange between the U.S. dollar and other
currencies is determined by the forces of supply and demand in the foreign
exchange markets. Changes in the exchange rate may result over time from the
interaction of many factors directly or indirectly affecting economic and
political conditions in the United
11
States and a particular foreign country, including economic and political
developments in other countries. Governmental intervention may also play a
significant role. National governments rarely voluntarily allow their currencies
to float freely in response to economic forces. Sovereign governments use a
variety of techniques, such as intervention by a country's central bank or
imposition of regulatory controls or taxes, to affect the exchange rates of
their currencies. A Portfolio may use hedging techniques with the objective of
protecting against loss through the fluctuation of the value of foreign
currencies against the U.S. dollar, particularly the forward market in foreign
exchange, currency options and currency futures.
Information. The majority of the foreign securities held by a
Portfolio will not be registered with, nor the issuers thereof be subject to
reporting requirements of, the SEC. Accordingly, there may be less publicly
available information about the securities and about the foreign company or
government issuing them than is available about a domestic company or government
entity. Foreign companies are generally subject to financial reporting
standards, practices and requirements that are either not uniform or less
rigorous than those applicable to U.S. companies.
Political Instability. With respect to some foreign countries,
there is the possibility of expropriation or confiscatory taxation, limitations
on the removal of funds or other assets of the Portfolio, political or social
instability, or domestic developments which could affect U.S. investments in
those and neighboring countries.
Foreign Markets. Securities of some foreign companies are less
liquid and their prices are more volatile than securities of comparable U.S.
companies. Certain foreign countries are known to experience long delays between
the trade and settlement dates of securities purchased or sold, which may result
in increased exposure to market and foreign exchange fluctuations and increased
illiquidity.
Increased Expenses. The operating expenses of the
International Focus Portfolio (and, to the extent they invest in foreign
securities, the U.S. Portfolios) can be expected to be higher than that of an
investment company investing exclusively in U.S. securities, since the expenses
of the Portfolios associated with foreign investing, such as custodial costs,
valuation costs and communication costs, as well as, in the case of the
International Focus Portfolio, the rate of the investment advisory fees, though
similar to such expenses of some other funds investing internationally, are
higher than those costs incurred by other investment companies not investing in
foreign securities.
Privatizations. Each Portfolio may invest in privatizations
(i.e. foreign government programs of selling interests in government-owned or
controlled enterprises). The ability of U.S. entities, such as the Portfolios,
to participate in privatizations may be limited by local law, or the terms for
participation may be less advantageous than for local investors. There can be no
assurance that privatization programs will be available or successful. The
International Focus Portfolio could invest to a significant extent in
privatizations.
Foreign Debt Securities. The returns on foreign debt
securities reflect interest rates and other market conditions prevailing in
those countries and the effect of gains and losses in the denominated currencies
against the U.S. dollar, which have had a substantial impact on investment in
foreign fixed income securities. The relative performance of various countries'
fixed income markets historically has reflected wide variations relating to the
unique
12
characteristics of each country's economy. Year-to-year fluctuations in certain
markets have been significant, and negative returns have been experienced in
various markets from time to time.
The foreign debt securities in which a Portfolio may invest
generally consist of obligations issued or backed by national, state or
provincial governments or similar political subdivisions or central banks in
foreign countries. Foreign debt securities also include debt obligations of
supranational entities, which include international organizations designated or
backed by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples include the International Bank for Reconstruction and Development (the
"World Bank"), the European Coal and Steel Community, the Asian Development Bank
and the Inter-American Development Bank.
Foreign government securities also include debt securities of
"quasi-government agencies" and debt securities denominated in multinational
currency units of an issuer (including supranational issuers). Debt securities
of quasi-governmental agencies are issued by entities owned by either a
national, state or equivalent government or are obligations of a political unit
that is not backed by the national government's full faith and credit and
general taxing powers. An example of a multinational currency unit is the
European Currency Unit ("ECU"). An ECU represents specified amounts of the
currencies of certain member states of the European Economic Community. The
specific amounts of currencies comprising the ECU may be adjusted by the Council
of Ministers of the European Community to reflect changes in relative values of
the underlying currencies.
Brady Bonds. Each Portfolio may invest in so-called "Brady
Bonds." Brady Bonds are issued as part of a debt restructuring in which the
bonds are issued in exchange for cash and certain of the country's outstanding
commercial bank loans. Investors should recognize that Brady Bonds do not have a
long payment history and are subject to, among other things, the risk of
default. Brady Bonds may be collateralized or uncollateralized, are issued in
various currencies (primarily the U.S. dollar) and are actively traded in the
over-the-counter ("OTC") secondary market for debt of Latin American issuers. In
light of the history of commercial bank loan defaults by Latin American public
and private entities, investments in Brady Bonds may be viewed as speculative.
The International Focus Portfolio could invest to a significant extent in Brady
Bonds.
Depository Receipts. Certain of the above risks may be
involved with ADRs, European Depository Receipts ("EDRs") and International
Depository Receipts ("IDRs"), instruments that evidence ownership of underlying
securities issued by a foreign corporation. ADRs, EDRs and IDRs may not
necessarily be denominated in the same currency as the securities whose
ownership they represent. ADRs are typically issued by a U.S. bank or trust
company. EDRs (sometimes referred to as Continental Depository Receipts) are
issued in Europe and IDRs (sometimes referred to as Global Depository Receipts)
are issued outside the United States, each typically by non-U.S. banks and trust
companies. The risks associated with investing in securities of non-U.S. issuers
are generally heightened for investments in securities of issuers in emerging
markets. For purposes of a Portfolio's investment policies, depository receipts
generally are deemed to have the same classification as the underlying
securities they represent. Thus, a depository receipt representing ownership of
common stock will be treated as common stock.
13
ADRs are publicly traded on exchanges or over-the-counter in
the United States and are issued through "sponsored" or "unsponsored"
arrangements. In a sponsored ADR arrangement, the foreign issuer assumes the
obligation to pay some or all of the depository's transaction fees, whereas
under an unsponsored arrangement, the foreign issuer assumes no obligation and
the depository's transaction fees are paid directly by the ADR holders. In
addition, less information is available in the United States about an
unsponsored ADR than about a sponsored ADR.
Emerging Markets. Each Portfolio may invest in securities of
issuers located in less developed countries considered to be "emerging markets."
Investing in securities of issuers located in emerging markets involves not only
the risks described above with respect to investing in foreign securities, but
also other risks, including exposure to economic structures that are generally
less diverse and mature than, and to political systems that can be expected to
have less stability than, those of developed countries. For example, many
investments in emerging markets experienced significant declines in value due to
political and currency volatility in emerging markets countries during the
latter part of 1997. Other characteristics of emerging markets that may affect
investment there include certain national policies that may restrict investment
by foreigners in issuers or industries deemed sensitive to relevant national
interests and the absence of developed legal structures governing private and
foreign investments and private property. The typically small size of the
markets for securities of issuers located in emerging markets and the
possibility of a low or nonexistent volume of trading in those securities may
also result in a lack of liquidity and in price volatility of those securities.
U.S. Government Securities
The obligations issued or guaranteed by the U.S. government in
which a Portfolio may invest include: direct obligations of the U.S. Treasury
and obligations issued by U.S. government agencies and instrumentalities.
Included among direct obligations of the United States are Treasury Bills,
Treasury Notes and Treasury Bonds, which differ in terms of their interest
rates, maturities and dates of issuance. Treasury Bills have maturities of less
than one year, Treasury Notes have maturities of one to 10 years and Treasury
Bonds generally have maturities of greater than 10 years at the date of
issuance. Included among the obligations issued by agencies and
instrumentalities of the United States are: instruments that are supported by
the full faith and credit of the United States (such as certificates issued by
the Government National Mortgage Association ("GNMA")); instruments that are
supported by the right of the issuer to borrow from the U.S. Treasury (such as
securities of Federal Home Loan Banks); and instruments that are supported by
the credit of the instrumentality (such as Federal National Mortgage Association
("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC") bonds).
Other U.S. government securities the Portfolios may invest in
include securities issued or guaranteed by the Federal Housing Administration,
Farmers Home Loan Administration, Export-Import Bank of the United States, Small
Business Administration, General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Intermediate Credit Banks,
Federal Land Banks, Maritime Administration, Tennessee Valley Authority,
District of Columbia Armory Board and Student Loan Marketing Association.
Because the U.S. government is not obligated by law to provide support to an
instrumentality it sponsors, a Portfolio will invest in obligations issued by
such an instrumentality only if CSAM
14
determines that the credit risk with respect to the instrumentality does not
make its securities unsuitable for investment by the Portfolio.
Money Market Obligations
Each Portfolio is authorized to invest, under normal market
conditions (up to 20% of its assets in the case of each U.S. Portfolio) in
domestic and foreign short-term (one year or less remaining to maturity) money
market obligations. Money market instruments consist of obligations issued or
guaranteed by the U.S. government or a foreign government, their agencies or
instrumentalities; bank obligations (including certificates of deposit, time
deposits and bankers' acceptances of domestic or foreign, domestic savings and
loans and similar institutions) that are high quality investments; commercial
paper rated no lower than A-2 by Standard & Poor's Ratings Services ("S&P") or
Prime-2 by Moody's Investors Service, Inc. ("Moody's") or the equivalent from
another major rating service or, if unrated, of an issuer having an outstanding,
unsecured debt issue then rated within the three highest rating categories; and
repurchase agreements with respect to the foregoing.
Repurchase Agreements. Each Portfolio may invest in repurchase
agreement transactions with member banks of the Federal Reserve System and
certain non-bank dealers. Repurchase agreements are contracts under which the
buyer of a security simultaneously commits to resell the security to the seller
at an agreed-upon price and date. Under the terms of a typical repurchase
agreement, a Portfolio would acquire any underlying security for a relatively
short period (usually not more than one week) subject to an obligation of the
seller to repurchase, and the Portfolio to resell, the obligation at an
agreed-upon price and time, thereby determining the yield during the Portfolio's
holding period. This arrangement results in a fixed rate of return that is not
subject to market fluctuations during the Portfolio's holding period. The value
of the underlying securities will at all times be at least equal to the total
amount of the purchase obligation, including interest. The Portfolio bears a
risk of loss in the event that the other party to a repurchase agreement
defaults on its obligations or becomes bankrupt and the Portfolio is delayed or
prevented from exercising its right to dispose of the collateral securities,
including the risk of a possible decline in the value of the underlying
securities during the period while the Portfolio seeks to assert this right.
CSAM monitors the creditworthiness of those bank and non-bank dealers with which
the Portfolio enters into repurchase agreements to evaluate this risk. A
repurchase agreement is considered to be a loan under the 1940 Act.
Money Market Mutual Funds. Where CSAM believes that it would
be beneficial to a Portfolio and appropriate considering the factors of return
and liquidity, a Portfolio may invest up to 5% of its assets in securities of
money market mutual funds that are unaffiliated with the Portfolio or CSAM. A
money market mutual fund is an investment company that invests in short-term
high quality money market instruments. A money market mutual fund generally does
not purchase securities with a remaining maturity of more than one year. As a
shareholder in any mutual fund, a Portfolio will bear its ratable share of the
mutual fund's expenses, including management fees, and will remain subject to
payment of the Portfolio's management fees and other expenses with respect to
assets so invested.
Debt Securities
The International Focus Portfolio and each U.S. Portfolio may
invest up to 20% of its net assets, in debt securities. Any percentage
limitation on a Portfolio's ability to invest in
15
debt securities will not be applicable during periods when the Portfolio pursues
a temporary defensive strategy as discussed below.
The interest income to be derived may be considered as one
factor in selecting debt securities for investment by CSAM. Because the market
value of debt obligations can be expected to vary inversely to changes in
prevailing interest rates, investing in debt obligations may provide an
opportunity for capital growth when interest rates are expected to decline. The
success of such a strategy is dependent upon CSAM's ability to forecast
accurately changes in interest rates. The market value of debt obligations may
also be expected to vary depending upon, among other factors, the ability of the
issuer to repay principal and interest, any change in investment rating and
general economic conditions.
Each Portfolio may invest to a limited extent in zero coupon
securities. See "Additional Information Concerning Taxes" for a discussion of
the tax consequences to shareholders of a Portfolio that invests in zero coupon
securities.
Moody's and S&P are private services that provide ratings of
the credit quality of debt securities and certain other securities. A
description of the ratings assigned to corporate bonds by Moody's and S&P is
included in Appendix A to this Statement of Additional Information.
Credit ratings attempt to evaluate the safety of principal and
interest payments, but they do not evaluate the volatility of a debt security's
value or its liquidity and do not guarantee the performance of the issuer.
Rating agencies may fail to make timely changes in credit ratings in response to
subsequent events, so that an issuer's current financial condition may be better
or worse than the rating indicates. There is a risk that rating agencies may
downgrade a debt security's rating. Subsequent to a security's purchase by a
Portfolio, it may cease to be rated. Such event will not require the sale of
such securities, although CSAM will consider such event in its determination of
whether the Portfolio should continue to hold the security. CSAM may use these
ratings in determining whether to purchase, sell or hold a security. It should
be emphasized, however, that ratings are general and are not absolute standards
of quality. Consequently, bonds with the same maturity, interest rate and rating
may have different market prices.
Investment grade bonds are rated within one of the four
highest rating categories by Moody's or S&P or, if unrated, as determined by
CSAM to be of comparable quality. Moody's considers debt securities rated Baa
(its lowest investment grade rating) to have speculative characteristics. This
means that 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 for higher rated bonds.
Below Investment Grade Securities. Within its 20% limitation
on investing in debt securities, the Large Cap Value Portfolio may invest up to
10% of its net assets in debt securities rated below investment grade. Within
their respective 20% limitation on investing in debt securities, the Small
Company Growth and International Focus Portfolios may invest up to 5% of its net
assets in debt securities rated below investment grade. A Portfolio's
investments in convertible debt or equity securities rated below investment
grade will be included in determining these percentage limitations.
16
Below investment grade debt securities may be rated as low as
C by Moody's or D by S&P, or be deemed by CSAM to be of equivalent quality.
Securities that are rated C by Moody's are the lowest rated class and can be
regarded as having extremely poor prospects of ever attaining any real
investment standing. A security rated D by S&P is in default or is expected to
default upon maturity or payment date. Below investment grade securities
(commonly referred to as "junk bonds"), (i) will likely have some quality and
protective characteristics that, in the judgment of the rating organizations,
are outweighed by large uncertainties or major risk exposures to adverse
conditions and (ii) are predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms of the
obligation. The market values of certain of these securities also tend to be
more sensitive to individual corporate developments and changes in economic
conditions than investment grade securities. In addition, these securities
generally present a higher degree of credit risk. The risk of loss due to
default is significantly greater because these securities generally are
unsecured and frequently are subordinated to the prior payment of senior
indebtedness. Issuers of below investment grade securities are often highly
leveraged and may not have more traditional methods of financing available to
them so that their ability to service their obligations during an economic
downturn or during sustained periods of rising interest rates may be impaired.
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.
To the extent a secondary trading market for these securities
does exist, it generally is not as liquid as the secondary market for investment
grade securities. The lack of a liquid secondary market, as well as adverse
publicity and investor perception with respect to these securities, may have an
adverse impact on market price and a Portfolio's ability to dispose of
particular issues when necessary to meet the Portfolio's liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid secondary market for
certain securities also may make it more difficult for a Portfolio to obtain
accurate market quotations for purposes of valuing the Portfolio and calculating
its net asset value.
The market value of below investment grade securities is more
volatile than that of investment grade securities. Factors adversely impacting
the market value of these securities will adversely impact the Portfolio's net
asset value. The Portfolio will rely on the judgment, analysis and experience of
CSAM in evaluating the creditworthiness of an issuer. In this evaluation, CSAM
will take into consideration, among other things, the issuer's financial
resources, its sensitivity to economic conditions and trends, its operating
history, the quality of the issuer's management and regulatory matters. A
Portfolio may incur additional expenses to the extent it is required to seek
recovery upon a default in the payment of principal or interest on its portfolio
holdings of such securities. At times, adverse publicity regarding lower-rated
securities has depressed the prices for such securities to some extent.
Structured Securities. Each Portfolio may purchase any type of
publicly traded or privately negotiated fixed income security, including
mortgage- and asset-backed securities; structured notes, bonds or debentures;
and assignments of and participations in loans.
17
Mortgage-Backed Securities. Each Portfolio may invest in
mortgage-backed securities sponsored by U.S. and foreign government issuers, as
well as non-governmental issuers. Non-government issued mortgage-backed
securities may offer higher yields than those issued by government entities, but
may be subject to greater price fluctuations. Mortgage-backed securities
represent direct or indirect participations in, or are secured by and payable
from, mortgage loans secured by real property. 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. The mortgages backing these securities include, among other
mortgage instruments, conventional 30-year fixed-rate mortgages, 15-year fixed
rate mortgages, graduated payment mortgages and adjustable rate mortgages. The
government or the issuing agency typically guarantees the payment of interest
and principal of these securities. However, the guarantees do not extend to the
securities' yield or value, which are likely to vary inversely with fluctuations
in interest rates, nor do the guarantees extend to the yield or value of the
Portfolio's shares. Some mortgage-backed securities, such as collateralized
mortgage obligations ("CMOs"), make payouts of both principal and interest at a
variety of intervals; others make semiannual interest payments at a
predetermined rate and repay principal at maturity (like a typical bond).
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. The average life of pass-through pools
varies with the maturities of the underlying mortgage loans. A pool's term may
be shortened by unscheduled or early payments of principal on the underlying
mortgages. The occurrence of mortgage prepayments is affected by various
factors, including the level of interest rates, general economic conditions, the
location, scheduled maturity and age of the mortgage and other social and
demographic conditions. Because prepayment rates of individual pools vary
widely, it is not possible to predict accurately the average life of a
particular pool. At present, pools, particularly those with loans with other
maturities or different characteristics, are priced on an assumption of average
life determined for each pool. In periods of falling interest rates, the rate of
prepayment tends to increase, thereby shortening the actual average life of a
pool of mortgage-related securities. Conversely, in periods of rising rates the
rate of prepayment tends to decrease, thereby lengthening the actual average
life of the pool. However, these effects may not be present, or may differ in
degree, if the mortgage loans in the pools have adjustable interest rates or
other special payment terms, such as a prepayment charge. Actual prepayment
experience may cause the yield of mortgage-backed securities to differ from the
assumed average life yield. Reinvestment of prepayments may occur at higher or
lower interest rates than the original investment, thus affecting the
Portfolio's yield. In addition, 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.
18
Asset-Backed Securities. Each Portfolio may invest in asset-backed
securities, which represent participations in, or are secured by and payable
from, assets such as motor vehicle installment sales, installment loan
contracts, leases of various types of real and personal property and receivables
from revolving credit (credit card) agreements. Such assets are securitized
through the use of trusts and special purpose corporations. Payments or
distributions of principal and interest may be guaranteed up to certain amounts
and for a certain time period by a letter of credit or a pool insurance policy
issued by a financial institution unaffiliated with the trust or corporation.
Asset-backed securities present certain risks that are not presented
by other securities in which the Portfolio may invest. Automobile receivables
generally are secured by automobiles. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations. If
the servicer were to sell these obligations to another party, there is a risk
that the purchaser would acquire an interest superior to that of the holders of
the asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have a
proper security interest in the underlying automobiles. Therefore, there is the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on these securities. Credit card receivables are
generally unsecured, and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. In addition, there is no assurance that the security interest in
the collateral can be realized.
Structured Notes, Bonds or Debentures. Typically, the value of the
principal and/or interest on these instruments is determined by reference to
changes in the value of specific currencies, interest rates, commodities,
indexes or other financial indicators (the "Reference") or the relevant change
in two or more References. The interest rate or the principal amount payable
upon maturity or redemption may be increased or decreased depending upon changes
in the applicable Reference. The terms of the structured securities may provide
that in certain circumstances no principal is due at maturity and, therefore,
may result in the loss of a Portfolio's entire investment. The value of
structured securities may move in the same or the opposite direction as the
value of the Reference, so that appreciation of the Reference may produce an
increase or decrease in the interest rate or value of the security at maturity.
In addition, the change in interest rate or the value of the security at
maturity may be a multiple of the change in the value of the Reference so that
the security may be more or less volatile than the Reference, depending on the
multiple. Consequently, structured securities may entail a greater degree of
market risk and volatility than other types of debt obligations.
Loan Participations and Assignments. Each Portfolio may invest in
fixed and floating rate loans ("Loans") arranged through private negotiations
between a foreign government (a "Borrower") and one or more financial
institutions ("Lenders"). The majority of the Portfolio's investments in Loans
are expected to be in the form of participations in Loans ("Participations") and
assignments of portions of Loans from third parties ("Assignments").
Participations typically will result in the Portfolio having a contractual
relationship only with the Lender, not with the Borrower. The Portfolio will
have the right to receive payments of principal, interest and any fees to which
it is entitled only from the Lender selling the Participation and only upon
receipt by the Lender of the payments from the Borrower. In connection with
purchasing Participations, the Portfolio generally will have no right to enforce
19
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.
When the Portfolio purchases Assignments from Lenders, the Portfolio
will acquire direct rights against the Borrower on the Loan. However, since
Assignments are generally arranged through private negotiations between
potential assignees and potential assignors, the rights and obligations acquired
by the Portfolio as the purchaser of an Assignment may differ from, and be more
limited than, those held by the assigning Lender.
There are risks involved in investing in Participations and
Assignments. The Portfolio may have difficulty disposing of them because there
is no liquid market for such securities. The lack of a liquid secondary market
will have an adverse impact on the value of such securities and on the
Portfolio's ability to dispose of particular Participations or Assignments when
necessary to meet the Portfolio's liquidity needs or in response to a specific
economic event, such as a deterioration in the creditworthiness of the Borrower.
The lack of a liquid market for Participations and Assignments also may make it
more difficult for the Portfolio to assign a value to these securities for
purposes of valuing the Portfolio's portfolio and calculating its net asset
value.
Temporary Defensive Strategies
When CSAM believes that a defensive posture is warranted, each
Portfolio may invest temporarily without limit in investment grade debt
obligations and in domestic and foreign money market obligations, including
repurchase agreements.
Securities of Other Investment Companies
Each Portfolio may invest in securities of other investment
companies to the extent permitted under the 1940 Act. Presently, under the 1940
Act, a Portfolio may hold securities of another investment company in amounts
which (i) do not exceed 3% of the total outstanding voting stock of such
company, (ii) do not exceed 5% of the value of the Portfolio's total assets and
(iii) when added to all other investment company securities held by the
Portfolio, do not exceed 10% of the value of the Portfolio's total assets. As a
shareholder of another investment company, a 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 a Portfolio would bear directly in connection
with its own operations.
Lending of Portfolio Securities
A Portfolio may lend portfolio securities to brokers, dealers and
other financial organizations that meet capital and other credit requirements or
other criteria established by the
20
Fund's Board of Directors (the "Board"). These loans, if and when made, may not
exceed 33-1/3% of a Portfolio's net assets (including the loan collateral) taken
at value. Loans of portfolio securities will be collateralized by cash, letters
of credit or U.S. Government Securities, which are maintained at all times in an
amount equal to at least 100% of the current market value of the loaned
securities. Any gain or loss in the market price of the securities loaned that
might occur during the term of the loan would be for the account of the
Portfolio involved. From time to time, a Portfolio may return a part of the
interest earned from the investment of collateral received for securities loaned
to the borrower and/or a third party that is unaffiliated with the Portfolio and
that is acting as a "finder."
By lending its securities, the Portfolio can increase its income by
continuing to receive interest and any dividends on the loaned securities as
well as by either investing the collateral received for securities loaned in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. Government Securities are used as collateral. Each Portfolio
will adhere to the following conditions whenever its portfolio securities are
loaned: (i) the Portfolio must receive at least 100% cash collateral or
equivalent securities of the type discussed in the preceding paragraph from the
borrower; (ii) the borrower must increase such collateral whenever the market
value of the securities rises above the level of such collateral; (iii) the
Portfolio must be able to terminate the loan at any time; (iv) the Portfolio
must receive reasonable interest on the loan, as well as any dividends, interest
or other distributions on the loaned securities and any increase in market
value; (v) the Portfolio may pay only reasonable custodian fees in connection
with the loan; and (vi) voting rights on the loaned securities may pass to the
borrower, provided, however, that if a material event adversely affecting the
investment occurs, the Board must terminate the loan and regain the right to
vote the securities. Loan agreements involve certain risks in the event of
default or insolvency of the other party including possible delays or
restrictions upon the Portfolio's ability to recover the loaned securities or
dispose of the collateral for the loan. Default by or bankruptcy of a borrower
would expose the Portfolios to possible loss because of adverse market action,
expenses and/or delays in connection with the disposition of the underlying
securities. Any loans of a Portfolio's securities will be fully collateralized
and marked to market daily.
The Fund and CSAM have obtained an order of exemption (the "Order")
from the SEC to permit CSFB to act as lending agent for the Fund, to permit
securities loans to broker-dealer affiliates of CSFB, and to permit the
investment of cash collateral received by CSFB from borrowers and other
uninvested cash amounts in certain money market funds advised by CSAM
("Investment Funds"). The Order contains a number of conditions that are
designed to ensure that CSFB's securities lending program does not involve
overreaching by CSAM, CSFB or any of their affiliates. These conditions include
percentage limitations on the amount of a Portfolio's assets that may be
invested in the Investment Funds, restrictions on the Investment Funds' ability
to collect sales charges and certain other fees, and a requirement that each
Portfolio that invests in the Investment Funds will do so at the same price as
each other Portfolio and will bear its proportionate shares of expenses and
receive its proportionate share of any dividends.
When-Issued Securities and Delayed-Delivery Transactions
Each Portfolio may utilize up to 20% of its total assets to purchase
securities on a when-issued basis and purchase or sell securities on a
delayed-delivery basis. In these transactions, payment for and delivery of the
securities occurs beyond the regular settlement dates. A Portfolio will not
enter into a when-issued or delayed-delivery transaction for the
21
purpose of leverage, but may sell the right to acquire a when-issued security
prior to its acquisition or dispose of its right to deliver or receive
securities in a delayed-delivery transaction if CSAM deems it advantageous to do
so. The payment obligation and the interest rate that will be received in
when-issued and delayed-delivery transactions are fixed at the time the buyer
enters into the commitment. Due to fluctuations in the value of securities
purchased or sold on a when-issued or delayed-delivery basis, the prices of such
securities may be higher or lower than the prices available in the market on the
dates when the investments are actually delivered to the buyers. Each Portfolio
will segregate with its custodian cash or liquid securities in an amount equal
to its when-issued and delayed-delivery purchase commitments and will segregate
the securities underlying commitments to sell securities for delayed delivery.
When a Portfolio agrees to purchase when-issued or delayed-delivery securities,
its custodian will set aside cash or liquid securities equal to the amount of
the commitment. Normally, the custodian will set aside portfolio securities to
satisfy a purchase commitment, and in such a case a Portfolio may be required
subsequently to segregate additional assets in order to ensure that the value of
the segregated assets remains equal to the amount of the Portfolio's commitment.
It may be expected that a Portfolio's net assets will fluctuate to a greater
degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. When a Portfolio engages in
when-issued or delayed-delivery transactions, it relies on the other party to
consummate the trade. Failure of the seller to do so may result in the Portfolio
incurring a loss or missing an opportunity to obtain a price considered to be
advantageous.
Short Sales Against the Box. Each Portfolio may enter into short
sales "against the box." Not more than 10% of a Portfolio's net assets (taken at
current value) may be held as collateral for such sales at any one time. While a
short sale is made by selling a security a Portfolio does not own, a short sale
is "against the box" to the extent that the Portfolio contemporaneously owns or
has the right to obtain, at no added cost, securities identical to those sold
short. A Portfolio will segregate with its custodian or a qualified
subcustodian, the securities sold short or convertible or exchangeable preferred
stocks or debt securities in connection with short sales against the box. No
Portfolio intends to engage in short sales against the box for investment
purposes. A Portfolio may make a short sale as a hedge, when it believes that
the price of a security may decline, causing a decline in the value of a
security owned by the Portfolio (or a security convertible or exchangeable for
such security). In such case, any future losses in the Portfolio's long position
should be offset by a gain in the short position and, conversely, any gain in
the long position should be reduced by a loss in the short position. The extent
to which such gains or losses are reduced will depend upon the amount of the
security sold short relative to the amount the Portfolio owns. There will be
certain additional transaction costs associated with short sales against the
box, but the Portfolio will endeavor to offset these costs with the income from
the investment of the cash proceeds of short sales.
If a Portfolio effects a short sale of securities at a time when it
has an unrealized gain on the securities, it may be required to recognize that
gain as if it had actually sold the securities (as a "constructive sale") on the
date it effects the short sale. However, such constructive sale treatment may
not apply if the Portfolio closes out the short sale with securities other than
the appreciated securities held at the time of the short sale and if certain
other conditions are satisfied. Uncertainty regarding the tax consequences of
effecting short sales may limit the extent to which a Portfolio may effect short
sales.
22
Convertible Securities
Convertible securities in which a Portfolio may invest, including
both convertible debt and convertible preferred stock, may be converted at
either a stated price or stated rate into underlying shares of common stock.
Because of this feature, convertible securities enable an investor to benefit
from increases in the market price of the underlying common stock. Convertible
securities provide higher yields than the underlying equity securities, but
generally offer lower yields than non-convertible securities of similar quality.
Like bonds, the value of convertible securities fluctuates in relation to
changes in interest rates and, in addition, also fluctuates in relation to the
underlying common stock.
Warrants
Each Portfolio may invest up to 10% of its net assets in warrants.
Warrants are securities that give the holder the right, but not the obligation
to purchase equity issues of the company issuing the warrants, or a related
company, at a fixed price either on a date certain or during a set period. A
Portfolio may invest in warrants to purchase equity securities consisting of
common and preferred stock. The equity security underlying a warrant is
authorized at the time the warrant is issued or is issued together with the
warrant.
Investing in warrants can provide a greater potential for profit or
loss than an equivalent investment in the underlying security, and, thus, can be
a speculative investment. At the time of issue, the cost of a warrant is
substantially less than the cost of the underlying security itself, and price
movements in the underlying security are generally magnified in the price
movements of the warrant. This leveraging effect enables the investor to gain
exposure to the underlying security with a relatively low capital investment.
This leveraging increases an investor's risk, however, in the event of a decline
in the value of the underlying security and can result in a complete loss of the
amount invested in the warrant. In addition, the price of a warrant tends to be
more volatile than, and may not correlate exactly to, the price of the
underlying security. If the market price of the underlying security is below the
exercise price of the warrant on its expiration date, the warrant will generally
expire without value. The value of a warrant may decline because of a decline in
the value of the underlying security, the passage of time, changes in interest
rates or in the dividend or other policies of the company whose equity underlies
the warrant or a change in the perception as to the future price of the
underlying security, or any combination thereof. Warrants generally pay no
dividends and confer no voting or other rights, except for the right to purchase
the underlying security.
Non-Publicly Traded and Illiquid Securities
Each of the Small Cap Growth and International Focus Portfolios may
invest up to 10% of its net assets in illiquid securities, including certain
securities that are illiquid by virtue of the absence of a readily available
market, repurchase agreements which have a maturity of longer than seven days,
certain Rule 144A Securities (as defined below), time deposits maturing in more
than seven days. The Large Cap Value Portfolio may invest up to 15% of its net
assets in such securities. Securities that have legal or contractual
restrictions on resale but have a readily available market are not considered
illiquid for purposes of this limitation. Repurchase agreements subject to
demand are deemed to have a maturity equal to the notice period.
23
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 NASD, Inc.
An investment in Rule 144A Securities will be considered illiquid
and therefore subject to a Portfolio's limit on the purchase of illiquid
securities unless the Board or its delegates determines that the Rule 144A
Securities are liquid. CSAM will monitor the liquidity of restricted securities
in a Portfolio under the supervision of the Board. In reaching liquidity
decisions, the Board or its delegate may consider, inter alia, the following
factors: (i) the unregistered nature of the security; (ii) the frequency of
trades and quotes for the security; (iii) the number of dealers wishing to
purchase or sell the security and the number of other potential purchasers; (iv)
dealer undertakings to make a market in the security and (v) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer).
Investing in Rule 144A securities could have the effect of
increasing the level of illiquidity in the Portfolios to the extent that
qualified institutional buyers are unavailable or uninterested in purchasing
such securities from the Portfolios. The Board has adopted guidelines and
delegated to CSAM the daily function of determining and monitoring the liquidity
of Rule 144A Securities, although the Board will retain ultimate responsibility
for liquidity determinations.
24
Emerging Growth and Smaller Capitalization Companies; Unseasoned Issuers
Each Portfolio may invest in small- and medium-sized and emerging
growth companies and, except for the International Focus Portfolio, companies
with continuous operations of less than three years ("unseasoned issuers"),
which may include foreign securities, involve considerations that are not
applicable to investing in securities of established, larger-capitalization
issuers, including reduced and less reliable information about issuers and
markets, less stringent financial disclosure requirements, illiquidity of
securities and markets, higher brokerage commissions and fees and greater market
risk in general. In addition, securities of these companies may involve greater
risks since these securities may have limited marketability and, thus, may be
more volatile.
Although investing in securities of small- and medium-sized and
emerging growth companies, unseasoned issuers or issuers in "special situations"
(see below) offers potential for above-average returns if the companies are
successful, the risk exists that the companies will not succeed and the prices
of the companies' shares could significantly decline in value. Therefore, an
investment in a Portfolio may involve a greater degree of risk than an
investment in other mutual funds that seek growth of capital or capital
appreciation by investing in better-known, larger companies.
"Special Situation Companies"
"Special situation companies" are involved in an actual or
prospective acquisition or consolidation; reorganization; recapitalization;
merger, liquidation or distribution of cash, securities or other assets; a
tender or exchange offer; a breakup or workout of a holding company; or
litigation which, if resolved favorably, may provide an attractive investment
opportunity. If the actual or prospective situation does not materialize as
anticipated, the market price of the securities of a "special situation company"
may decline significantly.
Borrowing
Each Portfolio may borrow up to 30% of its total assets for
temporary or emergency purposes, including to meet portfolio redemption requests
so as to permit the orderly disposition of portfolio securities or to facilitate
settlement transactions on portfolio securities. Investments (including
roll-overs) will not be made when borrowings exceed 5% of the Portfolio's net
assets. Although the principal of such borrowings will be fixed, the Portfolio's
assets may change in value during the time the borrowing is outstanding. Each
Portfolio expects that some of its borrowings may be made on a secured basis. In
such situations, either the custodian will segregate the pledged assets for the
benefit of the lender or arrangements will be made with a suitable subcustodian,
which may include the lender.
Reverse Repurchase Agreements and Dollar Rolls
Each of the Portfolios may enter into reverse repurchase agreements
with member banks of the Federal Reserve System and certain non-bank dealers.
Reverse repurchase agreements involve the sale of securities held by the
Portfolio pursuant to its agreement to repurchase them at a mutually agreed upon
date, price and rate of interest. At the time the Portfolio enters into a
reverse repurchase agreement, it will segregate with an approved custodian cash
or liquid securities having a value not less than the repurchase price
(including accrued
25
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 Portfolios also may enter into "dollar rolls," in which the
Portfolio sells fixed-income securities for delivery in the current month and
simultaneously contracts to repurchase similar but not identical (same type,
coupon and maturity) securities on a specified future date. During the roll
period, the Portfolio would forgo principal and interest paid on such
securities. The Portfolio would be compensated by the difference between the
current sales price and the forward price for the future purchase, as well as by
the interest earned on the cash proceeds of the initial sale. At the time the
Portfolio enters into a dollar roll transaction, it will segregate with an
approved custodian cash or liquid securities having a value not less than the
repurchase price (including accrued interest) and will subsequently monitor the
segregated assets to ensure that their value is maintained. Reverse repurchase
agreements and dollar rolls that are accounted for as financings are considered
to be borrowings under the 1940 Act.
REITs
Each Portfolio may invest in real estate investment trusts
("REITs"), which are pooled investment vehicles that invest primarily in
income-producing real estate or real estate related loans or interests. Like
regulated investment companies such as the Fund, REITs are not taxed on income
distributed to shareholders provided they comply with several requirements of
the Internal Revenue Code of 1986, amended (the "Code"). By investing in a REIT,
the Portfolio will indirectly bear its proportionate share of any expenses paid
by the REIT in addition to the expenses of the Portfolio.
Investing in REITs involves certain risks. A REIT may be affected by
changes in the value of the underlying property owned by such REIT or by the
quality of any credit extended by the REIT. REITs are dependent on management
skills, are not diversified (except to the extent the Code requires), and are
subject to the risks of financing projects. REITs are subject to heavy cash flow
dependency, default by borrowers, self-liquidation, the possibilities of failing
to qualify for the exemption from tax for distributed income under the Code and
failing to maintain their exemptions from the 1940 Act. REITs are also subject
to interest rate risks.
Non-Diversified Status (Small Cap Growth Portfolio)
The Small Cap 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 portfolio, 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"
26
for purposes of the Code. To qualify, the Portfolio will comply with certain
requirements, including limiting its investments so that at the close of each
quarter of the taxable year (i) not more than 25% of the market value of its
total assets will be invested in the securities of a single issuer, and (ii)
with respect to 50% of the market value of its total assets, not more than 5% of
the market value of its total assets will be invested in the securities of a
single issuer and the Portfolio will not own more than 10% of the outstanding
voting securities of a single issuer.
INVESTMENT RESTRICTIONS
All Portfolios. Certain investment limitations may not be changed
without the affirmative vote of the holders of a majority of the relevant
Portfolio's outstanding shares ("Fundamental Restrictions"). Such majority is
defined as the lesser of (i) 67% or more of the shares present at the meeting,
if the holders of more than 50% of the outstanding shares of the Portfolio are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares. If a percentage restriction (other than the percentage limitations set
forth in each No. 1 below) is adhered to at the time of an investment, a later
increase or decrease in the percentage of assets resulting from a change in the
values of portfolio securities or in the amount of the Portfolio's assets will
not constitute a violation of such restriction.
Large Cap Value and Small Cap Growth Portfolios. The following
investment limitations numbered 1 through 9 are Fundamental Restrictions.
Investment limitations 10 through 13 may be changed by a vote of the Board at
any time.
The Large Cap Value and Small Cap Growth Portfolios may not:
1. Borrow money except that the Portfolios may (a) borrow from banks
for temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by the Portfolios may not exceed 30% of the value of the
Portfolios' total assets at the time of such borrowing. For purposes of this
restriction, short sales, the entry into currency transactions, options, futures
contracts, options on futures contracts, forward commitment transactions and
dollar roll transactions that are not accounted for as financings (and the
segregation of assets in connection with any of the foregoing) shall not
constitute borrowing.
2. Purchase any securities which would cause 25% or more of the
value of the Portfolios' total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business activities in the
same industry; provided that there shall be no limit on the purchase of U.S.
Government Securities.
3. Make loans, except that the Portfolios may purchase or hold
fixed-income securities, including loan participations, assignments and
structured securities, lend portfolio securities and enter into repurchase
agreements.
4. Underwrite any securities issued by others except to the extent
that the investment in restricted securities and the sale of securities in
accordance with the Portfolios' investment objective, policies and limitations
may be deemed to be underwriting.
27
5. Purchase or sell real estate or invest in oil, gas or mineral
exploration or development programs, except that the Portfolios may invest in
(a) securities secured by real estate, mortgages or interests therein and (b)
securities of companies that invest in or sponsor oil, gas or mineral
exploration or development programs.
6. Make short sales of securities or maintain a short position,
except that the Portfolios may maintain short positions in forward currency
contracts, options, futures contracts and options on futures contracts and make
short sales "against the box".
7. Purchase securities on margin, except that the Portfolios may
obtain any short-term credits necessary for the clearance of purchases and sales
of securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with transactions in currencies,
options, futures contracts or related options will not be deemed to be a
purchase of securities on margin.
8. Invest in commodities, except that the Portfolios may purchase
and sell futures contracts, including those relating to securities, currencies
and indexes, and options on futures contracts, securities, currencies or indexes
and purchase and sell currencies on a forward commitment or delayed-delivery
basis.
9. Issue any senior security except as permitted in the Portfolios'
investment limitations.
10. Purchase securities of other investment companies except in
connection with a merger, consolidation, acquisition, reorganization or offer of
exchange, or as otherwise permitted under the 1940 Act.
11. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow and in connection with the purchase of securities on
a forward commitment or delayed-delivery basis and collateral and initial or
variation margin arrangements with respect to currency transactions, options,
futures contracts, and options on futures contracts and, with respect to the
Large Cap Value Portfolio and Small Cap Growth Portfolio, writing covered put
and call options.
12. Invest more than 15% of each of the Large Cap Value Portfolio's
net assets and 10% of the Small Cap Growth Portfolio's net assets in securities
which may be illiquid because of legal or contractual restrictions on resale or
securities for which there are no readily available market quotations. For
purposes of this limitation, repurchase agreements with maturities greater than
seven days shall be considered illiquid securities.
13. Make additional investments (including roll-overs) if the
Portfolios' borrowings exceed 5% of its net assets.
International Focus Portfolio. The following investment limitations
numbered 1 through 12 are Fundamental Restrictions. Investment limitations 13
through 14 may be changed by a vote of the Board at any time.
28
The International Focus Portfolio may not:
1. Borrow money or issue senior securities except that the Portfolio
may (a) borrow from banks for temporary or emergency purposes, and not for
leveraging, and then in amounts not in excess of 30% of the value of the
Portfolio's total assets at the time of such borrowing and (b) enter into
futures contracts; or mortgage, pledge or hypothecate any assets except in
connection with any bank borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed. Whenever borrowings described in (a) exceed 5% of
the value of the Portfolio's total assets, the Portfolio will not make any
investments (including roll-overs). For purposes of this restriction, (a) the
deposit of assets in escrow in connection with certain of the Portfolio's
investment strategies and (b) collateral arrangements with respect to initial or
variation margin for futures contracts will not be deemed to be pledges of the
Portfolio's assets.
2. Purchase any securities which would cause 25% or more of the
value of the Portfolio's total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business activities in the
same industry; provided that there shall be no limit on the purchase of U.S.
Government Securities.
3. Make loans, except that the Portfolio may purchase or hold
publicly distributed fixed income securities, lend portfolio securities and
enter into repurchase agreements.
4. Underwrite any issue of securities except to the extent that the
investment in restricted securities and the purchase of fixed income securities
directly from the issuer thereof in accordance with the Portfolio's investment
objective, policies and limitations may be deemed to be underwriting.
5. Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, or invest in real estate limited
partnerships, oil, gas or mineral exploration or development programs or oil,
gas and mineral leases, except that the Portfolio may invest in (a) securities
secured by real estate, mortgages or interests therein, (b) securities of
companies that invest in or sponsor oil, gas or mineral exploration or
development programs and (c) futures contracts and related options and commodity
options. The entry into forward foreign currency exchange contracts is not and
shall not be deemed to involve investing in commodities.
6. Make short sales of securities or maintain a short position,
except that a Portfolio may maintain short positions in forward currency
contracts, options and futures contracts and make short sales "against the box."
7. Purchase, write or sell puts, calls, straddles, spreads or
combinations thereof, except that the Portfolio may (a) purchase put and call
options on securities and foreign currencies, (b) write covered call options on
securities and (c) purchase or write options on futures contracts.
8. Purchase securities of other investment companies except in
connection with a merger, consolidation, acquisition, reorganization or offer of
exchange, or as otherwise permitted under the 1940 Act.
29
9. Purchase securities on margin, except that the Portfolio may
obtain any short-term credits necessary for the clearance of purchases and sales
of securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with futures contracts or related
options will not be deemed to be a purchase of securities on margin.
10. Purchase the securities of any issuer if as a result more than
5% of the value of the Portfolio's total assets would be invested in the
securities of such issuer, except that this 5% limitation does not apply to U.S.
Government Securities and except that up to 25% of the value of the Portfolio's
total assets may be invested without regard to this 5% limitation.
11. Purchase any security if as a result the Portfolio would then
have more than 5% of its total assets invested in securities of companies
(including predecessors) that have been in continuous operation for fewer than
three years.
12. Purchase more than 10% of the voting securities of any one
issuer; provided that this limitation shall not apply to investments in U.S.
Government Securities.
13. Invest more than 10% of the value of the Portfolio's net assets
in securities which may be illiquid because of legal or contractual restrictions
on resale or securities for which there are no readily available market
quotations. For purposes of this limitation, (a) repurchase agreements with
maturities greater than seven days and (b) time deposits maturing in more than
seven calendar days shall be considered illiquid securities.
14. Invest in oil, gas or mineral leases.
PORTFOLIO VALUATION
The following is a description of the procedures used by each
Portfolio in valuing its assets.
Equity 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 asked quotation as
of the Valuation Time or at the lowest asked quotation in the case of a short
sale of securities. Debt securities with a remaining maturity greater than 60
days shall be valued in accordance with the price supplied by an independent
pricing service approved by the Board ("Pricing Service"). If there are no such
quotations, the security will be valued at its fair value as determined in good
faith by or under the direction of the Board.
Prices for debt securities supplied by a Pricing Service may use a
matrix, formula or other objective method that takes into consideration market
indexes, matrices, yield curves and other specific adjustments. The procedures
of Pricing Services are reviewed periodically by the officers of the Fund under
the general supervision and responsibility of the Board, which may replace a
Pricing Service at any time.
30
If a Pricing Service is not able to supply closing prices and
bid/asked quotations for an equity security or a price for a debt security, 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. If such dealers,
brokers or market makers only provide bid quotations, the security will be
valued 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 for an equity security or a price for a debt security, and
there is only one dealer, broker or market maker in the security, the security
will be valued at the mean between the bid and the asked quotations provided,
unless the dealer, broker or market maker can only provide a bid quotation in
which case the security will be valued at such bid quotation. Options contracts
will be valued similarly. Futures contracts will be valued at the most recent
settlement price at the time of valuation.
Short-term obligations with maturities of 60 days or less are valued
at amortized cost, which constitutes fair value as determined in good faith by
or under the direction of 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 by or under the direction of the Board. In addition,
the Board or its delegates may value a security at fair value if it determines
that such security's value determined by the methodology set forth above does
not reflect its fair value.
Trading in securities in certain foreign countries is completed at
various times prior to the close of business on each business day in New York
(i.e., a day on which The New York Stock Exchange, Inc. (the "NYSE") is open for
trading). In addition, securities trading in a particular country or countries
may not take place on all business days in New York. Furthermore, trading takes
place in various foreign markets on days which are not business days in New York
and days on which a Portfolio's net asset value is not calculated. As a result,
calculation of the Portfolio's net asset value may not take place
contemporaneously with the determination of the prices of certain foreign
portfolio securities used in such calculation. All assets and liabilities
initially expressed in foreign currency values will be converted into U.S.
dollar values at the prevailing rate as quoted by a Pricing Service at the close
of the London Stock Exchange. 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 each Portfolio's investment program to achieve its
investment objective. Purchases and sales of newly issued portfolio securities
are usually principal transactions without brokerage commissions effected
directly with the issuer or with an underwriter acting as principal. Other
purchases and sales may be effected on a securities exchange or
over-the-counter, depending on
31
where it appears that the best price or execution will be obtained. The purchase
price paid by a Portfolio to underwriters of newly issued securities usually
includes a concession paid by the issuer to the underwriter, and purchases of
securities from dealers, acting as either principals or agents in the after
market, are normally executed at a price between the bid and asked price, which
includes a dealer's mark-up or mark-down. Transactions on U.S. stock exchanges
and some foreign stock exchanges involve the payment of negotiated brokerage
commissions. On exchanges on which commissions are negotiated, the cost of
transactions may vary among different brokers. On most foreign exchanges,
commissions are generally fixed. There is generally no stated commission in the
case of securities traded in domestic or foreign over-the-counter markets, but
the price of securities traded in over-the-counter markets includes an
undisclosed commission or mark-up. U.S. Government Securities are generally
purchased from underwriters or dealers, although certain newly issued U.S.
Government Securities may be purchased directly from the U.S. Treasury or from
the issuing agency or instrumentality.
CSAM will select specific portfolio investments and effect
transactions for each Portfolio. In selecting broker-dealers, CSAM does business
exclusively with those broker-dealers that, in CSAM's judgment, can be expected
to provide the best service. The service has two main aspects: the execution of
buy and sell orders and the provision of research. In negotiating commissions
with broker-dealers, CSAM will pay no more for execution and research services
that it considers either, or both together, to be worth. The worth of execution
service depends on the ability of the broker-dealer to minimize costs of
securities purchased and to maximize prices obtained for securities sold. The
worth of research depends on its usefulness in optimizing portfolio composition
and its changes over time. Commissions for the combination of execution and
research services that meet CSAM's standards may be higher than for execution
services alone or for services that fall below CSAM's standards. CSAM believes
that these arrangements may benefit all clients and not necessarily only the
accounts in which the particular investment transactions occur that are so
executed. Further, CSAM will only receive brokerage or research service in
connection with securities transactions that are consistent with the "safe
harbor" provisions of Section 28(e) of the Securities Exchange Act of 1934 when
paying such higher commissions. For the fiscal year ended October 31, 2002,
$5,080, $9,552 and $14,852 was paid by the Small Cap Growth, Large Cap Value and
International Focus Portfolios, respectively, to brokers and dealers who
provided such research and other services. The Small Cap Growth, Large Cap Value
and International Focus Portfolios directed $9,262,975, $6,779,468 and
$8,249,586, respectively, in transactions to brokers and dealers who provided
such research. Research received from brokers or dealers is supplemental to
CSAM's own research program. The fees to CSAM under its agreements with each
Portfolio are not reduced by reason of its receiving any brokerage and research
services.
All orders for transactions in securities or options on behalf of a
Portfolio are placed by CSAM with broker-dealers that it selects, including
Credit Suisse Asset Management Securities, Inc. ("CSAMSI") and affiliates of
Credit Suisse Group. A Portfolio may utilize CSAMSI or affiliates of Credit
Suisse Group in connection with a purchase or sale of securities when CSAM
believes that the charge for the transaction does not exceed usual and customary
levels and when doing so is consistent with guidelines adopted by the Board.
Investment decisions for each Portfolio concerning specific
portfolio securities are made independently from those for other clients advised
by CSAM. Such other investment clients may invest in the same securities as a
Portfolio. When purchases or sales of the same security are made at
substantially the same time on behalf of such other clients, transactions are
32
averaged as to price and available investments allocated as to amount, in a
manner which CSAM believes to be equitable to each client, including the
Portfolios. In some instances, this investment procedure may adversely affect
the price paid or received by a Portfolio or the size of the position obtained
or sold for a Portfolio. To the extent permitted by law, securities may be
aggregated with those to be sold or purchased for a Portfolio with those to be
sold or purchased for such other investment clients in order to obtain best
execution.
The Fund paid the following commissions to broker-dealers for
execution of portfolio transactions on behalf of the indicated Portfolios for
the indicated fiscal years ended October 31.
2002 2001 2000
---- ---- ----
Large Cap Value $ 46,169 $ 4,757 $ 86,629
Small Cap Growth $ 306,992 $ 278,367 $ 224,092
International Focus $ 406,262 $ 1,199,789 $ 2,593,106
In no instance will portfolio securities be purchased from or sold
to CSAM, CSAMSI or Credit Suisse First Boston ("CSFB") or any affiliated person
of such companies, except as permitted by SEC exemptive order or by applicable
law.
Transactions for the Portfolios may be effected on foreign
securities exchanges. In transactions for securities not actively traded on a
foreign securities exchange, the Fund will deal directly with the dealers who
make a market in the securities involved, except in those circumstances where
better prices and execution are available elsewhere. Such dealers usually are
acting as principal for their own account. On occasion, securities may be
purchased directly from the issuer. Such portfolio securities are generally
traded on a net basis and do not normally involve brokerage commissions.
Securities firms may receive brokerage commissions on certain portfolio
transactions, including options, futures and options on futures transactions and
the purchase and sale of underlying securities upon exercise of options.
Each Portfolio may participate, if and when practicable, in bidding
for the purchase of securities for the Portfolio's portfolio directly from an
issuer in order to take advantage of the lower purchase price available to
members of such a group. A Portfolio will engage in this practice, however, only
when CSAM, in its sole discretion, believes such practice to be otherwise in the
Portfolio's interest.
As of October 31, 2002, the Portfolios held the following securities
of their regular brokers or dealers:
Portfolio Name of Securities Aggregate Value of Holdings
--------- ------------------ ---------------------------
Large Cap Value N/A $ 0
Small Cap Growth State Street Bank and Trust Co. - Euro $ 4,672,000
Time Deposit
33
International Focus State Street Bank and Trust Co. - Euro $ 2,944,000
Time Deposit
PORTFOLIO TURNOVER
The Portfolios do not intend to seek profits through
short-term trading, but the rate of turnover will not be a limiting factor when
a Portfolio deems it desirable to sell or purchase securities. A Portfolio's
portfolio turnover rate is calculated by dividing the lesser of purchases or
sales of its portfolio securities for the year by the monthly average value of
the portfolio securities. Securities with remaining maturities of one year or
less at the date of acquisition are excluded from the calculation.
Certain practices that may be employed by a Portfolio could
result in high portfolio turnover. For example, options on securities may be
sold in anticipation of a decline in the price of the underlying security
(market decline) or purchased in anticipation of a rise in the price of the
underlying security (market rise) and later sold. To the extent that its
portfolio is traded for the short-term, a Portfolio will be engaged essentially
in trading activities based on short-term considerations affecting the value of
an issuer's stock instead of long-term investments based on fundamental
valuation of securities. Because of this policy, portfolio securities may be
sold without regard to the length of time for which they have been held.
Consequently, the annual portfolio turnover rate of a Portfolio may be higher
than mutual funds having a similar objective that do not utilize these
strategies.
It is not possible to predict the Portfolios' portfolio
turnover rates. High portfolio turnover rates (100% or more) may result in
higher brokerage commissions, dealer markups or underwriting commissions as well
as other transaction costs. In addition, gains realized from portfolio turnover
may be taxable to shareholders. For the fiscal year ended October 31, 2001 and
2002, the portfolio turnover rate for Large Cap Value Portfolio was 45% and 72%;
for Small Cap Growth Portfolio, 80% and 70%; and for International Focus
Portfolio, 134% and 161%, respectively.
MANAGEMENT OF THE FUND
Officers and Board of Directors
The business and affairs of the Fund are managed by the Board
of Directors in accordance with the laws of the State of Maryland. The Board
elects officers who are responsible for the day-to-day operations of the Fund
and who execute policies authorized by the Board. The Board approves all
significant agreements between the Fund and the companies that furnish services
to the Fund, including agreements with the Fund's investment adviser, custodian
and transfer agent.
The names and ages of the Fund's Directors and officers, their
addresses, present positions and principal occupations during the past five
years and other affiliations are set forth below.
34
Information Concerning Directors And Officers
Number of
Portfolios
Term of in Fund
Position(s) Office(1) and Complex Other
Held with Length of Principal Occupation(s) Overseen Directorships
Name, Address and Age Fund Time Served During Past Five Years by Director Held by Director
--------------------- ---------- ----------- ---------------------- ----------- ----------------
INDEPENDENT DIRECTORS
Richard H. Francis Director Since 1999 Currently retired; 54 None
c/o Credit Suisse Asset Executive Vice President
Management, LLC and Chief Financial
466 Lexington Avenue Officer of Pan Am
New York, New York 10017-3140 Corporation and Pan
Age: 70 American World Airways,
Inc. from 1988 to 1991
Jack W. Fritz Director Since Fund Private investor; 53 Director of Advo,
2425 North Fish Creek Road inception Consultant and Director Inc. (direct mail
P.O. Box 1287 of Fritz Broadcasting, advertising)
Wilson, Wyoming 83014 Inc. and Fritz
Age: 75 Communications
(developers and operators
of radio stations) since
1987
Jeffrey E. Garten Director Since 1998 Dean of Yale School of 53 Director of
Box 208200 Management and William S. Aetna, Inc.;
New Haven, Connecticut Beinecke Professor in the Director of
06520-8200 Practice of International Calpine Energy
Age: 56 Trade and Finance; Corporation;
Undersecretary of Director of
Commerce for CarMax Group
International Trade from (used car dealers)
November 1993 to October
1995; Professor at
Columbia University from
September 1992 to
November 1993
1 Each Director/Trustee and Officer serves until his or her respective
successor has been duly elected and qualified.
35
Number of
Portfolios
Term of in Fund
Position(s) Office(1) and Complex Other
Held with Length of Principal Occupation(s) Overseen Directorships
Name, Address and Age Fund Time Served During Past Five Years by Director Held by Director
--------------------- ---------- ----------- ---------------------- ----------- ----------------
Peter F. Krogh Director Since 2001 Dean Emeritus and 53 Member of Board
301 ICC Distinguished Professor of The Carlisle
Georgetown University of International Affairs Companies Inc.;
Washington, DC 20057 at the Edmund A. Walsh Member of
Age: 66 School of Foreign Selection
Service, Georgetown Committee for
University; Moderator of Truman Scholars
PBS foreign affairs and Henry Luce
television series Scholars; Senior
Associate of
Center for
Strategic and
International
Studies; Trustee
of numerous world
affairs
organizations
James S. Pasman, Jr. Director Since 1999 Currently retired; 55 Director of
c/o Credit Suisse Asset President and Chief Education
Management, LLC Operating Officer of Management Corp.,
466 Lexington Avenue National InterGroup, Inc. Trustee of
New York, New York 10017-3140 (holding company) from Deutsche VIT
Age: 71 April 1989 to March 1991; Funds (overseeing
Chairman of Permian Oil three portfolios)
Co. from April 1989 to
March 1991
36
Number of
Portfolios
Term of in Fund
Position(s) Office(1) and Complex Other
Held with Length of Principal Occupation(s) Overseen Directorships
Name, Address and Age Fund Time Served During Past Five Years by Director Held by Director
--------------------- ---------- ----------- ---------------------- ----------- ----------------
Steven N. Rappaport Director Since 1999 Partner of Lehigh Court, 54 None
Lehigh Court, LLC LLC since July 2002;
40 East 52nd Street, President of SunGard
New York, New York 10022 Securities Finance, Inc.,
Age: 54 from 2001 to July 2002;
President of
Loanet, Inc.
(on-line accounting
service) from 1995
to 2001; Director,
President, North
American
Operations, and
former Executive
Vice President from
1992 to 1993 of
Worldwide
Operations of
Metallurg Inc.
(manufacturer of
specialty metals
and alloys);
Executive Vice
President,
Telerate, Inc.
(provider of
real-time
information to the
capital markets)
from 1987 to 1992;
Partner in the law
firm of Hartman &
Craven until 1987
INTERESTED DIRECTOR
William W. Priest(2) Director Since 1999 Co-Managing Partner, 60 None
Steinberg Priest & Sloane Steinberg Priest & Sloane
Capital Management Capital Management since
12 East 49th Street March 2001; Chairman and
12th Floor Managing Director of CSAM
New York, New York 10017 from 2000 to February
Age: 61 2001, Chief Executive
Officer and Managing
Director of CSAM from
1990 to 2000
2 Mr. Priest is a Director who is an "interested person" of the Fund as
defined in the 1940 Act, because he provides consulting services to
CSAM.
37
Number of
Portfolios
Term of in Fund
Position(s) Office(1) and Complex Other
Held with Length of Principal Occupation(s) Overseen Directorships
Name, Address and Age Fund Time Served During Past Five Years by Director Held by Director
--------------------- ---------- ----------- ---------------------- ----------- ----------------
OFFICERS
Laurence R. Smith Chairman Since 2002 Managing Director and -- --
Credit Suisse Asset Global Chief Investment
Management, LLC Officer of CSAM;
466 Lexington Avenue Associated with J.P.
New York, New York 10017-3140 Morgan Investment
Age: 44 Management from 1981 to
1999; Officer of other
Credit Suisse Funds
Hal Liebes, Esq. Vice Since 1999 Managing Director and -- --
Credit Suisse Asset President Global General Counsel of
Management, LLC and CSAM; Associated with
466 Lexington Avenue Secretary Lehman Brothers, Inc.
New York, New York 10017-3140 from 1996 to 1997;
Age: 38 Associated with CSAM from
1995 to 1996;
Associated with CSFB
Investment
Management from
1994 to 1995;
Associated with
Division of
Enforcement, U.S.
Securities and
Exchange Commission
from 1991 to 1994;
Officer of other
Credit Suisse Funds
Michael A. Pignataro Treasurer Since 1999 Director and Director of -- --
Credit Suisse Asset and Chief Fund Administration of
Management, LLC Financial CSAM; Associated with
466 Lexington Avenue Officer CSAM since 1984; Officer
New York, New York 10017-3140 of other Credit Suisse
Age: 43 Funds
Gregory N. Bressler, Esq. Assistant Since 2000 Director and Deputy -- --
Credit Suisse Asset Secretary General Counsel;
Management, LLC Associated with CSAM
466 Lexington Avenue since January 2000;
New York, New York 10017-3140 Associated with the law
Age: 36 firm of Swidler Berlin
Shereff Friedman LLP from
1996 to 2000; Officer of
other Credit Suisse Funds
38
Number of
Portfolios
Term of in Fund
Position(s) Office(1) and Complex Other
Held with Length of Principal Occupation(s) Overseen Directorships
Name, Address and Age Fund Time Served During Past Five Years by Director Held by Director
--------------------- ---------- ----------- ---------------------- ----------- ----------------
Kimiko T. Fields, Esq. Assistant Since 2002 Vice President and Legal -- --
Credit Suisse Asset Secretary Counsel; Associated with
Management, LLC CSAM since January 1998;
466 Lexington Avenue Officer of other Credit
New York, New York 10017-3140 Suisse Funds
Age: 39
Rocco A. DelGuercio Assistant Since 1999 Vice President and -- --
Credit Suisse Asset Treasurer Administrative Officer of
Management, LLC CSAM; Associated with
466 Lexington Avenue CSAM since June 1996;
New York, New York 10017-3140 Assistant Treasurer,
Age: 39 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 Credit
Suisse Funds
Joseph Parascondola Assistant Since 2000 Assistant Vice President -- --
Credit Suisse Asset Treasurer - Fund Administration of
Management, LLC CSAM since April 2000;
466 Lexington Avenue Assistant Vice President,
New York, New York 10017-3140 Deutsche Asset Management
Age: 39 from January 1999 to
April 2000; Assistant
Vice President, Weiss,
Peck & Greer LLC from
November 1995 to December
1998; Officer of other
Credit Suisse Funds
Robert M. Rizza Assistant Since 2002 Assistant Vice President
Credit Suisse Asset Treasurer of CSAM (January 2001 to
Management, LLC present); Administrative
466 Lexington Avenue Officer of CSAM (March
New York, New York 10017-3140 1998 to December 2000);
Age: 37 Assistant Treasurer of
Bankers Trust Co. (April
1994 to March 1998);
Officer of other Credit
Suisse Funds
39
OWNERSHIP IN SECURITIES OF THE FUND AND FUND COMPLEX
As reported to the Fund(s), the information in the following table reflects
beneficial ownership by the Directors of certain securities as of December 31,
2002.
Aggregate Dollar Range of Equity
Securities in all Registered
Investment Companies Overseen by
Dollar Range of Equity Securities in Director in Family of Investment
Name of Director the Fund*,(3) Companies*,(3)
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
- ----------------------------------------------------------------------------------------------------------------
Richard H. Francis Large Cap Value - A E
Small Cap Growth - A
International Focus - A
- ----------------------------------------------------------------------------------------------------------------
Jack W. Fritz Large Cap Value - A E
Small Cap Growth - A
International Focus - A
- ----------------------------------------------------------------------------------------------------------------
Jeffrey E. Garten Large Cap Value - A A
Small Cap Growth - A
International Focus - A
- ----------------------------------------------------------------------------------------------------------------
Peter F. Krogh Large Cap Value - A D
Small Cap Growth - A
International Focus - A
- ----------------------------------------------------------------------------------------------------------------
James S. Pasman, Jr. Large Cap Value - A C
Small Cap Growth - A
International Focus - A
- ----------------------------------------------------------------------------------------------------------------
Steven N. Rappaport Large Cap Value - A D
Small Cap Growth - A
International Focus - A
- ----------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTOR
- ----------------------------------------------------------------------------------------------------------------
William W. Priest Large Cap Value - A A
Small Cap Growth - A
International Focus - A
- ----------------------------------------------------------------------------------------------------------------
- -------------------
* Key to Dollar Ranges:
A. None
B. $1 - $10,000
C. $10,000 - $50,000
D. $50,000 - $100,000
E. Over $100,000
(3) Beneficial ownership is determined in accordance with Rule 16a-1(a)(2)
under the Securities Exchange Act of 1934.
40
Information Concerning Committees and Meetings of Directors
The Fund has an Audit Committee and a Nominating Committee. The
members of the Audit Committee and the Nominating Committee consist of all the
Directors who are not "interested persons" of the Funds as defined in the 1940
Act ("Independent Directors"), namely Messrs. Francis, Fritz, Garten, Krogh,
Pasman and Rappaport.
In accordance with its written charter adopted by the Board of
Directors, the Audit Committee assists the Board in fulfilling its
responsibility for oversight of the quality and integrity of the accounting,
auditing and financial reporting practices of the Fund. It also makes
recommendations to the Board as to the selection of the independent public
accountants, reviews the methods, scope and result of the audits and audit fees
charged, and reviews the Fund's internal accounting procedures and controls. The
Audit Committee also considers the scope and amount of non-audit services
provided to the Fund, its adviser and affiliates by the independent public
accountants. The Audit Committee of the Fund met 4 times during the fiscal year
ended October 31, 2002.
The Nominating Committee is charged with the duty of making all
nominations for Independent Directors to the Board of Directors. The Nominating
Committee will consider nominees recommended by the Fund's shareholders when a
vacancy becomes available. Shareholders who wish to recommend a nominee should
send nominations to the Fund's Secretary. The Nominating Committee also
considers the appointment of independent counsel to the Independent Directors.
The Nominating Committee met twice during the fiscal year ended October 31,
2002.
No employee of CSAM, State Street Bank and Trust Company ("State
Street") and CSAMSI, the Fund's co-administrators or any of their affiliates,
receives any compensation from the Fund for acting as an officer or director of
the Fund. Each Director who is not a director, trustee, officer or employee of
CSAM, State Street, CSAMSI, or any of their affiliates receives an annual fee of
$750 per fund and $250 for each meeting of the Board attended by him for his
services as Director and is reimbursed for expenses incurred in connection with
attendance at Board meetings. Each member of the Audit Committee receives an
annual fee of $250 and the chairman of the Audit Committee receives an annual
fee of $325 for serving on the Audit Committee.
41
Directors' Compensation
(for the fiscal year ended October 31, 2002)
Total Number of
All Investment Funds for which
Companies Director serves
Large Cap Small Cap International In Fund Complex within Fund Complex
Name of Director Value Value Focus
---------------- ----- ----- ----- ----------------- -------------------
William W. Priest(1) None None None None 60
Richard H. Francis $ 1,562.50 $ 1,562.50 $ 1,562.50 $ 103,749.50 54
Jack W. Fritz $ 1,312.50 $ 1,312.50 $ 1,312.50 $ 94,374.48 53
Jeffrey E. Garten $ 1,312.50 $ 1,312.50 $ 1,312.50 $ 97,499.50 53
Peter F. Krogh $ 1,512.50 $ 1,512.50 $ 1,512.50 $ 99,099.50 53
James S. Pasman, Jr. $ 1,512.50 $ 1,512.50 $ 1,512.50 $ 103,599.50 55
Steven N. Rappaport $ 1,572.50 $ 1,572.50 $ 1,572.50 $ 110,544.76 54
- ------------------------
(1.) Mr. Priest is an interested person of the Fund, and, accordingly, receives
no compensation from the Fund or any other investment company advised by
CSAM.
As of January 24, 2003, the Directors and officers of the Fund as a
group owned less than 1% of the outstanding shares of each Portfolio.
Investment Advisory Agreements
CSAM, located at 466 Lexington Avenue, New York, New York
10017-3147, serves as investment adviser to each Portfolio pursuant to a written
investment advisory agreement between CSAM and the Fund (the "Advisory
Agreement"). CSAM is the institutional and mutual fund asset management arm of
CSFB, part of the Credit Suisse Group ("Credit Suisse"), one of the world's
largest financial organizations with approximately $819.6 billion in assets
under management. CSAM is a diversified investment adviser managing global and
domestic equity and fixed income portfolios for retail investors as well as
institutional clients such as corporate pension and profit-sharing plans, state
pension funds, union funds, endowments and charitable institutions. Together
with its predecessor firms, CSAM has been engaged in the investment advisory
business for over 60 years. CSFB is a leading global investment bank serving
institutional, corporate, government and individual clients. CSFB's businesses
include securities underwriting, sales and trading, investment banking, private
equity, financial advisory services, investment research, venture capital,
correspondent brokerage services and asset management. CSFB operates in 77
locations in 36 countries across six continents. CSFB is a business unit of the
Zurich-based Credit Suisse. The principal business address of Credit Suisse is
Paradeplatz 8, CH8070, Zurich, Switzerland. As of September 30, 2002, Credit
Suisse Asset Management employed 2,270 people worldwide and had global assets
under management of approximately $284.3 billion, with $55.8 billion in assets
under management in the U.S. The principal business address of Credit Suisse is
Paradeplatz 8, CH8070, Zurich, Switzerland.
42
The Advisory Agreement has an initial term of two years and
continues in effect from year to year thereafter if such continuance is
specifically approved at least annually by the vote of a majority of the
Independent Directors cast in person at a meeting called for the purpose of
voting on such approval, and either by a vote of the Fund's Board of Directors
or by a majority of the Fund's outstanding voting securities, as defined in the
1940 Act.
Pursuant to the Advisory Agreement, subject to the supervision and
direction of the Board, CSAM is responsible for managing each Portfolio in
accordance with the Portfolio's stated investment objective and policies. CSAM
is responsible for providing investment advisory services as well as conducting
a continual program of investment, evaluation and, if appropriate, sale and
reinvestment of the Portfolio's assets. In addition to expenses that CSAM may
incur in performing its services under the Advisory Agreement, CSAM pays the
compensation, fees and related expenses of all Directors who are affiliated
persons of CSAM or any of its subsidiaries.
The Fund bears certain expenses incurred in its operation,
including: investment advisory and administration fees; taxes, interest,
brokerage fees and commissions, if any; fees of Directors of the Fund who are
not officers, directors, or employees of CSAM or affiliates of any of them; fees
of any pricing service employed to value shares of a Portfolio; SEC fees, state
Blue Sky qualification fees and any foreign qualification fees; charges of
custodians and transfer and dividend disbursing agents; the Fund's proportionate
share of insurance premiums; outside auditing and legal expenses; costs of
maintenance of the Fund's existence; costs attributable to investor services,
including, without limitation, telephone and personnel expenses; costs of
preparing and printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings of the shareholders of the Fund and of the
officers or Board of Directors of the Fund; and any extraordinary expenses.
The Advisory Agreement provides that CSAM shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which the Agreement relates, except that CSAM
shall be liable for a loss resulting from a breach of fiduciary duty by CSAM
with respect to the receipt of compensation for services; provided that nothing
in the Advisory Agreement shall be deemed to protect or purport to protect CSAM
against any liability to the Fund or to shareholders of the Fund to which CSAM
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or by reason of CSAM's
reckless disregard of its obligations and duties under the Advisory Agreement.
The Fund or CSAM may terminate the Advisory Agreement on 60 days'
written notice without penalty. The Advisory Agreement will terminate
automatically in the event of its assignment (as defined in the 1940 Act).
For its services to the Large Cap Value Portfolio, Small Cap Growth
Portfolio and International Focus Portfolio, CSAM is paid (before any voluntary
waivers or reimbursements) a fee computed daily and paid monthly at the annual
rate of 0.75%, 0.90% and 0.80% of such Portfolio's average daily net assets,
respectively. CSAM may voluntarily waive a portion of its fees from time to time
and temporarily limit the expenses to be borne by a Portfolio.
43
For the past three fiscal years ended October 31, the Funds paid
CSAM advisory fees, and CSAM waived fees and/or reimbursed expenses of the Funds
under the Advisory Agreements as follows:
OCTOBER 31, 2002
Portfolio Fees Paid (After Waivers) Waivers Reimbursements
--------- ------------------------- ------- --------------
Large Cap Value $ 30,302 $ 161,840 N/A
Small Cap Growth $ 497,440 $ 239,101 N/A
International Focus $ 261,817 $ 251,908 N/A
OCTOBER 31, 2001
Portfolio Fees Paid (After Waivers) Waivers Reimbursements
--------- ------------------------- ------- --------------
Large Cap Value $ 23,620 $ 23,620 $ 0
Small Cap Growth $ 1,616,969 $ 358,165 $ 0
International Focus $ 1,613,470 $ 454,062 $ 0
OCTOBER 31, 2000
Portfolio Fees Paid (After Waivers) Waivers Reimbursements
--------- ------------------------- ------- --------------
Large Cap Value $ 51,184 $ 51,184 $ 0
Small Cap Growth $ 2,812,644 $ 496,336 $ 0
International Focus $ 3,557,726 $ 772,951 $ 0
Board Approval of Advisory Agreements
In approving the Advisory Agreement, the Board of Directors of the
Fund, including the Independent Directors, considered the reasonableness of the
advisory fee in light of the extent and quality of the advisory services
provided and any additional benefits received by CSAM or its affiliates in
connection with providing services to the Fund, compared the fees charged by
CSAM to those charged by CSAM with respect to its other clients for comparable
services and to those charged by other investment advisers with respect to
similar funds, and analyzed the expenses incurred by CSAM with respect to the
Fund. The Board of Directors also considered each Portfolio's performance
relative to a selected peer group, the Portfolio's total
44
expenses in comparison to funds of comparable size, and other factors.
Specifically, the Board of Directors noted information received at regular
meetings throughout the year related to Portfolio performance and services
rendered by CSAM, and benefits potentially accruing to CSAM and its affiliates
from securities lending, administrative and brokerage relationships with
affiliates of CSAM, as well as the Adviser's research arrangements with brokers
who execute transactions on behalf of each Portfolio. The Board reviewed the
profitability to CSAM and its affiliates of their services to the Fund and
considered whether economies of scale in the provision of services to the Fund
were being passed along to shareholders. The Board reviewed whether, and if so
to what extent, CSAM or its affiliates were waiving their fees and/or
reimbursing Portfolio expenses and acknowledged that the fee waivers and
reimbursements could be discontinued at any time. The Board also reviewed
whether it would be appropriate to adopt breakpoints in the rate of advisory
fees, whereby the rate of advisory fees would be reduced as fund assets
increased. After requesting and reviewing such information as they deemed
necessary, the Board concluded that the Advisory Agreement was in the best
interests of the Portfolio and its shareholders. No single factor reviewed by
the Board was identified by the Board as the principal factor in determining
whether to approve the Advisory Agreement. The Independent Directors were
advised by separate independent legal counsel throughout the process.
Administration Agreements
CSAMSI and State Street serve as co-administrators to the Fund
pursuant to separate written agreements with the Fund (the "CSAMSI
Co-Administration Agreement" and the "State Street Co-Administration Agreement,"
respectively).
CSAMSI became co-administrator to the Fund on November 1, 1999. For
the services provided by CSAMSI under the CSAMSI Co-Administration Agreement,
the Fund pays CSAMSI a fee calculated daily and paid monthly at the annual rate
of 0.10% of the Fund's average daily net assets.
For the past three fiscal years ended October 31, the Funds paid
CSAMSI co-administrative service fees, and CSAMSI waived such fees and/or
reimbursed expenses under the CSAMSI Co-Administration Agreements as follows:
Portfolio 2002 2001 2000
--------- ---- ---- ----
Large Cap Value $ 25,619 $ 3,149 $ 6,824
Small Cap Growth $ 81,838 $179,663 $312,516
International Focus $ 64,216 $201,684 $502,549
State Street became co-administrator to the Portfolios on August 1,
2002. For the services provided by State Street under the State Street
Co-Administration Agreement, each Portfolio pays State Street a fee calculated
at the annual rate of its pro-rated share of .05% of the first $5 billion in
average daily net assets of the Credit Suisse Funds Complex (the "Fund
Complex"), .035% of the Fund Complex's next $5 billion in average daily net
assets, and .02% of the Fund Complex's average daily net assets in excess of $10
billion, exclusive of out-of-pocket expenses. For the period from August 1, 2002
through October 31, 2002, the Large Cap Value,
45
Small Cap Growth and International Focus Portfolios paid State Street fees under
the State Street Co-Administration Agreement of $8,602, $7,711 and $9,257,
respectively.
PFPC Inc. ("PFPC"), an indirect, wholly owned subsidiary of PNC
Financial Services Group served as a co-administrator to the Portfolios prior to
August 1, 2002. PFPC received from the Portfolios a fee calculated at an annual
rate of .075% of the Fund's first $500 million in average daily net assets,
..065% of the next $1 billion in average daily net assets and .055% of average
daily net assets exceeding $1.5 billion, exclusive of out-of-pocket expenses.
During the three fiscal years ended October 31, PFPC earned the
following amounts in co-administration fees.
Portfolio 2002 Waiver 2001 Waiver 2000 Waiver
--------- ---- ------ ---- ------ ---- ------
Large Cap Value $ 12,990 $ 185 $ 5,050 $ 2,552 $ 9,829 $ 6,824
Small Cap Growth $ 56,711 $ 0 $153,982 $ 0 $316,654 $ 0
International Focus $ 46,681 $ 0 $192,391 $ 0 $444,715 $ 0
Code of Ethics
The Fund, CSAM and CSAMSI have each adopted a written Code of Ethics
(the "Code of Ethics"), which permits personnel covered by the Code of Ethics
("Covered Persons") to invest in securities, including securities that may be
purchased or held by the Fund for the Portfolios. The Code of Ethics also
contains provisions designed to address the conflicts of interest that could
arise from personal trading by advisory personnel, including: (1) all Covered
Persons must report their personal securities transactions at the end of each
quarter; (2) with certain limited exceptions, all Covered Persons must obtain
preclearance before executing any personal securities transactions; (3) Covered
Persons may not execute personal trades in a security if there are any pending
orders in that security by the Fund; and (4) Covered Persons may not invest in
initial public offerings.
The Board reviews the administration of the Code of Ethics at least
annually and may impose sanctions for violations of the Code of Ethics.
Custodian and Transfer Agent
State Street Bank ("State Street") serves as custodian of each
Portfolio's U.S. and non-U.S. assets. Pursuant to a Custodian Agreement (the
"Custodian Agreement"), State Street (i) maintains a separate account or
accounts in the name of the Portfolio, (ii) holds and transfers portfolio
securities for the account of the Portfolio, (iii) makes receipts and
disbursements of money on behalf of the Portfolio, (iv) collects and receives
all income and other payments and distributions on account of the Portfolio's
portfolio securities held by it and (v) makes periodic reports to the Board
concerning the Portfolio's custodial arrangements. With approval of the Board,
State Street is authorized to select one or more foreign and domestic banking
institutions and securities depositaries to serve as sub-custodian on behalf of
the Portfolios. For this service
46
to the Portfolios under the Custodian Agreements, State Street receives a fee
which is calculated based upon each Portfolio's average daily gross assets,
exclusive of transaction charges and out-of-pocket expenses, which are also
charged to the Portfolios. The principal business address of State Street is 225
Franklin Street, Boston, Massachusetts 02110.
Boston Financial Data Services, Inc., an affiliate of State Street
("BFDS"), acts as the shareholder servicing, transfer and dividend disbursing
agent of each Portfolio pursuant to a Transfer Agency and Service Agreement,
under which BFDS (i) issues and redeems shares of each Portfolio, (ii) addresses
and mails all communications by the Fund to record owners of Portfolio shares,
including reports to shareholders, dividend and distribution notices and proxy
material for its meetings of shareholders, (iii) maintains shareholder accounts
and, if requested, sub-accounts and (iv) makes periodic reports to the Board
concerning the transfer agent's operations with respect to the Portfolios.
BFDS's principal business address is 2 Heritage Drive, North Quincy,
Massachusetts 02171.
Distribution and Shareholder Servicing
CSAMSI serves as the distributor of the Portfolios. CSAMSI's
principal business address is 466 Lexington Avenue, New York, New York 10017.
Each Portfolio has authorized certain broker-dealers, financial
institutions, recordkeeping organizations and other industry professionals
(collectively, "Service Organizations") or, if applicable, their designees to
enter confirmed purchase and redemption orders on behalf of their clients and
customers, with payment to follow no later than the Portfolio's pricing on the
following business day. If payment is not received by such time, the Service
Organization could be held liable for resulting fees or losses. The Portfolio
may be deemed to have received a purchase or redemption order when a Service
Organization, or, if applicable, its authorized designee, accepts the order.
Such orders received by the Portfolio in proper form will be priced at the
Portfolio's net asset value next computed after they are accepted by the Service
Organization or its authorized designee. Service Organizations may impose
transaction or administrative charges or other direct fees, which charges or
fees would not be imposed if shares are purchased directly from the Portfolios.
Service Organizations may also be reimbursed for marketing costs. The Portfolios
may reimburse part of the Service Fee at rates they would normally pay to the
transfer agent for providing the services.
Organization of the Fund
The Fund was incorporated on May 13, 1992 under the laws of the
State of Maryland under the name "Warburg, Pincus Institutional Fund, Inc." On
May 11, 2000, the Fund changed its name to "Credit Suisse Institutional Fund,
Inc." The Fund's charter authorizes the Board of Directors to issue thirteen
billion full and fractional shares of capital stock, par value $.001 per share.
Shares of ten series have been classified, three of which constitute the
interests in the Portfolios.
The Large Cap Value and the International Focus Portfolios are
diversified, open-end management investment companies. The Small Cap Growth
Portfolio is a non-diversified, open-end management investment company.
Effective December 12, 2001, the "Credit Suisse Institutional Fund - Value
Portfolio," "Credit Suisse Institutional Fund - International Equity Portfolio"
and "Credit Suisse Institutional Fund - Small Company Growth Portfolio" changed
47
their names to the "Credit Suisse Institutional Fund Large Cap Value Portfolio,"
"Credit Suisse Institutional Fund International Focus Portfolio" and "Credit
Suisse Institutional Fund Small Cap Growth Portfolio," respectively.
All shareholders of a Portfolio, upon liquidation, will participate
ratably in the Portfolio's net assets. Shares do not have cumulative voting
rights, which means that holders of more than 50% of the shares voting for the
election of Directors can elect all Directors. Shares are transferable but have
no preemptive, conversion or subscription rights.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of each Portfolio's shares is equal to its per
share net asset value. Under the 1940 Act, a Portfolio may suspend the right of
redemption or postpone the date of payment upon redemption for any period during
which the NYSE is closed, other than customary weekend and holiday closings, or
during which trading on the NYSE is restricted, or during which (as determined
by the SEC) an emergency exists as a result of which disposal or fair valuation
of portfolio securities is not reasonably practicable, or for such other periods
as the SEC may permit. (A Portfolio may also suspend or postpone the recordation
of an exchange of its shares upon the occurrence of any of the foregoing
conditions.)
If conditions exist which make payment of redemption proceeds wholly
in cash unwise or undesirable, a Portfolio may make payment wholly or partly in
securities or other investment instruments which may not constitute securities
as such term is defined in the applicable securities laws. If a redemption is
paid wholly or partly in securities or other property, a shareholder would incur
transaction costs in disposing of the redemption proceeds. The Fund has elected,
however, to be governed by Rule 18f-1 under the 1940 Act as a result of which
each Portfolio is obligated to redeem shares, with respect to any one
shareholder during any 90-day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Portfolio at the beginning of the
period.
A Portfolio may, in certain circumstances and in its discretion,
accept securities as payment for the purchase of the Portfolio's shares from an
investor who has received such securities as redemption proceeds from another
Credit Suisse Fund.
EXCHANGE PRIVILEGE
Shareholders of a Portfolio may exchange all or part of their shares
for shares of another Portfolio or other portfolios of the Fund organized by
CSAM in the future on the basis of their relative net asset values per share at
the time of exchange. The exchange privilege enables shareholders to acquire
shares in a Portfolio with a different investment objective when they believe
that a shift between Portfolios is an appropriate investment decision.
If an exchange request is received by Credit Suisse Funds or its
agent prior to the close of regular trading on the NYSE, the exchange will be
made at each Portfolio's net asset value determined at the end of that business
day. Exchanges must satisfy the minimum dollar amount necessary for new
purchases. A Portfolio may refuse exchange purchases at any time without notice.
48
The exchange privilege is available to investors in any state in
which the shares being acquired may be legally sold. When an investor effects an
exchange of shares, the exchange is treated for federal income tax purposes as a
redemption. Therefore, the investor may realize a taxable gain or loss in
connection with the exchange. Investors wishing to exchange shares of a
Portfolio for shares in another portfolio of the Fund should review the
Prospectus of the other portfolio prior to making an exchange. For further
information regarding the exchange privilege or to obtain a current Prospectus
for another portfolio of the Fund, an investor should contact the Fund at
1-800-222-8977.
Each Portfolio reserves the right to refuse exchange purchases by
any person or group if, in CSAM's judgment, a Portfolio would be unable to
invest the money effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected. Examples of when
an exchange purchase could be refused are when a Portfolio receives or
anticipates receiving large exchange orders at or about the same time and when a
pattern of exchanges within a short period of time (often associated with a
marketing timing strategy) is discerned. The Portfolios reserve the right to
terminate or modify the exchange privilege at any time upon 60 days' notice to
shareholders.
ADDITIONAL INFORMATION CONCERNING TAXES
The following is a summary of the material United States federal
income tax considerations regarding the purchase, ownership and disposition of
shares in the Portfolios. Each prospective shareholder is urged to consult his
own tax adviser with respect to the specific federal, state, local and foreign
tax consequences of investing in the Portfolios. The summary is based on the
laws in effect on the date of this Statement of Additional Information and
existing judicial and administrative interpretations thereof, both of which are
subject to change.
The Portfolios and Their Investments
Each Portfolio intends to continue to qualify as a regulated
investment company during each taxable year under Part I of Subchapter M of the
Code. To so qualify, a Portfolio must, among other things: (a) derive at least
90% of its gross income in each taxable year from dividends, interest, payments
with respect to securities loans and gains from the sale or other disposition of
stock, securities or foreign currencies, or other income (including, but not
limited to, gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities or currencies;
and (b) diversify its holdings so that, at the end of each quarter of the
Portfolio's taxable year, (i) at least 50% of the market value of the
Portfolio's assets is represented by cash, securities of other regulated
investment companies, United States Government securities and other securities,
with such other securities limited, in respect of any one issuer, to an amount
not greater than 5% of the market value of the Portfolio's assets and not
greater than 10% of the outstanding voting securities of such issuer and (ii)
not more than 25% of the value of its assets is invested in the securities
(other than United States Government securities or securities of other regulated
investment companies) of any one issuer or any two or more issuers that the
Portfolio controls and which are determined to be engaged in the same or similar
trades or businesses or related trades or businesses.
As a regulated investment company, a Portfolio will not be subject
to United States federal income tax on its net investment income (i.e., income
other than its net realized long-term and short-term capital gains) and on its
net realized long-term and short-term capital
49
gains, if any, that it distributes to its shareholders, provided that an amount
equal to at least 90% of the sum of its investment company taxable income (i.e.,
90% of its taxable income minus the excess, if any, of its net realized
long-term capital gains over its net realized short-term capital losses
(including any capital loss carryovers), plus or minus certain other adjustments
as specified in the Code) is distributed to its shareholders, but will be
subject to tax at regular corporate rates on any taxable income or gains that it
does not distribute to its shareholders. Any dividend declared by a Portfolio in
October, November or December of any calendar year and payable to shareholders
of record on a specified date in such a month shall be deemed to have been
received by each shareholder on December 31 of such calendar year and to have
been paid by the Portfolio not later than such December 31, provided that such
dividend is actually paid by the Portfolio during January of the following
calendar year.
Each Portfolio intends to distribute annually to its shareholders
substantially all of its investment company taxable income. The Board will
determine annually whether to distribute any net realized long-term capital
gains in excess of net realized short-term capital losses (including any capital
loss carryovers). Each Portfolio currently expects to distribute any such excess
annually to its shareholders. However, if a Portfolio retains for investment an
amount equal to all or a portion of its net long-term capital gains in excess of
its net short-term capital losses and capital loss carryovers, it will be
subject to a corporate tax (currently at a rate of 35%) on the amount retained.
In that event, the Portfolio will designate such retained amounts as
undistributed capital gains in a notice to its shareholders who (a) will be
required to include in income for United Stares federal income tax purposes, as
long-term capital gains, their proportionate shares of the undistributed amount,
(b) will be entitled to credit their proportionate shares of the 35% tax paid by
the Portfolio on the undistributed amount against their own United States
federal income tax liabilities, if any, and to claim refunds to the extent their
credits exceed their tax liabilities, if any, and (c) will be entitled to
increase their tax basis, for United States federal income tax purposes, in
their shares by an amount equal to 65% of the amount of undistributed capital
gains included in their income. Organizations or persons not subject to federal
income tax on such capital gains will be entitled to a refund of their pro rata
share of such taxes paid by the Portfolio upon filing appropriate returns or
claims for refund with the Internal Revenue Service (the "IRS").
The Code imposes a 4% nondeductible excise tax on each Portfolio to
the extent the Portfolio does not distribute by the end of any calendar year at
least 98% of its ordinary income for that year and at least 98% of its net
capital gains (both long-term and short-term) for the one-year period ending, as
a general rule, on October 31 of that year. For this purpose, however, any
ordinary income or net capital gains retained by the Portfolio that is subject
to corporate income tax will be considered to have been distributed by year-end.
In addition, the minimum amounts that must be distributed in any year to avoid
the excise tax will be increased or decreased to reflect any underdistribution
or overdistribution, as the case may be, from the previous year. Each Portfolio
anticipates that it will pay such dividends and will make such distributions as
are necessary in order to avoid the application of this excise tax.
If, in any taxable year, a Portfolio fails to qualify as a regulated
investment company under the Code or fails to meet the distribution requirement,
it would be taxed in the same manner as an ordinary corporation and
distributions to its shareholders would not be deductible by the Portfolio in
computing its taxable income. In addition, the Portfolio's distributions, to the
extent derived from the Portfolio's current or accumulated earnings and profits,
would constitute dividends (eligible for the corporate dividends-received
deduction)
50
which are taxable to shareholders as ordinary income, even though those
distributions might otherwise (at least in part) have been treated in the
shareholders' hands as long-term capital gains. If a Portfolio fails to qualify
as a regulated investment company in any year, it must pay out its earnings and
profits accumulated in that year in order to qualify again as a regulated
investment company. Moreover, if a Portfolio failed to qualify as a regulated
investment company for a period greater than two taxable years, 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 the Portfolio had been
liquidated) in order to qualify as a regulated investment company in a
subsequent year.
A Portfolio's short sales against the box, if any, and transactions
in foreign currencies, forward contracts, options and futures contracts
(including options and futures contracts on foreign currencies) will be subject
to special provisions of the Code that, among other things, may affect the
character of gains and losses realized by the Portfolio (i.e., may affect
whether gains or losses are ordinary or capital), accelerate recognition of
income to the Portfolio and defer Portfolio losses. These rules could therefore
affect the character, amount and timing of distributions to shareholders. These
provisions also (a) will require the Portfolio to mark-to-market certain types
of the positions in its portfolio (i.e., treat them as if they were closed out)
and (b) may cause the Portfolio to recognize income without receiving cash with
which to pay dividends or make distributions in amounts necessary to satisfy the
distribution requirements for avoiding income and excise taxes. Each Portfolio
will monitor its transactions, will make the appropriate tax elections and will
make the appropriate entries in its books and records when it engages in a short
sale against-the-box or acquires any foreign currency, forward contract, option,
futures contract or hedged investment in order to mitigate the effect of these
rules and prevent disqualification of the Portfolio as a regulated investment
company.
A Portfolio's investments in zero coupon securities may create
special tax consequences. Zero coupon securities do not make interest payments,
although a portion of the difference between zero coupon security's face value
and its purchase price is imputed as income to the Portfolio each year even
though the Portfolio receives no cash distribution until maturity. Under the
U.S. federal tax laws, the Portfolio will not be subject to tax on this income
if it pays dividends to its shareholders substantially equal to all the income
received from, or imputed with respect to, its investments during the year,
including its zero coupon securities. These dividends ordinarily will constitute
taxable income to the shareholders of the Portfolio.
Passive Foreign Investment Companies
If a Portfolio purchases shares in certain foreign investment
entities, called "passive foreign investment companies" ("PFICs"), it may be
subject to United States federal income tax on any "excess distribution" or gain
from the disposition of such shares even if such income is distributed as a
taxable dividend by the Portfolio to its shareholders. Additional charges in the
nature of interest may be imposed on the Portfolio in respect of deferred taxes
arising from such distributions or gains. If a Portfolio were to invest in a
PFIC and elected to treat the PFIC as a "qualified electing fund" under the
Code, in lieu of the foregoing requirements, the Portfolio might be required to
include in income each year a portion of the ordinary earnings and net capital
gains of the qualified electing fund, even if not distributed to the Portfolio,
and such amounts would be subject to the 90% and excise tax distribution
requirements described above. In order to make this election, the Portfolio
would be required to
51
obtain certain annual information from the PFICs in which it invests, which may
be difficult or impossible to obtain.
Alternatively, a Portfolio may make mark-to-market elections that
will result in the Portfolio being treated as if it had sold and repurchased all
of its PFIC stock at the end of each year. In such case, the Portfolio would
report any such gains as ordinary income and would deduct any such losses as
ordinary losses to the extent of previously recognized gains. The election, once
made, would be effective for all subsequent taxable years of the Portfolio,
unless revoked with the consent of the IRS. By making the election, the
Portfolio could potentially ameliorate the adverse tax consequences with respect
to its ownership of shares in a PFIC, but in any particular year may be required
to recognize income in excess of the distributions it receives from PFICs and
its proceeds from dispositions of PFIC stock. A Portfolio may have to distribute
this "phantom" income and gain to satisfy the 90% distribution requirement and
to avoid imposition of the 4% excise tax. Each Portfolio will make the
appropriate tax elections, if possible, and take any additional steps that are
necessary to mitigate the effect of these rules.
Dividends and Distributions
Dividends of taxable net investment income and distributions of net
realized short-term capital gains are taxable to a United States shareholder as
ordinary income, whether paid in cash or in shares. Distributions of
net-realized long-term capital gains, if any, that a Portfolio designates as
capital gains dividends are taxable as long-term capital gains, whether paid in
cash or in shares and regardless of how long a shareholder has held shares of
the Portfolio. Dividends and distributions paid by a Portfolio (except for the
portion thereof, if any, attributable to dividends on stock of U.S. corporations
received by the Portfolio) will not qualify for the deduction for dividends
received by corporations. Distributions in excess of a Portfolio's current and
accumulated earnings and profits will, as to each shareholder, be treated as a
tax-free return of capital, to the extent of a shareholder's basis in his shares
of the Portfolio, and as a capital gain thereafter (if the shareholder holds his
shares of the Portfolio as capital assets).
Shareholders receiving dividends or distributions in the form of
additional shares should be treated for United States federal income tax
purposes as receiving a distribution in an amount equal to the amount of money
that the shareholders receiving cash dividends or distributions will receive,
and should have a cost basis in the shares received equal to such amount.
Investors considering buying shares just prior to a dividend or
capital gain distribution should be aware that, although the price of shares
just purchased at that time may reflect the amount of the forthcoming
distribution, such dividend or distribution may nevertheless be taxable to them.
If a Portfolio is the holder of record of any stock on the record
date for any dividends payable with respect to such stock, such dividends are
included in the Portfolio's gross income not as of the date received but as of
the later of (a) the date such stock became ex-dividend with respect to such
dividends (i.e., the date on which a buyer of the stock would not be entitled to
receive the declared, but unpaid, dividends) or (b) the date the Portfolio
acquired such stock. Accordingly, in order to satisfy its income distribution
requirements, the Portfolio may be required to pay dividends based on
anticipated earnings, and shareholders may receive dividends in an earlier year
than would otherwise be the case.
52
Sales of Shares
Upon the sale or exchange of his shares, a shareholder will
realize a taxable gain or loss equal to the difference between the amount
realized and his basis in his shares. Such gain or loss will be treated as
capital gain or loss, if the shares are capital assets in the shareholder's
hands, and will be long-term capital gain or loss if the shares are held for
more than one year and short-term capital gain or loss if the shares are held
for one year or less. Any loss realized on a sale or exchange will be disallowed
to the extent the shares disposed of are replaced, including replacement through
the reinvesting of dividends and capital gains distributions in a Portfolio,
within a 61-day period beginning 30 days before and ending 30 days after the
disposition of the shares. In such a case, the basis of the shares acquired will
be increased to reflect the disallowed loss. Any loss realized by a shareholder
on the sale of a Portfolio share held by the shareholder for six months or less
will be treated for United States federal income tax purposes as a long-term
capital loss to the extent of any distributions or deemed distributions of
long-term capital gains received by the shareholder with respect to such share
during such six-month period.
Foreign Taxes
Income received by a Portfolio from non-U.S. sources may be
subject to withholding and other taxes imposed by other countries. A Portfolio
may elect for U.S. income tax purposes to treat foreign income taxes paid by it
as paid by its shareholders if: (i) the Portfolio qualifies as a regulated
investment company, (ii) certain asset and distribution requirements are
satisfied, and (iii) more than 50% of the Portfolio's total assets at the close
of its taxable year consists of stock or securities of foreign corporations. A
Portfolio may qualify for and make this election (the "Foreign Tax Credit
Election") in some, but not necessarily all, of its taxable years. If a
Portfolio were to make such an election, shareholders of the Portfolio would be
required to take into account an amount equal to their pro rata portions of such
foreign taxes in computing their taxable income and then treat an amount equal
to those foreign taxes as a U.S. federal income tax deduction or as a foreign
tax credit against their U.S. federal income taxes. Shortly after any year for
which it makes such an election, a Portfolio will report to its shareholders the
amount per share of such foreign income taxes that must be included in each
shareholder's gross income and the amount which will be available for the
deduction or credit. No deduction for foreign taxes may be claimed by a
shareholder who does not itemize deductions. Certain limitations will be imposed
on the extent to which the credit (but not the deduction) for foreign taxes may
be claimed.
It is expected that the Portfolios other than the
International Focus Portfolio will not be eligible to make the Foreign Tax
Credit Election. In the absence of such an election, the foreign taxes paid by a
Portfolio will reduce its investment company taxable income, and distributions
of investment company taxable income received by the Portfolio from non-U.S.
sources will be treated as United States source income when distributed to
shareholders.
Backup Withholding
A Portfolio may be required to withhold, for United States
federal income tax purposes, a portion of the dividends and distributions
payable to shareholders who fail to provide the Portfolio with their correct
taxpayer identification number or to make required certifications, or who have
been notified by the IRS that they are subject to backup withholding. Certain
shareholders are exempt from backup withholding. Backup withholding is not an
additional tax
53
and any amount withheld may be credited against a shareholder's United States
federal income tax liabilities.
Notices
Shareholders will be notified annually by the relevant
Portfolio as to the United States federal income tax status of the dividends,
distributions and deemed distributions attributable to undistributed capital
gains (discussed above in "The Portfolios and Their Investments") made by the
Portfolio to its shareholders. Furthermore, shareholders will also receive, if
appropriate, various written notices after the close of the Portfolio's taxable
year regarding the United States federal income tax status of certain dividends,
distributions and deemed distributions that were paid (or that are treated as
having been paid) by the Portfolio to its shareholders during the preceding
taxable year.
Other Taxation
Distributions also may be subject to additional state, local
and foreign taxes depending on each shareholder's particular situation.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES AFFECTING
THE PORTFOLIOS AND THEIR SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO CONSULT THEIR
OWN TAX ADVISERS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF AN
INVESTMENT IN THE PORTFOLIOS.
DETERMINATION OF PERFORMANCE
Current total return figures may be obtained by calling Credit
Suisse at 800-927-2874.
AVERAGE ANNUAL TOTAL RETURNS. Each Portfolio that
advertises its "average annual total return" computes such return separately by
determining the average annual compounded rate of return during specified
periods that equates the initial amount invested to the ending redeemable value
of such investment according to the following formula:
P(1+T)n = ERV
Where: P = hypothetical initial payment of $1,000;
T = average annual total return;
n=number of years; and
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the l, 5 or
10 year (or other) periods at the end of the
applicable period (or a fractional portion thereof).
Each Portfolio that advertises its "aggregate total return"
computes such returns separately by determining the aggregate compounded rates
of return during specified periods that likewise equate the initial amount
invested to the ending redeemable value of such investment. The formula for
calculating aggregate total return is as follows:
54
Aggregate Total Return = [(ERV) - l]
P
The calculations are made assuming that (1) all dividends and
capital gain distributions are reinvested on the reinvestment dates at the price
per share existing on the reinvestment date, (2) all recurring fees charged to
all shareholder accounts are included, and (3) for any account fees that vary
with the size of the account, a mean (or median) account size in the Portfolio
during the periods is reflected. The ending redeemable value (variable "ERV" in
the formulas) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period. Investors should note that this performance may not be
representative of the Portfolios' total returns in longer market cycles.
The average annual total returns for the following Portfolios
for the periods ended October 31, 2002 were as follows:
From time to time, a Portfolio may quote its total return in
advertisements or in reports and other communications to shareholders. The total
return of each Portfolio listed below for the fiscal periods ended October 31,
2002 were as follows:
WITH WAIVER
PORTFOLIO (INCEPTION DATE) ONE-YEAR FIVE-YEARS SINCE INCEPTION
- -------------------------- -------- ---------- ---------------
Large Cap Value (6/30/97) -9.68% N/A 4.18%
Small Cap Growth (12/29/95) -20.79% -5.66% 2.55%
International Focus (9/1/92) -11.56% -4.22% 4.30%
The aggregate total returns of the following Portfolios for
the periods ended October 31, 2002 since inception were as follows:
Portfolio Aggregate Return Inception Date
--------- ---------------- --------------
Large Cap Value 24.46% 06/30/97
Small Cap Growth 18.77% 12/29/95
International Focus 53.49% 09/01/92
From time to time, Portfolio service providers may have
voluntarily agreed to waive all or a portion of their fees and reimburse some
Portfolio expenses. The performance figures above reflect the impact of these
fee waivers and expense reimbursements, if any. Performance figures would be
lower, perhaps materially so, if they were calculated without reflecting the
impact of fee waivers and/or expense reimbursements.
The Portfolios may also from time to time include in
advertising an aggregate total return figure or a total return figure that is
not calculated according to the formulas set forth above in order to compare
more accurately a Portfolio's performance with other measures of
55
investment return. For example, in comparing a Portfolio's total return with
data published by Lipper Inc., CDA/Wiesenberger Investment Technologies, Inc. or
Wiesenberger Investment Company Service, or with the performance of the Standard
& Poor's 500 Stock Index or the Dow Jones Industrial Average, as appropriate, a
Portfolio may calculate its aggregate and/or average annual total return for the
specified periods of time by assuming the investment of $10,000 in Fund shares
and assuming the reinvestment of each dividend or other distribution at net
asset value on the reinvestment date. Such alternative total return information
will be given no greater prominence in such advertising than the information
prescribed under SEC rules, and all advertisements containing performance data
will include a legend disclosing that such performance data represent past
performance and that the investment return and principal value of an investment
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
When considering average total return figures for periods
longer than one year, it is important to note that the annual total return for
one year in the period might have been greater or less than the average for the
entire period. When considering total return figures for periods shorter than
one year, investors should bear in mind that such return may not be
representative of any Portfolio's return over a longer market cycle. A Portfolio
may also advertise aggregate total return figures for various periods,
representing the cumulative change in value of an investment in the relevant
Portfolio for the specific period. Aggregate and average total returns may be
shown by means of schedules, charts or graphs, and may indicate various
components of total return (i.e., change in value of initial investment, income
dividends and capital gain distributions).
AFTER-TAX RETURN
From time to time the Portfolios may include after-tax
performance information in advertisements. To the extent the Portfolios include
such information, it will be computed according to the following formulas:
Average Annual Total Return (After Taxes on Distributions)
P(1 + T)n = ATV(D)
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return (after taxes on
distributions).
n = number of years.
ATV(D) = ending value of a hypothetical $1,000 investment made
at the beginning of the 1-, 5- or 10-year period at
the end of the 1-, 5- or 10-year (or fractional
portion thereof), after taxes on fund distributions
but not after taxes on redemption.
The average annual total returns (after taxes on
distributions) for each Fund's Common shares for the periods ended October 31,
2002 were as follows:
Portfolio 1 year 3 year 5 year 10 year Since Inception
--------- ------ ------ ------ ------- ---------------
Large Cap Value -10.04% -11.62% -2.59% N/A -1.29% 06/30/97
56
Small Cap Growth -20.79% -17.09% -8.49% N/A 0.28% 12/29/95
International Focus -11.56% -17.07% -6.83% 2.85% 2.41% 09/01/92
Average Annual Total Return (After Taxes on Distribution and Redemptions)
P(1 + T)n = ATV(DR)
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return (after taxes on
distributions and redemption).
n = number of years.
ATV(DR) = ending value of a hypothetical $1,000 investment made at
the beginning of the 1-, 5- or 10-year period at the end of the 1-, 5- or 10-
year (or fractional portion thereof), after taxes on fund distributions and
redemption.
The average annual total returns (after taxes on distributions
and redemptions of Fund shares) for each Portfolio for the periods ended October
31, 2002 were as follows:
Fund 1 year 3 year 5 year 10 year Since Inception
---- ------ ------ ------ ------- ---------------
Large Cap Value -5.91% -2.35% 2.51% N/A 3.34% 06/30/97
Small Cap Growth -12.74% -9.58% -4.19% N/A 2.26% 12/29/95
International Focus -7.10% -10.51% -3.22% 3.82% 3.42% 09/01/92
The performance of each Portfolio's shares will vary from time
to time depending upon market conditions, the composition of a Portfolio's
portfolio and operating expenses allocable to it. As described above, total
return and yield are based on historical earnings and are not intended to
indicate future performance. Consequently, any given performance quotation
should not be considered as representative of performance for any specified
period in the future. Performance information may be useful as a basis for
comparison with other investment alternatives. However, each Portfolio's
performance will fluctuate, unlike certain bank deposits or other investments
which pay a fixed yield for a stated period of time. Any fees charged by
financial representatives directly to their customers in connection with
investments in Portfolio shares are not reflected in the Portfolio's performance
figures and such fees, if charged, will reduce the actual return received by
customers on their investments.
A Portfolio may compare its performance with (i) that of other
mutual funds with similar investment objectives and policies, which may be based
on the rankings prepared by Lipper Inc. or similar investment services that
monitor the performance of mutual funds; (ii) in the case of the Large Cap Value
Portfolio, with appropriate indexes prepared by Frank Russell Company relating
to securities represented in the Portfolio; in the case of the Small Cap Growth
Portfolio, with appropriate indexes prepared by Frank Russell Company relating
to securities represented in the Portfolio; in the case of the International
Focus Portfolio, with the Morgan Stanley Capital International All Country World
Free Excluding the U.S. Index and/or other indexes prepared by Morgan Stanley
relating to securities represented in the Portfolio; or (iii)
57
other appropriate indexes of investment securities or with data developed by
CSAM derived from such indexes. A Portfolio may also include evaluations of the
Portfolio published by nationally recognized ranking services and by financial
publications such as Barron's, Business Week, Financial Times, Forbes, Fortune,
Inc., Institutional Investor, Investor's Business Daily, Money, Morningstar,
SmartMoney, The Wall Street Journal and Worth. Morningstar, Inc. rates funds in
broad categories based on risk/reward analyses over various time periods. In
addition, each Portfolio may from time to time compare its expense ratio to that
of investment companies with similar objectives and policies, based on data
generated by Lipper Analytical Services, Inc. or similar investment services
that monitor mutual funds.
In reports or other communications to investors or in
advertising, each Portfolio may also describe the general biography or work
experience of the portfolio managers of the Portfolio and may include quotations
attributable to the portfolio managers describing approaches taken in managing
the Portfolio's investments, research methodology underlying stock selection or
the Portfolio's investment objective. In addition, a Portfolio and its portfolio
managers may render updates of Portfolio activity, which may include a
discussion of significant portfolio holdings; analysis of holdings by industry,
country, credit quality and other characteristics; and comparison and analysis
of the Portfolio with respect to relevant market and industry benchmarks. Each
Portfolio may also discuss measures of risk, the continuum of risk and return
relating to different investments and the potential impact of foreign stocks on
a portfolio otherwise composed of domestic securities.
CSAM believes that a diversified portfolio of international
equity securities, when combined with a similarly diversified portfolio of
domestic equity securities, tends to have a lower volatility than a portfolio
composed entirely of domestic securities. Furthermore, international equities
have been shown to reduce volatility in single asset portfolios regardless of
whether the investments are in all domestic equities or all domestic
fixed-income instruments, and research indicates that volatility can be
significantly decreased when international equities are added.
To illustrate this point, the performance of international
equity securities, as measured by the Morgan Stanley Capital International
Europe, Australasia, Far East (EAFE(R)) Index (the "EAFE Index"), has equaled or
exceeded that of domestic equity securities, as measured by the Standard &
Poor's 500 Composite Stock Index (the "S&P 500 Index") in 16 of the last 32
years. The following table compares annual total returns of the EAFE Index and
the S&P 500 Index for the calendar years shown.
EAFE INDEX VS. S&P 500 INDEX
1972-2002
ANNUAL TOTAL RETURN+
YEAR EAFE INDEX S&P 500 INDEX
---- ---------- -------------
1972* 33.28 15.63
1973* -16.82 -17.37
1974* -25.60 -29.72
1975 31.21 31.55
1976 -.36 19.15
58
EAFE INDEX VS. S&P 500 INDEX
1972-2002
ANNUAL TOTAL RETURN+
YEAR EAFE INDEX S&P 500 INDEX
---- ---------- -------------
1977* 14.61 -11.50
1978* 28.91 1.06
1979 1.82 12.31
1980 19.01 25.77
1981* -4.85 -9.73
1982 -4.63 14.76
1983* 20.91 17.27
1984* 5.02 1.40
1985* 52.97 26.33
1986* 66.80 14.62
1987* 23.18 2.03
1988* 26.66 12.40
1989 9.22 27.25
1990 -24.71 -6.56
1991 10.19 26.31
1992 -13.89 4.46
1993* 30.49 7.06
1994* 6.24 -1.54
1995 9.42 34.11
1996 4.40 20.26
1997 0.24 31.01
1998 18.29 26.23
1999* 26.97 21.02
2000 -14.10 -9.10
2001 -21.20 -11.88
2002 -15.66 -22.10
+ Without reinvestment of dividends.
* The EAFE Index has outperformed the S&P 500 Index 16 out of the last 31
years.
Source: Morgan Stanley Capital International; Bloomberg Financial Markets
The quoted performance information shown above is not intended
to indicate the future performance of the International Focus Portfolio.
Advertising or supplemental sales literature relating to a Portfolio may
describe the percentage decline from all-time high levels for certain foreign
stock markets. It may also describe how the Portfolio differs from the EAFE
Index in composition.
59
INDEPENDENT ACCOUNTANTS AND COUNSEL
PricewaterhouseCoopers LLP ("PwC"), with principal offices at
Two Commerce Square, Philadelphia, Pennsylvania 19103, serves as independent
accountants for the Fund. The financial statements for the Portfolios for the
fiscal year ended October 31, 2002 that are incorporated by reference in this
Statement of Additional Information have been audited by PwC, and have been
included herein by reference in reliance upon the report of such firm of
independent accountants given upon their authority as experts in accounting and
auditing.
Willkie Farr & Gallagher, 787 Seventh Avenue, New York, NY
10019, serves as counsel for the Fund and provides legal services from time to
time for CSAM and CSAMSI.
MISCELLANEOUS
As of January 24, 2003, the names, addresses and percentage
ownership of each person that owned 5% or more of the outstanding shares of a
Portfolio are as follows:
Portfolio Name and Address Percentage Owned
--------- ---------------- ----------------
Large Cap Value Fidelity Investment Institutional 92.15%
Operations CNT as Agent for Certain
Employee Benefit Plans
100 Magellan Way
Covington, KY 41015-1999
Trustlynx & Co. 6.85%
House Account
PO Box 173736
Denver, CO 80217-3736
Small Cap Growth National City Bank of KY TTEE 30.37%
Baptist Healthcare System
UAD 05/06/97
Attn: Trust Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
Northern Trust Co Cust 13.41%
FBO Gaylord & Dorothy Donnelley
Foundation A/C# 26-38380
PO Box 92956
Chicago, IL 60675-2956
Mac & Co A/C LVNF5043782 10.85%
Mutual Fund OPS-TC
PO Box 3198
Pittsburgh, PA 15230-3198
60
Portfolio Name and Address Percentage Owned
--------- ---------------- ----------------
Mac & Co A/C LVPF8632282 10.68%
Mutual Fund OPS-TC
PO Box 3198
Pittsburgh, PA 15230-3198
California Federal 6.92%
Employees Investment Plan
Putnam Investments
Att: DC Plan Admin Team
1 Investors Way Mailstop N6G
Norwood, MA 02062-1599
The Community Foundation of 6.24%
Greater Lorain County
Financial Officer
1865 N. Ridge Rd. STE A
Lorain, OH 44055-3359
Garrett - Evangelical 5.62%
Theological Seminary
c/o Adolf Hansen
2121 Sheridan Rd.
Evanston, IL 60201-2926
Donations & Bequests for Church 5.15%
Purposed Inc.
1335 Asylum Ave.
Hartford, CT 06105-2203
International Focus The Board of Trustees 27.25%
General Employees Retirement System
TTEES City of Ft. Lauderdale
GER RET PL UAD 1-1-73
Wall St.
New York, NY 10286-0001
The Northern Trust Co. TTEE 19.77%
FBO GATX Master Trust Ret Trust
DTD 12/19/79
500 W. Monroe St.
Chicago, IL 60661-3671
Alaska Plumbing & Pipefitting 14.8%
Industry Pension Trust Fund
c/o Assoc. Administrators Inc.
2929 NW 31st Ave.
Portland, OR 97210-1721
61
Portfolio Name and Address Percentage Owned
--------- ---------------- ----------------
Sun Trust Bank Atlanta Cust. 11.61%
FBO University of Central FL FDN
A/C 11-04-123-1126515
PO Box 105870
Atlanta, GA 30348-5870
Mac & Co. 9.19%
A/C DEXF1747452
Mutual Fund OPS-TC
PO Box 3198
Pittsburgh, PA 15230-3198
Patterson & Co. FBO 5.1%
Natl Dist - Warbu
Acct. 1040007892
1525 West WT Harris Blvd. NC 1151
Charlotte, NC 28288-0001
* Each Portfolio believes these entities are not the beneficial owners
of shares held of record by them.
FINANCIAL STATEMENTS
The Fund's audited Annual Report dated October 31, 2002, which
either accompanies this Statement of Additional Information or has previously
been provided to the investor to whom this Statement of Additional Information
is being sent, is incorporated herein by reference with respect to all
information regarding the Portfolios included therein. The Fund will furnish
without charge a copy of the Annual Report upon request by calling the Fund at
1-800-222-8977.
62
APPENDIX
DESCRIPTION OF RATINGS
Commercial Paper Ratings
Commercial paper rated A-1 by Standard and Poor's Ratings
Services ("S&P") indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted a plus sign designation. Capacity for timely payment
on commercial paper rated A-2 is satisfactory, but the relative degree of safety
is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating
assigned by Moody's Investors Service, Inc. ("Moody's"). Issuers rated Prime-1
(or related supporting institutions) are considered to have a superior capacity
for repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics of issuers rated Prime-1 but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
Corporate Bond Ratings
The following summarizes the ratings used by S&P for corporate
bonds:
AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA - Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
BBB - This is the lowest investment grade. Debt rated BBB has
an adequate capacity to pay interest and repay principal. Although they normally
exhibit adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for bonds in this category than for bonds in higher rated
categories.
BB, B, CCC, CC and C - Debt rated BB and B is regarded, on
balance, as predominately speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
represents a lower degree of speculation than B, and CCC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
A-1
BB - Debt rated BB has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which could
lead to inadequate capacity to meet timely interest and principal payments. The
BB rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B - Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BBB rating.
CCC - Debt rated CCC has a currently identifiable
vulnerability to default and is dependent upon favorable business, financial and
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating.
CC - This rating is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating.
C - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
Additionally, the rating CI is reserved for income bonds on
which no interest is being paid. Such debt is rated between debt rated C and
debt rated D.
To provide more detailed indications of credit quality, the
ratings may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
D - Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The D rating also will
be used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
The following summarizes the ratings used by Moody's for
corporate bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
A-2
Aa - Bonds that are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of
the desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Moody's applies numerical modifiers (1, 2 and 3) with respect
to the bonds rated "Aa" through "B". The modifier 1 indicates that the bond
being rated ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates that the bond
ranks in the lower end of its generic rating category.
Caa - Bonds that are rated Caa are of poor standing. These
issues may be in default or present elements of danger may exist with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C comprise the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
A-3
THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION OF THE
ACQUIRED FUND DATED JANUARY 1, 2003;
THE ANNUAL REPORT OF THE ACQUIRED FUND
DATED AUGUST 31, 2002; AND THE SEMI-ANNUAL REPORT OF THE ACQUIRED
FUND FOR THE SEMI-ANNUAL PERIOD ENDED FEBRUARY 28, 2003.
CREDIT SUISSE INSTITUTIONAL FUNDS [CREDIT SUISSE ASSET MANAGEMENT LOGO]
INTERNATIONAL FUND
FIXED INCOME FUND
HIGH YIELD FUND
JANUARY 1, 2003 PROSPECTUS
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED THESE FUNDS, NOR HAS IT PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROSPECTUS. IT IS A CRIMINAL OFFENSE TO STATE OTHERWISE.
CREDIT SUISSE INSTITUTIONAL FUNDS ARE ADVISED BY
CREDIT SUISSE ASSET MANAGEMENT, LLC.
CONTENTS
KEY POINTS 4
PERFORMANCE SUMMARY 7
Year-by-Year Total Returns 7
Average Annual Total Returns 8
INVESTOR EXPENSES 10
THE FUNDS IN DETAIL 11
The Management Firms 11
Fund Information Key 12
INTERNATIONAL FUND 14
FIXED INCOME FUND 16
HIGH YIELD FUND 18
MORE ABOUT RISK 22
Introduction 22
Types of Investment Risk 22
CERTAIN INVESTMENT PRACTICES 24
MEET THE MANAGERS 28
ABOUT YOUR ACCOUNT 31
Share Valuation 31
Buying and Selling Shares 31
Buying Fund Shares 31
Selling Fund Shares 32
Exchanging Fund Shares 32
Other Policies 33
Account Statements 33
Distributions 34
Taxes 34
Statements and Reports 34
OTHER INFORMATION 35
About the Distributor 35
FOR MORE INFORMATION back cover
3
KEY POINTS
GOAL AND PRINCIPAL STRATEGIES
FUND/GOAL PRINCIPAL STRATEGIES PRINCIPAL RISK FACTORS
- --------------------------------------------------------------------------------------------------------
INTERNATIONAL FUND - Invests in foreign equity - Foreign securities risk
securities
Long-term appreciation of - Market risk
capital - Emphasizes developed countries,
but may also invest in emerging - Non-diversified status risk
markets
- Combines top-down regional
analysis with bottom-up company
research
- Seeks countries, sectors and
companies with solid growth
prospects and attractive market
valuations
FIXED INCOME FUND - Invests at least 80% of its net - Credit risk
assets, plus any borrowings for
High total return investment purposes, in - Interest-rate risk
fixed-income securities
- Market risk
- Invests primarily in fixed-income
securities of U.S. issuers - Non-diversified status risk
- Typically maintains a
weighted-average portfolio
maturity of between five and 15
years
- Focuses on high grade securities
(average credit rating AA)
HIGH YIELD FUND - Invests at least 80% of its net - Credit risk
assets, plus any borrowings for
High total return investment purposes, in - Interest-rate risk
high-yield fixed-income
securities - Market risk
- Invests primarily in high-yield, - Non-diversified status risk
high-risk fixed-income securities
(junk bonds)
- Typically maintains a
weighted-average portfolio
maturity of between five and 15
years
- Emphasizes top-down analysis of
industry sectors and themes
- Seeks to allocate risk by
investing among a variety of
industry sectors
4
- - A WORD ABOUT RISK
All investments involve some level of risk. Simply defined, risk is the
possibility that you will lose money or not make money.
Principal risk factors for the funds are discussed below. Before you
invest, please make sure you understand the risks that apply to the funds. As
with any mutual fund, you could lose money over any period of time.
Investments in the funds are not bank deposits and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
CREDIT RISK
FIXED INCOME AND HIGH YIELD FUNDS
The issuer of a security or the counterparty to a contract may default or
otherwise become unable to honor a financial obligation.
FOREIGN SECURITIES RISK
INTERNATIONAL FUND
Since the fund invests outside the U.S., it 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.
Although the fund may seek to reduce currency risk by hedging part or
all of its exposure to various foreign currencies, it is not required
to do so.
- INFORMATION RISK Key information about an issuer, security or market
may be inaccurate or unavailable.
- POLITICAL RISK Foreign governments may expropriate assets, impose
capital or currency controls, impose punitive taxes, or nationalize a
company or industry. Any of these actions could have a severe effect on
security prices and impair the fund's ability to bring its capital or
income back to the U.S. Other political risks include economic policy
changes, social and political instability, military action and war.
INTEREST-RATE RISK
FIXED INCOME AND HIGH YIELD FUNDS
Changes in interest rates may cause a decline in the market value of an
investment. With bonds and other fixed-income securities, a rise in interest
rates typically causes a fall in values.
MARKET RISK
ALL FUNDS
The market value of a security may fluctuate, sometimes rapidly and
unpredictably. These fluctuations, which are often referred to as "volatility,"
may cause a security to be worth less than it was worth at an earlier time.
Market risk may affect a single issuer, industry, sector of the economy, or the
market as a whole. Market risk is common to most investments -- including stocks
and bonds, and the mutual funds that invest in them.
Bonds and other fixed-income securities generally involve less market risk
than stocks. The risks of bonds can vary significantly depending upon factors
such as issuer and maturity. The bonds of some companies may be riskier than the
stocks of others.
NON-DIVERSIFIED STATUS RISK
ALL FUNDS
The funds are considered non-diversified investment companies under the
Investment Company Act of 1940 and are permitted to invest a greater proportion
of their assets in the securities of a smaller number of issuers. As a result,
the funds may be subject to greater volatility with respect to their portfolio
securities than a fund that is more broadly diversified.
5
- - INVESTOR PROFILE
INTERNATIONAL FUND IS DESIGNED FOR INVESTORS WHO:
- are investing for long-term goals
- are willing to assume the risk of losing money in exchange for
attractive potential long-term returns
- are looking for capital appreciation
- want to diversify their portfolios internationally
IT MAY NOT BE APPROPRIATE IF YOU:
- are investing for a shorter time horizon
- are uncomfortable with an investment that has a higher degree of
volatility
- want to limit your exposure to foreign securities
- are looking for income
FIXED INCOME AND HIGH YIELD FUNDS ARE DESIGNED FOR INVESTORS WHO:
- are seeking investment income
- want to diversify their portfolios with fixed-income funds
- are willing to accept risk and volatility
THEY MAY NOT BE APPROPRIATE IF YOU:
- are investing for maximum return over a long time horizon
- require stability of your principal
BECAUSE THE HIGH YIELD FUND INVOLVES A HIGHER LEVEL OF RISK, YOU SHOULD CONSIDER
IT ONLY FOR THE AGGRESSIVE PORTION OF YOUR PORTFOLIO. THE HIGH YIELD FUND MAY
NOT BE APPROPRIATE FOR EVERYONE.
You should base your selection of a fund on your own goals, risk preferences and
time horizon.
6
PERFORMANCE SUMMARY
The bar chart below and the table on the next page provide an indication of the
risks of investing in these funds. The bar chart shows you how fund performance
has varied from year to year for up to 10 years. The table compares each fund's
performance (before and after taxes) over time to that of a broad based
securities market index. As with all mutual funds, past performance (before and
after taxes) is not a prediction of the future.
YEAR-BY-YEAR TOTAL RETURNS*
YEAR ENDED 12/31: 1993 1994 1995 1996 1997 1998 1999 2000 2001
- ---------------------------------------------------------------------------------------------------------------
39.95% -8.37% 4.34% 11.76% 15.17% 20.67% 34.78% -18.39% -29.03%
INTERNATIONAL FUND
Best quarter: 27.57% (Q4 99)
Worst quarter: -17.34% (Q1 01)
Inception date: 9/30/92
Total return for the period 1/1/02 - 9/30/02: -25.86% (not annualized)
FIXED INCOME FUND
18.25% 5.42% 9.66% 7.38% 1.11% 8.66% 8.02%
Best quarter: 6.28% (Q2 95)
Worst quarter: -1.15% (Q1 96)
Inception date: 3/31/94
Total return for the period 1/1/02 - 9/30/02: -1.90% (not annualized)
HIGH YIELD FUND
-7.96% 16.20% 12.73% 14.85% -1.28% 4.49% -8.03% 0.89%
Best quarter: 9.43% (Q2 95)
Worst quarter: -7.02% (Q1 94)
Inception date: 2/26/93
Total return for the period 1/1/02 - 9/30/02: -7.03% (not annualized)
* The total returns shown include the total returns of each fund's predecessor,
the Institutional Shares of the corresponding investment portfolio of The RBB
Fund, Inc.
7
AVERAGE ANNUAL TOTAL RETURNS(1)
ONE YEAR THREE YEARS FIVE YEARS LIFE OF INCEPTION
PERIOD ENDED 12/31/01: 2001 1999-2001 1997-2001 FUND DATE
- -----------------------------------------------------------------------------------------------------------------------
INTERNATIONAL FUND
RETURN BEFORE TAXES -29.03% -7.92% 1.64% 5.31% 9/30/92
RETURN AFTER TAXES ON
DISTRIBUTIONS -29.03% -12.34% -2.42% 2.68%
RETURN AFTER TAXES ON
DISTRIBUTIONS AND -17.68% -6.86% 0.75% 3.91%
SALE OF FUND SHARES
MSCI EAFE INDEX(2) (REFLECTS
NO DEDUCTION FOR FEES, -21.44% -5.05% 0.90% 5.86%
EXPENSES OR TAXES)
FIXED INCOME FUND
RETURN BEFORE TAXES 8.02% 5.87% 6.92% 7.20% 3/31/94
RETURN AFTER TAXES ON
DISTRIBUTIONS 4.33% 4.33% 2.96% 4.30%
RETURN AFTER TAXES ON
DISTRIBUTIONS AND 4.94% 4.94% 3.25% 4.33%
SALE OF FUND SHARES
LEHMAN BROTHERS
AGGREGATE BOND INDEX(3)
(REFLECTS NO DEDUCTION 8.44% 6.28% 7.43% 7.53%
FOR FEES, EXPENSES OR
TAXES)
HIGH YIELD FUND
RETURN BEFORE TAXES 0.89% -1.03% 1.91% 5.59% 2/26/93
RETURN AFTER TAXES ON
DISTRIBUTIONS -3.86% -5.09% -1.89% 1.93%
RETURN AFTER TAXES ON
DISTRIBUTIONS AND 0.52% -2.71% -0.25% 2.74%
SALE OF FUND SHARES
CS FIRST BOSTON HIGH
YIELD INDEX (DEVELOPED
COUNTRIES ONLY)(4) (REFLECTS 6.26% 0.64% 2.92% 6.28%
NO DEDUCTIONS FOR FEES,
EXPENSES OR TAXES)
SALOMON SMITH BARNEY
HIGH YIELD MARKET INDEX(5)
(REFLECTS NO DEDUCTION 5.44% 0.40% 3.48% 6.57%(6)
FOR FEES, EXPENSES OR
TAXES)
(1) The total returns shown include the total returns of each fund's
predecessor, the Institutional Shares of the corresponding investment
portfolio of The RBB Fund, Inc.
(2) The Morgan Stanley Capital International EAFE Index (Europe, Australasia
and Far East) is a free float-adjusted market capitalization index that is
designed to measure developed-market equity performance, excluding the U.S.
and Canada. It is the exclusive property of Morgan Stanley Capital
International Inc.
(3) The Lehman Brothers Aggregate Bond Index is composed of the Lehman Brothers
Government/Corporate Bond Index and the Lehman Brothers Mortgage-Backed
Securities Index. The Aggregate Bond Index includes U.S. Treasury and
agency issues, corporate bond issues and mortgage-backed securities rated
investment-grade or higher by Moody's Investors Service, Standard & Poor's
Corporation or Fitch Investors' Service.
8
(4) The Credit Suisse First Boston High Yield Index (Developed Countries Only)
is an unmanaged index (with no defined investment objective) of domestic
high yield bonds and is compiled by Credit Suisse First Boston, an
affiliate of the funds' adviser. Name changed from the Credit Suisse First
Boston Domestic + High Yield Index effective May 31, 2001.
(5) The Salomon Smith Barney High Yield Market Index is a broad-based,
unmanaged index of high yield securities. It replaced the Credit Suisse
First Boston High Yield Index (Developed Countries Only) as the fund's
performance benchmark effective December 12, 2002. The fund adopted the
Salomon Smith Barney High Yield Market Index as its new performance
benchmark because the construction methodology and sector codes used in
this index more closely resemble those of the fund's portfolio.
(6) Performance since March 1, 1993.
UNDERSTANDING PERFORMANCE
- TOTAL RETURN tells you how much an investment in a fund has
changed in value over a given time period. It assumes that all
dividends and capital gains (if any) were reinvested in
additional shares. The change in value can be stated either as a
CUMULATIVE RETURN or as an AVERAGE ANNUAL RATE OF RETURN.
- A CUMULATIVE TOTAL RETURN is the actual return of an investment
for a specified period. The YEAR-BY-YEAR TOTAL RETURNS in the bar
chart are examples of one-year cumulative total returns.
- An AVERAGE ANNUAL TOTAL RETURN applies to periods longer than one
year. It smoothes out the variations in year-by-year performance
to tell you what CONSTANT annual return would have produced the
investment's actual cumulative return. This gives you an idea of
an investment's annual contribution to your portfolio, ASSUMING
you held it for the entire period.
- Because of compounding, the average annual total returns in the
table cannot be computed by averaging the returns in the bar
chart.
- AFTER-TAX RETURNS are calculated using the historical highest
individual federal marginal income tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns
depend on an investor's tax situation and may differ from those
shown, and after-tax returns shown are not relevant to investors
who hold their fund shares through tax-deferred arrangements,
such as 401(k) plans or individual retirement accounts.
9
INVESTOR EXPENSES
FEES AND FUND EXPENSES
This table describes the fees and expenses you may pay as a shareholder. Annual
fund operating expenses are for the fiscal year ended August 31, 2002.
FIXED
INTERNATIONAL INCOME HIGH YIELD
FUND FUND FUND
- ----------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES
(PAID DIRECTLY FROM YOUR INVESTMENT)
Sales charge (load) on purchases NONE NONE NONE
Deferred sales charge (load) NONE NONE NONE
Sales charge (load) on reinvested
distributions NONE NONE NONE
Redemption fees NONE NONE NONE
Exchange fees NONE NONE NONE
ANNUAL FUND OPERATING EXPENSES
(DEDUCTED FROM FUND ASSETS)
Management fee .80% .38% .70%
Distribution and service (12b-1) fee NONE NONE NONE
Other expenses .25% .12% .27%
TOTAL ANNUAL FUND OPERATING EXPENSES* 1.05% .50% .97%
* Fee waivers and expense reimbursements or credits reduced expenses for the
Fixed Income and High Yield Funds during 2002 but may be discontinued at
any time. Actual fees and expenses for the fiscal year ended August 31,
2002 are shown below:
FIXED
INCOME HIGH YIELD
EXPENSES AFTER WAIVERS AND REIMBURSEMENTS FUND FUND
- ------------------------------------------------------------------------------------------------------------------------
Management fee .33% .43%
Distribution and service (12b-1) fee NONE NONE
Other expenses .12% .27%
---- ----
NET ANNUAL FUND OPERATING EXPENSES .45% .70%
EXAMPLE
This example may help you compare the cost of investing in these funds with the
cost of investing in other mutual funds. Because it uses hypothetical
conditions, your actual costs may be higher or lower.
Assume you invest $10,000, each fund returns 5% annually, expense ratios remain
as listed in the table above (before fee waivers and expense reimbursements or
credits), and you close your account at the end of each of the time periods
shown. Based on these assumptions, your cost would be:
ONE YEAR THREE YEARS FIVE YEARS 10 YEARS
INTERNATIONAL FUND $ 107 $ 334 $ 579 $1,283
FIXED INCOME FUND $ 51 $ 160 $ 280 $ 628
HIGH YIELD FUND $ 99 $ 309 $ 536 $1,190
10
THE FUNDS IN DETAIL
- - THE MANAGEMENT FIRMS
CREDIT SUISSE ASSET MANAGEMENT, LLC
466 Lexington Avenue
New York, NY 10017
- - Investment adviser for the funds
- - Responsible for managing each fund's assets according to its goal and
strategies and supervising the activities of the sub-investment advisers
- - A member of Credit Suisse Asset Management, the institutional and mutual fund
asset management arm of Credit Suisse First Boston, the investment banking
business of Credit Suisse Group (Credit Suisse). Under the management of
Credit Suisse First Boston, Credit Suisse Asset Management provides asset
management products and services to global corporate, institutional and
government clients
- - Credit Suisse Asset Management companies manage approximately $55.8 billion
in the U.S. and $284.3 billion globally
- - Credit Suisse Asset Management has offices in 14 countries, including
SEC-registered offices in New York, London, Sydney and Tokyo; other offices
(such as those in Budapest, Frankfurt, Milan, Moscow, Paris, Prague, 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, EC3A 7JJ
England
- - Sub-investment adviser for the International Fund
- - Responsible for assisting CSAM in the management of the fund's international
assets according to its goal and strategies
- - Also a member of Credit Suisse Asset Management
CREDIT SUISSE ASSET MANAGEMENT LIMITED
Shiroyama JT Mori Bldg. 3-1
Toranomon 4-Chome
Minato-Ku
Tokyo 105-6026
Japan
- - Sub-investment adviser for the International Fund
- - Responsible for assisting CSAM in the management of the fund's international
assets according to its goal and strategies
- - Also a member of Credit Suisse Asset Management
CREDIT SUISSE ASSET MANAGEMENT LIMITED
Level 32 Gateway
1 Macquarie Place
Sydney 2001
Australia
- - Sub-investment adviser for the International Fund
11
- - Responsible for assisting CSAM in the management of the fund's international
assets according to its goal and strategies
- - Also a member of Credit Suisse Asset Management
- - FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the following pages. Each
description provides the following information:
GOAL AND STRATEGIES
The fund's particular investment goal and the strategies it intends to use
in pursuing that goal. Percentages of fund assets are based on total assets
unless indicated otherwise.
PORTFOLIO INVESTMENTS
The principal types of securities in which the fund invests. Secondary
investments are described in "More About Risk."
RISK FACTORS
The principal risk factors associated with the fund. Additional risk
factors are included in "More About Risk."
PORTFOLIO MANAGEMENT
The individuals designated by the investment adviser or sub-advisers to
handle the fund's day-to-day management.
FINANCIAL HIGHLIGHTS
A table showing each fund's audited financial performance for up to five
years.
- TOTAL RETURN How much you would have earned on an investment in the
fund, assuming you had reinvested all dividend and capital-gain
distributions.
- PORTFOLIO TURNOVER An indication of trading frequency. The funds may
sell securities without regard to the length of time they have been
held. A high turnover rate may increase a fund's transaction costs and
negatively affect its performance. Portfolio turnover may also result
in capital-gain distributions that could raise your income-tax
liability.
The ANNUAL REPORT includes the auditor's report, along with each fund's
financial statements. It is available free upon request.
12
This page intentionally left blank
13
INTERNATIONAL FUND
- - GOAL AND STRATEGIES
The International Fund seeks long-term appreciation of capital. To pursue
this goal, it invests in equity securities of companies located or conducting a
majority of their business outside the U.S.
Although it is not an index fund and does not seek to replicate the
performance of any index, this fund expects to focus primarily, but not
exclusively, on countries represented in the Morgan Stanley Capital
International Europe Australasia and Far East (MSCI-EAFE) Index. Although the
fund may invest in emerging markets, it does not expect to invest more than 30%
of assets in securities of emerging-markets issuers.
Under normal market conditions, the fund will invest at least 80% of
assets in equity securities of issuers from at least three foreign countries.
The fund may invest in companies of all sizes.
In managing the fund's investments, the portfolio managers:
- combine top-down regional analysis with bottom-up company research
- look for countries, sectors and companies with solid growth prospects
and attractive market valuations
- focus research efforts on early identification of new investment
opportunities while seeking to manage risk
- - PORTFOLIO INVESTMENTS
Equity holdings may include:
- common and preferred stocks
- securities convertible into common or preferred stock
- rights and warrants
- depositary receipts
To a limited extent, the fund may also engage in other investment
practices.
- - RISK FACTORS
This fund's principal risk factors are:
- foreign securities risk
- market risk
- non-diversified status risk
The value of your investment will fluctuate in response to stock-market
movements. Because the fund invests internationally, it carries additional
risks, including currency, information and political risks. These risks are
defined in "More About Risk."
Although the portfolio managers typically have diversified the fund's
investments, the fund's non-diversified status allows the fund to invest a
greater share of its assets in the securities of fewer companies.
Non-diversification might cause the fund to be more volatile than a diversified
fund.
To the extent that the fund invests in emerging markets or focuses on a
single country or region, it takes on additional risks that could hurt its
performance. Investing in emerging markets involves access, operational and
other risks not generally encountered in developed countries. "More About Risk"
details these and certain other investment practices the fund may use. Please
read that section carefully before you invest.
14
- - PORTFOLIO MANAGEMENT
Steven D. Bleiberg and Vincent J. McBride manage the fund's investment
portfolio. The Credit Suisse International Equity Team supports them. You can
find out more about them in "Meet the Managers."
- - FINANCIAL HIGHLIGHTS
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP, whose report on the fund's financial statements is
included in the Annual Report.
PERIOD ENDED: 8/02 8/01 8/00 8/99 8/98
-------- -------- -------- -------- --------
PER SHARE DATA
Net asset value, beginning of year $ 10.86 $ 23.61 $ 23.47 $ 22.70 $ 22.22
-------- -------- -------- -------- --------
Investment Operations:
Net investment income 0.07(1) 0.08 0.05 0.14 0.15
Net gain (loss) on investments and foreign
currency related items (both realized and
unrealized) (2.28) (6.45) 4.19 2.90 3.26
-------- -------- -------- -------- --------
Total from investment operations (2.21) (6.37) 4.24 3.04 3.41
-------- -------- -------- -------- --------
Less Dividends and Distributions:
Dividends from net investment income -- (0.09) (0.10) (0.28) --
Distributions from net realized gains -- (6.29) (4.00) (1.99) (2.93)
-------- -------- -------- -------- --------
Total dividends and distributions -- (6.38) (4.10) (2.27) (2.93)
-------- -------- -------- -------- --------
Net asset value, end of year $ 8.65 $ 10.86 $ 23.61 $ 23.47 $ 22.70
======== ======== ======== ======== ========
Total Return(2) (20.35)% (34.01)% 17.81% 13.88% 16.74%
Ratios/supplemental data:
Net assets, end of year (000s omitted) $128,158 $244,726 $505,914 $675,118 $623,482
Ratio of expenses to average net assets 1.05%(3) 1.08%(3) 1.07% 1.21% 1.14%
Ratio of net investment income to
average net assets 0.69% 0.49% 0.04% 0.60% 0.72%
Decrease reflected in above operating expense
ratios due to waivers/reimbursements -- -- -- 0.01% 0.09%
Portfolio turnover rate 163% 139% 128% 182% 141%
(1) Per share information is calculated using the average share outstanding
method.
(2) Total returns are historical and assume changes in share price,
reinvestments of all dividends and distributions, and no sales charge. Had
certain expenses not been reduced during the periods shown, total returns
would have been lower. Total returns for periods of less than one year are
not annualized.
(3) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expense. These arrangements had no effect on the Fund's
expense ratio.
15
FIXED INCOME FUND
- - GOAL AND STRATEGIES
The Fixed Income Fund seeks high total return. To pursue this goal, it
invests primarily in fixed-income securities of U.S. issuers.
The fund seeks to maintain a weighted-average credit rating comparable to
the AA rating of Standard & Poor's Ratings Services. The fund's weighted-average
maturity will typically be between five and 15 years.
- - PORTFOLIO INVESTMENTS
Under normal market conditions, this fund invests at least 80% of its net
assets, plus any borrowings for investment purposes, in fixed-income securities
such as:
- corporate bonds, debentures and notes
- government and agency securities
- mortgage-backed securities
The fund's 80% investment policy is non-fundamental and may be changed by
the Board of Directors of the fund upon at least 60 days' notice to shareholders
before any such change becomes effective.
The fund may invest:
- up to 35% of assets in debt securities of foreign issuers
- up to 20% of assets in securities denominated in foreign currency
- up to 10% of assets in non-investment-grade debt securities (junk bonds)
of issuers located in emerging markets
- up to 10% of assets in bonds convertible into equity securities
- up to 10% of assets in preferred stocks
To a limited extent, the fund may also engage in other investment
practices.
- - RISK FACTORS
This fund's principal risk factors are:
- credit risk
- interest-rate risk
- market risk
- non-diversified status risk
You should expect fluctuations in share price, yield and total return,
particularly with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of fixed-income securities. There is also
the risk that an issuer of a debt security will fail to make timely payments of
principal or interest to the fund.
Although the portfolio managers typically have diversified the fund's
investments, the fund's non-diversified status allows the fund to invest a
greater share of its assets in the securities of fewer companies.
Non-diversification might cause the fund to be more volatile than a diversified
fund.
To the extent that it invests in certain securities, the fund may be
affected by additional risks:
- mortgage-backed securities: extension and prepayment risks
- junk bonds: above-average credit, information, market and other risks
- foreign securities: currency, information and political risks
- equity securities (including convertible bonds and preferred stocks):
information, market and other risks
16
These risks are defined in "More About Risk." That section also details
certain other investment practices the fund may use. Please read "More About
Risk" carefully before you invest.
- - PORTFOLIO MANAGEMENT
Jo Ann Corkran, Leland Crabbe and Suzanne E. Moran manage the fund's
investment portfolio. You can find out more about them in "Meet the Managers."
- - FINANCIAL HIGHLIGHTS
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP, whose report on the fund's financial statements is
included in the Annual Report.
PERIOD ENDED: 8/02 8/01 8/00 8/99 8/98
-------- -------- -------- -------- --------
PER SHARE DATA
Net asset value, beginning of year $ 15.79 $ 14.95 $ 15.01 $ 15.72 $ 15.65
-------- -------- -------- -------- --------
Investment Operations:
Net investment income (loss) 0.83 1.02 0.94 0.93 0.84
Net gain (loss) on investments and futures
transactions (both realized and
unrealized) (1.27) 0.85 (0.01) (0.56) 0.33
-------- -------- -------- -------- --------
Total from investment operations (0.44) 1.87 0.93 0.37 1.17
-------- -------- -------- -------- --------
Less Dividends and Distributions:
Dividends from net investment income (0.83) (1.03) (0.97) (0.91) (0.87)
Distributions from net realized gains (0.40) -- (0.02) (0.17) (0.23)
-------- -------- -------- -------- --------
Total dividends and distributions (1.23) (1.03) (0.99) (1.08) (1.10)
-------- -------- -------- -------- --------
Net asset value, end of year $ 14.12 $ 15.79 $ 14.95 $ 15.01 $ 15.72
======== ======== ======== ======== ========
Total Return(2) (2.92)% 13.02% 6.43% 2.37% 7.77%
Ratios/supplemental data:
Net assets, end of year (000s omitted) $275,863 $532,627 $440,345 $350,844 $393,533
Ratio of expenses to average net assets 0.45%(3) 0.45%(3) 0.45% 0.44% 0.47%
Ratio of net investment income to
average net assets 5.41% 6.71% 6.51% 5.90% 5.87%
Decrease reflected in above operating expense
ratios due to waivers/reimbursements 0.05% 0.06% 0.11% 0.18% 0.27%
Portfolio turnover rate 526% 449% 520% 569% 372%
(1) As required, effective September 1, 2001, the Fund adopted the provisions
of AICPA Audit and Accounting Guide for Investment Companies and began
including paydown gains and losses in interest income. The effect of this
change for the year ended August 31, 2002 was to increase net investment
income per share by $0.01, decrease net realized and unrealized gains and
losses per share by $0.01 and increase the ratio of net investment income
to average net assets from 5.37% to 5.41%. Per share ratios and
supplemental data for prior periods have not been restated to reflect this
change.
(2) Total returns are historical and assume changes in share price,
reinvestments of all dividends and distributions, and no sales charge. Had
certain expenses not been reduced during the periods shown, total returns
would have been lower. Total returns for periods of less than one year are
not annualized.
(3) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expense. These arrangements had no effect on the Fund's
expense ratio.
17
HIGH YIELD FUND
- - GOAL AND STRATEGIES
The High Yield Fund seeks high total return. To pursue this goal, it
invests primarily in fixed-income securities rated below investment grade by
primary ratings services such as Standard & Poor's Ratings Services and Moody's
Investors Service. These high-yield, higher-risk securities are commonly known
as "junk bonds."
In choosing investments for the fund, the portfolio managers:
- emphasize top-down analysis of industry sectors and themes to determine
which sectors may benefit from current and future changes in the economy
- seek to allocate risk by investing among a variety of industry sectors
- look at the financial condition of the issuers (including debt/equity
ratios), as well as features of the securities themselves
- - PORTFOLIO INVESTMENTS
Under normal market conditions, this fund invests at least 80% of its net
assets, plus any borrowings for investment purposes, in high-yield fixed-income
securities. The fund's 80% investment policy is non-fundamental and may be
changed by the Board of Directors of the fund upon at least 60 days' notice to
shareholders before any such change becomes effective.
The fund may invest:
- without limit in bonds rated below investment grade and their unrated
equivalents
- up to 20% of its net assets in equity and equity-related securities,
including preferred stocks, securities convertible into equity
securities, warrants, rights and options
To a limited extent, the fund may also engage in other investment
practices.
- - RISK FACTORS
This fund's principal risk factors are:
- credit risk
- interest-rate risk
- market risk
- non-diversified status risk
The value of your investment will vary with changes in interest rates and
other factors. Typically, a rise in interest rates causes a decline in the
market value of fixed-income securities. You should expect greater fluctuations
in share price, yield and total return compared with less aggressive bond funds.
These fluctuations, whether positive or negative, may be sharp and
unanticipated. Like equity markets, markets in lower rated bonds may react
strongly to adverse news about an issuer or the economy, or to the expectation
of adverse news.
Bonds rated below investment grade generally provide higher yields than
higher-rated debt securities of similar maturity, but are subject to greater
credit, liquidity and valuation risks. These risks are defined in "More About
Risk."
Bonds rated below investment grade are considered speculative with respect
to the issuer's continuing ability to meet principal and interest payments. In
the event of a payment problem by an issuer of high-yield, high-risk bonds, more
senior debt (such as bank loans and investment-grade bonds) will likely be paid
a greater portion of payments owed to it. Because investing in bonds rated below
investment grade involves greater investment risk, achieving the fund's
investment objective will depend more on the portfolio managers' analysis than
would be the case if the fund were investing in higher-quality bonds.
Although the portfolio managers typically have diversified the fund's
investments, the fund's non-diversified status allows it to invest a greater
share of its assets in the securities of fewer companies. Non-diversification
might cause the fund to be more volatile than a diversified fund.
18
To the extent that the fund invests in foreign securities and securities
of start-up and other small companies, it takes on further risks that could hurt
its performance. "More About Risk" details these and certain other investment
practices the fund may use. Please read that section carefully before you
invest.
- - PORTFOLIO MANAGEMENT
Richard Lindquist, Philip Schantz, Misia Dudley, John Tobin, Mary Ann
Thomas, John F. Dessauer and Michael J. Dugan manage the fund's investment
portfolio. You can find out more about them in "Meet the Managers."
ANALYSIS OF CREDIT QUALITY
During the fiscal year ended August 31, 2002, the percentage of fund
securities holdings by rating category based upon a weighted monthly average
was:
BONDS-S&P RATING:
AAA .00%
AA .00%
A .00%
BBB 5.10%
BB 16.00%
B 59.10%
CCC 12.00%
CC 1.10%
C .50%
D .30%
Not rated/Other/Equities 3.90%
Cash/Governments/Agencies 2.00%
------
TOTAL 100.00%
19
- - FINANCIAL HIGHLIGHTS
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP, whose report on the fund's financial statements is
included in the ANNUAL REPORT.
PERIOD ENDED 8/02 8/01 8/00 8/99 8/98
------- ------- ------- ------- -------
PER SHARE DATA
Net asset value, beginning of year $ 11.84 $ 14.11 $ 15.32 $ 16.60 $ 17.08
------- ------- ------- ------- -------
Investment Operations:
Net investment income (loss) 1.17 1.40 1.41 1.42 1.43
Net gain (loss) on investments (both
realized and unrealized) (1.94) (2.21) (1.13) (1.33) (0.49)
------- ------- ------- ------- -------
Total from investment operations (0.77) (0.81) 0.28 0.09 0.94
------- ------- ------- ------- -------
Less Dividends:
Dividends from net investment income (1.17) (1.46) (1.49) (1.37) (1.42)
------- ------- ------- ------- -------
Net asset value, end of year $ 9.90 $ 11.84 $ 14.11 $ 15.32 $ 16.60
======= ======= ======= ======= =======
Total Return(1) (6.88)% (5.71)% 1.84% 0.67% 5.48%
Ratios/supplemental data:
Net assets, end of year (000s omitted) $86,846 $98,008 $94,333 $95,129 $94,044
Ratio of expenses to average net assets 0.70%(2) 0.70%(2) 0.70%(2) 0.69% 0.70%
Ratio of net investment income (loss) to
average net assets 10.15%(3) 11.06% 9.59% 9.10% 8.12%
Decrease reflected in above operating expense
ratios due to waivers/reimbursements 0.27% 0.30% 0.45% 0.35% 0.44%
Portfolio turnover rate 52% 20% 31% 40% 60%
(1) Total returns are historical and assume changes in share price,
reinvestments of all dividends and distributions, and no sales charge. Had
certain expenses not been reduced during the periods shown, total returns
would have been lower. Total returns for periods of less than one year are
not annualized.
(2) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expense. These arrangements had no effect on the Fund's
expense ratio.
(3) During the year ended August 31, 2002, the Fund experienced an increase in
its interest income of 0.67% as a result of additional accretion income
not accrued for in prior periods. The Fund's net investment income ratio
disclosed above excludes the effect of the increase.
20
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21
MORE ABOUT RISK
- - INTRODUCTION
A fund's goal and principal strategies largely determine its risk profile.
You will find a concise description of each fund's risk profile in "Key Points."
The fund-by-fund discussions contain more detailed information. This section
discusses other risks that may affect the funds.
The funds may use certain investment practices that have higher risks
associated with them. However, each fund has limitations and policies designed
to reduce many of the risks. The "Certain Investment Practices" table describes
these practices and the limitations on their use.
- - TYPES OF INVESTMENT RISK
The following risks are referred to throughout this Prospectus.
ACCESS RISK Some countries may restrict a fund's access to investments or
offer terms that are less advantageous than those for local investors. This
could limit the attractive investment opportunities available to the funds.
CORRELATION RISK The risk that changes in the value of a hedging
instrument will not match those of the investment being hedged.
CREDIT RISK The issuer of a security or the counterparty to a contract may
default or otherwise become unable to honor a financial obligation.
CURRENCY RISK Fluctuations in exchange rates between the U.S. dollar and
foreign currencies may negatively affect an investment. Adverse changes in
exchange rates may erode or reverse any gains produced by foreign-currency
denominated investments and may widen any losses.
EXPOSURE RISK The risk associated with investments (such as derivatives)
or practices (such as short selling) that increase the amount of money a fund
could gain or lose on an investment.
- HEDGED Exposure risk could multiply losses generated by a derivative or
practice used for hedging purposes. Such losses should be substantially
offset by gains on the hedged investment. However, while hedging can
reduce or eliminate losses, it can also reduce or eliminate gains.
- SPECULATIVE To the extent that a derivative or practice is not used as a
hedge, a fund is directly exposed to its risks. Gains or losses from
speculative positions in a derivative may be much greater than the
derivative's original cost. For example, potential losses from writing
uncovered call options and from speculative short sales are unlimited.
EXTENSION RISK An unexpected rise in interest rates may extend the life of
a mortgage-backed security beyond the expected prepayment time, typically
reducing the security's value.
INFORMATION RISK Key information about an issuer, security or market may
be inaccurate or unavailable.
INTEREST-RATE RISK Changes in interest rates may cause a decline in the
market value of an investment. With bonds and other fixed-income securities, a
rise in interest rates typically causes a fall in values.
LIQUIDITY RISK Certain fund securities may be difficult or impossible to
sell at the time and the price that the fund would like. A fund may have to
lower the price, sell other securities instead or forgo an investment
opportunity. Any of these could have a negative effect on fund management or
performance.
MARKET RISK The market value of a security may fluctuate, sometimes
rapidly and unpredictably. These fluctuations, which are often referred to as
"volatility," may cause a security to be worth less than it was worth at an
earlier time. Market risk may affect a single issuer, industry, sector of the
economy, or the market as a whole. Market risk is common to most investments --
including stocks and bonds, and the mutual funds that invest in them.
Bonds and other fixed-income securities generally involve less market risk
than stocks. However, the risk of bonds can vary significantly depending upon
factors such as issuer and maturity. The bonds of some companies may be riskier
than the stocks of others.
22
OPERATIONAL RISK Some countries have less-developed securities markets
(and related transaction, registration and custody practices) that could subject
a fund to losses from fraud, negligence, delay or other actions.
POLITICAL RISK Foreign governments may expropriate assets, impose capital
or currency controls, impose punitive taxes, or nationalize a company or
industry. Any of these actions could have a severe effect on security prices and
impair a fund's ability to bring its capital or income back to the U.S. Other
political risks include economic policy changes, social and political
instability, military action and war.
PREPAYMENT RISK Securities with high stated interest rates may be prepaid
prior to maturity. During periods of falling interest rates, a fund would
generally have to reinvest the proceeds at lower rates.
REGULATORY RISK Governments, agencies or other regulatory bodies may adopt
or change laws or regulations that could adversely affect the issuer, the market
value of the security, or a fund's performance.
VALUATION RISK The lack of an active trading market may make it difficult
to obtain an accurate price for a fund security.
23
CERTAIN INVESTMENT PRACTICES
For each of the following practices, this table shows the applicable investment
limitation. Risks are indicated for each practice.
KEY TO TABLE:
/X/ Permitted without limitation; does not indicate actual use
/20%/ ITALIC TYPE (E.G., 20%) represents an investment limitation as a
percentage of NET fund assets; does not indicate actual use
20% Roman type (e.g., 20%) represents an investment limitation as a
percentage of TOTAL fund assets; does not indicate actual use
/ / Permitted, but not expected to be used to a significant extent
- - Not permitted
INTERNATIONAL FUND
INVESTMENT PRACTICE LIMIT
- ----------------------------------------------------------------------------------------------------
BORROWING The borrowing of money from banks to meet redemptions or for
other temporary or emergency purposes. SPECULATIVE EXPOSURE RISK. 33 1/3%
COUNTRY/REGION FOCUS Investing a significant portion of fund assets in
a single country or region. Market swings in the targeted country or region
will be likely to have a greater effect on fund performance than they would in
a more geographically diversified fund. CURRENCY, MARKET, POLITICAL RISKS. /X/
CURRENCY HEDGING Instruments, such as options, futures, forwards or swaps,
intended to manage fund exposure to currency risk. Options, futures or forwards
involve the right or obligation to buy or sell a given amount of foreign
currency at a specified price and future date. Swaps involve the right or
obligation to receive or make payments based on two different currency
rates.(1) CORRELATION, CREDIT, CURRENCY, HEDGED EXPOSURE, LIQUIDITY,
POLITICAL, VALUATION RISKS. /X/
EMERGING MARKETS Countries generally considered to be relatively less developed
or industrialized. Emerging markets often face economic problems that could
subject the fund to increased volatility or substantial declines in value
Deficiencies in regulatory oversight, market infrastructure, shareholder
protections and company laws could expose a fund to risks beyond those
generally encountered in developed countries. ACCESS, CURRENCY, INFORMATION,
LIQUIDITY, MARKET, OPERATIONAL, POLITICAL, VALUATION RISKS. 30%
EQUITY AND EQUITY-RELATED SECURITIES Common stocks and other
securities representing or related to ownership in a company. May also
include warrants, rights, options, preferred stocks and convertible
debt securities. These investments may go down in value due to stock
market movements or negative company or industry events. LIQUIDITY,
MARKET, VALUATION RISKS. /X/
FOREIGN SECURITIES Securities of foreign issuers. May include
depository receipts. CURRENCY, INFORMATION, LIQUIDITY, MARKET,
POLITICAL, VALUATION RISKS. /X/
FUTURES AND OPTIONS ON FUTURES Exchange-traded contracts that enable a fund to
hedge against or speculate on future changes in currency values, interest rates
or stock indexes. Futures obligate a fund (or give it the right, in the case of
options) to receive or make payment at a specific future time based on those
future changes.(1) CORRELATION, CURRENCY, HEDGED EXPOSURE, INTEREST-RATE,
MARKET, SPECULATIVE EXPOSURE RISKS.(2) / /
INVESTMENT-GRADE DEBT SECURITIES Debt securities rated within the four highest
grades (AAA/Aaa through BBB/Baa) by Standard & Poor's or Moody's rating
service, and unrated securities of comparable quality. CREDIT, INTEREST-RATE,
MARKET RISKS. / /
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES(3) Debt securities backed by pools
of mortgages, including pass-through certificates and other senior classes of
collateralized mortgage obligations (CMOs), or other receivables. CREDIT,
EXTENSION, INTEREST-RATE, LIQUIDITY, PREPAYMENT RISKS. / /
MUNICIPAL SECURITIES Debt obligations issued by or on behalf of states,
territories and possessions of the U.S. and the District of Columbia and their
political subdivisions, agencies and instrumentalities. Municipal securities
may be affected by uncertainties regarding their tax status, legislative
changes or rights of municipal-securities holders. CREDIT, INTEREST-RATE,
MARKET, REGULATORY RISKS. / /
NON-INVESTMENT-GRADE DEBT SECURITIES Debt securities and convertible
securities rated below the fourth-highest grade (BBB/Baa) by
Standard & Poor's or Moody's rating service, and unrated securities of
comparable quality. Commonly referred to as junk bonds. CREDIT,
INFORMATION, INTEREST-RATE, LIQUIDITY, MARKET, VALUATION RISKS. / /
OPTIONS Instruments that provide a right to buy (call) or sell (put) a
particular security, currency or index of securities at a fixed price within a
certain time period. A fund may purchase or sell (write) both put and call
options for hedging or speculative purposes.(1) CORRELATION, CREDIT, HEDGED
EXPOSURE, LIQUIDITY, MARKET, SPECULATIVE EXPOSURE RISKS. / /
24
FIXED INCOME FUND HIGH YIELD FUND
INVESTMENT PRACTICE LIMIT
- -------------------------------------------------------------------------------------------------------------------
BORROWING The borrowing of money from banks to meet redemptions or for
other temporary or emergency purposes. SPECULATIVE EXPOSURE RISK. 33 1/3% 33 1/3%
COUNTRY/REGION FOCUS Investing a significant portion of fund assets in
a single country or region. Market swings in the targeted country or region
will be likely to have a greater effect on fund performance than they would in
a more geographically diversified fund. CURRENCY, MARKET, POLITICAL RISKS. /X/ / /
CURRENCY HEDGING Instruments, such as options, futures, forwards or swaps,
intended to manage fund exposure to currency risk. Options, futures or forwards
involve the right or obligation to buy or sell a given amount of foreign
currency at a specified price and future date. Swaps involve the right or
obligation to receive or make payments based on two different currency
rates.(1) CORRELATION, CREDIT, CURRENCY, HEDGED EXPOSURE, LIQUIDITY,
POLITICAL, VALUATION RISKS. /X/ / /
EMERGING MARKETS Countries generally considered to be relatively less developed
or industrialized. Emerging markets often face economic problems that could
subject the fund to increased volatility or substantial declines in value
Deficiencies in regulatory oversight, market infrastructure, shareholder
protections and company laws could expose a fund to risks beyond those
generally encountered in developed countries. ACCESS, CURRENCY, INFORMATION,
LIQUIDITY, MARKET, OPERATIONAL, POLITICAL, VALUATION RISKS. 10% / /
EQUITY AND EQUITY-RELATED SECURITIES Common stocks and other
securities representing or related to ownership in a company. May also
include warrants, rights, options, preferred stocks and convertible
debt securities. These investments may go down in value due to stock
market movements or negative company or industry events. LIQUIDITY,
MARKET, VALUATION RISKS. / / /20%/
FOREIGN SECURITIES Securities of foreign issuers. May include
depositary receipts. CURRENCY, INFORMATION, LIQUIDITY, MARKET,
POLITICAL, VALUATION RISKS. 35% / /
FUTURES AND OPTIONS ON FUTURES Exchange-traded contracts that enable a fund to
hedge against or speculate on future changes in currency values, interest rates
or stock indexes. Futures obligate a fund (or give it the right, in the case of
options) to receive or make payment at a specific future time based on those
future changes.(1) CORRELATION, CURRENCY, HEDGED EXPOSURE, INTEREST-RATE,
MARKET, SPECULATIVE EXPOSURE RISKS.(2) / / / /
INVESTMENT-GRADE DEBT SECURITIES Debt securities rated within the four highest
grades (AAA/Aaa through BBB/Baa) by Standard & Poor's or Moody's rating
service, and unrated securities of comparable quality. CREDIT, INTEREST-RATE,
MARKET RISKS. / / / /
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES(3) Debt securities backed by pools
of mortgages, including pass-through certificates and other senior classes of
collateralized mortgage obligations (CMOs), or other receivables. CREDIT,
EXTENSION, INTEREST-RATE, LIQUIDITY, PREPAYMENT RISKS. /X/ / /
MUNICIPAL SECURITIES Debt obligations issued by or on behalf of states,
territories and possessions of the U.S. and the District of Columbia and their
political subdivisions, agencies and instrumentalities. Municipal securities
may be affected by uncertainties regarding their tax status, legislative
changes or rights of municipal-securities holders. CREDIT, INTEREST-RATE,
MARKET, REGULATORY RISKS. / / / /
NON-INVESTMENT-GRADE DEBT SECURITIES Debt securities and convertible
securities rated below the fourth-highest grade (BBB/Baa) by
Standard & Poor's or Moody's rating service, and unrated securities of
comparable quality. Commonly referred to as junk bonds. CREDIT,
INFORMATION, INTEREST-RATE, LIQUIDITY, MARKET, VALUATION RISKS. / / /X/
OPTIONS Instruments that provide a right to buy (call) or sell (put) a
particular security, currency or index of securities at a fixed price within a
certain time period. A fund may purchase or sell (write) both put and call
options for hedging or speculative purposes.(1) CORRELATION, CREDIT, HEDGED
EXPOSURE, LIQUIDITY, MARKET, SPECULATIVE EXPOSURE RISKS. / / / /
25
INTERNATIONAL FUND
INVESTMENT PRACTICE LIMIT
- ---------------------------------------------------------------------------------------------------------
PRIVATIZATION PROGRAMS Foreign governments may sell all or part of their
interests in enterprises they own or control. ACCESS, CURRENCY,
INFORMATION, LIQUIDITY, OPERATIONAL, POLITICAL, VALUATION RISKS. /X/
RESTRICTED AND OTHER ILLIQUID SECURITIES Securities with restrictions on
trading, or those not actively traded. May include private placements
LIQUIDITY, MARKET, VALUATION RISKS. /15%/
SECURITIES LENDING Lending portfolio securities to financial
institutions; A fund receives cash, U.S. government securities or bank
letters of credit as collateral. CREDIT, LIQUIDITY, MARKET, OPERATIONAL
RISKS. 33 1/3%
SHORT POSITIONS Selling borrowed securities with the intention of repurchasing
them for a profit on the expectation that the market price will drop. If a fund
were to take short positions in stocks that increase in value, then it would be
likely to underperform similar mutual funds that do not take short positions
LIQUIDITY, MARKET, SPECULATIVE EXPOSURE RISKS. / /
SHORT SALES "AGAINST THE BOX" A short sale when a fund owns enough shares of the
security involved to cover the borrowed securities, if necessary. LIQUIDITY,
MARKET, SPECULATIVE EXPOSURE RISKS. / /
SHORT-TERM TRADING Selling a security shortly after purchase. A fund engaging in
short-term trading will have higher turnover and transaction expenses. Increased
short-term capital gains distributions could raise shareholders' income tax liability. / /
START-UP AND OTHER SMALL COMPANIES Companies with small relative market
capitalizations, including those with continuous operations of less than
three years. INFORMATION, LIQUIDITY, MARKET, VALUATION RISKS. /5%/
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) where the fund's direct investment is restricted
CREDIT, CURRENCY, INFORMATION, INTEREST-RATE, LIQUIDITY, MARKET, POLITICAL,
SPECULATIVE EXPOSURE, VALUATION RISKS. / /
TEMPORARY DEFENSIVE TACTICS Placing some or all of a fund's assets in
investments such as money-market obligations and investment-grade debt
securities for defensive purposes. Although intended to avoid losses in adverse
market, economic, political or other conditions, defensive tactics might be
inconsistent with the fund's principal investment strategies and might prevent
the fund from achieving its goal. / /
WARRANTS Options issued by a company granting the holder the right to buy
certain securities, generally common stock, at a specified price and usually for
a limited time. LIQUIDITY, MARKET, SPECULATIVE EXPOSURE RISKS. / /
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The purchase or sale of
securities for delivery at a future date; market value may change before
delivery. LIQUIDITY, MARKET, SPECULATIVE EXPOSURE RISKS. /25%/
ZERO-COUPON BONDS Debt securities that pay no cash income to holders for
either an intial period or until maturity and are issued at a discount
from maturity value. At maturity, return comes from the difference
between purchase price and maturity value. INTEREST-RATE, MARKET RISKS. / /
26
FIXED INCOME FUND HIGH YEILD FUND
INVESTMENT PRACTICE LIMIT
- --------------------------------------------------------------------------------------------------------------------------
PRIVATIZATION PROGRAMS Foreign governments may sell all or part of their
interests in enterprises they own or control. ACCESS, CURRENCY,
INFORMATION, LIQUIDITY, OPERATIONAL, POLITICAL, VALUATION RISKS. / / / /
RESTRICTED AND OTHER ILLIQUID SECURITIES Securities with restrictions on
trading, or those not actively traded. May include private placements
LIQUIDITY, MARKET, VALUATION RISKS. /15%/ /15%/
SECURITIES LENDING Lending portfolio securities to financial
institutions; A fund receives cash, U.S. government securities or bank
letters of credit as collateral. CREDIT, LIQUIDITY, MARKET, OPERATIONAL
RISKS. 33 1/3% 33 1/3%
SHORT POSITIONS Selling borrowed securities with the intention of repurchasing
them for a profit on the expectation that the market price will drop. If a fund
were to take short positions in stocks that increase in value, then it would be
likely to underperform similar mutual funds that do not take short positions
LIQUIDITY, MARKET, SPECULATIVE EXPOSURE RISKS. / / / /
SHORT SALES "AGAINST THE BOX" A short sale when a fund owns enough shares of the
security involved to cover the borrowed securities, if necessary. LIQUIDITY,
MARKET, SPECULATIVE EXPOSURE RISKS. / / / /
SHORT-TERM TRADING Selling a security shortly after purchase. A fund engaging in
short-term trading will have higher turnover and transaction expenses. Increased
short-term capital gains distributions could raise shareholders' income tax liability. / / / /
START-UP AND OTHER SMALL COMPANIES Companies with small relative market
capitalizations, including those with continuous operations of less than
three years. INFORMATION, LIQUIDITY, MARKET, VALUATION RISKS. /5%/ /5%/
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) where the fund's direct investment is restricted
CREDIT, CURRENCY, INFORMATION, INTEREST-RATE, LIQUIDITY, MARKET, POLITICAL,
SPECULATIVE EXPOSURE, VALUATION RISKS. / / / /
TEMPORARY DEFENSIVE TACTICS Placing some or all of a fund's assets in
investments such as money-market obligations and investment-grade debt
securities for defensive purposes. Although intended to avoid losses in adverse
market, economic, political or other conditions, defensive tactics might be
inconsistent with the fund's principal investment strategies and might prevent
the fund from achieving its goal. / / / /
WARRANTS Options issued by a company granting the holder the right to buy
certain securities, generally common stock, at a specified price and usually for
a limited time. LIQUIDITY, MARKET, SPECULATIVE EXPOSURE RISKS. / / / /
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The purchase or sale of
securities for delivery at a future date; market value may change before
delivery. LIQUIDITY, MARKET, SPECULATIVE EXPOSURE RISKS. /25%/ /25%/
ZERO-COUPON BONDS Debt securities that pay no cash income to holders for
either an intial period or until maturity and are issued at a discount
from maturity value. At maturity, return comes from the difference
between purchase price and maturity value. INTEREST-RATE, MARKET RISKS. / / / /
(1) Each fund 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) Each fund is limited to 5% of net assets for initial margin and premium
amounts on futures positions considered to be speculative by the Commodity
Futures Trading Commission.
(3) Each fund will limit its investments in asset-backed securities to 25% of
total assets.
27
MEET THE MANAGERS
The following individuals are responsible for the day-to-day management of the
INTERNATIONAL FUND and are supported by the Credit Suisse International Equity
Team.
STEVEN D. BLEIBERG, Managing Director, is chairman of the firm's Global Equity
Strategy Group, and has been Co-Portfolio Manager of the Fund since October
2001. Mr. Bleiberg has been with CSAMsince 1991 when he rejoined the company
following 2 years as a portfolio manager at Matrix Capital Management. Mr.
Bleiberg first joined CSAM in 1984. He holds a B.A. in Government from Harvard
University and a M.S. in Finance from the Sloan School of Management at the
Massachusetts Institute of Technology.
VINCENT J. MCBRIDE, Managing Director, has been Co-Portfolio Manager of the Fund
since October 2002. Mr. McBride joined CSAM in 1999 as a result of Credit
Suisse's acquisition of Warburg Pincus Asset Management, Inc. ("Warburg
Pincus"). Prior to joining Warburg Pincus in 1994, Mr. McBride was an
international equity analyst at Smith Barney, an international equity analyst at
General Electric Investments, a portfolio manager and analyst at United Jersey
Bank, and a portfolio manager at First Fidelity Bank. He holds a B.S. in
Economics from the University of Delaware and an M.B.A. in Finance from Rutgers
University.
28
The following individuals are responsible for the day-to-day management of the
FIXED INCOME FUND.
JO ANN CORKRAN, Managing Director, has been a member of the fixed income team
since 1997. She joined CSAM that year from Morgan Stanley, where she headed the
mortgage and asset-backed research group. Previously, she worked in the
insurance group within fixed income research at First Boston and as a pension
analyst at Buck Consultants. Ms. Corkran holds a B.A. in Mathematics from New
York University and has qualified as a Fellow of the Society of Actuaries.
LELAND E. CRABBE, Director, is global head of emerging market debt and has been
a member of the fixed income team since rejoining CSAM in 1999 from Cigna
Investments. Mr. Crabbe first came to CSAM in 1998 from Merrill Lynch, where he
had been a corporate bond strategist since 1984. Mr. Crabbe holds a B.A. in
Economics from California State University at Fullerton and a Ph.D. in Economics
from the University of California at Los Angeles.
SUZANNE E. MORAN, Director, has been a member of the fixed income team since
1995. She joined CSAM in 1995 as a result of Credit Suisse's acquisition of CS
First Boston Investment Management. She had joined CS First Boston Investment
Management in 1991. Ms. Moran holds a B.A. in Finance from the University of
Maryland.
29
The following individuals are responsible for the day-to-day management of the
HIGH YIELD FUND.
RICHARD J. LINDQUIST, CFA and Managing Director, is head of the high yield
management team and has been a team member since 1989. He joined CSAM in 1995 as
a result of the acquisition of CS First Boston Investment Management, where he
had been since 1989. Previously, he managed high yield portfolios at Prudential
Insurance Company of America and a high yield mutual fund at T. Rowe Price
Associates. Mr. Lindquist holds a B.S. in Finance from Boston College and a
M.B.A. in Finance from the University of Chicago Graduate School of Business.
PHILIP L. SCHANTZ, Director, has been a member of the high yield management team
since 2000. He joined in 2000 from Prudential Securities, where he was a senior
vice president and high yield analyst. Previously, he was a vice president and
high yield analyst at Lazard Freres and a first vice president and co-head of
the high yield securities group at E.F. Hutton. Mr. Schantz holds a B.A. in
Government from Lehigh University.
MISIA K. DUDLEY, Director, has been a member of the high yield management team
since 1989. She came to CSAM in 1995 with the acquisition of CS First Boston
Investment Management. Previously, she analyzed recapitalized companies at
Stockbridge Partners; covered the casino, communications and entertainment
sectors at E.F. Hutton; and was a generalist analyst for the Value Line
Investment Survey. Ms. Dudley holds a B.A. in History from Yale University.
JOHN M. TOBIN, CFA, Director, has been a member of the high yield management
team since 1990. Mr. Tobin came to CSAM in 1995 with the acquisition of CS First
Boston Investment Management. Previously, he managed portfolios of bank
participations and private placements for the two life insurance subsidiaries of
Integrated Resources and as an analyst at Bankers Trust. Mr. Tobin holds B.A.,
M.A. and Ph.D. degrees in Economics, all from Fordham University.
MARY ANN THOMAS, CFA, Director, has been a member of the high yield management
team since 2000. Before joining CSAM in 1997, she was a vice president and high
yield bond analyst with the Capital Management Group at the Prudential Insurance
Company of America. Ms. Thomas holds a B.A. in Economics and Political Science
from Yale University and a M.B.A. in Finance from the University of
Pennsylvania's Wharton School.
JOHN F. DESSAUER, CFA, Vice President, is a credit analyst and has been a member
of the high yield management team since 1999. Mr. Dessauer joined CSAM in 1999
following five years at SEI Investments in Philadelphia, where he was a senior
analyst focusing on high yield, municipal debt and large-capitalization
equities. Mr. Dessauer holds a B.A. in economics from Boston College.
MICHAEL J. DUGAN, Assistant Vice President, is a client portfolio manager and
has been a member of the high yield management team since 2001. Mr. Dugan joined
CSAM in 2000 following two years at Arnhold and S. Bleichroeder, where he was an
associate in the institutional sales and marketing group. Previously, Mr. Dugan
was an assistant supervisor in the client service group at Neuberger Berman LLC,
where he had worked since 1996. Mr. Dugan holds a B.A. in political science from
the University of Rhode Island.
30
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 total assets of the Institutional
Class, less its liabilities, by the number of Institutional Class shares
outstanding.
The funds value their securities based on market quotations when they
calculate their NAV. If market quotations are not readily available, the fair
value of the securities and other assets is determined in good faith by or under
the direction of the Board. Debt obligations that will mature in 60 days or less
are valued on the basis of amortized cost, unless it is determined that using
this method would not reflect an investment's fair value.
Some fund securities may be listed on foreign exchanges that are open on
days (such as U.S. holidays) when a fund does not compute its price. This could
cause the value of a fund's portfolio investments to be affected by trading on
days when you cannot buy or sell shares.
- - BUYING AND SELLING SHARES
The funds are open on those days when the NYSE is open, typically Monday
through Friday. If we receive your request in proper form by the close of the
NYSE (usually 4 p.m. Eastern Time), your transaction will be priced at that
day's NAV. If we receive it after that time, it will be priced at the next
business day's NAV.
The funds have authorized financial-services firms, such as banks, brokers
and financial advisors (and other intermediaries that the firms may designate),
to accept orders. When an authorized firm or its designee has received your
order, it is considered received by a fund and will be priced at the
next-computed NAV.
- - BUYING FUND SHARES
INVEST BY WIRE
Institutional Class shares are generally available only to investors who
have entered into an investment management agreement with CSAM. Investors should
complete an account application and forward it to Credit Suisse Institutional
Shares. After calling a fund to place an order, you may wire funds to:
State Street Bank and Trust Company
ABA# 0110 000 28
Attn: Mutual Funds/Custody Department
Credit Suisse Institutional Shares
DDA# 9905-227-6
F/F/C: [ACCOUNT NUMBER AND REGISTRATION]
You can also purchase shares by mailing a check or Federal Reserve draft
to:
Credit Suisse Institutional Shares
P.O Box 8500
Boston, Massachusetts 02266-8500
or overnight to:
Boston Financial Data Services, Inc.
Attn: Credit Suisse Institutional Shares
66 Brooks Drive
Braintree, Massachusetts 02184
Please use either a personal, company or bank check payable in U.S.
dollars. Unfortunately, we cannot accept checks that are not pre-printed or
checks that are payable to you or another party. These types of checks may be
returned to you and your purchase order may not be processed. Limited exceptions
include IRA Rollover and government checks. Federal Reserve drafts are available
at national banks and at state Federal Reserve member banks. Please indicate the
fund's name on any check or Federal Reserve draft. The account application
contains further instructions.
31
INVEST BY PURCHASES IN KIND
With CSAM's permission, investors may acquire Institutional Class shares
in exchange for portfolio securities. The portfolio securities must:
- - Match the investment objectives and policies of the fund to be purchased
- - Be considered by the fund's adviser or sub-advisers to be an appropriate fund
investment
- - Be easily valued, liquid and not subject to restrictions on transfer
You may have to pay administrative or custody costs if you make purchases
in kind and the execution of your purchase order may be delayed.
MINIMUM INVESTMENTS
Minimum investments for Institutional Class shares are the following,
including investment by purchases in-kind and by exchange (described below):
Initial investment $3,000,000
Subsequent investment $ 100,000
Clients of CSAM, along with CSAM's affiliates, client officers and certain
other related persons, may purchase shares without entering into an investment
management agreement with the adviser subject to a minimum initial investment of
$100,000 and a minimum subsequent investment of $1,000. The minimum investments
may be waived or modified.
You must maintain an account balance in the fund of at least $500. If your
account balance falls below the minimum required to keep it open due to
redemptions or exchanges, the fund may ask you to increase your balance. If it
is still below the minimum after 30 days, the fund may close your account and
mail you the proceeds. The minimum account balance amounts may be waived.
- - SELLING FUND SHARES
SELL FUND SHARES IN WRITING
You can sell (redeem) your shares on any day the funds are open by writing
to Credit Suisse Institutional Shares. The request must be signed by all record
owners (exactly as registered) or by an authorized person such as an investment
adviser or other agent. Additional documents may be required for redemption by a
corporation, partnership, trust, fiduciary, executor or administrator or in
certain other cases. If you want to change account information or privileges you
must specify this in the redemption request and have all signatures guaranteed.
You can obtain a signature guarantee from most banks or securities dealers, but
not from a notary public.
REDEMPTION PROCEEDS
After selling fund shares you will receive the proceeds by either wire or
check, mailed within seven days of the redemption. For shares purchased by
check, if the fund has not yet collected payment for the shares you are selling
it will delay sending you the proceeds until your purchase payment clears. This
may take up to 10 calendar days after the purchase.
- - EXCHANGING FUND SHARES
You may exchange Institutional Class shares for Institutional Class shares
in any other Credit Suisse Institutional Fund by writing to Credit Suisse
Institutional Shares. You may exchange your shares for Institutional Class
shares of other Credit Suisse Institutional Funds only if you meet those Funds'
investment minimums. If you are purchasing shares in a new fund by exchange, the
new fund account will be registered exactly as the fund account from which you
are exchanging.
32
- - OTHER POLICIES
TRANSACTION DETAILS
Your purchase order will be canceled and you may be liable for losses or
fees incurred by a fund if:
- your investment check or Federal Reserve draft does not clear
- you place a telephone order by 4 p.m. Eastern Time and we do not receive
your wire that day
If you wire money without first calling the fund to place an order, and
your wire arrives after the close of regular trading on the NYSE, then your
order will not be executed until the end of the next business day. In the
meantime, your payment will be held uninvested. Your bank or other
financial-services firm may charge a fee to send or receive wire transfers.
While we monitor telephone servicing resources carefully, during periods
of significant economic or market change it may be difficult to place orders by
telephone.
Uncashed redemption or distribution checks do not earn interest.
SPECIAL SITUATIONS
Each fund reserves the right to:
- refuse any purchase or exchange request, including those from any person
or group who, in the fund's view, is likely to engage in excessive
trading
- change or discontinue its exchange privilege after 60 days' notice to
current investors, or temporarily suspend this privilege during unusual
market conditions
- change minimum account balance requirements after 15 days' notice to
current investors of any increases
- charge a wire-redemption fee
- make a "redemption in kind" -- payment in portfolio securities rather
than cash -- for certain large redemptions that could hurt fund
operations
- suspend redemptions or postpone payment dates as permitted by law (such
as during periods other than weekends or holidays when the NYSE is
closed, when trading on the NYSE is restricted, or any other time that
the SEC permits)
- stop offering its shares for a period of time (such as when management
believes that a substantial increase in assets could adversely affect
it)
ACCOUNT CHANGES
You should update your account records whenever you change your address.
You can call 800-222-8977 to change your account information or privileges.
- - ACCOUNT STATEMENTS
In general, you will receive account statements as follows:
- after every transaction that affects your account balance (except for
distribution reinvestments)
- after any changes of name or address of the registered owner(s)
- otherwise, every quarter
You will receive annual and semiannual financial reports.
33
- - DISTRIBUTIONS
As a fund investor, you will receive distributions.
Each fund earns dividends from stocks and interest from bond, money-market
and other investments. These are passed along as dividend distributions. A fund
realizes capital gains whenever it sells securities for a higher price than it
paid for them. These are passed along as capital-gain distributions.
The Fixed Income and High Yield Funds declare and pay dividend
distributions quarterly. The International Fund typically distributes dividends
annually, usually in December. Each of the funds typically distribute capital
gains annually, usually in December. Each fund may make additional distributions
at other times if necessary for the fund to avoid a federal tax.
Most investors have their distributions reinvested in additional shares of
the same fund. Distributions will be reinvested unless you choose on your
account application to have a check for your distributions mailed to you or sent
by electronic transfer.
Estimated year-end distribution information, including record and payment
dates, generally will be available late in the year by calling 800-222-8977.
Investors are encouraged to consider the potential tax consequences of
distributions prior to buying or selling shares of the funds.
- - TAXES
As with any investment, you should consider how your investment in a fund
will be taxed. If your account is not a tax-advantaged account, you should be
especially aware of the following potential tax implications. Please consult
your tax professional concerning your own tax situation.
TAXES ON DISTRIBUTIONS
As long as a fund continues to meet the requirements for being a
tax-qualified regulated investment company, the fund pays no federal income tax
on the earnings and gains, if any, it distributes to shareholders.
Distributions you receive from a fund, whether reinvested or taken in
cash, are generally considered taxable. Distributions from a fund's long-term
capital gains are taxed as long-term capital gains, regardless of how long you
have held fund shares. Distributions from other sources are generally taxed as
ordinary income.
If you buy shares shortly before or on the "record date" -- the date that
establishes you as the person to receive the upcoming distribution -- you may
receive a portion of the money you just invested in the form of a taxable
distribution.
The Form 1099-DIV that is mailed to you every January details your
distributions and their federal tax category, including the portion taxable as
long-term capital gains.
TAXES ON TRANSACTIONS
Any time you sell or exchange shares, it is considered a taxable event for
you. Depending on the purchase price and the sale price of the shares you sell
or exchange, you may have a gain or loss on the transaction. You are responsible
for any tax liabilities generated by your transactions.
- - STATEMENTS AND REPORTS
Each fund produces financial reports, which include a list of the fund's
portfolio holdings, semiannually and updates its prospectus annually. Each fund
generally does not hold shareholder meetings. To reduce expenses by eliminating
duplicate mailings to the same address, a fund may choose to mail only one
report, prospectus or proxy statement to your household, even if more than one
person in the household has an account with the same fund. Please call
800-222-8977 if you would like to receive additional reports, prospectuses or
proxy statements.
34
OTHER INFORMATION
- - ABOUT THE DISTRIBUTOR
Credit Suisse Asset Management Securities, Inc., an affiliate of CSAM, is
responsible for:
- - making the funds available to you
- - account servicing and maintenance
- - other administrative services related to sale of the Institutional Class
35
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38
FOR MORE INFORMATION
More information about these funds 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 funds' managers
discussing market conditions and investment strategies that significantly
affected fund performance during their past fiscal year.
- - OTHER INFORMATION
A current STATEMENT OF ADDITIONAL INFORMATION (SAI) which provides more
details about the funds is on file with the Securities and Exchange Commission
(SEC) and is incorporated by reference.
You may visit the SEC's Internet website (www.sec.gov) to view the SAI,
material incorporated by reference and other information. You can also obtain
copies by visiting the SEC's Public Reference Room in Washington, DC (phone
202-942-8090) or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-0102 or electronically at
publicinfo@sec.gov.
Please contact Credit Suisse Institutional Shares to obtain, without
charge, the SAI and ANNUAL and SEMIANNUAL REPORTS, portfolio holdings and other
information and to make shareholder inquiries:
BY TELEPHONE:
800-222-8977
BY MAIL:
Credit Suisse Institutional Shares
P.O. Box 8500
Boston, MA 02266-8500
BY OVERNIGHT OR COURIER SERVICE:
Boston Financial Data Services, Inc.
Attn: Credit Suisse Institutional Shares
66 Brooks Drive
Braintree, MA 02171
ON THE INTERNET:
www.CreditSuisseFunds.com
SEC FILE NUMBERS:
Credit Suisse Institutional International Fund 811-08933
Credit Suisse Institutional Fixed Income Fund 811-08917
Credit Suisse Institutional High Yield Fund 811-08927
[CREDIT SUISSE ASSET MANAGEMENT LOGO]
P.O BOX 8500, BOSTON, MA 02266-8500
800-222-8977
Credit Suisse Asset Management Securities, Inc., Distributor. CSISB-1-0103
STATEMENT OF ADDITIONAL INFORMATION
January 1, 2003
Institutional Shares of the
CREDIT SUISSE INSTITUTIONAL INTERNATIONAL FUND
CREDIT SUISSE INSTITUTIONAL FIXED INCOME FUND
CREDIT SUISSE INSTITUTIONAL HIGH YIELD FUND
This combined STATEMENT OF ADDITIONAL INFORMATION provides information
about Credit Suisse Institutional International Fund ("International Fund"),
Credit Suisse Institutional Fixed Income Fund ("Fixed Income Fund") and Credit
Suisse Institutional High Yield Fund ("High Yield Fund") (each a "Fund" and
collectively, the "Funds") that supplements information contained in the
combined PROSPECTUS for the Institutional Shares of the Funds, dated January 1,
2003, as it may be amended or supplemented from time to time (the "PROSPECTUS"),
and is incorporated by reference in its entirety into the PROSPECTUS.
Each Fund's audited ANNUAL REPORT dated August 31, 2002, which either
accompanies this STATEMENT OF ADDITIONAL INFORMATION or has previously been
provided to the investor to whom this STATEMENT OF ADDITIONAL INFORMATION is
being sent, is incorporated herein by reference.
This STATEMENT OF ADDITIONAL INFORMATION is not itself a prospectus
and no investment in shares of the Funds should be made solely upon the
information contained herein. Copies of the PROSPECTUS, ANNUAL REPORT and
information regarding each Fund's current performance may be obtained by writing
or telephoning:
INSTITUTIONAL SHARES
CSAM Institutional Shares
P.O. Box 8500
Boston, Massachusetts 02266-8500
800-222-8977
CONTENTS
PAGE
INVESTMENT OBJECTIVES AND POLICIES 1
Common Investment Policies -- All Funds 1
Non-Diversified Status 1
Temporary Investments 1
Repurchase Agreements 2
Illiquid Securities 3
RULE 144A SECURITIES 3
Emerging Growth and Smaller Capitalization Companies; Unseasoned Issuers 4
Lending of Portfolio Securities 4
Borrowing 5
Securities of Other Investment Companies 5
Options Generally 5
SECURITIES OPTIONS 5
When-Issued Securities, Delayed Delivery Transactions And Forward Commitments 9
Stand-By Commitment Agreements 9
U.S. Government Securities 10
Foreign Investments 11
INFORMATION 12
POLITICAL INSTABILITY 12
FOREIGN MARKETS 12
INCREASED EXPENSES 12
DEPOSITORY RECEIPTS 13
BRADY BONDS 13
EMERGING MARKETS 13
SOVEREIGN DEBT 14
Convertible Securities 15
Debt Securities 15
BELOW INVESTMENT GRADE SECURITIES 16
MORTGAGE-BACKED SECURITIES 17
ASSET-BACKED SECURITIES 18
LOAN PARTICIPATIONS AND ASSIGNMENTS 19
STRUCTURED NOTES, BONDS OR DEBENTURES 19
COLLATERALIZED MORTGAGE OBLIGATIONS 20
ZERO COUPON SECURITIES 21
Futures Activities 21
OPTIONS ON FUTURES CONTRACTS 23
Currency Exchange Transactions 23
FORWARD CURRENCY CONTRACTS 23
CURRENCY OPTIONS 24
Hedging Generally 25
Short Sales 27
i
Rights Offerings and Purchase Warrants 28
Municipal Obligations 28
INVESTMENT RESTRICTIONS 29
PORTFOLIO VALUATION 31
PORTFOLIO TRANSACTIONS 32
PORTFOLIO TURNOVER 34
MANAGEMENT OF THE FUNDS 36
Officers and Board of Directors 35
Ownership in Securities of the Funds and Fund Complex 46
Committees and Meetings of Directors 48
Directors' Total Compensation for Fiscal Year Ended August 31, 2002 49
Investment Advisory Agreements 49
Board Approval of Advisory Agreements 53
Code of Ethics 56
Organization of the Funds 57
Distribution and Shareholder Servicing 58
Distributor 58
EXCHANGE PRIVILEGE 58
ADDITIONAL INFORMATION CONCERNING TAXES 59
The Funds and Their Investments 59
Special Tax Considerations 62
OPTIONS AND SECTION 1256 CONTRACTS 62
FOREIGN CURRENCY TRANSACTIONS 63
PASSIVE FOREIGN INVESTMENT COMPANIES 63
ASSET DIVERSIFICATION REQUIREMENT 64
FOREIGN TAXES 64
DIVIDENDS AND DISTRIBUTIONS 65
SALES OF SHARES 65
BACKUP WITHHOLDING 66
NOTICES 66
OTHER TAXATION 66
DETERMINATION OF PERFORMANCE 66
Average Annual Total Return 67
Yield 68
After-Tax Return 69
INDEPENDENT ACCOUNTANTS AND COUNSEL 70
MISCELLANEOUS 72
FINANCIAL STATEMENTS 74
APPENDIX A----DESCRIPTION OF RATINGS A-1
ii
INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement the descriptions of each zFund's
investment objectives and policies in the PROSPECTUS. There are no assurances
that the Funds will achieve their investment objectives.
The investment objective of the International Fund is to provide
long-term appreciation of capital.
The investment objective of the High Yield and Fixed Income Funds is
to provide high total return.
The Fixed Income Fund under normal market conditions invests at least
80% of its net assets, plus any borrowings for investment purposes, in fixed
income securities of U.S. issuers. The High Yield Fund under normal market
conditions invests at least 80% of its net assets, plus any borrowings for
investment purposes, in high yield fixed income securities. These policies are
non-fundamental, which means that they can be changed by the relevant Fund's
Board of Directors upon at least 60 days' notice to shareholders.
Unless otherwise indicated, all of the Funds are permitted, but not
obligated, to engage in the following investment strategies, subject to any
percentage limitations set forth below. The Funds do not represent that these
techniques are available now or will be available at any time in the future.
COMMON INVESTMENT POLICIES -- ALL FUNDS
NON-DIVERSIFIED STATUS. Each Fund is classified as non-diversified
within the meaning of the Investment Company Act of 1940, as amended (the "1940
Act"), which means that each Fund is not limited by such Act in the proportion
of its assets that it may invest in securities of a single issuer. As a
non-diversified fund, each Fund may invest a greater proportion of its assets in
the obligations of a smaller number of issuers and, as a result, may be subject
to greater risk with respect to portfolio securities. The investments of these
Funds will be limited, however, in order to qualify as a "regulated investment
company" for purposes of the Internal Revenue Code of 1986, as amended (the
"Code"). See "Additional Information Concerning Taxes." To qualify, a Fund will
comply with certain requirements, including limiting its investments so that at
the close of each quarter of the taxable year (i) not more than 25% of the
market value of its total assets will be invested in the securities of a single
issuer, and (ii) with respect to 50% of the market value of its total assets,
not more than 5% of the market value of its total assets will be invested in the
securities of a single issuer and the Fund will not own more than 10% of the
outstanding voting securities of a single issuer.
TEMPORARY INVESTMENTS. To the extent permitted by its investment
objectives and policies, each of the Funds may hold cash or cash equivalents
pending investment or to meet redemption requests. In addition, for defensive
purposes due to abnormal market conditions or economic situations as determined
by Credit Suisse Asset Management, LLC, each Fund's adviser ("CSAM" or the
"Adviser"), each Fund may reduce its holdings in other securities and invest up
to 100% of its assets in cash or certain short-term (less than 12 months to
maturity) and
medium-term (not greater than five years to maturity) interest-bearing
instruments or deposits of United States and foreign issuers. The short-term and
medium-term debt securities in which a Fund 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.
REPURCHASE AGREEMENTS. The Funds may invest in repurchase agreement
transactions with member banks of the Federal Reserve System and certain
non-bank dealers. Repurchase agreements are contracts under which the buyer of a
security simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Under the terms of a typical repurchase agreement, a
Fund would acquire any underlying security for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying
securities will at all times be at least equal to the total amount of the
purchase obligation, including interest. The Fund bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its obligations
or becomes bankrupt and the Fund is delayed or prevented from exercising its
right to dispose of the collateral securities, including the risk of a possible
decline in the value of the underlying securities during the period in which the
Fund seeks to assert this right. The Adviser monitors the creditworthiness of
those bank and non-bank dealers with which each Fund enters into repurchase
agreements to evaluate this risk. A repurchase agreement is considered to be a
loan under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. Each Fund may enter
into reverse repurchase agreements with member banks of the Federal Reserve
System and certain non-bank dealers. Reverse repurchase agreements involve the
sale of securities held by a Fund pursuant to such Fund's agreement to
repurchase them at a mutually agreed-upon date, price and rate of interest. At
the time a Fund enters into a reverse repurchase agreement, it will segregate
with an approved custodian cash or liquid high-grade debt securities having a
value not less than the repurchase price (including accrued interest). The
segregated assets will be marked-to-market daily and additional assets will be
segregated on any day in which the assets fall below the repurchase price (plus
accrued interest). A Fund's liquidity and ability to manage its assets might be
affected when it sets aside cash or portfolio securities to cover such
commitments.
Each Fund also may enter into "dollar rolls," in which it sells fixed
income securities for delivery in the current month and simultaneously contracts
to repurchase similar but not identical (same type, coupon and maturity)
securities on a specified future date. During the roll period, a Fund would
forgo principal and interest paid on such securities. A Fund would be
compensated by the difference between the current sales price and the forward
price for the future purchase, as well as by the interest earned on the cash
proceeds of the initial sale. At the time a Fund enters into a dollar roll
transaction, it will segregate with an approved custodian,
2
cash or liquid securities having a value not less than the repurchase price
(including accrued interest) and will subsequently monitor the segregated assets
to ensure that its value is maintained. Reverse repurchase agreements and dollar
rolls that are accounted for as financings are considered to be borrowings under
the 1940 Act.
Reverse repurchase agreements and dollar rolls involve the risk that
the market value of the securities retained in lieu of sale may decline below
the price of the securities a Fund has sold but is obligated to repurchase. In
the event the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce a Fund's obligation
to repurchase the securities, and a Fund's use of the proceeds of the reverse
repurchase agreement may effectively be restricted pending such decision.
ILLIQUID SECURITIES. Each Fund is authorized to invest up to 15% of its net
assets in illiquid securities, including securities that are illiquid by virtue
of the absence of a readily available market, repurchase agreements which have a
maturity of longer than seven days, certain Rule 144A Securities (as defined
below), and time deposits maturing in more than seven days. Securities that have
legal or contractual restrictions on resale but have a readily available market
are not considered illiquid for purposes of this limitation. Repurchase
agreements subject to demand are deemed to have a maturity equal to the notice
period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Companies whose securities are not publicly traded may not be
subject to the disclosure and other investor protection requirements applicable
to companies whose securities are publicly traded. Limitations on resale may
have an adverse effect on the marketability of portfolio securities and a mutual
fund might be unable to dispose of restricted or other illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days without borrowing. A 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 Securities and Exchange Commission ("SEC") allows for a broader
institutional trading market for securities otherwise subject to restriction on
resale to the general public. Rule 144A
3
establishes a "safe harbor" from the registration requirements of the Securities
Act for resales of certain securities to qualified institutional buyers. The
Adviser anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and use of automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by NASD Inc.
An investment in Rule 144A Securities will be considered illiquid and
therefore subject to each Fund's limit on the purchase of illiquid securities
unless the Fund's Board of Directors (the "Board") or its delegates determines
that the Rule 144A Securities are liquid. In reaching liquidity decisions, the
Board or its delegates may consider, INTER ALIA, the following factors: (i) the
unregistered nature of the security; (ii) the frequency of trades and quotes for
the security; (iii) the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; (iv) dealer undertakings
to make a market in the security and (v) the nature of the security and the
nature of the marketplace trades (E.G., the time needed to dispose of the
security, the method of soliciting offers and the mechanics of the transfer).
EMERGING GROWTH AND SMALLER CAPITALIZATION COMPANIES; UNSEASONED
ISSUERS. Each Fund will not invest in securities of unseasoned issuers,
including equity securities of unseasoned issuers which are not readily
marketable, if the aggregate investment in such securities would exceed 5% of
such Fund's net assets. The term "unseasoned" refers to issuers which, together
with their predecessors, have been in operation for less than three years.
Such investments involve considerations that are not applicable to
investing in securities of established, larger-capitalization issuers, including
reduced and less reliable information about issuers and markets, less stringent
financial disclosure requirements, illiquidity of securities and markets, higher
brokerage commissions and fees and greater market risk in general. In addition,
securities of these companies may involve greater risks since these securities
may have limited marketability and, thus, may be more volatile.
Although investing in securities of unseasoned issuers offers
potential for above-average returns if the companies are successful, the risk
exists that the companies will not succeed and the prices of the companies'
shares could significantly decline in value. Therefore, an investment in a Fund
may involve a greater degree of risk than an investment in other mutual funds
that invest in better-known, larger companies.
LENDING OF PORTFOLIO SECURITIES. Each Fund may lend portfolio
securities to brokers, dealers and other financial organizations that meet
capital and other credit requirements or other criteria established by the
Board. These loans, if and when made, may not exceed 33-1/3% of a Fund's total
assets (including the loan collateral). Loans of portfolio securities will be
collateralized by cash or liquid securities, which are maintained at all times
in an amount equal to at least 102% (105% in the case of foreign securities) of
the current market value of the loaned securities. Any gain or loss in the
market price of the securities loaned that might occur during the term of the
loan would be for the account of the Funds. From time to time, the Funds 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 Funds and that is acting as a "finder."
4
By lending its securities, each Fund can increase its income by
continuing to receive interest and any dividends on the loaned securities as
well as by either investing the collateral received for securities loaned in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. government securities are used as collateral. Each Fund will
adhere to the following conditions whenever its portfolio securities are loaned:
(i) the Fund must receive at least 102% (105% in the case of foreign securities)
cash collateral or equivalent securities of the type discussed in the preceding
paragraph from the borrower; (ii) the borrower must increase such collateral
whenever the market value of the securities rises above the level of such
collateral; (iii) the Fund must be able to terminate the loan at any time; (iv)
the Fund must receive reasonable interest on the loan, as well as any dividends,
interest or other distributions on the loaned securities and any increase in
market value; (v) the Fund may pay only reasonable custodian fees in connection
with the loan; and (vi) voting rights on the loaned securities may pass to the
borrower, provided, however, that if a material event adversely affecting the
investment occurs, the Fund must terminate the loan and regain the right to vote
the securities. Loan agreements involve certain risks in the event of default or
insolvency of the other party, including possible delays or restrictions upon a
Fund's ability to recover the loaned securities or dispose of the collateral for
the loan.
BORROWING. Each Fund may borrow up to 33-1/3% of its total assets for
temporary or emergency purposes, including to meet portfolio redemption requests
so as to permit the orderly disposition of portfolio securities or to facilitate
settlement transactions on portfolio securities. Additional investments
(including roll-overs) will not be made when borrowings exceed 5% of a Fund's
total assets. Although the principal of such borrowings will be fixed, a Fund's
assets may change in value during the time the borrowing is outstanding. Each
Fund expects that some of its borrowings may be made on a secured basis. In such
situations, either the custodian will segregate the pledged assets for the
benefit of the lender or arrangements will be made with a suitable subcustodian,
which may include the lender.
SECURITIES OF OTHER INVESTMENT COMPANIES. Each Fund may invest in
securities issued by other investment companies to the extent permitted by the
1940 Act. Under the 1940 Act, each Fund may hold securities of another
investment company in amounts which (a) do not exceed 3% of the total
outstanding voting stock of such company, (b) do not exceed 5% of the value of
the Fund's total assets and (c) when added to all other investment company
securities held by the Fund, do not exceed 10% of the value of the Fund's total
assets. As a shareholder of another investment company, each Fund 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 a Fund bears directly in connection with
its own operations.
OPTIONS GENERALLY. The Funds may purchase and write (sell) options on
securities, securities indices and currencies for both hedging purposes and to
increase total return.
SECURITIES OPTIONS. Each Fund may write covered put and call options
on stock and debt securities and may purchase such options that are traded on
foreign and U.S. exchanges, as well as over-the-counter ("OTC") options. A Fund
realizes fees (referred to as "premiums") for granting the rights evidenced by
the options it has written. A put option embodies the right
5
of its purchaser to compel the writer of the option to purchase from the option
holder an underlying security at a specified price for a specified time period
or at a specified time. In contrast, a call option embodies the right of its
purchaser to compel the writer of the option to sell to the option holder an
underlying security at a specified price for a specified time period or at a
specified time.
The potential loss associated with purchasing an option is limited to
the premium paid, and the premium would partially offset any gains achieved from
its use. However, for an option writer the exposure to adverse price movements
in the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to a Fund,
force the sale or purchase of portfolio securities at inopportune times or at
less advantageous prices, limit the amount of appreciation the Fund could
realize on its investments or require the Fund to hold securities it would
otherwise sell.
The principal reason for writing covered options on a security is to
attempt to realize, through the receipt of premiums, a greater return than would
be realized on the securities alone. In return for a premium, a Fund, as the
writer of a covered call option, forfeits the right to any appreciation in the
value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). A Fund that
writes call options retains the risk of an increase in the price of the
underlying security. The size of the premiums that the Funds may receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option-writing activities.
If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that the
writer will also profit, because it should be able to close out the option at a
lower price. If security prices decline, the put writer would expect to suffer a
loss. This loss may be less than the loss from purchasing the underlying
instrument directly to the extent that the premium received offsets the effects
of the decline.
In the case of options written by a Fund that are deemed covered by
virtue of the Fund's holding convertible or exchangeable preferred stock or debt
securities, the time required to convert or exchange and obtain physical
delivery of the underlying common stock with respect to which the Fund has
written options may exceed the time within which the Fund must make delivery in
accordance with an exercise notice. In these instances, a Fund may purchase or
temporarily borrow the underlying securities for purposes of physical delivery.
By so doing, the Fund will not bear any market risk, since the Fund will have
the absolute right to receive from the issuer of the underlying security an
equal number of shares to replace the borrowed securities, but the Fund may
incur additional transaction costs or interest expenses in connection with any
such purchase or borrowing.
Additional risks exist with respect to certain of the securities for
which a Fund may write covered call options. For example, if the Fund writes
covered call options on mortgage-backed securities, the mortgage-backed
securities that it holds as cover may, because of scheduled amortization or
unscheduled prepayments, cease to be sufficient cover. If this occurs, the Fund
will compensate for the decline in the value of the cover by purchasing an
appropriate additional amount of mortgage-backed securities.
6
Options written by a Fund will normally have expiration dates between
one and nine months from the date written. The exercise price of the options may
be below, equal to or above the market values of the underlying securities at
the times the options are written. In the case of call options, these exercise
prices are referred to as "in-the-money," "at-the-money" and "out-of-the-money,"
respectively. Each Fund that can write put and call options on securities may
write (i) in-the-money call options when the Adviser expects that the price of
the underlying security will remain flat or decline moderately during the option
period, (ii) at-the-money call options when the Adviser expects that the price
of the underlying security will remain flat or advance moderately during the
option period and (iii) out-of-the-money call options when the Adviser expects
that the premiums received from writing the call option plus the appreciation in
market price of the underlying security up to the exercise price will be greater
than the appreciation in the price of the underlying security alone. In any of
the preceding situations, if the market price of the underlying security
declines and the security is sold at this lower price, the amount of any
realized loss will be offset wholly or in part by the premium received.
Out-of-the-money, at-the-money and in-the-money put options (the reverse of call
options as to the relation of exercise price to market price) may be used in the
same market environments that such call options are used in equivalent
transactions. To secure its obligation to deliver the underlying security when
it writes a call option, each Fund will be required to deposit in escrow the
underlying security or other assets in accordance with the rules of the Options
Clearing Corporation (the "Clearing Corporation") and of the securities exchange
on which the option is written.
Prior to their expirations, put and call options may be sold in closing
sale or purchase transactions (sales or purchases by a Fund prior to the
exercise of options that it has purchased or written, respectively, of options
of the same series) in which a Fund may realize a profit or loss from the sale.
An option position may be closed out only where there exists a secondary market
for an option of the same series on a recognized securities exchange or in the
OTC market. When a Fund has purchased an option and engages in a closing sale
transaction, whether the Fund realizes a profit or loss will depend upon whether
the amount received in the closing sale transaction is more or less than the
premium the Fund initially paid for the original option plus the related
transaction costs. Similarly, in cases where a Fund has written an option, it
will realize a profit if the cost of the closing purchase transaction is less
than the premium received upon writing the original option and will incur a loss
if the cost of the closing purchase transaction exceeds the premium received
upon writing the original option. A Fund may engage in a closing purchase
transaction to realize a profit, to prevent an underlying security with respect
to which it has written an option from being called or put or, in the case of a
call option, to unfreeze an underlying security (thereby permitting its sale or
the writing of a new option on the security prior to the outstanding option's
expiration). The obligation of a Fund under an option it has written would be
terminated by a closing purchase transaction (the Fund would not be deemed to
own an option as a result of the transaction). So long as the obligation of a
Fund as the writer of an option continues, the Fund may be assigned an exercise
notice by the broker-dealer through which the option was sold, requiring the
Fund to deliver the underlying security against payment of the exercise price.
This obligation terminates when the option expires or the Fund effects a closing
purchase transaction. A Fund cannot effect a closing purchase transaction with
respect to an option once it has been assigned an exercise notice.
7
There is no assurance that sufficient trading interest will exist to
create a liquid secondary market on a securities exchange for any particular
option or at any particular time, and for some options, no such secondary market
may exist. A liquid secondary market in an option may cease to exist for a
variety of reasons. In the past, for example, higher than anticipated trading
activity or order flow or other unforeseen events have at times rendered certain
of the facilities of the Clearing Corporation and various securities exchanges
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be possible to
effect closing transactions in particular options. Moreover, a Fund's ability to
terminate options positions established in the OTC market may be more limited
than for exchange-traded options and may also involve the risk that securities
dealers participating in OTC transactions would fail to meet their obligations
to the Fund. The Funds, however, intend to purchase OTC options only from
dealers whose debt securities, as determined by the Adviser, are considered to
be investment grade. If, as a covered call option writer, a Fund is unable to
effect a closing purchase transaction in a secondary market, it will not be able
to sell the underlying security and would continue to be at market risk on the
security.
Securities exchanges generally have established limitations governing
the maximum number of calls and puts of each class which may be held or written,
or exercised within certain time periods by an investor or group of investors
acting in concert (regardless of whether the options are written on the same or
different securities exchanges or are held, written or exercised in one or more
accounts or through one or more brokers). It is possible that the Funds and
other clients of the Adviser and certain of its affiliates may be considered to
be such a group. A securities exchange may order the liquidation of positions
found to be in violation of these limits and it may impose certain other
sanctions. These limits may restrict the number of options the Funds will be
able to purchase on a particular security.
SECURITIES INDEX OPTIONS. A securities index measures the movement of
a certain group of securities by assigning relative values to the securities
included in the index, fluctuating with changes in the market values of the
securities included in the index. Some securities index options are based on a
broad market index, such as the NYSE Composite Index, or a narrower market index
such as the Standard & Poor's 100. Indexes may also be based on a particular
industry or market segment.
Options on securities indexes are similar to options on securities
except that (i) the expiration cycles of securities index options are monthly,
while those of securities options are currently quarterly, and (ii) the delivery
requirements are different. Instead of giving the right to take or make delivery
of securities at a specified price, an option on a securities index gives the
holder the right to receive a cash "exercise settlement amount" equal to (a) the
amount, if any, by which the fixed exercise price of the option exceeds (in the
case of a put) or is less than (in the case of a call) the closing value of the
underlying index on the date of exercise, multiplied by (b) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the securities index upon which the option is based being greater than, in the
case of a call, or less than, in the case of a put, the exercise price of the
index and the exercise price of the option times a specified multiple. The
writer of the option is obligated, in return for the premium received, to
8
make delivery of this amount. Securities index options may be offset by
entering into closing transactions as described above for securities options.
WHEN-ISSUED SECURITIES, DELAYED DELIVERY TRANSACTIONS AND FORWARD
COMMITMENTS. Each Fund may purchase securities on a when-issued basis or on a
forward commitment basis, and it may purchase or sell securities for delayed
delivery (I.E., payment or delivery occur beyond the normal settlement date at a
stated price and yield). When-issued securities and forward commitments will not
exceed 25% of a Fund's net assets. Each Fund uses when-issued purchases and
forward commitments only in furtherance of its investment objectives, nor for
speculative purposes.
In these transactions, payment for and delivery of the securities
occur beyond the regular settlement dates, normally within 30 to 45 days after
the transaction. The Funds will not enter into a when-issued or delayed-delivery
transaction for the purpose of leverage, but may sell the right to acquire a
when-issued security prior to its acquisition or dispose of its right to deliver
or receive securities in a delayed-delivery transaction before the settlement
date if the Adviser deems it advantageous to do so. The payment obligation and
the interest rate that will be received on when-issued and delayed-delivery
transactions are fixed at the time the buyer enters into the commitment. Due to
fluctuations in the value of securities purchased or sold on a when-issued or
delayed-delivery basis, the prices obtained on such securities may be higher or
lower than the prices available in the market on the dates when the investments
are actually delivered to the buyers.
Each Fund 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. A Fund may be
required subsequently to place additional assets in the segregated account in
order to ensure that the value of the account remains equal to the amount of the
Fund's commitment. It may be expected that a Fund's net assets will fluctuate to
a greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. When a Fund engages in when-issued or
delayed-delivery transactions, it relies on the other party to consummate the
trade. Failure of the seller to do so may result in the Funds' incurring a loss
or missing an opportunity to obtain a price considered to be advantageous.
STAND-BY COMMITMENT AGREEMENTS. Each Fund may from time to time enter
into stand-by commitment agreements in an amount up to 5% of its net assets.
Such agreements commit a Fund, for a stated period of time, to
purchase a stated amount of fixed income securities which may be issued and sold
to the Fund at the option of the issuer. The price and coupon of the security is
fixed at the time of the commitment. At the time of entering into the agreement,
a Fund is paid a commitment fee, regardless of whether or not the security is
ultimately issued. A Fund will enter into such agreements only for the purpose
of investing in the security underlying the commitment at a yield and price that
is considered advantageous to a Fund. Each Fund will not enter into a stand-by
commitment with a remaining term in excess of 45 days and it will limit its
investment in such commitments so that the aggregate purchase price of the
securities subject to such commitments, together with the value
9
of portfolio securities subject to legal restrictions on resale, will not exceed
10% of its assets taken at the time of acquisition of such commitment or
security.
Each Fund will at all times maintain a segregated account with its
custodian consisting of cash or liquid securities in an aggregate amount equal
to the purchase price of the securities underlying the commitment. The assets
contained in the segregated account will be marked-to-market daily and
additional assets will be placed in such account on any day in which assets fall
below the amount of the purchase price. A Fund's liquidity and ability to manage
its assets might be affected when it sets aside cash or portfolio securities to
cover such commitments.
There can be no assurance that the securities subject to a stand-by
commitment will be issued and the value of the security, if issued, on the
delivery date may be more or less than its purchase price. Because the issuance
of the security underlying the commitment is at the option of the issuer, a Fund
may bear the risk of a decline in the value of such security and may not benefit
from an appreciation in the value of the security during the commitment period.
The purchase of a security subject to a stand-by commitment agreement
and the related commitment fee will be recorded on the date on which the
security can reasonably be expected to be issued, and the value of the security
will be adjusted by the amount of the commitment fee. In the event the security
is not issued, the commitment fee will be recorded as income on the expiration
date of the stand-by commitment.
U.S. GOVERNMENT SECURITIES. The obligations issued or guaranteed by
the U.S. government in which a Fund may invest include direct obligations of the
U.S. Treasury and obligations issued by U.S. government agencies and
instrumentalities. Included among direct obligations of the 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 Funds may invest in include
securities issued or guaranteed by the Federal Housing Administration, Farmers
Home Loan Administration, Export-Import Bank of the United States, Small
Business Administration, General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Intermediate Credit Banks,
Federal Land Banks, Federal Maritime Administration, Tennessee Valley Authority,
District of Columbia Armory Board and Student Loan Marketing Association.
Because the U.S. government is not obligated by law to provide support to an
instrumentality it sponsors, a Fund will invest in obligations issued by such an
instrumentality
10
only if the Adviser determines that the credit risk with respect to the
instrumentality does not make its securities unsuitable for investment by the
Fund.
FOREIGN INVESTMENTS. Investors should recognize that investing in foreign
companies involves certain risks, including those discussed below, which are in
addition to those associated with investing in U.S. issuers. Individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, and balance of payments position. In
addition, foreign investments by the Funds are subject to the risk that natural
disasters (such as an earthquake) will weaken a country's economy and cause
investments in that country to lose money. Natural disaster risks are, of
course, not limited to foreign investments and may apply to a Fund's domestic
investments as well. The Funds 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.
For the purposes of this investment policy, foreign investments
include investments in companies located or conducting a majority of their
business outside of the U.S., companies which have issued securities traded
principally outside of the U.S., or non-U.S. governments, governmental entities
or political subdivisions.
FOREIGN DEBT SECURITIES. The returns on foreign debt securities
reflect interest rates and other market conditions prevailing in those countries
and the effect of gains and losses in the denominated currencies against the
U.S. dollar, which have had a substantial impact on investment in foreign
fixed-income securities. The relative performance of various countries'
fixed-income markets historically has reflected wide variations relating to the
unique characteristics of each country's economy. Year-to-year fluctuations in
certain markets have been significant, and negative returns have been
experienced in various markets from time to time.
The foreign government securities in which the Funds may invest
generally consist of obligations issued or backed by national, state or
provincial governments or similar political subdivisions or central banks in
foreign countries. Foreign government securities also include debt obligations
of supranational entities, which include international organizations designated
or backed by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples include the International Bank for Reconstruction and Development (the
"World Bank"), the European Coal and Steel Community, the Asian Development Bank
and the Inter-American 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 single currency for the Economic and Monetary Union member states. The euro
represents specified amounts of the currencies of
11
certain member states of the Economic and Monetary Union and was introduced on
January 1, 1999.
FOREIGN CURRENCY EXCHANGE. Since the Funds may invest in securities
denominated in currencies of non-U.S. countries, the Funds may be affected
favorably or unfavorably by exchange control regulations or changes in the
exchange rate between such currencies and the dollar. A change in the value of a
foreign currency relative to the U.S. dollar will result in a corresponding
change in the dollar value of the Fund assets denominated in that foreign
currency. Changes in foreign currency exchange rates may also affect the value
of dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by a Fund. Unless otherwise contracted, the rate of exchange
between the U.S. dollar and other currencies is determined by the forces of
supply and demand in the foreign exchange markets. Changes in the exchange rate
may result over time from the interaction of many factors directly or indirectly
affecting economic and political conditions in the United States and a
particular foreign country, including economic and political developments in
other countries. Governmental intervention may also play a significant role.
National governments rarely voluntarily allow their currencies to float freely
in response to economic forces. Sovereign governments use a variety of
techniques, such as intervention by a country's central bank or imposition of
regulatory controls or taxes, to affect the exchange rates of their currencies.
The Funds may use hedging techniques with the objective of protecting against
loss through the fluctuation of the value of a foreign currency 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 Funds
will not be registered with, nor will 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 Funds, 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 have been 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 Funds investing in
foreign securities can be expected to be higher than those of investment
companies investing exclusively in U.S. securities, since the expenses related
to investment in foreign securities, such as cost of converting foreign currency
into U.S. dollars, the payment of fixed brokerage commissions on
12
foreign exchanges, custodial costs, valuation costs and communication costs, as
well as the rate of the investment advisory fees for International Fund, though
similar to such expenses of 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.
DEPOSITORY RECEIPTS. The assets of each Fund may be invested in the
securities of foreign issuers in the form of American Depository Receipts
("ADRs"), European Depository Receipts ("EDRs") and International Depository
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 Depository Receipts ("CDRs"), are
receipts issued in Europe, and IDRs, which are sometimes referred to as Global
Depository 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. For purposes of the Funds' investment
policies, depository receipts generally are deemed to have the same
classification as the underlying securities they represent. Thus, a depository
receipt representing ownership of common stock will be treated as common stock.
ADRs are publicly traded on exchanges or over-the-counter in the
United States and are issued through "sponsored" or "unsponsored" arrangements.
In a sponsored ADR arrangement, the foreign issuer assumes the obligation to pay
some or all of the depository's transaction fees, whereas under an unsponsored
arrangement, the foreign issuer assumes no obligations and the depository's
transaction fees are paid directly by the ADR holders. In addition, less
information is available in the United States about an unsponsored ADR than
about a sponsored ADR.
BRADY BONDS. Each Fund may invest in so-called "Brady Bonds," which
are securities created through the exchange of existing commercial bank loans to
public and private entities for new bonds in connection with debt restructurings
under a debt restructuring plan announced by former U.S. Secretary of the
Treasury Nicholas F. Brady. 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.
EMERGING MARKETS. Each Fund 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 generally, 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. Other characteristics of emerging
markets that may
13
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 a Fund may have limited
legal recourse in the event of a default.
Sovereign debt differs from debt obligations issued by private
entities in that, generally, remedies for defaults must be pursued in the courts
of the defaulting party. Legal recourse is therefore somewhat limited. Political
conditions, especially a sovereign entity's willingness to meet the terms of its
debt obligations, are of considerable significance. Also, there can be no
assurance that the holders of commercial bank loans to the same sovereign entity
may not contest payments to the holders of sovereign debt in the event of
default under commercial bank loan agreements.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's policy
toward principal international lenders and the political constraints to which a
sovereign debtor may be subject. Increased protectionism on the part of a
country's trading partners, or political changes in those countries, could also
adversely affect its exports. Such events could diminish a country's trade
account surplus, if any, or the credit standing of a particular local government
or agency.
The occurrence of political, social or diplomatic changes in one or
more of the countries issuing sovereign debt could adversely affect a Fund's
investments. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their sovereign debt. While the Adviser intends to manage the Funds in a manner
that will minimize the exposure to such risks, there can be no assurance that
adverse political changes will not cause a Fund to suffer a loss of interest or
principal on any of its holdings.
Investors should also be aware that certain sovereign debt instruments
in which a Fund may invest involve great risk. Sovereign debt issued by issuers
in many emerging markets generally is deemed to be the equivalent in terms of
quality to securities rated below investment grade by Moody's Investors Service,
Inc. ("Moody's") and Standard & Poor's Ratings Services ("S&P"). Such securities
are regarded as predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal in accordance with the terms of the
obligations and involve major risk exposure to adverse conditions. Some of such
sovereign debt, which may not be paying interest currently or may be in payment
default, may be comparable to securities rated "D" by S&P or "C" by Moody's. A
Fund may have difficulty disposing of certain sovereign debt
14
obligations because there may be a limited trading market for such securities.
The Funds anticipate that such securities could be sold only to a limited number
of dealers or institutional investors. The lack of a liquid secondary market may
have an adverse impact on the market price of such securities and a Fund's
ability to dispose of particular issues when necessary to meet a Fund's
liquidity needs or in response to a specific economic event, such as a
deterioration in the creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities also may make it more difficult for a
Fund to obtain accurate market quotations for purposes of valuing a Fund's
portfolio and calculating its net asset value.
CONVERTIBLE SECURITIES. Convertible securities in which a Fund may
invest, including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. The value of convertible securities fluctuates in relation to
changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock. Subsequent to purchase by a Fund, convertible
securities may cease to be rated or a rating may be reduced below the minimum
required for purchase by the Fund. Neither event will require sale of such
securities, although the Adviser will consider such event in its determination
of whether a Fund should continue to hold the securities.
DEBT SECURITIES. Each Fund may invest in investment grade debt
securities (other than money market obligations) for the purpose of seeking
capital appreciation. Any percentage limitation on a Fund's ability to invest in
debt securities will not be applicable during periods when the Fund pursues a
temporary defensive strategy as discussed above under "Temporary Investments."
Each Fund may invest to a limited extent in zero coupon securities and
government zero coupon securities. See "Additional Information Concerning Taxes"
for a discussion of the tax consequences to shareholders of a Fund that invests
in zero coupon securities.
The interest income to be derived may be considered by the Adviser as
one factor in selecting debt securities for investment. Because the market value
of debt obligations can be expected to vary inversely to changes in prevailing
interest rates, investing in debt obligations may provide an opportunity for
capital appreciation when interest rates are expected to decline. The success of
such a strategy is dependent upon the Adviser's ability to forecast accurately
changes in interest rates. The market value of debt obligations may also be
expected to vary depending upon, among other factors, the ability of the issuer
to repay principal and interest, any change in investment rating and general
economic conditions.
Moody's and S&P are private services that provide ratings of the
credit quality of debt securities and certain other securities. A description of
the ratings assigned to corporate bonds by Moody's and S&P is included in
Appendix A to this Statement of Additional Information.
Credit ratings attempt to evaluate the safety of principal and
interest payments, but they do not evaluate the volatility of a debt security's
value or its liquidity and do not
15
guarantee the performance of the issuer. Rating agencies may fail to make timely
changes in credit ratings in response to subsequent events, so that an issuer's
current financial condition may be better or worse than the rating indicates.
There is a risk that rating agencies may downgrade a debt security's rating.
Subsequent to a security's purchase by a Fund, it may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by the
Fund. Neither event will require the sale of such securities, although the
adviser will consider such event in its determination of whether the Fund should
continue to hold the security. The adviser may use these ratings in determining
whether to purchase, sell or hold a security. It should be emphasized, however,
that ratings are general and are not absolute standards of quality.
Consequently, bonds with the same maturity, interest rate and rating may have
different market prices.
Investment grade bonds are rated in one of the four highest rating
categories by Moody's or S&P, or if unrated, is determined by the Adviser to be
of comparable quality. Moody's considers debt securities rated Baa (its lowest
investment grade rating) to have speculative characteristics. This means that
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 for
higher rated bonds.
BELOW INVESTMENT GRADE SECURITIES. The Funds may invest in below
investment grade securities. The High Yield Fund may invest without limit in
bonds rated below investment grades and unrated securities deemed by the Adviser
to be of equivalent quality.
Below investment grade debt securities may be rated as low as C by
Moody's or D by S&P, or be deemed by the Adviser to be of equivalent quality.
Securities that are rated C by Moody's are the lowest rated class and can be
regarded as having extremely poor prospects of ever attaining any real
investment standing. A security rated D by S&P is in default or is expected to
default upon maturity or payment date. Investors should be aware that ratings
are relative and subjective and are not absolute standards of quality.
Below investment grade securities (commonly referred to as "junk
bonds") (i) will likely have some quality and protective characteristics that,
in the judgment of the rating organizations, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (ii) are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. The market
values of certain of these securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
investment grade securities. In addition, these securities generally present a
higher degree of credit risk. The risk of loss due to default is significantly
greater because these securities generally are unsecured and frequently are
subordinated to the prior payment of senior indebtedness. 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.
An economic recession could disrupt severely the market for medium-
and lower-rated 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. To the extent a secondary trading
16
market for these securities does exist, it generally is not as liquid as the
secondary market for higher-rated securities. The lack of a liquid secondary
market, as well as adverse publicity and investor perception with respect to
these securities, may have an adverse impact on market price and a Fund's
ability to dispose of particular issues when necessary to meet the Fund's
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities also may make it more difficult for a
Fund to obtain accurate market quotations for purposes of valuing the Fund and
calculating its net asset value.
The market value of securities in medium- and lower-rated categories
is also more volatile than that of higher quality securities. Factors adversely
impacting the market value of these securities will adversely impact a Fund's
net asset value. A Fund will rely on the judgment, analysis and experience of
the Adviser in evaluating the creditworthiness of an issuer. In this evaluation,
in addition to relying on ratings assigned by Moody's or S&P, the Adviser will
take into consideration, among other things, the issuer's financial resources,
its sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters. Interest rate trends
and specific developments which may affect individual issuers will also be
analyzed. Subsequent to its purchase by a Fund, an issue of securities may cease
to be rated or its rating may be reduced. Neither event will require sale of
such securities, although the Adviser will consider such event in its
determination of whether a Fund should continue to hold the securities. A Fund
may incur additional expenses to the extent it is required to seek recovery upon
a default in the payment of principal or interest on its portfolio holdings of
such securities. At times, adverse publicity regarding lower-rated securities
has depressed the prices for such securities to some extent.
MORTGAGE-BACKED SECURITIES. Each Fund may invest in mortgage-backed
securities but International Fund and High Yield Fund may invest in
mortgage-backed securities only to a limited extent. The Funds may invest in
mortgage-backed securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities (including those issued by GNMA, FNMA and FHLMC)
and non-government issued mortgage-backed securities. Mortgage-backed securities
represent direct or indirect participations in, or are secured by and payable
from, mortgage loans secured by real property. 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. The mortgages backing these securities include, among other
mortgage instruments, conventional 30-year fixed-rate mortgages, 15-year
fixed-rate mortgages, graduated payment mortgages and adjustable rate mortgages.
Although there may be government or private guarantees on the payment of
interest and principal of these securities, the guarantees do not extend to the
securities' yield or value, which are likely to vary inversely with fluctuations
in interest rates, nor do the guarantees extend to the yield or value of the
Fund's shares. 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
17
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. In the past, a common industry practice was
to assume that prepayment on a pool of fixed rate 30-year mortgages would result
in a 12-year average life for the pool. At present, mortgage 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 a Fund'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.
ASSET-BACKED SECURITIES. Each Fund may invest in asset-backed
securities. Asset-backed securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities include those issued by the Student Loan
Marketing Association. Asset-backed securities represent participations in, or
are secured by and payable from, assets such as motor vehicle installment sales,
installment loan contracts, leases of various types of real and personal
property and receivables from revolving credit (credit card) agreements. Such
assets are securitized through the use of trusts and special purpose
corporations. Payments or distributions of principal and interest may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution unaffiliated
with the trust or corporation. In certain circumstances, asset-backed securities
may be considered illiquid securities subject to the percentage limitations
described herein. Asset-backed securities are considered an industry for
industry concentration purposes, and the Fixed Income and High Yield Funds will
therefore not purchase any asset-backed securities which would cause 25% or more
of such Fund's net assets at the time of purchase to be invested in asset-backed
securities. International Fund may invest in such securities to a limited
extent.
18
Asset-backed securities present certain risks that are not presented
by other securities in which the Funds 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. A Fund may purchase asset-backed securities that
are unrated.
LOAN PARTICIPATIONS AND ASSIGNMENTS. Each Fund may invest in fixed and
floating rate loans ("Loans") arranged through private negotiations between a
borrowing corporation, government or other entity (a "Borrower") and one or more
financial institutions ("Lenders"). The majority of each Fund's investments in
Loans are expected to be in the form of participations in Loans
("Participations") and assignments of portions of Loans from third parties
("Assignments"). Each Fund will not invest more than 5% of its net assets in
Loan Participations and Assignments.
Participations typically will result in the Fund's having a
contractual relationship only with the Lender, not with the Borrower. The Fund
will have the right to receive payments of principal, interest and any fees to
which it is entitled only from the Lender selling the Participation and only
upon receipt by the Lender of the payments from the Borrower. In connection with
purchasing Participations, the Fund generally will have no right to enforce
compliance by the Borrower with the terms of the loan agreement relating to the
Loan, nor any rights of set-off against the Borrower, and the Fund may not
directly benefit from any collateral supporting the Loan in which it has
purchased the Participation. As a result, the Fund will assume the credit risk
of both the Borrower and the Lender that is selling the Participation. In the
event of the insolvency of the Lender selling a Participation, the Fund may be
treated as a general creditor of the Lender and may not benefit from any set-off
between the Lender and the Borrower. The Fund will acquire Participations only
if the Lender interpositioned between the Fund and the Borrower is determined by
the Adviser to be creditworthy.
STRUCTURED NOTES, BONDS OR DEBENTURES. Typically, the value of the
principal and/or interest on these instruments is determined by reference to
changes in the value of specific currencies, interest rates, commodities,
indexes or other financial indicators (the "Reference") or the relevant change
in two or more References. The interest rate or the principal amount payable
upon maturity or redemption may be increased or decreased depending upon changes
in the applicable Reference. The terms of the structured securities may provide
that in certain circumstances no principal is due at maturity and, therefore,
may result in the loss of a Fund's entire investment. The value of structured
securities may move in the same or the opposite direction as the value of the
Reference, so that appreciation of the Reference may produce an
19
increase or decrease in the interest rate or value of the security at maturity.
In addition, the change in interest rate or the value of the security at
maturity may be a multiple of the change in the value of the Reference so that
the security may be more or less volatile than the Reference, depending on the
multiple. Consequently, structured securities may entail a greater degree of
market risk and volatility than other types of debt obligations.
COLLATERALIZED MORTGAGE OBLIGATIONS. The Funds may purchase
collateralized mortgage obligations ("CMOs") issued by FHLMC, FNMA or other
agencies of the U.S. Government or instrumentalities established or sponsored by
the U.S. Government.
CMOs are debt obligations that are collateralized by mortgage loans or
mortgage pass-through securities (collectively "Mortgage Assets"). Payments of
principal of, and interest on, the Mortgage Assets (and in the case of CMOs, any
reinvestment income thereon) provide the funds to pay the debt service on the
CMOs.
In a CMO, a series of bonds or certificates is issued in multiple
classes. Each class of CMO, also referred to as a "tranche," is issued at a
specific fixed or floating coupon rate and has a stated maturity or final
distribution date. The principal and interest on the Mortgage Assets may be
allocated among the several classes of a CMO in many ways. In one structure,
payments of principal, including any principal prepayments, on the Mortgage
Assets are applied to the classes of a CMO in the order of their respective
stated maturities or final distribution dates so that no payment of principal
will be made on any class of the CMO until all other classes having an earlier
stated maturity or final distribution date have been paid in full. In some CMO
structures, all or a portion of the interest attributable to one or more of the
CMO classes may be added to the principal amounts attributable to such classes,
rather than passed through to certificateholders on a current basis, until other
classes of the CMO are paid in full.
Certain classes of CMOs are structured in a manner that makes them
extremely sensitive to changes in prepayment rates. Interest only ("IO") and
principal only ("PO") classes are examples of this. IOs are entitled to receive
all or a portion of the interest, but none (or only a nominal amount) of the
principal payments, from the underlying mortgage assets. If the mortgage assets
underlying an IO experience greater than anticipated principal prepayments, then
the total amount of interest payments allocable to the IO class, and therefore
the yield to investors, generally will be reduced. In some instances, an
investor in an IO may fail to recoup all of his or her initial investment, even
if the security is government issued or guaranteed. Conversely, PO classes are
entitled to receive all or a portion of the principal payments, but none of the
interest, from the underlying mortgage assets. PO classes are purchased at
substantial discounts from par, and the yield to investors will be reduced if
principal payments are slower than expected. Some IOs and POs, as well as other
CMO classes, are structured to have special protections against the effects of
prepayments. These structural protections, however, normally are effective only
within certain ranges of prepayment rates and thus will not protect investors in
all circumstances. Inverse floating rate CMO classes also may be extremely
volatile. These classes pay interest at a rate that decreases when a specified
index of market rates increases and vice versa.
Parallel pay CMOs are structured to provide payments of principal on
each payment date to more than one class. These simultaneous payments are taken
into account in
20
calculating the stated maturity date or final distribution date of each class,
which, as with other CMO structures, must be retired by its stated maturity date
or final distribution date but may be retired earlier.
Some CMO classes are structured to pay interest at rates that are
adjusted in accordance with a formula, such as a multiple or fraction of the
change in a specified interest rate index, so as to pay at a rate that will be
attractive in certain interest rate environments but not in others. For example,
an inverse floating rate CMO class pays interest at a rate that increases as a
specified interest rate index decreases but decreases as that index increases.
For other CMO classes, the yield may move in the same direction as market
interest rates-- i.e., the yield may increase as rates increase and decrease as
rates decrease--but may do so more rapidly or to a greater degree. The market
value of such securities generally is more volatile than that of a fixed rate
obligation. Such interest rate formulas may be combined with other CMO
characteristics. For example, a CMO class may be an inverse IO class, on which
the holders are entitled to receive no payments of principal and are entitled to
receive interest at a rate that will vary inversely with a specified index or a
multiple thereof.
ZERO COUPON SECURITIES. Each Fund 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. Zero coupon securities will not exceed 5%
of each Fund's 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. 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.
FUTURES ACTIVITIES. Each Fund may enter into futures contracts (and
related options) on securities, securities indices, foreign currencies and
interest rates, and purchase and write (sell) related options traded on
exchanges designated by the Commodity Futures Trading Commission (the "CFTC") or
consistent with CFTC regulations, on foreign exchanges. These futures contracts
are standardized contracts for the future delivery of a non-U.S. currency, an
interest rate-sensitive security or, in the case of index futures contracts or
certain other futures contracts, a cash settlement with reference to a specified
multiplier times the change in the index. An option on a futures contract gives
the purchaser the right, in return for the premium paid, to assume a position in
a futures contract.
These transactions may be entered into for "bona fide hedging"
purposes as defined in CFTC regulations and other permissible purposes,
including hedging against changes in the value of portfolio securities due to
anticipated changes in currency values, interest rates and/or market conditions
as well as for the purpose of increasing total return, which may involve
speculation. Aggregate initial margin and premiums (discussed below) required to
establish positions other than those considered to be "bona fide hedging" by the
CFTC will not exceed 5%
21
of a Fund's net asset value after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into. Each Fund reserves
the right to engage in transactions involving futures contracts and options on
futures contracts to the extent allowed by CFTC regulations in effect from time
to time and in accordance with the Fund's policies. There is no overall limit on
the percentage of Fund assets that may be at risk with respect to futures
activities.
FUTURES CONTRACTS. A foreign currency futures contract provides for
the future sale by one party and the purchase by the other party of a certain
amount of a specified non-U.S. currency at a specified price, date, time and
place. An interest rate futures contract provides for the future sale by one
party and the purchase by the other party of a certain amount of a specific
interest rate-sensitive financial instrument (debt security) at a specified
price, date, time and place. Securities indexes are capitalization-weighted
indexes which reflect the market value of the securities represented in the
indexes. A securities index futures contract is an agreement to be settled by
delivery of an amount of cash equal to a specified multiplier times the
difference between the value of the index at the close of the last trading day
on the contract and the price at which the agreement is made.
No consideration is paid or received by a Fund upon entering into a
futures contract. Instead, the Fund is required to deposit in a segregated
account with its custodian an amount of cash or liquid securities acceptable to
the broker, equal to approximately 1% to 10% of the contract amount (this amount
is subject to change by the exchange on which the contract is traded, and
brokers may charge a higher amount). This amount is known as "initial margin"
and is in the nature of a performance bond or good faith deposit on the contract
which is returned to the Fund upon termination of the futures contract, assuming
all contractual obligations have been satisfied. The broker will have access to
amounts in the margin account if the Fund fails to meet its contractual
obligations. Subsequent payments, known as "variation margin," to and from the
broker, will be made daily as the currency, financial instrument or securities
index underlying the futures contract fluctuates, making the long and short
positions in the futures contract more or less valuable, a process known as
"marking-to-market." A Fund will also incur brokerage costs in connection with
entering into futures transactions.
At any time prior to the expiration of a futures contract, a Fund may
elect to close the position by taking an opposite position, which will operate
to terminate the Fund's existing position in the contract. Positions in futures
contracts and options on futures contracts (described below) may be closed out
only on the exchange on which they were entered into (or through a linked
exchange). No secondary market for such contracts exists. Although each Fund may
enter into futures contracts only if there is an active market for such
contracts, there is no assurance that an active market will exist at any
particular time. Most futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit or trading may be suspended for specified periods
during the day. It is possible that futures contract prices could move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions at an advantageous
price and subjecting the Fund to substantial losses. In such event, and in the
event of adverse price movements, the Fund would be required to make daily cash
payments of variation margin. In such situations, if a Fund had insufficient
cash, it might have to sell
22
securities to meet daily variation margin requirements at a time when it would
be disadvantageous to do so. In addition, if the transaction is entered into for
hedging purposes, in such circumstances the Fund may realize a loss on a futures
contract or option that is not offset by an increase in the value of the hedged
position. Losses incurred in futures transactions and the costs of these
transactions will affect a Fund's performance.
OPTIONS ON FUTURES CONTRACTS. Each Fund may purchase and write put and
call options on foreign currency, interest rate and stock index futures
contracts and may enter into closing transactions with respect to such options
to terminate existing positions. There is no guarantee that such closing
transactions can be effected; the ability to establish and close out positions
on such options will be subject to the existence of a liquid market.
An option on a currency, interest rate or securities index futures
contract, as contrasted with the direct investment in such a contract, gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract at a specified exercise price at any time prior to the
expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Upon exercise of
an option, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on a
futures contract is limited to the premium paid for the option (plus transaction
costs). Because the value of the option is fixed at the point of sale, there are
no daily cash payments by the purchaser to reflect changes in the value of the
underlying contract; however, the value of the option does change daily and that
change would be reflected in the net asset value of each Fund.
CURRENCY EXCHANGE TRANSACTIONS. The value in U.S. dollars of the
assets of the Funds that are invested in foreign securities may be affected
favorably or unfavorably by a variety of factors not applicable to investment in
U.S. securities, and the Funds may incur costs in connection with conversion
between various currencies. Currency exchange transactions may be from any
non-U.S. currency into U.S. dollars or into other appropriate currencies. Each
Fund will conduct its currency exchange transactions (i) on a spot (I.E., cash)
basis at the rate prevailing in the currency exchange market, (ii) through
entering into futures contracts or options on such contracts (as described
above), (iii) through entering into forward contracts to purchase or sell
currency or (iv) by purchasing exchange-traded currency options.
FORWARD CURRENCY CONTRACTS. Each Fund may use forward currency
contracts to protect against uncertainty in the level of future exchange rates
and to enhance total return. Each Fund will not invest more than 50% of its
total assets in such contracts for the purpose of enhancing total return. There
is no limit on the amount of assets that a Fund may invest in such transactions
for hedging purposes.
The Funds may also enter into forward currency contracts with respect
to specific transactions. For example, when a Fund anticipates the receipt in a
foreign currency of interest payments on a security that it holds, a Fund may
desire to "lock-in" the U.S. dollar price of the
23
security or the U.S. dollar equivalent of such payment, as the case may be, by
entering into a forward contract for the purchase or sale, for a fixed amount of
U.S. dollars, of the amount of foreign currency involved in the underlying
transaction. A Fund will thereby be able to protect itself against a possible
loss resulting from an adverse change in the relationship between the currency
exchange rates during the period between the date on which the security is
purchased or sold, or on which the payment is declared, and the date on which
such payments are made or received.
A forward currency contract involves an obligation to purchase or sell
a specific currency at a future date, which may be any fixed number of days from
the date of the contract as agreed upon by the parties, at a price set at the
time of the contract. These contracts are entered into in the interbank market
conducted directly between currency traders (usually large commercial banks and
brokers) and their customers. Forward currency contracts are similar to currency
futures contracts, except that futures contracts are traded on commodities
exchanges and are standardized as to contract size and delivery date.
At or before the maturity of a forward contract, a Fund may either
sell a portfolio security and make delivery of the currency, or retain the
security and fully or partially offset its contractual obligation to deliver the
currency by negotiating with its trading partner to enter into an offsetting
transaction. If a Fund retains the portfolio security and engages in an
offsetting transaction, the Fund, at the time of execution of the offsetting
transaction, will incur a gain or a loss to the extent that movement has
occurred in forward contract prices.
CURRENCY OPTIONS. The Funds may purchase exchange-traded put and call
options on foreign currencies. Put options convey the right to sell the
underlying currency at a price which is anticipated to be higher than the spot
price of the currency at the time the option is exercised. Call options convey
the right to buy the underlying currency at a price which is expected to be
lower than the spot price of the currency at the time the option is exercised.
CURRENCY HEDGING. Each Fund's currency hedging will be limited to
hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward currency with respect to
specific receivables or payables of a Fund generally accruing in connection with
the purchase or sale of its portfolio securities. Position hedging is the sale
of forward currency with respect to portfolio security positions. No Fund may
position hedge to an extent greater than the aggregate market value (at the time
of entering into the hedge) of the hedged securities.
A decline in the U.S. dollar value of a foreign currency in which a
Fund's securities are denominated will reduce the U.S. dollar value of the
securities, even if their value in the foreign currency remains constant. The
use of currency hedges does not eliminate fluctuations in the underlying prices
of the securities, but it does establish a rate of exchange that can be achieved
in the future. For example, in order to protect against diminutions in the U.S.
dollar value of non-dollar denominated securities it holds, a Fund may purchase
foreign currency put options. If the value of the foreign currency does decline,
the Fund will have the right to sell the currency for a fixed amount in dollars
and will thereby offset, in whole or in part, the adverse effect on the U.S.
dollar value of its securities that otherwise would have resulted. Conversely,
if a rise in the U.S. dollar value of a currency in which securities to be
acquired are denominated is
24
projected, thereby potentially increasing the cost of the securities, the Fund
may purchase call options on the particular currency. The purchase of these
options could offset, at least partially, the effects of the adverse movements
in exchange rates. The benefit to a Fund derived from purchases of currency
options, like the benefit derived from other types of options, will be reduced
by premiums and other transaction costs. Because transactions in currency
exchange are generally conducted on a principal basis, no fees or commissions
are generally involved. Currency hedging involves some of the same risks and
considerations as other transactions with similar instruments. Although currency
hedges limit the risk of loss due to a decline in the value of a hedged
currency, at the same time they also limit any potential gain that might result
should the value of the currency increase. If a devaluation is generally
anticipated, a Fund may not be able to contract to sell a currency at a price
above the devaluation level it anticipates.
While the values of currency futures and options on futures, forward
currency contracts and currency options may be expected to correlate with
exchange rates, they will not reflect other factors that may affect the value of
a Fund's investments and a currency hedge may not be entirely successful in
mitigating changes in the value of the Fund's investments denominated in that
currency. A currency hedge, for example, should protect a non-dollar denominated
bond against a decline in the non-dollar currency, but will not protect the Fund
against a price decline if the issuer's creditworthiness deteriorates.
HEDGING GENERALLY. In addition to entering into options, futures and
currency exchange transactions for other purposes, including generating current
income to offset expenses or increase return, each Fund may enter into these
transactions as hedges to reduce investment risk, generally by making an
investment expected to move in the opposite direction of a portfolio position. A
hedge is designed to offset a loss in a portfolio position with a gain in the
hedged position; at the same time, however, a properly correlated hedge will
result in a gain in the portfolio position being offset by a loss in the hedged
position. As a result, the use of options, futures, contracts and currency
exchange transactions for hedging purposes could limit any potential gain from
an increase in the value of the position hedged. In addition, the movement in
the portfolio position hedged may not be of the same magnitude as movement in
the hedge. With respect to futures contracts, since the value of portfolio
securities will far exceed the value of the futures contracts sold by a Fund, an
increase in the value of the futures contracts could only mitigate, but not
totally offset, the decline in the value of the Fund's assets.
In hedging transactions based on an index, whether a Fund will realize
a gain or loss depends upon movements in the level of securities prices in the
stock market generally or, in the case of certain indexes, in an industry or
market segment, rather than movements in the price of a particular security. The
risk of imperfect correlation increases as the composition of a Fund's portfolio
varies from the composition of the index. In an effort to compensate for
imperfect correlation of relative movements in the hedged position and the
hedge, a Fund's hedge positions may be in a greater or lesser dollar amount than
the dollar amount of the hedged position. Such "over hedging" or "under hedging"
may adversely affect the Fund's net investment results if market movements are
not as anticipated when the hedge is established. Securities index futures
transactions may be subject to additional correlation risks. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions which
would distort the normal relationship between the
25
securities index and futures markets. Secondly, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market also may cause temporary
price distortions. Because of the possibility of price distortions in the
futures market and the imperfect correlation between movements in the securities
index and movements in the price of securities index futures, a correct forecast
of general market trends by the Adviser still may not result in a successful
hedging transaction.
Each Fund will engage in hedging transactions only when deemed
advisable by the Adviser, and successful use by the Funds of hedging
transactions will be subject to the Adviser's ability to predict trends in
currency, interest rate or securities markets, as the case may be, and to
predict correctly movements in the directions of the hedge and the hedged
position and the correlation between them, which predictions could prove to be
inaccurate. This requires different skills and techniques than predicting
changes in the price of individual securities, and there can be no assurance
that the use of these strategies will be successful. Even a well-conceived hedge
may be unsuccessful to some degree because of unexpected market behavior or
trends. Losses incurred in hedging transactions and the costs of these
transactions will affect a Fund's performance.
To the extent that a Fund engages in the strategies described above,
the Fund may experience losses greater than if these strategies had not been
utilized. In addition to the risks described above, these instruments may be
illiquid and/or subject to trading limits, and the Funds may be unable to close
out a position without incurring substantial losses, if at all. The Funds are
also subject to the risk of a default by a counterparty to an off-exchange
transaction.
ASSET COVERAGE FOR FORWARD CONTRACTS, OPTIONS, FUTURES AND OPTIONS ON
FUTURES. The Funds will comply with guidelines established by the SEC and other
applicable regulatory bodies with respect to coverage of forward currency
contracts, options written by a Fund on securities and indexes; and currency,
interest rate and security index futures contracts and options on these futures
contracts. These guidelines may, in certain instances, require segregation by a
Fund of cash or liquid securities with its custodian or a designated
sub-custodian to the extent the Fund's obligations with respect to these
strategies are not otherwise "covered" through ownership of the underlying
security or financial instrument or by other portfolio positions or by other
means consistent with applicable regulatory policies. Segregated assets cannot
be sold or transferred unless equivalent assets are substituted in their place
or it is no longer necessary to segregate them. As a result, there is a
possibility that segregation of a large percentage of the Fund's assets could
impede portfolio management or the Fund's ability to meet redemption requests or
other current obligations.
For example, a call option written by a Fund on securities may require
the Fund to hold the securities subject to the call (or securities convertible
into the securities without additional consideration) or to segregate assets (as
described above) sufficient to purchase and deliver the securities if the call
is exercised. A call option written by a Fund on an index may require the Fund
to own portfolio securities that correlate with the index or to segregate assets
(as described above) equal to the excess of the index value over the exercise
price on a current basis. A put option written by a Fund may require the Fund to
segregate assets (as described above) equal to the exercise price. A Fund could
purchase a put option if the strike price of that option
26
is the same or higher than the strike price of a put option sold by the Fund. If
a Fund holds a futures or forward contract, the Fund could purchase a put option
on the same futures or forward contract with a strike price as high or higher
than the price of the contract held. A Fund may enter into fully or partially
offsetting transactions so that its net position, coupled with any segregated
assets (equal to any remaining obligation), equals its net obligation. Asset
coverage may be achieved by other means when consistent with applicable
regulatory policies.
SHORT SALES. Each Fund may from time to time sell securities short. A
short sale is a transaction in which a Fund sells securities it does not own in
anticipation of a decline in the market price of the securities. The current
market value of the securities sold short (excluding short sales "against the
box") will not exceed 5% of each Fund's total assets.
To deliver the securities to the buyer, the Fund must arrange through
a broker to borrow the securities and, in so doing, the Fund becomes obligated
to replace the securities borrowed at their market price at the time of
replacement, whatever that price may be. The Fund will make a profit or incur a
loss as a result of a short sale depending on whether the price of the
securities decreases or increases between the date of the short sale and the
date on which the Fund purchases the security to replace the borrowed securities
that have been sold. The amount of any loss would be increased (and any gain
decreased) by any premium or interest the Fund is required to pay in connection
with a short sale.
Each Fund's obligation to replace the securities borrowed in
connection with a short sale will be secured by cash or liquid securities
deposited as collateral with the broker. In addition, the Fund will place in a
segregated account with its custodian or a qualified subcustodian an amount of
cash or liquid securities equal to the difference, if any, between (i) the
market value of the securities sold at the time they were sold short and (ii)
any cash or liquid securities deposited as collateral with the broker in
connection with the short sale (not including the proceeds of the short sale).
Until it replaces the borrowed securities, the Fund will maintain the segregated
account daily at a level so that (a) the amount deposited in the account plus
the amount deposited with the broker (not including the proceeds from the short
sale) will equal the current market value of the securities sold short and (b)
the amount deposited in the account plus the amount deposited with the broker
(not including the proceeds from the short sale) will not be less than the
market value of the securities at the time they were sold short.
SHORT SALES "AGAINST THE BOX." In a short sale, a Fund sells a
borrowed security and has a corresponding obligation to the lender to return the
identical security. The seller does not immediately deliver the securities sold
and is said to have a short position in those securities until delivery occurs.
A Fund may engage in a short sale if at the time of the short sale the Fund owns
or has the rights to obtain without additional cost an equal amount of the
security being sold short. This investment technique is known as a short sale
"against the box". It may be entered into by a Fund, for example, to lock in a
sale price for a security the Fund does not wish to sell immediately. If a Fund
engages in a short sale, the collateral for the short position will be
maintained by the Fund's custodian or qualified sub-custodian. While the short
sale is open, the Fund will maintain in a segregated account an amount of
securities equal in value to the securities sold short or securities convertible
into or exchangeable for such equivalent securities. These securities constitute
the Fund's long position.
27
A Fund 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 Fund (or a security convertible or exchangeable for such security).
In such case, any future losses in a Fund's long position should be offset by a
gain in the short position and, conversely, any gain in the long position should
be reduced by a loss in the short position. The extent to which such gains or
losses are reduced will depend upon the amount of the security sold short
relative to the amount a Fund owns. There will be certain additional
transactions costs associated with short sales against the box, but a Fund will
endeavor to offset these costs with the income from the investment of the cash
proceeds of short sales.
If a Fund effects a short sale of securities at a time when it has an
unrealized gain on the securities, it may be required to recognize that gain as
if it had actually sold the securities (as a "constructive sale") on the date it
effects the short sale. However, such constructive sale treatment may not apply
if a Fund closes out the short sale with securities other than the appreciated
securities held at the time of the short sale and if certain other conditions
are satisfied. Uncertainty regarding the tax consequences of effecting short
sales may limit the extent to which a Fund may effect short sales.
Each Fund will not invest more than 5% of its 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 Funds, 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.
RIGHTS OFFERINGS 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 a Fund could lose the purchase value of a right or warrant if the
right to subscribe to additional shares is not executed prior to the expiration
of the rights and warrants. Also, the purchase of rights or warrants involves
the risk that the effective price paid for the rights or warrants in addition to
the subscription price of the related security may exceed the value of the
subscribed security's market price if, for instance, when there is no movement
in the level of the underlying security.
MUNICIPAL OBLIGATIONS. Each Fund may invest to a limited extent in
"Municipal Obligations." Municipal Obligations are debt obligations issued by or
on behalf of states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies and
instrumentalities.
28
Municipal Obligations are issued by governmental entities to obtain
funds for various public purposes, including the construction of a wide range of
public facilities, the refunding of outstanding obligations, the payment of
general operating expenses and the extension of loans to public institutions and
facilities. Private activity bonds that are issued by or on behalf of public
authorities to finance various privately-operated facilities are included within
the term Municipal Obligations if the interest paid thereon is exempt from
federal income tax.
The two principal types of Municipal Obligations, in terms of the
source of payment of debt service on the bonds, consist of "general obligation"
and "revenue" issues. General obligation bonds are secured by the issuer's
pledge of its full faith, credit and taxing power for the payment of principal
and interest. Revenue bonds are payable from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source such as the user of the
facility being financed. Consequently, the credit quality of revenue bonds is
usually directly related to the credit standing of the user of the facility
involved.
There are, of course, variations in the quality of Municipal
Obligations, both within a particular classification and between
classifications, and the yields on Municipal Obligations depend upon a variety
of factors, including general money market conditions, the financial condition
of the issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation and the rating of the issue.
See Appendix A for further information concerning the ratings of Moody's and S&P
and their significance.
Among other instruments, the Funds may purchase short-term Tax
Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation Notes and
other forms of short-term loans. Such notes are issued with a short-term
maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues.
Municipal Obligations are also subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or upon the ability of municipalities to levy taxes. There
is also the possibility that as a result of litigation or other conditions, the
power or ability of any one or more issuers to pay, when due, principal of and
interest on its, or their, Municipal Obligations may be materially affected.
INVESTMENT RESTRICTIONS
The following investment limitations of each Fund may not be changed
without the affirmative vote of the holders of a majority of that Fund's
outstanding shares ("Fundamental Restrictions"). Such majority is defined as the
lesser of (i) 67% or more of the shares present at the meeting, if the holders
of more than 50% of the outstanding shares of the Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding shares.
29
If a percentage restriction (other than the percentage limitation set
forth in No. 1 of each of the Funds) is adhered to at the time of an investment,
a later increase or decrease in the percentage of assets resulting from a change
in the values of portfolio securities or in the amount of a Fund's assets will
not constitute a violation of such restriction.
Each Fund 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 Fund; 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 Fund'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 a Fund 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 a
Fund may deal in forward foreign exchange transactions between currencies
of the different countries in which it may invest and purchase and sell
stock index and currency options, stock index futures, financial futures
and currency futures contracts and related options on such futures;
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. Purchase any securities, which would cause 25% or more of the value
of the Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation
with respect to (i) instruments issued or guaranteed by the United States,
any state, territory or possession of the United States, the District of
Columbia or any of their authorities, agencies, instrumentalities or
political subdivisions, and (ii) repurchase agreements secured by the
instruments described in clause (i); (b) wholly-owned finance companies
will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the
parents; and (c) utilities will be divided according to their services; for
example, gas, gas
30
transmission, electric and gas, electric and telephone will each be
considered a separate industry.
For purposes of Investment Limitation No. 1, collateral arrangements
with respect to, if applicable, the writing of options, futures contracts,
options on futures contracts, forward currency contracts and collateral
arrangements with respect to initial and variation margin are not deemed to be a
pledge of assets 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.
In addition to the fundamental investment limitations specified above,
a Fund may not:
1. Make investments for the purpose of exercising control or
management, but investments by a Fund in wholly-owned investment entities
created under the laws of certain countries will not be deemed the making
of investments for the purpose of exercising control or management;
2. Purchase securities on margin, except for short-term credits
necessary for clearance of portfolio transactions, and except that a Fund
may make margin deposits in connection with its use of options, futures
contracts, options on futures contracts and forward contracts;
3. Purchase or sell interests in mineral leases, oil, gas or other
mineral exploration or development programs, except that a Fund may invest
in securities issued by companies that engage in oil, gas or other mineral
exploration or development activities; and
The policies set forth above are not fundamental and thus may be
changed by a Fund's Board of Directors without a vote of the shareholders.
Securities held by a Fund generally may not be purchased from, sold or
loaned to the Adviser or its affiliates or any of their directors, officers or
employees, acting as principal, unless pursuant to a rule or exemptive order
under the 1940 Act.
PORTFOLIO VALUATION
The following is a description of the procedures used by each Fund in
valuing its assets.
Equity securities listed on an exchange or traded in an OTC 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. Debt
securities with a remaining maturity
31
greater than 60 days shall be valued in accordance with the price supplied by an
independent pricing service approved by the Board ("Pricing Service"). If there
are no such quotations, the security will be valued at its far value as
determined in good faith by or under the direction of the Board.
Prices for debt securities supplied by a Pricing Service may use a
matrix, formula or other objective method that takes into consideration market
indexes, matrices, yield curves and other specific adjustments. The procedures
of Pricing Services are reviewed periodically by the officers of the Fund under
the general supervision and responsibility of the Board, which may replace a
Pricing Service at any time.
If a Pricing Service is not able to supply closing prices and
bid/asked quotations for an equity security or a price for a debt security, 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. If such dealers,
brokers or market makers only provide bid quotations, the security will be
valued 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 for an equity security or a price for a debt security, and there is
only one dealer, broker or market maker in the security, the security will be
valued at the mean between the bid and the asked quotations provided, unless the
dealer, broker or market maker can only provide a bid quotation, in which case
the security will be valued at such bid quotation. Options contracts will be
valued similarly. Futures contracts will be valued at the most recent settlement
price at the time of valuation.
Short-term obligations with maturities of 60 days or less are valued
at amortized cost, which constitutes fair value as determined by or under the
direction of 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 by or under the direction of 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 Fund's net asset value is not calculated. As a result,
calculation of the Fund's net asset value may not take place contemporaneously
with the determination of the prices of certain foreign portfolio securities
used in such calculation. All assets and liabilities initially expressed in
foreign currency values will be converted into U.S.
32
dollar values at the prevailing rate as quoted by a Pricing Service at the close
of the London Stock Exchange. If such quotations are not available, the rate of
exchange will be determined in good faith by or under the direction of the
Board.
PORTFOLIO TRANSACTIONS
The Adviser is responsible for establishing, reviewing and, where
necessary, modifying each Fund's investment program to achieve its investment
objective. Purchases and sales of newly issued portfolio securities are usually
principal transactions without brokerage commissions effected directly with the
issuer or with an underwriter acting as principal. Other purchases and sales may
be effected on a securities exchange or over-the-counter, depending on where it
appears that the best price or execution will be obtained. The purchase price
paid by a Fund to underwriters of newly issued securities usually includes a
concession paid by the issuer to the underwriter, and purchases of securities
from dealers, acting as either principals or agents in the after market, are
normally executed at a price between the bid and asked price, which includes a
dealer's mark-up or mark-down. Transactions on U.S. stock exchanges and some
foreign stock exchanges involve the payment of negotiated brokerage commissions.
On exchanges on which commissions are negotiated, the cost of transactions may
vary among different brokers. On most foreign exchanges, commissions are
generally fixed. There is generally no stated commission in the case of
securities traded in domestic or foreign OTC markets, but the price of
securities traded in OTC markets includes an undisclosed commission or mark-up.
U.S. government securities are generally purchased from underwriters or dealers,
although certain newly issued U.S. government securities may be purchased
directly from the U.S. Treasury or from the issuing agency or instrumentality.
No brokerage commissions are typically paid on purchases and sales of U.S.
government securities.
In selecting broker-dealers, the Adviser does business exclusively
with those broker-dealers that, in the Adviser's judgment, can be expected to
provide the best service. The service has two main aspects: the execution of buy
and sell orders and the provision of research. In negotiating commissions with
broker-dealers, the Adviser will pay no more for execution and research services
that it considers either, or both together, to be worth. The worth of execution
service depends on the ability of the broker-dealer to minimize costs of
securities purchased and to maximize prices obtained for securities sold. The
worth of research depends on its usefulness in optimizing portfolio composition
and its changes over time. Commissions for the combination of execution and
research services that meet the Adviser's standards may be higher than for
execution services alone or for services that fall below the Adviser's
standards. The Adviser believes that these arrangements may benefit all clients
and not necessarily only the accounts in which the particular investment
transactions occur that are so executed. Further, the Adviser will only receive
brokerage or research service in connection with securities transactions that
are consistent with the "safe harbor" provisions of Section 28(e) of the
Securities Exchange Act of 1934 when paying such higher commissions.
For the fiscal year ended August 31, 2002, the International Fund paid
$27,113 in total brokerage commissions and directed $13,393,982 in transactions
to brokers and dealers who provided such research and other services. The Fixed
Income Fund and the High Yield Fund did not direct brokerage transactions for
research services.
33
All orders for transactions in securities or options on behalf of a
Fund are placed by the Adviser with broker-dealers that it selects, including
Credit Suisse Asset Management Securities, Inc. ("CSAMSI") and other affiliates
of Credit Suisse Group. A Fund may utilize CSAMSI or other affiliates of Credit
Suisse in connection with a purchase or sale of securities when the Adviser
believes that the charge for the transaction does not exceed usual and customary
levels and when doing so is consistent with guidelines adopted by the Board.
Investment decisions for the Funds concerning specific portfolio
securities are made independently from those for other clients advised by the
Adviser. Such other investment clients may invest in the same securities as the
Funds. When purchases or sales of the same security are made at substantially
the same time on behalf of such other clients, transactions are averaged as to
price and available investments allocated as to amount, in a manner which the
Adviser believes to be equitable to each client, including the Funds. In some
instances, this investment procedure may adversely affect the price paid or
received by the Funds or the size of the position obtained or sold for the
Funds. To the extent permitted by law, the Adviser may aggregate the securities
to be sold or purchased for each Fund with those to be sold or purchased for
such other investment clients in order to obtain best execution.
Transactions for each of the Funds may be effected on foreign
securities exchanges. In transactions for securities not actively traded on a
foreign securities exchange, the Funds will deal directly with the dealers who
make a market in the securities involved, except in those circumstances where
better prices and execution are available elsewhere. Such dealers usually are
acting as principal for their own account. On occasion, securities may be
purchased directly from the issuer. Such portfolio securities are generally
traded on a net basis and do not normally involve brokerage commissions.
Securities firms may receive brokerage commissions on certain portfolio
transactions, including options, futures and options on futures transactions and
the purchase and sale of underlying securities upon exercise of options.
Each Fund may participate, if and when practicable, in bidding for the
purchase of securities for the Fund's portfolio directly from an issuer in order
to take advantage of the lower purchase price available to members of such a
group. A Fund will engage in this practice, however, only when the Adviser, in
its sole discretion, believe such practice to be otherwise in the Fund's
interest.
For the past three fiscal years ended August 31, the Funds have paid
brokerage commissions as follows:
AUGUST 31, 2002
FUND BROKERAGE COMMISSIONS
---- ---------------------
International $800,106
Fixed Income $101,882
High Yield $ 1,516
34
AUGUST 31, 2001
FUND BROKERAGE COMMISSIONS
---- ---------------------
International $1,665,999
Fixed Income $ 55,236
High Yield $ 2,839
AUGUST 31, 2000
FUND BROKERAGE COMMISSIONS
---- ---------------------
International $2,574,835
Fixed Income $ 35,843
High Yield $ 894
In no instance will portfolio securities be purchased from or sold to
CSAM, CSAMSI or Credit Suisse First Boston or any affiliated person of such
companies except as permitted by the SEC exemptive order or by applicable law.
In addition, the Funds will not give preference to any institutions with whom
the Funds enter into distribution or shareholder servicing agreements concerning
the provision of distribution services or support services.
As of August 31, 2002, the Funds held the following securities of
their regular brokers or dealers:
FUND NAME OF SECURITIES AGGREGATE VALUE OF THE HOLDINGS
- -------------------------------------------------------------------------------------------------------------------
International State Street Euro Time Deposit $8,886,000
UBS AG common $1,964,891
HSBC Holdings PLC common $905,725
Fixed Income Salomon Brothers Mortgage Securities VII, Series $1,149,020
1997-TZH, Class B
Salomon Brothers Mortgage Securities VII, Series $1,406,032
1997-TZH, Class D
State Street Euro Time Deposit $87,386,000
High Yield State Street Euro Time Deposit $1,781,000
35
PORTFOLIO TURNOVER
The Funds do not intend to seek profits through short-term trading,
but the rate of turnover will not be a limiting factor when a Fund deems it
desirable to sell or purchase securities. Each Fund's portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of its portfolio
securities for the year by the monthly average value of the portfolio
securities. Securities with remaining maturities of one year or less at the date
of acquisition are excluded from the calculation.
Certain practices that may be employed by the Funds could result in
high portfolio turnover. For example, options on securities may be sold in
anticipation of a decline in the price of the underlying security (market
decline) or purchased in anticipation of a rise in the price of the underlying
security (market rise) and later sold. To the extent that its portfolio is
traded for the short term, a Fund will be engaged essentially in trading
activities based on short-term considerations affecting the value of an issuer's
stock instead of long-term investments based on fundamental valuation of
securities. Because of this policy, portfolio securities may be sold without
regard to the length of time for which they have been held.
It is not possible to predict the Funds' portfolio turnover rates.
High portfolio turnover rates (100% or more) may result in higher brokerage
commissions, dealer markups or underwriting commissions as well as other
transaction costs. In addition, gains realized from portfolio turnover may be
taxable to shareholders.
For the fiscal years ended August 31, 2002 and August 31, 2001, the
Funds' portfolio turnover rates were as follows:
FUND 2002 2001
- --------------------------------------------------------------------------
International 163% 139%
Fixed Income 526% 449%
High Yield 52% 20%
The increase of portfolio turnover rate in the case of Fixed Income
Fund was due to the change of portfolio managers of the Fund.
MANAGEMENT OF THE FUNDS
OFFICERS AND BOARD OF DIRECTORS
The business and affairs of each Fund are managed by its Board of
Directors in accordance with the laws of the State of Maryland. The directors
approve all significant agreements between the Funds and the companies that
furnish services to the Funds, including agreements with the Funds' investment
adviser, sub-advisers as applicable, custodian and transfer agent. Each Board
elects officers who are responsible for the day-to-day operations of a Fund and
who execute policies authorized by the Board.
36
The names and ages of each Fund's Directors and officers, their
addresses, present positions and principal occupations during the past five
years and other affiliations are set forth below.
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE(1) PRINCIPAL COMPLEX OTHER
HELD WITH AND LENGTH OF OCCUPATION(S) DURING OVERSEEN DIRECTORSHIPS
NAME, ADDRESS AND AGE FUND TIME SERVED PAST FIVE YEARS BY DIRECTOR HELD BY DIRECTOR
- -----------------------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
Richard H. Francis Director Since 2000 Currently retired; 54 Director of The
c/o Credit Suisse Asset Executive Vice Indonesia Fund,
Management, LLC President and Chief Inc.
466 Lexington Avenue Financial Officer of
New York, New York 10017-3147 Pan Am Corporation
Age: 70 and Pan American
World Airways, Inc.
from 1988 to 1991
Jack W. Fritz Director Since Fund Private investor; 54 Director of Advo,
2425 North Fish Creek Road inception Consultant and Inc. (direct mail
P.O. Box 1287 Director of Fritz advertising)
Wilson, Wyoming 83014 Broadcasting, Inc.
Age: 75 and Fritz
Communications
(developers and
operators of radio
stations) since 1987
- -------------------
(1) Each Director and Officer serves until his or her respective successor has
been duly elected and qualified.
37
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE(1) PRINCIPAL COMPLEX OTHER
HELD WITH AND LENGTH OF OCCUPATION(S) DURING OVERSEEN DIRECTORSHIPS
NAME, ADDRESS AND AGE FUND TIME SERVED PAST FIVE YEARS BY DIRECTOR HELD BY DIRECTOR
- -----------------------------------------------------------------------------------------------------------------------
Jeffrey E. Garten Director Since 1998 Dean of Yale School 54 Director of
Box 208200 of Management and Aetna, Inc.;
New Haven, Connecticut 06520-8200 William S. Beinecke Director of
Age: 56 Professor in the Calpine Energy
Practice of Corporation;
International Trade Director of
and Finance; CarMax Group
Undersecretary of (used car dealers)
Commerce for
International Trade
from November 1993 to
October 1995;
Professor at Columbia
University from
September 1992 to
November 1993
Peter F. Krogh Director Since 2001 Dean Emeritus and 54 Member of Board
301 ICC Distinguished of The Carlisle
Georgetown University Professor of Companies Inc.;
Washington, DC 20057 International Affairs Member of
Age: 65 at the Edmund A. Selection
Walsh School of Committee for
Foreign Service, Truman Scholars
Georgetown and Henry Luce
University; Moderator Scholars; Senior
of PBS foreign Associate of
affairs television Center for
series Strategic and
38
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE(1) PRINCIPAL COMPLEX OTHER
HELD WITH AND LENGTH OF OCCUPATION(S) DURING OVERSEEN DIRECTORSHIPS
NAME, ADDRESS AND AGE FUND TIME SERVED PAST FIVE YEARS BY DIRECTOR HELD BY DIRECTOR
- -----------------------------------------------------------------------------------------------------------------------
International
Studies; Trustee
of numerous world
affairs
organizations
James S. Pasman, Jr. Director Since 2000 Currently retired; 54 Director of
c/o Credit Suisse Asset President and Chief Education
Management, LLC Operating Officer of Management Corp.;
466 Lexington Avenue National InterGroup, Director of
New York, New York Inc. (holding Credit Suisse
10017-3147 company) from April Asset Management
Age: 72 1989 to March 1991; Income Fund,
Chairman of Permian Inc.; Trustee of
Oil Co. from April Credit Suisse
1989 to March 1991 High Yield Bond
Fund; Trustee of
Deutsche VIT
Funds (overseeing
3 portfolios)
Steven N. Rappaport Director Since 2000 Partner of Lehigh 54 Director of The
Lehigh Court, LLC Court, LLC since July First Israel
40 East 52nd Street 2002; President of Fund, Inc.
New York, New York 10022 SunGard Securities
Age: 54 Finance, Inc., from
2001 to July 2002;
President of Loanet,
Inc. (on-line
accounting service)
from 1995 to 2001;
Director, President,
North American
Operations, and
former Executive Vice
President from 1992 to
1993 of Worldwide
Operations of Metallurg
Inc. (manufacturer of
specialty metals and
alloys); Executive Vice
President, Telerate,
Inc. (provider of real-
time information to the
capital markets) from
1987 to 1992; Partner in
the law firm of
Hartman & Craven until
1987
39
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE(1) PRINCIPAL COMPLEX OTHER
HELD WITH AND LENGTH OF OCCUPATION(S) DURING OVERSEEN DIRECTORSHIPS
NAME, ADDRESS AND AGE FUND TIME SERVED PAST FIVE YEARS BY DIRECTOR HELD BY DIRECTOR
- -----------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTOR
William W. Priest(2) Director Since 1999 Senior Partner and 54 Director of The
Steinberg Priest & Sloane Fund Manager, Brazilian Equity
Capital Management Steinberg Priest & Fund, Inc.; The
12 East 49th Street Sloane Capital Chile Fund, Inc.;
12th Floor Management since The Emerging
New York, New York 10017 March 2001; Chairman Markets
Age: 61 and Managing Director Telecommunications
of
- ----------
(2) Mr. Priest is a Director who is an "interested person" of the Fund as
defined in the 1940 Act, because he was an officer of CSAM until February
2001.
40
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE(1) PRINCIPAL COMPLEX OTHER
HELD WITH AND LENGTH OF OCCUPATION(S) DURING OVERSEEN DIRECTORSHIPS
NAME, ADDRESS AND AGE FUND TIME SERVED PAST FIVE YEARS BY DIRECTOR HELD BY DIRECTOR
- -----------------------------------------------------------------------------------------------------------------------
CSAM from 2000 to Fund, Inc.; The
February 2001, Chief First Israel
Executive Officer and Fund, Inc.; The
Managing Director of Latin America CSAM
from 1990 to 2000
Equity Fund, Inc.;
The Indonesia Fund,
Inc.; and Credit
Suisse Asset
Management Income
Fund, Inc.
OFFICERS
Laurence R. Smith Chairman Since 2002 Managing Director and
Credit Suisse Asset Global Chief
Management, LLC Investment Officer of
466 Lexington Avenue CSAM; acting Chief
New York, New York 10017-3147 Executive Officer of
Age: 44 CSAM Americas;
Associated with J.P.
Morgan Investment
Management from
1981 to 1999;
Officer of other
Credit Suisse Funds
and other
CSAM-advised
investment companies
41
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE(1) PRINCIPAL COMPLEX OTHER
HELD WITH AND LENGTH OF OCCUPATION(S) DURING OVERSEEN DIRECTORSHIPS
NAME, ADDRESS AND AGE FUND TIME SERVED PAST FIVE YEARS BY DIRECTOR HELD BY DIRECTOR
- -----------------------------------------------------------------------------------------------------------------------
Hal Liebes, Esq. Vice Since 1999 Managing Director and -- --
Credit Suisse Asset Management, President Global General
LLC and Secretary Counsel of CSAM;
466 Lexington Avenue Associated with
New York, New York 10017-3147 Lehman Brothers, Inc.
Age: 38 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 Credit Suisse
Funds and other
CSAM-advised
investment companies
Michael A. Pignataro Treasurer Since 1999 Director and -- --
Credit Suisse Asset Management, and Chief Director of Fund
LLC Financial Administration of
466 Lexington Avenue Officer CSAM; Associated with
New York, New York 10017-3147 CSAM since 1984;
Age: 43 Officer of other
Credit
42
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE(1) PRINCIPAL COMPLEX OTHER
HELD WITH AND LENGTH OF OCCUPATION(S) DURING OVERSEEN DIRECTORSHIPS
NAME, ADDRESS AND AGE FUND TIME SERVED PAST FIVE YEARS BY DIRECTOR HELD BY DIRECTOR
- -----------------------------------------------------------------------------------------------------------------------
Suisse Funds and
other CSAM-advised
investment companies
Gregory N. Bressler, Esq. Assistant Since 2000 Vice President and -- --
Credit Suisse Asset Management, Secretary Legal Counsel of CSAM
LLC since January 2000;
466 Lexington Avenue Associated with the
New York, New York 10017-3147 law firm of Swidler
Age: 36 Berlin Shereff
Friedman LLP from
1996 to 2000; Officer
of other Credit
Suisse Funds and
other CSAM-advised
investment companies
Kimiko T. Fields, Esq. Assistant Since 2002 Assistant Vice -- --
Credit Suisse Asset Management, Secretary President and Legal
LLC Counsel of CSAM since
466 Lexington Avenue December 2000;
New York, New York 10017-3147 Assistant Vice
Age: 38 President,
Institutional
Marketing Department,
CSAM from January
2000 to December
2000; Marketing
Associate,
International
43
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE(1) PRINCIPAL COMPLEX OTHER
HELD WITH AND LENGTH OF OCCUPATION(S) DURING OVERSEEN DIRECTORSHIPS
NAME, ADDRESS AND AGE FUND TIME SERVED PAST FIVE YEARS BY DIRECTOR HELD BY DIRECTOR
- -----------------------------------------------------------------------------------------------------------------------
Equity Department,
Warburg Pincus Asset
Management, Inc. from
January 1998 to
January 2000;
self-employed
author and
consultant,
from January 1996 to
December 1997;
Officer of other
Credit Suisse Funds
and other
CSAM-advised
investment companies
Rocco A. DelGuercio Assistant Since 1999 Vice President and -- --
Credit Suisse Asset Management, Treasurer Administrative
LLC Officer of CSAM;
466 Lexington Avenue Associated with CSAM
New York, New York 10017-3147 since June 1996;
Age: 38 Assistant Treasurer,
Bankers Trust Co. --
Fund Administration
from March 1994 to
June 1996; Mutual
Fund Accounting
Supervisor, Dreyfus
Corporation from
April 1987
44
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE(1) PRINCIPAL COMPLEX OTHER
HELD WITH AND LENGTH OF OCCUPATION(S) DURING OVERSEEN DIRECTORSHIPS
NAME, ADDRESS AND AGE FUND TIME SERVED PAST FIVE YEARS BY DIRECTOR HELD BY DIRECTOR
- -----------------------------------------------------------------------------------------------------------------------
to March 1994;
Officer of other
Credit Suisse Funds
and other
CSAM-advised
investment companies
Joseph Parascondola Assistant Since 2000 Assistant Vice -- --
Credit Suisse Asset Management, Treasurer President - Fund
LLC Administration of
466 Lexington Avenue CSAM since April
New York, New York 10017-3147 2000; Assistant Vice
Age: 38 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
Credit Suisse Funds
and other
CSAM-advised
investment companies
Robert M. Rizza Assistant Since 2002 Assistant Vice -- --
Credit Suisse Asset Management, Treasurer President of CSAM
LLC (January 2001 to
466 Lexington Avenue present);
New York, NY 10017 Administrative
Age: 36 Officer of CSAM
(March 1998 to
45
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE(1) PRINCIPAL COMPLEX OTHER
HELD WITH AND LENGTH OF OCCUPATION(S) DURING OVERSEEN DIRECTORSHIPS
NAME, ADDRESS AND AGE FUND TIME SERVED PAST FIVE YEARS BY DIRECTOR HELD BY DIRECTOR
- -----------------------------------------------------------------------------------------------------------------------
December 2000);
Assistant Treasurer
of Bankers Trust Co.
(April 1994 to March
1998); Officer of
other Credit Suisse
Funds and other
CSAM-advised
investment companies
OWNERSHIP IN SECURITIES OF THE FUNDS AND FUND COMPLEX
As reported to the Funds, the information in the following table
reflects beneficial ownership by the Directors of certain securities as of
December 31, 2001.
AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES IN ALL
REGISTERED INVESTMENT
COMPANIES OVERSEEN BY
DOLLAR RANGE OF EQUITY DIRECTOR IN FAMILY OF
NAME OF DIRECTOR SECURITIES IN THE FUND(*,3) INVESTMENT COMPANIES(*,3)
- ------------------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
Richard H. Francis International Fund: A E
Fixed Income Fund: A
High Yield Fund: A
International Fund: A
- ----------
(3) Beneficial ownership is determined in accordance with Rule 16a-1(a)(2)
under the Securities Exchange Act of 1934.
46
AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES IN ALL
REGISTERED INVESTMENT
COMPANIES OVERSEEN BY
DOLLAR RANGE OF EQUITY DIRECTOR IN FAMILY OF
NAME OF DIRECTOR SECURITIES IN THE FUND(*,3) INVESTMENT COMPANIES(*,3)
- ------------------------------------------------------------------------------------------------------------------
Jack W. Fritz International Fund: A
Fixed Income Fund: A E
High Yield Fund: A
Jeffrey E. Garten International Fund: A A
Fixed Income Fund: A
High Yield Fund: A
Peter F. Krogh International Fund: A D
Fixed Income Fund: A
High Yield Fund: A
James S. Pasman, Jr. International Fund: C D
Fixed Income Fund: A
High Yield Fund: A
Steven N. Rappaport International Fund: A D
Fixed Income Fund: A
High Yield Fund: B
INTERESTED DIRECTOR
William W. Priest International Fund: A
Fixed Income Fund: A
High Yield Fund: A
- -------------------
* Key to Dollar Ranges:
A. None
B. $1 - $10,000
C. $10,000 - $50,000
D. $50,000 - $100,000
47
E. Over $100,000
COMMITTEES AND MEETINGS OF DIRECTORS
Each Fund has an Audit Committee, a Nominating Committee and a
Valuation Committee. The members of the Audit Committee and the Nominating
Committee consist of all the Directors who are not "interested persons" of the
Fund as defined in the 1940 Act ("Independent Directors"), namely Messrs.
Francis, Fritz, Garten, Krogh, Pasman and Rappaport. The Valuation Committee
consists of at least two Directors, at least one of whom is an Independent
Director.
In accordance with its written charter adopted by the Board, the Audit
Committee assists the Board in fulfilling its responsibility for oversight of
the quality and integrity of the accounting, auditing and financial reporting
practices of the Fund. It also makes recommendations to the Board as to the
selection of the independent public accountants, reviews the methods, scope and
result of the audits and audit fees charged, and reviews the Fund's internal
accounting procedures and controls. The Audit Committee also considers the scope
and amount of non-audit services provided to the Fund, its Adviser and
affiliates by the independent public accountants. The Audit Committee met four
times during the fiscal year ended August 31, 2002.
The Nominating Committee is charged with the duty of making all
nominations for Independent Directors to the Board. The Nominating Committee
will consider nominees recommended by the Fund's shareholders when a vacancy
becomes available. Shareholders who wish to recommend a nominee should send
nominations to the Fund's Secretary. The Nominating Committee also considers the
appointment of independent counsel to the Independent Directors. The Nominating
Committee met twice during the fiscal year ended August 31, 2002.
The Valuation Committee reviews and approves the valuation of all fair
valued securities whose fair valuations individually change the net asset value
of a Fund by greater than 1%. In conducting this review, the Valuation Committee
shall review and discuss an updated fair valuation summary with appropriate
representatives of CSAM. The Valuation Committee did not meet during the fiscal
year ended August 31, 2002.
No employee of CSAM, State Street Bank and Trust Company and CSAMSI,
the Funds' co-administrators, or any of their affiliates, receives any
compensation from a Fund for acting as an officer or director of the Fund. Each
Director who is not a director, trustee, officer or employee of CSAM, State
Street, CSAMSI or any of their affiliates receives an annual fee of $750 and
$250 for each meeting of the Board attended by him for his services as Director,
and is reimbursed for expenses incurred in connection with his attendance at
Board meetings. Each member of the Audit Committee receives an annual fee of
$250, and the chairman of the Audit Committee receives an annual fee of $325,
for serving on the Audit Committee.
48
DIRECTORS' TOTAL COMPENSATION FOR FISCAL YEAR ENDED AUGUST 31, 2002
INTERNATIONAL ALL INVESTMENT COMPANIES
NAME OF DIRECTOR FUND FIXED INCOME FUND HIGH YIELD FUND IN THE CSAM FUND COMPLEX*
- ----------------------------------------------------------------------------------------------------------------
William W. Priest** None None None None
Richard H. Francis $3,313 $2,813 $2,813 $106,708
Jack W. Fritz $3,063 $2,563 $2,563 $97,124
Jeffrey E. Garten $3,063 $2,813 $2,813 $100,250
Peter F. Krogh $3,313 $2,813 $2,813 $101,850
James S. Pasman, Jr. $3,313 $2,813 $2,813 $106,350
Steven N. Rappaport $3,463 $2,963 $2,963 $113,295
* Each Director serves as a Director or Trustee of 54 investment companies
and portfolios in the CSAM Fund Complex.
** Mr. Priest has been an employee of CSAM, and, accordingly, receives no
compensation from any Fund or any other investment company advised by CSAM.
As of November 15, 2002, Directors and officers as a group, owned of
record less than 1% of each Fund's outstanding Shares.
INVESTMENT ADVISORY AGREEMENTS. CSAM, located at 466 Lexington Avenue,
New York, New York 10017-3147, serves as investment adviser to each Fund
pursuant to a written investment advisory agreement between CSAM and each Fund
(each an "Advisory Agreement"). CSAM is the institutional and mutual fund asset
management arm of ("CSFB"), part of the Credit Suisse Group ("Credit Suisse"),
one of the world's largest financial organizations with approximately $819.6
billion in assets under management. CSFB is a leading global investment bank
serving institutional, corporate, government and individual clients. CSFB's
businesses include securities underwriting, sales and trading, investment
banking, private equity, financial advisory services, investment research,
venture capital, correspondent brokerage services and asset management. CSFB
operates in 77 locations in 36 countries across six continents. CSFB is a
business unit of the Zurich-based Credit Suisse Group, a leading global
financial services company. As of September 30, 2002, CSAM employed 2,270 people
worldwide and had global assets under management of approximately $284.3
billion, with $55.8 billion under management in the U.S. The principal business
address of Credit Suisse is Paradeplatz 8, CH8070, Zurich, Switzerland.
The Advisory Agreement between each Fund and CSAM has an initial term
of two years and continues in effect from year to year thereafter if such
continuance is specifically approved at least annually by the vote of a majority
of the Independent Directors cast in person at a meeting called for the purpose
of voting on such approval, and either by a vote of the Fund's Board of
Directors or by a majority of the Fund's outstanding voting securities, as
defined in the 1940 Act.
49
Pursuant to each Advisory Agreement, subject to the supervision and
direction of the Board, CSAM is responsible for managing each Fund in accordance
with the Fund's stated investment objective and policies. CSAM is responsible
for providing investment advisory services as well as conducting a continual
program of investment, evaluation and, if appropriate, sale and reinvestment of
the Fund's assets. In addition to expenses that CSAM may incur in performing its
services under the Advisory Agreement, CSAM pays the compensation, fees and
related expenses of all Directors who are affiliated persons of CSAM or any of
its subsidiaries.
Each Fund bears certain expenses incurred in its operation, including:
investment advisory and administration fees; taxes, interest, brokerage fees and
commissions, if any; fees of Directors of the Fund who are not officers,
directors, or employees of CSAM or affiliates of any of them; fees of any
pricing service employed to value shares of the Fund; SEC fees, state Blue Sky
qualification fees and any foreign qualification fees; charges of custodians and
transfer and dividend disbursing agents; the Fund's proportionate share of
insurance premiums; outside auditing and legal expenses; costs of maintenance of
the Fund's existence; costs attributable to investor services, including,
without limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for regulatory
purposes and for distribution to existing shareholders; costs of shareholders'
reports and meetings of the shareholders of the Fund and of the officers or
Board of Directors of the Fund; and any extraordinary expenses.
Each Advisory Agreement provides that CSAM shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which the Agreement relates, except that CSAM
shall be liable for a loss resulting from a breach of fiduciary duty by CSAM
with respect to the receipt of compensation for services; provided that nothing
in the Advisory Agreement shall be deemed to protect or purport to protect CSAM
against any liability to the Fund or to shareholders of the Fund to which CSAM
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or by reason of CSAM's
reckless disregard of its obligations and duties under the Advisory Agreement.
Each Fund or CSAM may terminate the Advisory Agreement on 60 days'
written notice without penalty. The Advisory Agreement will terminate
automatically in the event of its assignment (as defined in the 1940 Act).
For its services to the International, Fixed Income and High Yield
Fund, CSAM is paid (before any voluntary waivers or reimbursements) a fee
computed daily and paid monthly at the annual rate of .80%, .375% and .70% of
such Fund's average daily net assets, respectively. CSAM may voluntarily waive a
portion of its fees from time to time and temporarily limit the expenses to be
borne by a Fund.
For the past three fiscal years ended August 31, the Funds paid CSAM
advisory fees, and CSAM waived fees and/or reimbursed expenses of the Funds
under the Advisory Agreements as follows:
50
AUGUST 31, 2002
FUND FEES PAID WAIVERS REIMBURSEMENTS
---- (AFTER WAIVERS) ------- --------------
---------------
International $1,732,357 0 0
Fixed Income $1,524,721 $216,189 0
High Yield $ 420,970 $269,003 0
AUGUST 31, 2001
FUND FEES PAID WAIVERS REIMBURSEMENTS
---- (AFTER WAIVERS) ------- --------------
---------------
International $2,705,262 0 0
Fixed Income $1,425,975 $271,292 0
High Yield $ 396,171 $312,898 0
AUGUST 31, 2000
FUND FEES PAID WAIVERS REIMBURSEMENTS
---- (AFTER WAIVERS) ------- --------------
---------------
International $4,796,915 0 0
Fixed Income $ 966,751 $431,351 0
High Yield $ 335,401 $512,979 0
INTERNATIONAL FUND--SUB-ADVISORY AGREEMENTS. International Fund has
entered into Sub-Investment Advisory Agreements with CSAM and each of CSAM's
United Kingdom affiliate ("CSAM U.K."), CSAM's Japanese affiliate ("CSAM Japan")
and CSAM's Australian affiliate ("CSAM Australia"), each of which is named
Credit Suisse Asset Management Limited (each of CSAM U.K., CSAM Japan and CSAM
Australia may be referred to as a "Sub-Adviser").
Subject to the supervision of CSAM, each Sub-Adviser, in the exercise
of its best judgment, will provide investment advisory assistance and portfolio
management advice to the International Fund in accordance with the Fund's
Articles of Incorporation, as may be amended from time to time, the PROSPECTUS
and STATEMENT OF ADDITIONAL INFORMATION, as from time to time in effect, and in
such manner and to such extent as may from time to time be approved by the
Board. Each Sub-Adviser bears its own expenses incurred in performing services
under the Sub-Advisory Agreement.
51
CSAM U.K. is a corporation organized under the laws of England in 1982
and is registered as an investment adviser under the Investment Advisers Act of
1940 ("Advisers Act"). The principal executive office of CSAM U.K. is Beaufort
House, 15 St. Botolph Street, London EC3A 7JJ, England. CSAM U.K. is a
diversified asset manager, handling global equity, balanced, fixed income and
derivative securities accounts for other investment companies, corporate pension
and profit-sharing plans, state pension funds, union funds, endowments and other
charitable institutions. CSAM U.K. has been in the money management business for
over 16 years and as of September 30, 2002 managed approximately $47.4 billion
in assets.
CSAM Japan is a corporation organized under the laws of Japan in 1993
and is licensed as an investment adviser under the Japanese Investment Advisory
Law and as an investment trust manager under the Japanese Trust Law. CSAM Japan
is also registered as an investment advisers under the Advisers Act. The
principal executive office of CSAM Japan is Shiroyama JT Mori Bldg. 3-1,
Toranomon 4-Chome, Minato-Ku, Tokyo 105-6026, Japan. CSAM Japan is a diversified
asset manager, handling global equity, balanced, fixed income and derivative
securities accounts for other investment companies, corporate pension and
profit-sharing plans, state pension funds, union funds, endowments and other
charitable institutions. CSAM Japan, together with its predecessor company, has
been in the money management business for over 16 years and as of September 30,
2002 managed approximately $8.7 billion in assets.
CSAM Australia was registered as a company under the Laws of Victoria,
Australia on September 15, 1989. CSAM Australia is licensed as a securities
dealer and operator of managed investment schemes under the Australian
Corporations Act of 2001 and is an investment adviser under the Advisers Act.
The registered office of CSAM Australia is Level 32 Gateway, 1 Macquarie Place,
Sydney 2001, Australia. CSAM Australia is a diversified asset manager,
specializing in equity, fixed income and balanced portfolio management for a
range of clients including pension funds, government agencies and large
companies as well as private individuals. CSAM Australia has been in the funds
management business for over 12 years and as of September 30, 2002 managed
approximately $11.7 billion in assets.
Under the Sub-Advisory Agreements with CSAM U.K. and CSAM Japan, CSAM
(not the International Fund) pays each of CSAM U.K. and CSAM Japan an annual fee
of $250,000 for services rendered with respect to the International Fund and all
other Credit Suisse Funds for which that Sub-Adviser has been appointed to act
as such. The portion of the fee allocated with respect to the International Fund
is equal to the product of (a) the total fee and (b) a fraction, (i) the
numerator of which is the average monthly assets of the Fund during such
calendar quarter or portion thereof and (ii) the denominator of which is the
aggregate average monthly assets of the Fund and certain other Credit Suisse
Funds for which the Sub-Adviser has been appointed to act as sub-adviser during
such calendar quarter or portion thereof. For the fiscal year ended August 31,
2002, the portion of the fees allocable to International Fund for CSAM U.K. and
CSAM Japan were $1,146 and $1,151, respectively.
Under the Sub-Advisory Agreement with CSAM Australia, CSAM (not the
International Fund) pays CSAM Australia an annual fee of $480,000 for services
rendered with respect to the International Fund and all other Credit Suisse
Funds for which CSAM Australia has been appointed to act as Sub-Adviser. The
portion of the fee allocated with respect to the
52
International Fund is calculated in the same manner as set forth above with
respect to the Sub-Advisory Agreements with CSAM U.K. and CSAM Australia. No
fees were allocated to International Fund during the fiscal year ended August
31, 2002.
Each Sub-Advisory Agreement has an initial term of two years and
continues in effect from year to year thereafter if such continuance is
specifically approved at least annually by the vote of a majority of the
Independent Directors cast in person at a meeting called for the purpose of
voting on such approval, and either by a vote of the Fund's Board of Directors
or by a majority of the Fund's outstanding voting securities, as defined in the
1940 Act. Each Sub-Advisory Agreement provides that the Sub-Adviser shall
exercise its best judgment in rendering the services described in the
Sub-Advisory Agreement and that the Sub-Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund or CSAM
in connection with the matters to which the Agreement relates, except that the
Sub-Adviser shall be liable for a loss resulting from a breach of fiduciary duty
by the Sub-Adviser with respect to the receipt of compensation for services;
provided that nothing in the Sub-Advisory Agreement shall be deemed to protect
or purport to protect the Sub-Adviser against any liability to the Fund or CSAM
or to shareholders of the Fund to which the Sub-Adviser would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or by reason of the Sub-Adviser's reckless
disregard of its obligations and duties under this Agreement. Each Sub-Advisory
Agreement may be terminated without penalty on 60 days' written notice by the
Fund, CSAM or the Sub-Adviser and will terminate automatically in the event of
its assignment (as defined in the 1940 Act).
BOARD APPROVAL OF ADVISORY AGREEMENTS. In approving the Advisory
Agreement, the Board of Directors of each Fund, including the Independent
Directors, considered the reasonableness of the advisory fee in light of the
extent and quality of the advisory services provided and any additional benefits
received by CSAM or its affiliates in connection with providing services to the
Fund, compared the fees charged by CSAM to those charged by CSAM with respect to
its other clients for comparable services and to those charged by other
investment advisers with respect to similar funds, and analyzed the expenses
incurred by CSAM with respect to the Fund. The Board of Directors also
considered the Fund's performance relative to a selected peer group, the Fund's
total expenses in comparison to funds of comparable size, and other factors.
Specifically, the Board of Directors noted information received at regular
meetings throughout the year related to Fund performance and services rendered
by CSAM, and benefits potentially accruing to CSAM and its affiliates from
securities lending, administrative and brokerage relationships with affiliates
of CSAM, as well as the Adviser's research arrangements with brokers who execute
transactions on behalf of the Fund. The Board reviewed the profitability to CSAM
and its affiliates of their services to the Fund and considered whether
economies of scale in the provision of services to the Fund were being passed
along to shareholders. The Board reviewed whether, and if so to what extent,
CSAM or its affiliates were waiving their fees and/or reimbursing Fund expenses
and acknowledged that the fee waivers and reimbursements could be discontinued
at any time. The Board also reviewed whether it would be appropriate to adopt
breakpoints in the rate of advisory fees, whereby the rate of advisory fees
would be reduced as fund assets increased. After requesting and reviewing such
information as they deemed necessary, the Board concluded that the Advisory
Agreement was in the best interests of the Fund and its shareholders. No single
factor reviewed by the
53
Board was identified by the Board as the principal factor in determining whether
to approve the Advisory Agreement. The Independent Directors were advised by
separate independent legal counsel throughout the process.
In approving each of the Sub-Advisory Agreements with CSAM U.K., CSAM
Japan and CSAM Australia, the Board of the International Fund considered various
matters and materials provided by CSAM, CSAM U.K., CSAM Japan and CSAM
Australia. The Board considered, primarily, the benefits to the International
Fund of retaining CSAM's United Kingdom, Japanese and Australian affiliates
given the increased complexity of the domestic and international securities
markets, specifically that retention of CSAM U.K., CSAM Japan and CSAM Australia
would expand the universe of companies and countries from which investment
opportunities could be sought and enhance the ability of the International Fund
to obtain best price and execution on trades in international markets. The Board
of the International Fund also carefully considered the particular expertise of
CSAM U.K., CSAM Japan and CSAM Australia in managing the types of global
investments which the Fund makes, including their personnel and research
capabilities. The Board also evaluated the extent of the services to be offered
by CSAM U.K., CSAM Japan and CSAM Australia. In addition, the Board of the
International Fund took into account the lack of any anticipated adverse impact
to the Fund as a result of the Sub-Advisory Agreements, particularly that the
compensation paid to CSAM U.K., CSAM Japan and CSAM Australia would be paid by
CSAM, not the International Fund, and, accordingly, that the retention of CSAM
U.K., CSAM Japan and CSAM Australia would not increase the fees or expenses
otherwise incurred by the International Fund's shareholders. After requesting
and reviewing such information as they deemed necessary, the Board of the
International Fund concluded that each Sub-Advisory Agreement was in the best
interests of the Fund and its shareholders. No single factor reviewed by the
Board was identified by the Board as the principal factor in determining whether
to approve each Sub-Advisory Agreement. The Independent Directors were advised
by separate independent legal counsel throughout the process.
Each Fund's Advisory Agreement has inadvertently terminated due to an
administrative oversight. The Board of Directors of each Fund has approved a new
investment advisory agreement with CSAM that is substantially identical to the
lapsed Advisory Agreement and has recommended that the new agreement be
presented to Fund shareholders for their approval. The Board of each Fund also
approved CSAM's retention of advisory fees paid or payable to it from the date
the Advisory Agreement terminated until shareholder approval of these fees is
obtained.
ADMINISTRATION AGREEMENTS. CSAMSI and State Street Bank and Trust
Company ("State Street") serve as co-administrators to each Fund pursuant to
separate written agreements with the Fund (the "CSAMSI Co-Administration
Agreement" and the "State Street Co-Administration Agreement," respectively).
CSAMSI became co-administrator to each Fund on November 1, 1999. For
the services provided by CSAMSI under the CSAMSI Co-Administration Agreement,
each Fund pays CSAMSI a fee calculated daily and paid monthly at the annual rate
of .10% of the Fund's average daily net assets, except the Funds do not
compensate CSAMSI for its services to the Institutional shares under the CSAMSI
Co-Administration Agreements.
54
During the fiscal year ended August 31, 2002, CSAMSI did not receive
fees from any of the Funds under the CSAMSI Co-Administration Agreements. For
the fiscal year ended August 31, 2001, CSAMSI was paid $634 (after waivers) and
waived $2,536 in fees with respect to the High Yield Fund. For the fiscal year
ended August 31, 2000, the International, Fixed Income and High Yield Funds paid
CSAMSI $853, $2 and $1,968, respectively, for its co-administrative services and
CSAMSI waived co-administrative fees of $8 and $7,874 for the Fixed Income Fund
and High Yield Fund, respectively.
State Street became co-administrator to each Fund on June 1, 2002. For
the services provided by State Street under the State Street Co-Administration
Agreement, each Fund pays State Street a fee calculated at the annual rate of
its pro-rated share of .05% of the first $5 billion in average daily net assets
of the Credit Suisse Funds Complex (the "Fund Complex"), .035% of the Fund
Complex's next $5 billion in average daily net assets, and .02% of the Fund
Complex's average daily net assets in excess of $10 billion, exclusive of
out-of-pocket expenses. For the period from June 1, 2002 through August 31,
2002, the International, Fixed Income and High Yield Funds paid State Street
fees under the State Street Co-Administration Agreement of $39,083, $76,670 and
$21,729, respectively.
PFPC Inc. ("PFPC"), an indirect, wholly owned subsidiary of PNC
Financial Services Group, served as a co-administrator to each Fund prior to
June 1, 2002. PFPC received fees for its services calculated on each Fund's
average daily net assets, as follows:
FUND ANNUAL RATE
- --------------------------------------------------------------------------------------------------
International .08% for the first $500 million in assets
.07% for the next $1 billion
.06% for assets in excess of $1.5 billion
Fixed Income and High Yield .07% of the first $150 million in assets
.06% for the next $150 million
.05% for assets in excess of $300 million
For the fiscal years ended August 31, the Funds paid PFPC
administration fees and PFPC waived fees and/or reimbursed expenses as follows:
FOR THE PERIOD FROM SEPTEMBER 1, 2001 THROUGH MAY 31, 2002
FUND FEES PAID WAIVERS REIMBURSEMENTS
---- (AFTER WAIVERS) ------- --------------
International $131,616 0 0
Fixed Income $216,610 0 0
High Yield $ 70,012 0 0
55
AUGUST 31, 2001
FEES PAID
FUND (AFTER WAIVERS) WAIVERS REIMBURSEMENTS
- -------------------------------------------------------------------------------------------------------------
International $336,378 0 0
Fixed Income $301,155 0 0
High Yield $108,858 0 0
Prior to November 1, 1999, Counsellors Funds Service, Inc.
("Counsellors Service") served as a co-administrator to each Fund. For the
fiscal year ended August 31, 2000, the Funds paid PFPC and Counsellors Service
administration fees, and PFPC and Counsellors Service waived fees and/or
reimbursed expenses as follows:
PFPC COUNSELLORS SERVICE
- ------------------------------------------------------------------------------------------------------------------------
FEES PAID FEES PAID
(AFTER (AFTER
FUND WAIVERS) WAIVERS REIMBURSEMENTS FUND WAIVERS) WAIVERS REIMBURSEMENTS
- ------------------------------------------------------------------------------------------------------------------------
International $742,845 0 0 International $764 0 0
Fixed Income $277,178 0 0 Fixed Income $ 2 $ 8 0
High Yield $118,248 $27,482 0 High Yield $438 $1,750 0
Each Fund and CSAM have obtained an order of exemption (the "Order")
from the SEC to permit CSFB to act as lending agent for these Funds, to permit
securities loans to broker-dealer affiliates of CSFB, and to permit the
investment of cash collateral received by CSFB in an affiliated fund (the
"Portfolio"). The Order contains a number of conditions that are designed to
ensure that CSFB's securities lending program does not involve overreaching by
CSAM, CSFB or any of their affiliates. These conditions include percentage
limitations on the amount of a Fund's assets that may be invested in the
Portfolio, restrictions on the Portfolio's ability to collect sales charges and
certain other fees, and a requirement that each fund that invests in the
Portfolio will do so at the same price as each other fund and will bear its
proportionate shares of expenses and receive its proportionate share of any
dividends.
CODE OF ETHICS. Each Fund, CSAM, CSAM U.K., CSAM Japan and CSAM
Australia 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 Fund. 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 Fund; and (4) Covered Persons may not
invest in initial public offerings.
56
The Board of each Fund reviews the administration of the Code at least
annually and may impose sanctions for violations of the Code.
CUSTODIAN AND TRANSFER AGENT. State Street acts as the custodian for
each Fund and also acts as the custodian for each Fund's foreign securities
pursuant to a Custodian Agreement (the "Custodian Agreement"). Under the
Custodian Agreement, State Street (a) maintains a separate account or accounts
in the name of each Fund, (b) holds and transfers portfolio securities on
account of each Fund, (c) accepts receipts and makes disbursements of money on
behalf of each Fund, (d) collects and receives all income and other payments and
distributions on account of each Fund's portfolio securities, and (e) makes
periodic reports to the Funds' Boards of Directors concerning each Fund's
operations. With the approval of the Board, State Street is authorized to select
one or more foreign banking institutions and foreign securities depositories to
serve as sub-custodian on behalf of the Funds and to select one or more domestic
banks or trust companies to serve as sub-custodian on behalf of the Funds. For
this service to the Funds under the Custodian Agreements, State Street receives
a fee which is calculated based upon each Fund's average daily gross assets,
exclusive of transaction charges and out-of-pocket expenses, which are also
charged to the Funds. State Street's principal business address is 225 Franklin
Street, Boston, Massachusetts 02110.
Boston Financial Data Services, Inc. ("BFDS") serves as the
shareholder servicing, transfer and dividend disbursing agent of each Fund
pursuant to a Transfer Agency and Service Agreement, under which BFDS (i) issues
and redeems shares of the Funds, (ii) addresses and mails all communications by
the Funds to record owners of Fund shares, including reports to shareholders,
dividend and distribution notices and proxy material for meetings of
shareholders, (iii) maintains shareholder accounts and, if requested,
sub-accounts and (iv) makes periodic reports to the Boards concerning the
transfer agent's operations with respect to the Funds. BFDS's principal business
address is 2 Heritage Drive, North Quincy, Massachusetts 02171.
ORGANIZATION OF THE FUNDS. Each Fund is a non-diversified, open-end
management investment company. Each Fund was organized as a Maryland corporation
on July 31, 1998. On May 11, 2000, the International Fund changed its name from
"Warburg, Pincus International Growth Fund, Inc." to "Credit Suisse
Institutional International Growth Fund, Inc.", and on July 2, 2001, the
International Fund further changed its name to "Credit Suisse Institutional
International Fund, Inc." On May 11, 2000, the Fixed Income Fund changed its
name from "Warburg, Pincus U.S. Core Fixed Income Fund, Inc." to "Credit Suisse
Institutional U.S. Core Fixed Income Fund, Inc.", and on July 2, 2001, the Fixed
Income Fund further changed its name to "Credit Suisse Institutional Fixed
Income Fund, Inc." On December 27, 2000, the High Yield Fund changed its name
from "Warburg, Pincus High Yield Fund, Inc." to "Credit Suisse Institutional
High Yield Fund, Inc."
Each Fund's charter (with the exception of the International Fund)
authorizes its Board to issue three billion full and fractional shares of
capital stock, $.001 par value per share, of which one billion shares are
designated Common Shares, one billion shares are designated Institutional Shares
and one billion shares are designated Advisor Shares. The International Fund's
charter authorizes the board to issue six billion full and fractional shares of
common stock, $.001 par value per share, of which one billion shares are
designated Common Shares, one
57
billion shares are designated Advisor Shares, one billion shares are designated
Institutional Shares, one billion shares are designated Class A Shares, one
billion shares are designated Class B Shares, and one billion shares are
designated Class C Shares. Under each Fund's charter documents, the Board has
the power to classify or reclassify any unissued shares of the Fund into one or
more additional classes by setting or changing in any one or more respects their
relative rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption. A Board may similarly
classify or reclassify any class of its shares into one or more series and,
without shareholder approval, may increase the number of authorized shares of
the Fund.
The International, Fixed Income and High Yield Funds currently offer
only Institutional shares. The Class A shares of International Fund ceased
operations on August 29, 2002 and the Class B and Class C shares of
Institutional Fund ceased operations on October 23, 2002.
Investors in a Fund are entitled to one vote for each full share held
and fractional votes for fractional shares held. Shareholders of a Fund will
vote in the aggregate except where otherwise required by law and except that
each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the Board unless
and until such time as less than a majority of the members holding office have
been elected by investors. Any Director of a Fund may be removed from office
upon the vote of shareholders holding at least a majority of the relevant Fund's
outstanding shares, at a meeting called for that purpose. A meeting will be
called for the purpose of voting on the removal of a Board member at the written
request of holders of 10% of the outstanding shares of a Fund.
Each investor will receive a quarterly statement of his account, as
well as a statement of his account after any transaction that affects his share
balance or share registration (other than the reinvestment of dividends or
distributions and automatic transactions). Each Fund will also send to its
investors a semiannual report and an audited annual report, each of which
includes a list of the investment securities held by the Fund and a statement of
the performance of the Fund. Periodic listings of the investment securities held
by the Fund, as well as certain statistical characteristics of the Fund, may be
obtained by calling Credit Suisse Funds at 800-927-2874 or on the Credit Suisse
Funds web site at www.CreditSuisseFunds.com.
DISTRIBUTION AND SHAREHOLDER SERVICING.
DISTRIBUTOR. CSAMSI serves as distributor for each Fund's
Institutional shares. CSAMSI offers each Fund's Institutional shares on a
continuous basis. No compensation is payable to CSAMSI for distribution services
for each Fund's Institutional Class. CSAMSI's principal business address is 466
Lexington Avenue, New York, New York 10017.
EXCHANGE PRIVILEGE
An exchange privilege with certain other funds advised by CSAM is
available to investors in each Fund. An Institutional shareholder may exchange
Institutional shares of a Fund for Institutional shares of another Credit Suisse
Fund at their respective net asset values. If you
58
became an Institutional Class shareholder as a result of conversion of your
Common Class shares of a Credit Suisse Fund, you may be able to exchange your
Fund shares for Common Class shares of other Credit Suisse Funds. Not all Credit
Suisse Funds offer all classes of shares.
If an exchange request is received by Credit Suisse Funds or their
agent prior to the close of regular trading on the NYSE, the exchange will be
made at each Fund's net asset value determined at the end of that business day.
Exchanges must satisfy the minimum dollar amount necessary for new purchases and
will be effected without a sales charge.
The exchange privilege is available to shareholders residing in any
state in which the shares being acquired may legally be sold. When an investor
effects an exchange of shares, the exchange is treated for federal income tax
purposes as a redemption. Therefore, the investor may realize a taxable gain or
loss in connection with the exchange. Investors wishing to exchange shares of a
Fund for shares in another Credit Suisse Fund should review the prospectus of
the other fund prior to making an exchange. For further information regarding
the exchange privilege or to obtain a current prospectus for another Credit
Suisse Fund, an investor should contact Credit Suisse Funds at 800-222-8977.
The Funds reserve the right to refuse exchange purchases at any time
and by any person or group if, in CSAM's judgment, a Fund would be unable to
invest the money effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected. Examples of when
an exchange purchase could be refused are when the Fund receives or anticipates
receiving large exchange orders at or about the same time and/or when a pattern
of exchanges within a short period of time (often associated with a "market
timing" strategy) is discerned. The Funds reserve the right to terminate or
modify the exchange privilege at any time upon 60 days' notice to shareholders.
ADDITIONAL INFORMATION CONCERNING TAXES
The following is a summary of the material United States federal
income tax considerations regarding the purchase, ownership and disposition of
shares in the Funds. Each prospective shareholder is urged to consult his own
tax adviser with respect to the specific federal, state, local and foreign tax
consequences of investing in the Funds. The summary is based on the laws in
effect on the date of this Statement of Additional Information, which are
subject to change.
THE FUNDS AND THEIR INVESTMENTS. Each Fund intends to continue to
qualify to be treated as a regulated investment company each taxable year under
the Internal Revenue Code of 1986, as amended (the "Code"). To so qualify, a
Fund must, among other things: (a) derive at least 90% of its gross income in
each taxable year from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock or securities or
foreign currencies, or other income (including, but not limited to, gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies; and (b) diversify its
holdings (the "Asset Diversification Requirement") so that, at the end of each
quarter of the Fund's taxable year, (i) at least 50% of the market value of the
Fund's assets is represented by cash, securities of other regulated investment
companies, United States government securities and other securities, with such
other securities limited, in respect of any
59
one issuer, to an amount not greater than 5% of the Fund's assets and not
greater than 10% of the outstanding voting securities of such issuer and (ii)
not more than 25% of the value of its assets is invested in the securities
(other than United States government securities or securities of other regulated
investment companies) of any one issuer or any two or more issuers that the Fund
controls and which are determined to be engaged in the same or similar trades or
businesses or related trades or businesses.
As a regulated investment company, a Fund will not be subject to
United States federal income tax on its net investment income (I.E., income
other than its net realized long- term and short-term capital gains) and its net
realized long-term and short-term capital gains, if any, that it distributes to
its shareholders, provided that an amount equal to at least 90% of the sum of
its investment company taxable income (I.E., its taxable income minus the
excess, if any, of its net realized long-term capital gains over its net
realized short-term capital losses (including any capital loss carryovers)), and
its net tax-exempt interest income for the taxable year is distributed (the
"Distribution Requirement"), but will be subject to tax at regular corporate
rates on any taxable income or gains that it does not distribute to its
shareholders. Any dividend declared by a Fund in October, November or December
of any calendar year and payable to shareholders of record on a specified date
in such a month shall be deemed to have been received by each shareholder on
December 31 of such calendar year and to have been paid by the Fund not later
than such December 31, provided that such dividend is actually paid by the Fund
during January of the following calendar year.
Each Fund intends to distribute annually to its shareholders
substantially all of its investment company taxable income. The Board of
Directors of each Fund will determine annually whether to distribute any net
realized long-term capital gains in excess of net realized short-term capital
losses (including any capital loss carryovers). Each Fund currently expects to
distribute any such excess annually to its shareholders. However, if a Fund
retains for investment an amount equal to all or a portion of its net long-term
capital gains in excess of its net short-term capital losses and capital loss
carryovers, it will be subject to a corporate tax (currently at a rate of 35%)
on the amount retained. In that event, the Fund will designate such retained
amount as undistributed capital gains in a notice to its shareholders who (a)
will be required to include in income for United Stares federal income tax
purposes, as long-term capital gains, their proportionate shares of the
undistributed amount, (b) will be entitled to credit their proportionate shares
of the 35% tax paid by the Fund on the undistributed amount against their own
United States federal income tax liabilities, if any, and to claim refunds to
the extent their credits exceed their liabilities, if any, and (c) will be
entitled to increase their tax basis, for United States federal income tax
purposes, in their shares by an amount equal to 65% of the amount of
undistributed capital gains included in the shareholder's income. Organizations
or persons not subject to federal income tax on such capital gains will be
entitled to a refund of their pro rata share of such taxes paid by the Fund upon
filing appropriate returns or claims for refund with the Internal Revenue
Service (the "IRS").
The Code imposes a 4% nondeductible excise tax on each Fund to the
extent the Fund does not distribute by the end of any calendar year at least 98%
of its net investment income for that year and 98% of the net amount of its
capital gains (both long-term and short-term) for the one-year period ending, as
a general rule, on October 31 of that year. For this purpose, however, any
income or gains retained by the Fund that is subject to corporate income
60
tax will be considered to have been distributed by year end. In addition, the
minimum amounts that must be distributed in any year to avoid the excise tax
will be increased or decreased to reflect any underdistribution or
overdistribution, as the case may be, from the previous year. Each Fund
anticipates that it will pay such dividends and will make such distributions as
are necessary in order to avoid the application of this tax.
If, in any taxable year, a Fund fails to qualify as a regulated
investment company under the Code or fails to meet the Distribution Requirement,
it would be taxed in the same manner as an ordinary corporation and
distributions to its shareholders would not be deductible by the Fund in
computing its taxable income. In addition, in the event of a failure to qualify,
the Fund's distributions, to the extent derived from the Fund's current or
accumulated earnings and profits would constitute dividends (eligible for the
corporate dividends-received deduction) which are taxable to shareholders as
ordinary income, even though those distributions might otherwise (at least in
part) have been treated in the shareholders' hands as long-term capital gains or
tax-exempt interest. If a Fund fails to qualify as a regulated investment
company in any year, it must pay out its earnings and profits accumulated in
that year in order to qualify again as a regulated investment company. In
addition, if a Fund failed to qualify as a regulated investment company for a
period greater than two taxable years, the Fund may be required to recognize any
net built-in gains (the excess of the aggregate gains, including items of
income, over aggregate losses that would have been realized if the Fund had been
liquidated) in order to qualify as a regulated investment company in a
subsequent year.
A Fund's short sales against the box, if any, and transactions in
foreign currencies, forward contracts, options and futures contracts (including
options and futures contracts on foreign currencies) will be subject to special
provisions of the Code that, among other things, may affect the character of
gains and losses realized by the Fund (I.E., may affect whether gains or losses
are ordinary or capital), accelerate recognition of income to the Fund and defer
Fund losses. These rules could therefore affect the character, amount and timing
of distributions to shareholders. These provisions also (a) will require the
Fund to mark-to-market certain types of the positions in its portfolio (I.E.,
treat them as if they were closed out) and (b) may cause the Fund to recognize
income without receiving cash with which to pay dividends or make distributions
in amounts necessary to satisfy the distribution requirements for avoiding
income and excise taxes. Each Fund will monitor its transactions, will make the
appropriate tax elections and will make the appropriate entries in its books and
records when it engages in short sales or acquires any foreign currency, forward
contract, option, futures contract or hedged investment in order to mitigate the
effect of these rules and prevent disqualification of the Fund as a regulated
investment company.
A Fund's investments in zero-coupon securities, if any, may create
special tax consequences. Zero-coupon securities do not make interest payments,
although a portion of the difference between a zero-coupon security's face value
and its purchase price is imputed as income to the Fund each year even though
the Fund receives no cash distribution until maturity. Under the U.S. federal
tax laws, the Fund will not be subject to tax on this income if it pays
dividends to its shareholders that are substantially equal to all the income
received from, or imputed with respect to, its investments during the year,
including its zero-coupon securities. These dividends ordinarily will constitute
taxable income to the shareholders of the Fund.
61
"Constructive sale" provisions apply to activities by a Fund which
lock in gain on an "appreciated financial position." Generally, a "position" is
defined to include stock, a debt instrument, or partnership interest, or an
interest in any of the foregoing, including through a short sale, an option, or
a future or forward contract. The entry into a short sale, a swap contract or a
future or forward contract relating to an appreciated direct position in any
stock or debt instrument, or the acquisition of a stock or debt instrument at a
time when the Fund holds an offsetting (short) appreciated position in the stock
or debt instrument, is treated as a "constructive sale" that gives rise to the
immediate recognition of gain (but not loss). The application of these rules may
cause a Fund to recognize taxable income from these offsetting transactions in
excess of the cash generated by such activities.
SPECIAL TAX CONSIDERATIONS. The following discussion relates to the
particular federal income tax consequences of the investment policies of the
Funds.
STRADDLES. Options transactions that a Fund may enter into may result
in "straddles" for federal income tax purposes. The straddle rules of the Code
may affect the character of gains and losses realized by the Funds. In addition,
losses realized by the Funds on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the investment company taxable income and net capital gain of the
Funds for the taxable year in which such losses are realized. Losses realized
prior to October 31 of any year may be similarly deferred under the straddle
rules in determining the "required distribution" that the Funds must make in
order to avoid federal excise tax. Furthermore, in determining their investment
company taxable income and ordinary income, the Funds may be required to
capitalize, rather than deduct currently, any interest expense on indebtedness
incurred or continued to purchase or carry any positions that are part of a
straddle. The tax consequences to the Funds of holding straddle positions may be
further affected by various elections provided under the Code and Treasury
regulations, but at the present time the Funds are uncertain which (if any) of
these elections they will make.
OPTIONS AND SECTION 1256 CONTRACTS. The writer of a covered put or
call option generally does not recognize income upon receipt of the option
premium. If the option expires unexercised or is closed on an exchange, the
writer generally recognizes short-term capital gain. If the option is exercised,
the premium is included in the consideration received by the writer in
determining the capital gain or loss recognized in the resultant sale. However,
certain options transactions as well as futures transactions and transactions in
forward foreign currency contracts that are traded in the interbank market, will
be subject to special tax treatment as "Section 1256 contracts." Section 1256
contracts are treated as if they are sold for their fair market value on the
last business day of the taxable year (I.E., marked-to-market), regardless of
whether a taxpayer's obligations (or rights) under such contracts have
terminated (by delivery, exercise, entering into a closing transaction or
otherwise) as of such date. Any gain or loss recognized as a consequence of the
year-end marking-to-market of Section 1256 contracts is combined (after
application of the straddle rules that are described above) with any other gain
or loss that was previously recognized upon the termination of Section 1256
contracts during that taxable year. The net amount of such gain or loss for the
entire taxable year is generally treated as 60% long-term capital gain or loss
and 40% short-term capital gain or loss, except in the case of marked-to-market
forward
62
foreign currency contracts for which such gain or loss is treated as ordinary
income or loss. Such short-term capital gain (and, in the case of
marked-to-market forward foreign currency contracts, such ordinary income) would
be included in determining the investment company taxable income of the relevant
Fund for purposes of the Distribution Requirement, even if it were wholly
attributable to the year-end marking-to-market of Section 1256 contracts that
the relevant Fund continued to hold. Investors should also note that Section
1256 contracts will be treated as having been sold on October 31 in calculating
the "required distribution" that a Fund must make to avoid federal excise tax
liability.
Each of the Funds may elect not to have the year-end mark-to-market
rule apply to Section 1256 contracts that are part of a "mixed straddle" with
other investments of such Fund that are not Section 1256 contracts (the "Mixed
Straddle Election").
FOREIGN CURRENCY TRANSACTIONS. In general, gains from "foreign
currencies" and from foreign currency options, foreign currency futures and
forward foreign exchange contracts relating to investments in stock, securities
or foreign currencies will be qualifying income for purposes of determining
whether a Fund qualifies as a regulated investment company. It is currently
unclear, however, who will be treated as the issuer of a foreign currency
instrument or how foreign currency options, futures or forward foreign currency
contracts will be valued for purposes of the Asset Diversification Requirement.
Under Code Section 988 special rules are provided for certain
transactions in a foreign currency other than the taxpayer's functional currency
(I.E., unless certain special rules apply, currencies other than the U.S.
dollar). In general, foreign currency gains or losses from certain forward
contracts, from futures contracts that are not "regulated futures contracts,"
and from unlisted options will be treated as ordinary income or loss. In certain
circumstances where the transaction is not undertaken as part of a straddle, a
Fund may elect capital gain or loss treatment for such transactions.
Alternatively, a Fund may elect ordinary income or loss treatment for
transactions in futures contracts and options on foreign currency that would
otherwise produce capital gain or loss. In general gains or losses from a
foreign currency transaction subject to Code Section 988 will increase or
decrease the amount of the Fund's investment company taxable income available to
be distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund's net capital gain. Additionally, if losses
from a foreign currency transaction subject to Code Section 988 exceed other
investment company taxable income during a taxable year, a Fund will not be able
to make any ordinary dividend distributions, and any distributions made before
the losses were realized but in the same taxable year would be recharacterized
as a return of capital to shareholders, thereby reducing each shareholder's
basis in his shares.
PASSIVE FOREIGN INVESTMENT COMPANIES. If a Fund acquires shares in
certain foreign investment entities, called "passive foreign investment
companies" ("PFICs"), such Fund may be subject to federal income tax and a
deferral interest charge on any "excess distribution" received with respect to
such shares or on any gain recognized upon a disposition of such shares,
notwithstanding the distribution of such income to the shareholders of such
Fund. Additional charges in the nature of interest may also be imposed on a Fund
in respect of such deferred taxes. However, in lieu of being subject to the
foregoing tax consequences, a Fund may elect to have its investment in certain
PFICs taxed as an investment in a "qualified electing fund" ("QEF"). A Fund
making a QEF election would be required to include in its income each year a
ratable portion, whether or not distributed, of the ordinary earnings and net
capital gain of the QEF.
63
Any such QEF inclusions would have to be taken into account by a Fund for
purposes of satisfying the Distribution Requirement and the excise tax
distribution requirement.
A Fund may elect (in lieu of paying deferred tax or making a QEF
election) to mark-to-market annually any PFIC shares that it owns and to include
any gains (but not losses) that it was deemed to realize as ordinary income. A
Fund generally will not be subject to deferred federal income tax on any gains
that it is deemed to realize as a consequence of making a mark-to-market
election, but such gains will be taken into account by the Fund for purposes of
satisfying the Distribution Requirement and the excise tax distribution
requirement.
ASSET DIVERSIFICATION REQUIREMENT. For purposes of the Asset
Diversification Requirement, the issuer of a call option on a security
(including an option written on an exchange) will be deemed to be the issuer of
the underlying security. The IRS has informally ruled, however, that a call
option that is written by a fund need not be counted for purposes of the Asset
Diversification Requirement where the fund holds the underlying security.
However, the IRS has also informally ruled that a put option written by a fund
must be treated as a separate asset and its value measured by "the value of the
underlying security" for purposes of the Asset Diversification Requirement,
regardless (apparently) of whether it is "covered" under the rules of the
exchange. The IRS has not explained whether in valuing a written put option in
this manner a fund should use the current value of the underlying security (its
prospective future investment); the cash consideration that must be paid by the
fund if the put option is exercised (its liability); or some other measure that
would take into account the fund's unrealized profit or loss in writing the
option. Under the Code, a fund may not rely on informal rulings of the Internal
Revenue Service issued to other taxpayers. Consequently, a Fund may find it
necessary to seek a ruling from the IRS on this issue or to curtail its writing
of options in order to stay within the limits of the Asset Diversification
Requirement.
FOREIGN TAXES. Dividends and interest received by the Funds on
investments in foreign securities may be subject to withholding and other taxes
imposed by foreign countries. However, tax conventions between certain countries
and the United States may reduce or eliminate such taxes. If a Fund qualifies as
a regulated investment company, if certain asset and distribution requirements
are satisfied and if more than 50% of the Fund's total assets at the close of
its taxable year consists of stock or securities of foreign corporations, the
Fund may elect for U.S. income tax purposes to treat foreign income taxes paid
by it as paid by its shareholders. A Fund may qualify for and make this election
in some, but not necessarily all, of its taxable years. If a Fund were to make
such an election, shareholders of the Fund would be required to take into
account an amount equal to their pro rata portions of such foreign taxes in
computing their own taxable income and then treat an amount equal to those
foreign taxes as a U.S. federal income tax deduction or as a foreign tax credit
against their own U.S. federal income taxes. Shortly after any year for which it
makes such an election, a Fund will report to its shareholders the amount per
share of such foreign income tax that must be included in each shareholder's
gross income and the amount which will be available for the deduction or credit.
No deduction for foreign taxes may be claimed by a shareholder who does not
itemize deductions. Certain limitations will be imposed on the extent to which
the credit (but not the deduction) for foreign taxes may be claimed.
64
FUND TAXES ON SWAPS. As a result of entering into index swaps, the
Funds may make or receive periodic net payments. They may also make or receive a
payment when a swap is terminated prior to maturity through an assignment of the
swap or other closing transaction. Periodic net payments will constitute
ordinary income or deductions, while termination of a swap will result in
capital gain or loss (which will be a long-term capital gain or loss if the Fund
has been a party to the swap for more than one year).
DIVIDENDS AND DISTRIBUTIONS. Dividends of taxable net investment
income and distributions of net realized short-term capital gains are taxable to
a United States shareholder as ordinary income, whether paid in cash or in
shares. Distributions of net-long-term capital gains, if any, that a Fund
designates as capital gains dividends are taxable as long-term capital gains,
whether paid in cash or in shares and regardless of how long a shareholder has
held shares of the Fund. Dividends and distributions paid by a Fund (except for
the portion thereof, if any, attributable to dividends on stock of U.S.
corporations received by the Fund) will not qualify for the deduction for
dividends received by corporations. Distributions in excess of a Fund's current
and accumulated earnings and profits will, as to each shareholder of such Fund,
be treated as a tax-free return of capital, to the extent of the shareholder's
basis in his shares of the Fund, and as a capital gain thereafter (if the
shareholder holds his shares of the Fund as capital assets).
Shareholders receiving dividends or distributions in the form of
additional shares should be treated for United States federal income tax
purposes as receiving a distribution in an amount equal to the amount of money
that the shareholders receiving cash dividends or distributions will receive,
and should have a cost basis in the shares received equal to such amount.
Investors considering buying shares just prior to a dividend or
capital gain distribution should be aware that, although the price of shares
just purchased at that time may reflect the amount of the forthcoming
distribution, such dividend or distribution may nevertheless be taxable to them.
If a Fund is the holder of record of any stock on the record date for
any dividends payable with respect to such stock, such dividends are included in
the Fund's gross income not as of the date received but as of the later of (a)
the date such stock became ex-dividend with respect to such dividends (I.E., the
date on which a buyer of the stock would not be entitled to receive the
declared, but unpaid, dividends) or (b) the date the Fund acquired such stock.
Accordingly, in order to satisfy its income distribution requirements, a Fund
may be required to pay dividends based on anticipated earnings, and shareholders
may receive dividends in an earlier year than would otherwise be the case.
SALES OF SHARES. Upon the sale or exchange of his shares, a
shareholder will realize a taxable gain or loss equal to the difference between
the amount realized and his basis in his shares. Such gain or loss will be
treated as capital gain or loss, if the shares are capital assets in the
shareholder's hands, and will be long-term capital gain or loss if the shares
are held for more than one year and short-term capital gain or loss if the
shares are held for one year or less. Any loss realized on a sale or exchange
will be disallowed to the extent the shares disposed of are replaced, including
replacement through the reinvesting of dividends and capital gains distributions
in a Fund, within a 61-day period beginning 30 days before and ending 30 days
65
after the disposition of the shares. In such a case, the basis of the shares
acquired will be increased to reflect the disallowed loss. Any loss realized by
a shareholder on the sale of a Fund share held by the shareholder for six months
or less will be treated for United States federal income tax purposes as a
long-term capital loss to the extent of any distributions or deemed
distributions of long-term capital gains received by the shareholder with
respect to such share.
BACKUP WITHHOLDING. A Fund may be required to withhold, for United
States federal income tax purposes, a portion of the dividends, distributions
and redemption proceeds payable to shareholders who fail to provide the Fund
with their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject to
backup withholding. Certain shareholders are exempt from backup withholding.
Backup withholding is not an additional tax and any amount withheld may be
credited against a shareholder's United States federal income tax liabilities.
NOTICES. Shareholders will be notified annually by the relevant Fund
as to the United States federal income tax status of the dividends,
distributions and deemed distributions attributable to undistributed capital
gains (discussed above in "The Funds and Their Investments") made by the Fund to
its shareholders. Furthermore, shareholders will also receive, if appropriate,
various written notices after the close of the Fund's taxable year regarding the
United States federal income tax status of certain dividends, distributions and
deemed distributions that were paid (or that are treated as having been paid) by
the Fund to its shareholders during the preceding taxable year.
OTHER TAXATION. Distributions also may be subject to additional state,
local and foreign taxes depending on each shareholder's particular situation.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL FEDERAL INCOME TAX
CONSEQUENCES AFFECTING THE FUNDS AND THEIR SHAREHOLDERS. SHAREHOLDERS ARE
ADVISED TO CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF AN INVESTMENT IN THE FUNDS.
DETERMINATION OF PERFORMANCE
From time to time, a Fund may quote the total return of its shares in
advertisements or in reports and other communications to shareholders. The net
asset value per share of Institutional Shares is listed in THE WALL STREET
JOURNAL each business day under "Credit Suisse Institutional Funds." Current
total return figures may be obtained by calling CSAM Institutional Shares at
800-222-8977.
66
AVERAGE ANNUAL TOTAL RETURN. Each Fund that advertises its "average
annual total return" computes such return by determining the average annual
compounded rate of return during specified periods that equates the initial
amount invested to the ending redeemable value of such investment according to
the following formula:
n
P(1+T) = ERV
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the l, 5 or 10 year (or other)
periods at the end of the applicable period (or a
fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in years.
Each Fund that advertises its "aggregate total return" computes such
returns by determining the aggregate compounded rates of return during specified
periods that likewise equate the initial amount invested to the ending
redeemable value of such investment. The formula for calculating aggregate total
return is as follows:
Aggregate Total Return = [(ERV) - l]
P
The calculations are made assuming that (1) all dividends and capital
gain distributions are reinvested on the reinvestment dates at the price per
share existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formulas) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period.
The average annual total returns for each Fund for the periods ended
August 31, 2002 were as follows:
FUND 1 YEAR 3 YEAR (ANN.) 5 YEAR (ANN.) SINCE INCEPTION (ANN.)
- -------------------------------------------------------------------------------------------------------------
International -20.35% -14.77% -3.82% 2.97% (09/30/92)
Fixed Income -2.92% 5.31% 5.20% 6.32% (03/31/94)
High Yield -6.88% -3.66% -1.03% 4.57% (02/26/93)
67
The aggregate total returns for each Fund for the period ended August
31, 2002 since inception were as follows:
FUND AGGREGATE RETURN INCEPTION DATE
- -------------------------------------------------------------------------------------------------------------
International 19.62% 09/30/92
Fixed Income 67.50% 03/31/94
High Yield 53.01% 02/26/93
Performance information provided above reflects the performance of
each Fund's predecessor, the Institutional Shares of the corresponding
investment portfolio of the RBB Fund, Inc.
YIELD. Certain Funds may advertise a 30-day (or one month) yield. Such
yields are calculated in accordance with the method prescribed by the SEC for
mutual funds:
6
YIELD = 2[(a - b +1) - 1]
----
cd
Where: a = dividends and interest earned by a Fund during the period;
b = expenses accrued for the period (net of reimbursements);
c = average daily number of shares outstanding during the period,
entitled to receive dividends; and
d = maximum offering price per share on the last day of the
period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the Fund. Except as noted below, interest
earned on debt obligations held by a Fund is calculated by computing the yield
to maturity of each obligation based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the obligation for each day of the subsequent month that the obligation is held
by the Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market value of such debt obligations. Expenses accrued
for the period (variable "b" in the formula) include all
68
recurring fees charged by a Fund to all shareholder accounts in proportion to
the length of the base period and the Fund's mean (or median) account size.
Undeclared earned income will be subtracted from the offering price per share
(variable "d" in the formula).
With respect to receivables-backed obligations that are expected to be
subject to monthly payments of principal and interest ("pay-downs"), (i) gain or
loss attributable to actual monthly pay downs are accounted for as an increase
or decrease to interest income during the period, and (ii) each Fund may elect
either (a) to amortize the discount and premium on the remaining security, based
on the cost of the security, to the weighted average maturity date, if such
information is available, or to the remaining term of the security, if any, if
the weighted average date is not available or (b) not to amortize discount or
premium on the remaining security.
Based on the foregoing calculation, the yields for the Institutional
Shares of the following Funds for the 30-day period ended August 31, 2002 were
as follows:
30-DAY YIELD 30-DAY YIELD
FUND (WITH WAIVER) (WITHOUT WAIVER)
- --------------------------------------------------------------------------
Fixed Income 5.13% 5.00%
High Yield 12.79% 12.19%
AFTER-TAX RETURN. From time to time the Funds may include after-tax
performance information in advertisements. To the extent the Funds include such
information, it will be computed according to the following formulas:
AVERAGE ANNUAL TOTAL RETURN (AFTER TAXES ON DISTRIBUTIONS)
n
P(1 + T) = ATV
D
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return (after taxes on distributions).
n = number of years.
ATV = ending value of a hypothetical $1,000 investment made at the
D beginning of the 1-, 5- or 10-year periods at the end of the
1-, 5- or 10-year (or fractional portion thereof), after
taxes on Fund distributions but not after taxes on redemption.
69
The average annual total returns (after taxes on distributions) for each Fund
for the periods ended August 31, 2002 were as follows:
FUND 1 YEAR 3 YEAR 5 YEAR SINCE INCEPTION
- -------------------------------------------------------------------------------------------------------------
International -20.35% -18.85% -7.66% 0.57% 9/30/92
Fixed Income -5.87% 2.42% 2.36% 3.54% 3/31/94
High Yield -10.67% -7.64% -4.78% 1.01% 2/26/93
AVERAGE ANNUAL TOTAL RETURN (AFTER TAXES ON DISTRIBUTION AND REDEMPTIONS)
n
P(1 + T) = ATV
DR
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return (after taxes on distributions and
redemption).
n = number of years.
ATV = ending value of a hypothetical $1,000 investment made at the
DR beginning of the 1-, 5- or 10-year period at the end of the 1-,
5- or 10-year (or fractional portion thereof), after taxes on
fund distributions and redemption.
The average annual total returns (after taxes on distributions and redemptions
of Fund shares) for each Fund for the periods ended August 31, 2002 were as
follows:
FUND 1 YEAR 3 YEAR 5 YEAR SINCE INCEPTION
- -------------------------------------------------------------------------------------------------------------
International -12.49% -11.48% -3.05% 2.28% 9/30/92
Fixed Income -1.71% 2.85% 2.78% 3.70% 3/31/94
High Yield -4.17% -4.66% -2.46% 2.02% 2/26/93
The Funds' performance may be favorably affected by expense waivers
and/or reimbursements. The performance information provided above has not been
restated to adjust for the expense waivers and/or reimbursements. Had these
expense adjustments been made, the performance information shown above would
have been lower.
GENERAL. The performance of a class of a Fund's shares will vary from
time to time depending upon market conditions, the composition of the Fund's
portfolio and operating expenses allocable to it. As described above, total
return and yield are based on historical earnings and are not intended to
indicate future performance. Consequently, any given performance quotation
should not be considered as representative of performance for any specified
period in the future. Performance information may be useful as a basis for
comparison with other investment alternatives. However, each Fund's performance
will fluctuate, unlike certain bank deposits or other investments which pay a
fixed yield for a stated period of time.
70
Reference may be made in advertising Fund shares to opinions of Wall
Street economists and analysts regarding economic cycles and their effects
historically on the performance of small companies, both as a class and relative
to other investments. A Fund may also discuss its beta, or volatility relative
to the market, and make reference to its relative performance in various market
cycles in the United States.
Each Fund may compare its performance with (i) that of other mutual
funds with similar investment objectives and policies, which may be based on the
rankings prepared by Lipper Inc. or similar investment services that monitor the
performance of mutual funds; (ii) MSCI EAFE Index, Lehman Brothers Aggregate
Bond Index, CS First Boston High Yield Index (developed countries only) or
Salomon Smith Barney High Yield Market Index; or (iii) other appropriate indexes
of investment securities or with data developed by CSAM derived from such
indexes. Each Fund may also include evaluations of the Fund published by
nationally recognized ranking services and by financial publications such as
BARRON'S, BUSINESS WEEK, FINANCIAL TIMES, FORBES, FORTUNE, INC., INSTITUTIONAL
INVESTOR, INVESTOR'S BUSINESS DAILY, MONEY, MORNINGSTAR, MUTUAL FUND MAGAZINE,
SMARTMONEY, THE WALL STREET JOURNAL and WORTH. Morningstar, Inc. rates funds in
broad categories based on risk/reward analyses over various time periods. In
addition, the Fund may from time to time compare the expense ratio of its shares
to those of investment companies with similar objectives and policies, based on
data generated by Lipper Analytical Services, Inc. or similar investment
services that monitor mutual funds.
In reports or other communications to investors or in advertising, a
Fund may also describe the general biography or work experience of the portfolio
managers of the Fund and may include quotations attributable to the portfolio
managers describing approaches taken in managing the Fund's investments,
research methodology underlying stock selection or the Fund's investment
objective. In addition, the Fund and its portfolio managers may render periodic
updates of Fund activity, which may include a discussion of significant
portfolio holdings; analysis of holdings by industry, country, credit quality
and other characteristics; and comparison and analysis of the Fund with respect
to relevant market industry benchmarks. The Fund may also discuss measures of
risk, the continuum of risk and return relating to different investments and the
potential impact of foreign stocks on a portfolio otherwise composed of domestic
securities.
INDEPENDENT ACCOUNTANTS AND COUNSEL
PricewaterhouseCoopers LLP ("PwC"), with principal offices at Two
Commerce Square, 2100 Market Street, Philadelphia, Pennsylvania 19103, serves as
independent accountants for each Fund. The financial statements that are
incorporated by reference in this Statement of Additional Information have been
audited by PwC, and have been included herein in reliance upon the report of
such firm of independent accountants given upon their authority as experts in
accounting and auditing.
Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York
10019, serves as counsel for each Fund and provides legal services from time to
time for CSAM and CSAMSI.
71
MISCELLANEOUS
As of November 15, 2002, the name, address and percentage of ownership
of each person that owns of record 5% or more of each Fund's outstanding shares
were as follows:
PERCENT
OWNED AS OF
FUND NAME AND ADDRESS NOVEMBER 15, 2002
- ----------------------------------------------------------------------------------------------------------------
International Fund - Northern Trust Company TTEE* 47.40%
Institutional FBO Tyco International Ltd.
A/C # 22-07149
P.O. Box 92956
Chicago, IL 60675-2956
TBG Commingled Trust* 12.85%
1350 Avenue of the Americas, Ste. 840
New York, NY 10019-4702
Northern Marianas Island 8.90%
Retirement Fund*
First Floor Nauru Bldg.
P.O. Box 1247
Saipan, MP 96950-1247
DCA Food Industries Inc. 6.27%
100 East Grand Avenue
Beloit, WI 53511-6255
Butler University 5.37%
4600 Sunset Avenue
Indianapolis, IN 46208-3487
Fixed Income Fund-- Fidelity Investments Institutional 33.01%
Institutional Operations Co. Inc. (FIIOC) as agent
FOR CREDIT SUISSE FIRST BOSTON
EMPLOYEES SAVINGS PSP*
100 Magellan Way #KWIC
Covington, KY 41015
72
PERCENT
OWNED AS OF
FUND NAME AND ADDRESS NOVEMBER 15, 2002
- ----------------------------------------------------------------------------------------------------------------
Northern Trust Company* 31.76%
FBO Norvartis Investment
Plan & Trust
A/c#03-12360
P O Box 92956
Chicago, IL 60675-2956
Huntington Hospital Pension Plan 8.73%
270 Park Ave
Huntington, NY 11743-2799
DCA Food Industries Inc. 5.79%
100 East Grand Avenue
Beloit, WI 53511-6255
High Yield Fund-- Advantus Capital Mgmt Inc* 55.04%
Institutional 400 Robert St. N
Saint Paul, MN 55101-2015
Fidelity Investments Institutional 15.44%
Operations Co Inc as Agent for
Certain Employee Benefits Plan*
100 Magellan Way # KWIC
Covington, KY 41015-1999
* Each Fund believes that these entities are not the beneficial owners of
shares held of record by them.
73
FINANCIAL STATEMENTS
Each Fund's audited financial report dated August 31, 2002, which
either accompanies this Statement of Additional Information or has previously
been provided to the investor to whom this Statement of Additional Information
is being sent, is incorporated herein by reference with respect to all
information regarding the relevant Fund included therein. Each Fund will furnish
without charge a copy of the annual report upon request by calling Credit Suisse
Funds at 800-222-8977.
74
APPENDIX A
DESCRIPTION OF RATINGS
COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by Standard and Poor's Ratings Services
("S&P") indicates that the degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted with a plus sign designation. Capacity for timely payment on commercial
paper rated A-2 is satisfactory, but the relative degree of safety is not as
high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Service, Inc. ("Moody's"). Issuers rated Prime-1 (or related
supporting institutions) are considered to have a superior capacity for
repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics of issuers rated Prime-1 but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
CORPORATE BOND RATINGS
The following summarizes the ratings used by S&P for corporate bonds:
AAA - This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay interest and repay principal.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB - This is the lowest investment grade. Debt rated BBB is regarded
as having an adequate capacity to pay interest and repay principal. Although it
normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds in higher
rated categories.
BB, B and CCC - Debt rated BB and B are regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB represents a lower
degree of speculation than B, and CCC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
BB - Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which could
lead to inadequate capacity to meet timely interest and principal payments. The
BB rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B - Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to
default and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C - This rating is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
Additionally, the rating CI is reserved for income bonds on which no
interest is being paid. Such debt is rated between debt rated C and debt rated
D.
To provide more detailed indications of credit quality, the ratings
may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
D - Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
The following summarizes the ratings used by Moody's for corporate
bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
A-2
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.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
A-3
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality, enjoying
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality, with margins
of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with
all security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality, carrying
specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack of
margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
A-4
[CREDIT SUISSE ASSET MANAGEMENT LOGO]
CREDIT SUISSE INSTITUTIONAL FUND
ANNUAL REPORT
OCTOBER 31, 2002
CREDIT SUISSE INSTITUTIONAL FUND, INC.
- - - INTERNATIONAL FOCUS PORTFOLIO
MORE COMPLETE INFORMATION ABOUT THE FUND AND THE PORTFOLIO, INCLUDING CHARGES
AND EXPENSES, IS PROVIDED IN THE PROSPECTUS, WHICH MUST PRECEDE OR ACCOMPANY
THIS DOCUMENT AND WHICH SHOULD BE READ CAREFULLY BEFORE INVESTING. YOU MAY
OBTAIN ADDITIONAL COPIES BY CALLING 800-222-8977 OR BY WRITING TO CREDIT SUISSE
INSTITUTIONAL FUND, P.O. BOX 55030, BOSTON, MA 02205-5030.
CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC., DISTRIBUTOR, IS LOCATED AT
466 LEXINGTON AVE., NEW YORK, NY 10017-3147. CREDIT SUISSE INSTITUTIONAL FUND IS
ADVISED BY CREDIT SUISSE ASSET MANAGEMENT, LLC.
<Page>
THE PORTFOLIO'S INVESTMENT ADVISER AND CO-ADMINISTRATORS MAY WAIVE SOME FEES
AND/OR REIMBURSE SOME EXPENSES, WITHOUT WHICH PERFORMANCE WOULD BE LOWER.
WAIVERS AND/OR REIMBURSEMENTS ARE SUBJECT TO CHANGE.
RETURNS INCLUDE CHANGE IN SHARE PRICE AND REINVESTMENT OF DIVIDENDS AND CAPITAL
GAINS. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. RETURNS AND SHARE PRICE
WILL FLUCTUATE, AND REDEMPTION VALUE MAY BE MORE OR LESS THAN ORIGINAL COST.
THE VIEWS OF THE PORTFOLIO'S MANAGEMENT ARE AS OF THE DATE OF THE LETTER AND THE
PORTFOLIO HOLDINGS DESCRIBED IN THIS DOCUMENT ARE AS OF OCTOBER 31, 2002; THESE
VIEWS AND PORTFOLIO HOLDINGS MAY HAVE CHANGED SUBSEQUENT TO THESE DATES. NOTHING
IN THIS DOCUMENT IS A RECOMMENDATION TO PURCHASE OR SELL SECURITIES.
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF CREDIT SUISSE ASSET
MANAGEMENT, LLC ("CSAM") OR ANY AFFILIATE, ARE NOT FDIC-INSURED AND ARE NOT
GUARANTEED BY CSAM OR ANY AFFILIATE.
<Page>
CREDIT SUISSE INSTITUTIONAL FUND, INC. -- INTERNATIONAL FOCUS PORTFOLIO
ANNUAL INVESTMENT ADVISER'S REPORT
October 31, 2002
December 2, 2002
Dear Shareholder:
For the 12 months ended October 31, 2002, Credit Suisse Institutional Fund,
Inc. -- International Focus Portfolio (the "Portfolio")(1) was down 11.56%, vs.
a decline of 10.88% for the MSCI All Country World Free Ex-USA Index.(2)
The Portfolio's fiscal year was a challenging time for non-U.S. equities. As
represented by its benchmark, foreign stocks rose modestly in November,
weathered some turbulence in December through February, and had a generally
positive tone in March through mid-May. They benefited mainly from improving
perceptions about economic growth in the U.S. and globally, as well as the
absence in Europe and Asia of the kind of accounting irregularities and
corporate governance issues that were hurting the U.S. market.
Aggregate share prices declined for most of the fiscal year thereafter,
however, as the economic picture worsened and expectations about the timing and
pace of a global economic recovery became less optimistic. Other factors that
contributed to poor investor sentiment included the lack of meaningful
improvement in the outlook for corporate profitability; the diminishing
likelihood that global corporate spending, particularly on technology and
telecom infrastructure, would rebound; instability in the Middle East and South
Asia; and rising anxiety about a potential war with Iraq.
Most individual developed markets fared poorly amidst the conditions we have
described. The best performers (i.e., as denominated in U.S. dollars) were
non-Japan Asian countries like New Zealand, Singapore and Australia, while
virtually all European countries ended the year in decidedly negative territory.
The Portfolio underperformed the broad universe of non-U.S. equities (as
represented by its benchmark) primarily as a result of our holdings in
consumer-oriented, energy and health care companies.
The most favorable contributions to the Portfolio's overall return came from
effective stock selection in financial services, telecommunications, technology
and basic materials companies. Viewed geographically, performance compared to
the benchmark was best in South Korea, France, Sweden, Norway and Ireland; and
least beneficial in the U.K., Canada, Switzerland, Denmark and the Netherlands.
Looking ahead, we continue to position the Portfolio in what we believe are
reasonably valued businesses that are well-situated to grow in the current
environment. Valuations and growth prospects appear attractive to us in a
1
<Page>
number of areas. The industries in which the portfolio is most heavily invested
at present are financial services (notably banks in Europe and non-Japan Asia);
industrials (in Europe); and technology (in which we own a carefully chosen
group of market leaders whose valuations we consider to be historically low). On
a geographical level, we favor Europe and non-Japan Asia at the expense of
Japan.
Vincent J. McBride, Nancy Nierman, Todd Jacobson,
Co-Portfolio Manager Co-Portfolio Manager Co-Portfolio Manager
INTERNATIONAL INVESTING ENTAILS SPECIAL RISK CONSIDERATIONS, INCLUDING
CURRENCY FLUCTUATIONS, LOWER LIQUIDITY, ECONOMIC AND POLITICAL RISKS, AND
DIFFERENCES IN ACCOUNTING METHODS. THE PORTFOLIO'S 15 LARGEST HOLDINGS MAY
ACCOUNT FOR 40% OR MORE OF THE PORTFOLIO'S ASSETS. AS A RESULT OF THIS STRATEGY,
THE PORTFOLIO MAY BE SUBJECT TO GREATER VOLATILITY THAN A FUND THAT INVESTS IN A
LARGER NUMBER OF ISSUERS.
2
<Page>
[CHART]
COMPARISON OF CHANGE IN VALUE OF $3,000,000 INVESTMENT IN THE
CREDIT SUISSE INSTITUTIONAL FUND, INC.-- INTERNATIONAL FOCUS PORTFOLIO(1)
AND THE MSCI ALL COUNTRY WORLD FREE EX-USA INDEX(2)
FOR TEN YEARS. (UNAUDITED)
<Table>
<Caption>
CREDIT SUISSE INSTITUTIONAL FUND, INC. - MSCI ALL COUNTRY
INTERNATIONAL FOCUS PORTFOLIO(1) -- $4,786,500 WORLD FREE EX - USA INDEX(2) -- $4,512,673
10/92 $ 3,000,000 $ 3,000,000
11/92 $ 3,068,820 $ 3,016,602
12/92 $ 3,130,626 $ 3,041,788
1/93 $ 3,193,677 $ 3,041,435
2/93 $ 3,253,526 $ 3,134,515
3/93 $ 3,477,174 $ 3,392,608
4/93 $ 3,685,248 $ 3,692,270
5/93 $ 3,751,361 $ 3,774,464
6/93 $ 3,669,465 $ 3,729,291
7/93 $ 3,801,759 $ 3,853,245
8/93 $ 4,056,887 $ 4,060,045
9/93 $ 4,041,151 $ 3,976,578
10/93 $ 4,249,018 $ 4,120,411
11/93 $ 4,179,725 $ 3,806,609
12/93 $ 4,770,250 $ 4,103,509
1/94 $ 5,232,614 $ 4,440,978
2/94 $ 5,120,972 $ 4,407,395
3/94 $ 4,700,108 $ 4,205,523
4/94 $ 4,808,551 $ 4,348,191
5/94 $ 4,971,175 $ 4,349,652
6/94 $ 4,910,614 $ 4,380,500
7/94 $ 5,082,799 $ 4,451,727
8/94 $ 5,309,176 $ 4,601,519
9/94 $ 5,184,811 $ 4,487,613
10/94 $ 5,210,354 $ 4,608,235
11/94 $ 4,990,372 $ 4,385,943
12/94 $ 4,811,385 $ 4,375,680
1/95 $ 4,402,307 $ 4,177,221
2/95 $ 4,325,165 $ 4,154,363
3/95 $ 4,600,076 $ 4,389,085
4/95 $ 4,747,581 $ 4,560,299
5/95 $ 4,747,549 $ 4,540,151
6/95 $ 4,703,932 $ 4,477,347
7/95 $ 4,995,634 $ 4,731,593
8/95 $ 5,062,682 $ 4,567,421
9/95 $ 5,176,663 $ 4,645,474
10/95 $ 5,062,682 $ 4,521,356
11/95 $ 5,133,077 $ 4,627,545
12/95 $ 5,288,110 $ 4,810,513
1/96 $ 5,447,532 $ 4,876,595
2/96 $ 5,454,443 $ 4,876,785
3/96 $ 5,499,458 $ 4,967,567
4/96 $ 5,832,131 $ 5,118,278
5/96 $ 5,714,338 $ 5,041,417
6/96 $ 5,794,058 $ 5,066,982
7/96 $ 5,513,401 $ 4,898,530
8/96 $ 5,555,025 $ 4,927,265
9/96 $ 5,648,588 $ 5,049,623
10/96 $ 5,593,170 $ 4,999,062
11/96 $ 5,839,226 $ 5,191,915
12/96 $ 5,882,181 $ 5,131,793
1/97 $ 5,864,185 $ 5,037,522
2/97 $ 5,939,765 $ 5,129,900
3/97 $ 5,903,754 $ 5,119,148
4/97 $ 6,018,834 $ 5,162,318
5/97 $ 6,436,174 $ 5,481,184
6/97 $ 6,716,772 $ 5,783,608
7/97 $ 6,932,647 $ 5,900,709
8/97 $ 6,374,997 $ 5,436,523
9/97 $ 6,673,552 $ 5,730,444
10/97 $ 5,939,602 $ 5,242,559
11/97 $ 5,784,872 $ 5,177,048
12/97 $ 5,730,726 $ 5,236,631
1/98 $ 5,790,050 $ 5,393,274
2/98 $ 6,197,097 $ 5,753,141
3/98 $ 6,548,895 $ 5,951,923
4/98 $ 6,703,030 $ 5,994,551
5/98 $ 6,699,048 $ 5,885,846
6/98 $ 6,497,478 $ 5,863,721
7/98 $ 6,616,018 $ 5,919,455
8/98 $ 5,663,518 $ 5,084,694
9/98 $ 5,402,698 $ 4,977,285
10/98 $ 5,695,171 $ 5,498,645
11/98 $ 5,995,519 $ 5,794,143
12/98 $ 6,082,949 $ 5,993,768
1/99 $ 6,110,892 $ 5,987,349
2/99 $ 5,899,470 $ 5,853,292
3/99 $ 6,138,777 $ 6,135,895
4/99 $ 6,230,495 $ 6,442,794
5/99 $ 6,019,043 $ 6,140,176
6/99 $ 6,505,667 $ 6,422,317
7/99 $ 6,884,590 $ 6,572,946
8/99 $ 7,040,099 $ 6,595,748
9/99 $ 7,179,677 $ 6,640,355
10/99 $ 7,518,777 $ 6,887,615
11/99 $ 8,324,440 $ 7,163,016
12/99 $ 9,592,277 $ 7,846,167
1/00 $ 9,094,245 $ 7,420,403
2/00 $ 9,872,606 $ 7,620,835
3/00 $ 9,646,647 $ 7,907,638
4/00 $ 8,792,898 $ 7,466,281
5/00 $ 8,499,872 $ 7,275,293
6/00 $ 8,751,007 $ 7,585,061
7/00 $ 8,244,610 $ 7,285,610
8/00 $ 8,604,456 $ 7,375,711
9/00 $ 8,005,973 $ 6,966,581
10/00 $ 7,369,859 $ 6,745,155
11/00 $ 7,001,586 $ 6,442,540
12/00 $ 7,257,011 $ 6,662,559
1/01 $ 7,383,499 $ 6,762,491
2/01 $ 6,617,828 $ 6,227,105
3/01 $ 6,065,256 $ 5,786,936
4/01 $ 6,344,856 $ 6,180,523
5/01 $ 6,245,001 $ 6,009,847
6/01 $ 6,171,777 $ 5,779,352
7/01 $ 6,065,260 $ 5,650,767
8/01 $ 5,892,131 $ 5,510,424
9/01 $ 5,199,706 $ 4,925,829
10/01 $ 5,412,755 $ 5,063,841
11/01 $ 5,665,739 $ 5,295,451
12/01 $ 5,812,219 $ 5,363,672
1/02 $ 5,719,034 $ 5,133,962
2/02 $ 5,732,328 $ 5,170,932
3/02 $ 6,051,618 $ 5,473,307
4/02 $ 6,038,305 $ 5,487,253
5/02 $ 6,025,020 $ 5,547,026
6/02 $ 5,785,225 $ 5,307,511
7/02 $ 5,179,454 $ 4,790,267
8/02 $ 5,199,759 $ 4,790,564
9/02 $ 4,586,967 $ 4,282,908
10/02 $ 4,786,500 $ 4,512,673
</Table>
Past performance is not predictive of future performance. Investment return and
principal value of an investment will fluctuate so that an investor's shares
upon redemption may be worth more or less than their original cost. The
performance results do not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
3
<Page>
AVERAGE ANNUAL RETURNS AS OF SEPTEMBER 30, 2002(1)
<Table>
<Caption>
ONE YEAR FIVE YEAR TEN YEAR SINCE INCEPTION
-------- --------- -------- ---------------
(11.78%) (7.22%) 4.08% 3.90%
</Table>
AVERAGE ANNUAL RETURNS AS OF OCTOBER 31, 2002(1)
<Table>
ONE YEAR FIVE YEAR TEN YEAR SINCE INCEPTION
-------- --------- -------- ---------------
(11.56%) (4.22%) 4.78% 4.30%
</Table>
- - ----------
(1) Fee waivers and/or expense reimbursements reduced expenses for the
Portfolio, without which performance would be lower. Waivers and/or
reimbursements may be discontinued at any time.
(2) Effective November 1, 2001, the Portfolio changed its benchmark index from
the Morgan Stanley Capital International All Country World Ex-USA Index to
the Morgan Stanley Capital International All Country World Free Ex-USA Index
because the Morgan Stanley Capital International All Country World Ex-USA
Index was discontinued as of October 31, 2001. The Morgan Stanley Capital
All Country World Free Ex-USA Index is a free float-adjusted market
capitalization index that is designed to measure equity-market performance
in the global developed and emerging markets, excluding the U.S. It is the
exclusive property of Morgan Stanley Capital International Inc. Investors
cannot invest directly in an index.
4
<Page>
CREDIT SUISSE INSTITUTIONAL FUND, INC. -- INTERNATIONAL FOCUS PORTFOLIO
SCHEDULE OF INVESTMENTS
October 31, 2002
<Table>
<Caption>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS (91.7%)
AUSTRALIA (1.5%)
BANKS (1.5%)
National Australia Bank, Ltd. 35,057 $ 668,753
------------
TOTAL AUSTRALIA 668,753
------------
BRAZIL (1.6%)
METALS & MINING (1.6%)
Companhia Vale do Rio Doce ADR* 13,180 347,293
Companhia Vale do Rio Doce ADR Clase A* 13,600 346,800
------------
TOTAL BRAZIL 694,093
------------
DENMARK (3.3%)
COMMERCIAL SERVICES & SUPPLIES (1.2%)
ISS A/S* 17,000 548,209
------------
DIVERSIFIED TELECOMMUNICATION SERVICES (2.1%)
TDC A/S 43,758 944,613
------------
TOTAL DENMARK 1,492,822
------------
FINLAND (0.8%)
PAPER & FOREST PRODUCTS (0.8%)
Stora Enso Oyj 33,263 345,879
------------
TOTAL FINLAND 345,879
------------
FRANCE (11.3%)
AUTO COMPONENTS (1.5%)
Compagnie Generale des Etablissements Michelin Class B 22,800 662,925
------------
BANKS (2.1%)
BNP Paribas SA 23,650 942,928
------------
CONSTRUCTION & ENGINEERING (2.2%)
Vinci SA 17,350 969,064
------------
INSURANCE (3.4%)
Axa 102,190 1,525,089
------------
OIL & GAS (2.1%)
Total Fina Elf SA 6,820 939,475
------------
TOTAL FRANCE 5,039,481
------------
GERMANY (2.8%)
AUTOMOBILES (1.4%)
DaimlerChrysler AG 18,600 640,090
------------
ELECTRIC UTILITIES (1.4%)
E.ON AG 13,500 605,628
------------
TOTAL GERMANY 1,245,718
------------
See Accompanying Notes to Financial Statements.
5
<Page>
<Caption>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS (CONTINUED)
HONG KONG (4.7%)
ELECTRIC UTILITIES (2.9%)
Hongkong Electric Holdings, Ltd. 318,700 $ 1,295,378
------------
MEDIA (1.8%)
Television Broadcasts, Ltd. 231,100 792,646
------------
TOTAL HONG KONG 2,088,024
------------
HUNGARY (2.3%)
BANKS (2.3%)
OTP Bank 117,000 1,036,119
------------
TOTAL HUNGARY 1,036,119
------------
IRELAND (3.9%)
BANKS (3.9%)
Allied Irish Banks PLC 87,000 1,223,436
Bank of Ireland 47,000 535,710
------------
TOTAL IRELAND 1,759,146
------------
ITALY (2.2%)
INSURANCE (2.2%)
Riunione Adriatica di Sicurta SpA (RAS) 77,940 970,990
------------
TOTAL ITALY 970,990
------------
JAPAN (14.4%)
AUTOMOBILES (1.4%)
Honda Motor Company, Ltd. 17,600 630,695
------------
BEVERAGES (1.4%)
Asahi Breweries, Ltd. 96,000 631,609
------------
LEISURE & ENTERTAINMENT PRODUCTS (1.3%)
Nintendo Company, Ltd. 6,300 606,827
------------
MACHINERY (1.2%)
NSK, Ltd. 217,800 524,472
------------
OFFICE ELECTRONICS (1.6%)
Canon, Inc. 19,000 701,026
------------
PERSONAL PRODUCTS (1.6%)
Shiseido Company, Ltd. 63,000 700,422
------------
PHARMACEUTICALS (2.3%)
Takeda Chemical Industries, Ltd. 24,300 1,009,640
------------
REAL ESTATE (1.5%)
Mitsui Fudosan Company, Ltd. 86,000 659,184
------------
See Accompanying Notes to Financial Statements.
6
<Page>
<Caption>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS (CONTINUED)
JAPAN (CONTINUED)
SPECIALTY RETAIL (2.1%)
Yamada Denki Company, Ltd. 11,900 $ 293,357
Yamada Denki Company, Ltd. W/I* 27,200 659,428
------------
952,785
------------
TOTAL JAPAN 6,416,660
------------
MEXICO (1.5%)
MEDIA (1.5%)
Grupo Televisa SA ADR* 24,300 682,830
------------
TOTAL MEXICO 682,830
------------
NETHERLANDS (7.4%)
DIVERSIFIED TELECOMMUNICATION SERVICES (1.8%)
Koninklijke (Royal) KPN NV* 124,400 788,450
------------
MACHINERY (1.5%)
IHC Caland NV 14,694 651,916
------------
OIL & GAS (2.6%)
Royal Dutch Petroleum Co. 27,260 1,179,185
------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS (1.5%)
ASML Holding NV* 79,010 692,467
------------
TOTAL NETHERLANDS 3,312,018
------------
NORWAY (2.7%)
BANKS (2.7%)
DnB Holding ASA 259,400 1,196,464
------------
TOTAL NORWAY 1,196,464
------------
SINGAPORE (2.1%)
BANKS (2.1%)
United Overseas Bank, Ltd. 126,317 958,640
------------
TOTAL SINGAPORE 958,640
------------
SOUTH KOREA (2.9%)
BANKS (0.9%)
Shinhan Financial Group Company, Ltd. 39,200 413,407
------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS (2.0%)
Samsung Electronics Company, Ltd. 3,040 860,758
------------
TOTAL SOUTH KOREA 1,274,165
------------
SWEDEN (1.7%)
MACHINERY (1.7%)
SKF AB Series B 29,400 736,436
------------
TOTAL SWEDEN 736,436
------------
See Accompanying Notes to Financial Statements.
7
<Page>
<Caption>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS (CONTINUED)
SWITZERLAND (4.3%)
FOOD PRODUCTS (1.6%)
Nestle SA 3,310 $ 709,675
------------
PHARMACEUTICALS (2.7%)
Novartis AG 31,130 1,187,258
------------
TOTAL SWITZERLAND 1,896,933
------------
TAIWAN (0.1%)
METALS & MINING (0.1%)
China Steel Corp. 46,000 24,751
------------
TOTAL TAIWAN 24,751
------------
UNITED KINGDOM (20.2%)
BANKS (1.8%)
Royal Bank of Scotland Group PLC 33,830 796,023
------------
BEVERAGES (1.9%)
Diageo PLC 76,079 857,579
------------
ELECTRIC UTILITIES (1.7%)
Scottish Power PLC 135,700 745,182
------------
FOOD PRODUCTS (2.9%)
Cadbury Schweppes PLC 196,080 1,276,151
------------
INDUSTRIAL CONGLOMERATES (2.2%)
Smiths Group PLC 85,000 975,426
------------
METALS & MINING (1.5%)
Rio Tinto PLC 35,970 649,977
------------
OIL & GAS (2.4%)
BG Group PLC 271,800 1,084,339
------------
PHARMACEUTICALS (1.8%)
AstraZeneca PLC 22,060 823,132
------------
SOFTWARE (1.9%)
Sage Group PLC 381,900 872,324
------------
WIRELESS TELECOMMUNICATION SERVICES (2.1%)
Vodafone Group PLC 574,206 923,050
------------
TOTAL UNITED KINGDOM 9,003,183
------------
TOTAL COMMON STOCKS (Cost $41,860,471) 40,843,105
------------
See Accompanying Notes to Financial Statements.
8
<Page>
<Caption>
NUMBER OF
SHARES VALUE
--------- ------------
WARRANTS (0.0%)
CANADA (0.0%)
INTERNET SOFTWARE & SERVICES (0.0%)
Wysdom, Inc.* ++
(Cost $1,362,300) 358,500 $ 0
------------
<Caption>
PAR
(000)
---------
SHORT-TERM INVESTMENT (6.6%)
State Street Bank and Trust Co. Euro Time Deposit, 1.750%,
11/01/02 (Cost $2,944,000) $ 2,944 2,944,000
------------
TOTAL INVESTMENTS AT VALUE (98.3%) (Cost $46,166,772) 43,787,105
OTHER ASSETS IN EXCESS OF LIABILITIES (1.7%) 777,714
------------
NET ASSETS (100.0%) $ 44,564,819
============
</Table>
INVESTMENT ABBREVIATIONS
ADR = American Depository Receipt
W/I = When Issued
- - ----------
* Non-income producing security.
++ Restricted security, not readily marketable; security is valued as fair value
as determined in good faith by the Board of Directors.
See Accompanying Notes to Financial Statements.
9
<Page>
CREDIT SUISSE INSTITUTIONAL FUND, INC. -- INTERNATIONAL FOCUS PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2002
<Table>
ASSETS
Investments at value (Cost $46,166,772) $ 43,787,105
Cash 606
Foreign currency at value (Cost $719,904) 720,939
Dividend and interest receivable 207,994
Receivable for investments sold 140,084
Receivable for fund shares sold 335
Prepaid expenses and other assets 12,948
--------------
Total Assets 44,870,011
--------------
LIABILITIES
Advisory fee payable 22,811
Administrative services fee payable 9,025
Payable for investments purchased 231,103
Other accrued expenses payable 42,253
--------------
Total Liabilities 305,192
--------------
NET ASSETS
Capital stock, $0.001 par value 6,196
Paid-in capital 91,205,770
Undistributed net investment income 296,819
Accumulated net realized loss on investments and foreign currency transactions (44,571,557)
Net unrealized depreciation from investments and foreign currency translations (2,372,409)
--------------
Net Assets $ 44,564,819
==============
Shares outstanding 6,195,916
--------------
Net asset value, offering price per share, and redemption price per share $ 7.19
==============
</Table>
See Accompanying Notes to Financial Statements.
10
<Page>
CREDIT SUISSE INSTITUTIONAL FUND, INC. -- INTERNATIONAL FOCUS PORTFOLIO
STATEMENT OF OPERATIONS
For the Year Ended October 31, 2002
<Table>
INVESTMENT INCOME
Dividend $ 1,216,673
Interest 79,539
Foreign taxes withheld (129,810)
--------------
Total investment income 1,166,402
--------------
EXPENSES
Investment advisory fees 513,725
Administrative services fees 120,154
Custodian fees 50,105
Printing fees 47,762
Legal fees 37,364
Registration fees 23,809
Audit fees 20,707
Interest expense 17,690
Insurance expense 12,261
Transfer agent fees 10,319
Directors' fees 4,255
Miscellaneous expense 3,806
--------------
Total expenses 861,957
Less: fees waived (251,908)
--------------
Net expenses 610,049
--------------
Net investment income 556,353
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS AND
FOREIGN CURRENCY RELATED ITEMS
Net realized loss from investments (17,964,394)
Net realized gain on foreign currency transactions 41,353
Net change in unrealized appreciation (depreciation) from investments 12,012,517
Net change in unrealized appreciation (depreciation) from foreign currency translations 67,681
--------------
Net realized and unrealized loss from investments and foreign currency related items (5,842,843)
--------------
Net decrease in net assets resulting from operations $ (5,286,490)
==============
</Table>
See Accompanying Notes to Financial Statements.
11
<Page>
CREDIT SUISSE INSTITUTIONAL FUND, INC. -- INTERNATIONAL FOCUS PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 2002 OCTOBER 31, 2001
---------------- ----------------
FROM OPERATIONS
Net investment income $ 556,353 $ 1,225,778
Net realized loss on investments and foreign currency transactions (17,923,041) (27,661,987)
Net change in unrealized appreciation (depreciation) from
investments and foreign currency translations 12,080,198 (34,911,420)
---------------- ----------------
Net decrease in net assets resulting from operations (5,286,490) (61,347,629)
---------------- ----------------
FROM DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -- (4,208,895)
Distributions from net realized gains -- (121,585,719)
---------------- ----------------
Net decrease in net assets resulting from dividends and distributions -- (125,794,614)
---------------- ----------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares 47,787,175 67,687,997
Reinvestment of dividends and distributions -- 119,346,590
Net asset value of shares redeemed (93,557,377) (260,275,073)
---------------- ----------------
Net decrease in net assets from capital share transactions (45,770,202) (73,240,486)
---------------- ----------------
Net decrease in net assets (51,056,692) (260,382,729)
NET ASSETS
Beginning of year 95,621,511 356,004,240
---------------- ----------------
End of year $ 44,564,819 $ 95,621,511
================ ================
UNDISTRIBUTED NET INVESTMENT INCOME $ 296,819 $ --
================ ================
</Table>
See Accompanying Notes to Financial Statements.
12
<Page>
CREDIT SUISSE INSTITUTIONAL FUND, INC. -- INTERNATIONAL FOCUS PORTFOLIO
FINANCIAL HIGHLIGHTS
(For a Share of the Portfolio Outstanding Throughout Each Period)
<Table>
<Caption>
FOR THE YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------
2002 2001 2000 1999 1998
-------- -------- --------- --------- -----------
PER SHARE DATA
Net asset value, beginning of period $ 8.13 $ 17.61 $ 18.85 $ 14.41 $ 16.51
-------- -------- --------- --------- -----------
INVESTMENT OPERATIONS
Net investment income 0.07(1) 0.09 0.22(1) 0.20(1) 0.21
Net gain (loss) on investments
and foreign currency related items
(both realized and unrealized) (1.01) (3.18) (0.46) 4.38 (0.91)
-------- -------- --------- --------- -----------
Total from investment operations (0.94) (3.09) (0.24) 4.58 (0.70)
-------- -------- --------- --------- -----------
LESS DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -- (0.21) (0.78) (0.14) (0.18)
Distributions from net realized gains -- (6.18) (0.22) -- (1.22)
-------- -------- --------- --------- -----------
Total dividends and distributions -- (6.39) (1.00) (0.14) (1.40)
-------- -------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 7.19 $ 8.13 $ 17.61 $ 18.85 $ 14.41
======== ======== ========= ========= ===========
Total return(2) (11.56)% (26.56)% (1.98)% 32.02% (4.11)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $ 44,565 $ 95,622 $ 356,004 $ 551,830 $ 1,019,242
Ratio of expenses to average net assets 0.95% 0.95%(3) 0.97%(3) 0.96%(3) 0.95%(3)
Ratio of net investment income to
average net assets 0.87% 0.61% 0.74% 1.23% 1.21%
Decrease reflected in above operating expense
ratios due to waivers/reimbursements 0.39% 0.23% 0.19% 0.17% 0.13%
Portfolio turnover rate 161% 134% 111% 120% 114%
</Table>
(1) Per share information is calculated using the average share outstanding
method.
(2) Total returns are historical and assume changes in share price and
reinvestments of all dividends and distributions. Had certain expenses not
been reduced during the period shown, total returns would have been lower.
(3) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expense. These arrangements resulted in a reduction to
the net expense ratio by .00%, .02%, .01% and .00% for the years ended
October 31, 2001, 2000, 1999, and 1998, respectively. The net operating
expense ratio after these arrangements was .95% for the years ended October
31, 2001, 2000, 1999, and 1998, respectively.
See Accompanying Notes to Financial Statements.
13
<Page>
CREDIT SUISSE INSTITUTIONAL FUND, INC. -- INTERNATIONAL FOCUS PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
October 31, 2002
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Credit Suisse Institutional Fund, Inc. (the "Fund"), is registered under
the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company which seeks long-term capital appreciation. The
Fund currently offers six managed investment Portfolios, one of which, the
International Focus Portfolio (the "Portfolio"), is contained in this report.
The Fund was incorporated under the laws of Maryland on May 13, 1992.
A) SECURITY VALUATION -- The net asset value of the Portfolio is determined
daily as of the close of regular trading on the New York Stock Exchange, Inc.
The Portfolio's equity investments are valued at market value, which is
generally determined using the last reported sales price. If no sales are
reported, investments are generally valued at the last reported bid price. Debt
securities are valued on the basis of broker quotations or valuations provided
by a pricing service which may use a matrix, formula or other objective method
that takes into consideration market indices, yield curves and other specific
adjustments. Securities and other assets for which market quotations are not
readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors under procedures established by
the Board of Directors in the absence of readily ascertainable market values.
Debt obligations that will mature in 60 days or less are valued on the basis of
amortized cost which approximates market value, unless the Board determines that
using this method would not reflect an investment's value.
B) FOREIGN CURRENCY TRANSACTIONS -- The books and records of the Portfolio
are maintained in U.S. dollars. Transactions denominated in foreign currencies
are recorded at the current prevailing exchange rates. All assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at the current exchange rate at the end of the period. Translation gains
or losses resulting from changes in the exchange rate during the reporting
period and realized gains and losses on the settlement of foreign currency
transactions are reported in the results of operations for the current period.
The Portfolio does not isolate that portion of realized gains and losses on
investments in equity securities which is due to changes in the foreign exchange
rate from that which is due to changes in market prices of equity securities.
The Portfolio isolates that portion of realized gains and losses on investments
in debt securities which is due to changes in the foreign exchange rate from
that which is due to changes in market prices of debt securities.
14
<Page>
C) SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on a trade date basis. Interest income is recorded on the accrual
basis. Dividends are recorded on the ex-dividend date. The cost of investments
sold is determined by use of the specific identification method for both
financial reporting and income tax purposes.
D) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net
investment income and distributions of net realized capital gains, if any, are
declared and paid at least annually. However, to the extent that a net realized
capital gain can be reduced by a capital loss carryover, such gain will not be
distributed. Income and capital gain distributions are determined in accordance
with federal income tax regulations which may differ from accounting principles
generally accepted in the United States of America ("GAAP").
E) FEDERAL INCOME TAXES -- No provision is made for federal taxes as it is
the Fund's intention to have the Portfolio continue to qualify for and elect the
tax treatment applicable to regulated investment companies under the Internal
Revenue Code of 1986, as amended, and make the requisite distributions to its
shareholders which will be sufficient to relieve it from federal income and
excise taxes.
F) USE OF ESTIMATES -- The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from these estimates.
G) SHORT-TERM INVESTMENTS -- The Portfolio, together with other funds advised
by Credit Suisse Asset Management, LLC ("CSAM"), an indirect, wholly-owned
subsidiary of Credit Suisse Group, pool available cash into a short-term time
deposit issued by State Street Bank and Trust Company, the Portfolio's
custodian. The short-term time deposit is a variable rate account classified as
a short-term investment.
H) FORWARD FOREIGN CURRENCY CONTRACTS -- The Portfolio may enter into forward
foreign currency contracts for the purchase or sale of a specific foreign
currency at a fixed price on a future date. Risks may arise upon entering into
these contracts from the potential inability of counterparties to meet the terms
of their contracts and from unanticipated movements in the value of a foreign
currency. The Portfolio will enter into forward foreign
15
<Page>
currency contracts primarily for hedging purposes. Forward foreign currency
contracts are adjusted by the daily exchange rate of the underlying currency and
any gains or losses are recorded for financial statement purposes as unrealized
until the contract settlement date or an offsetting position is entered into. At
October 31, 2002 the Portfolio had no open forward foreign currency contracts.
I) SECURITIES LENDING -- Loans of securities are required at all times to be
secured by collateral at least equal to 102% of the market value of domestic
securities on loan including any accrued interest thereon and 105% of the market
value of foreign securities on loan including any accrued interest thereon. Cash
collateral received by the Portfolio in connection with securities lending
activity is invested in the AIM Institutional Funds - Liquid Asset Portfolio.
However, in the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral may be subject to
legal proceedings. The Portfolio had no securities out on loan during the year
ended October 31, 2002.
Credit Suisse First Boston ("CSFB"), an affiliate of CSAM, has been engaged
by the Fund to act as the Portfolio's securities lending agent. CSFB has agreed
to charge the Portfolio fees for its securities lending activities equal to its
costs in providing services as securities lending agent. CSFB also has
voluntarily agreed to waive its fees for the securities lending agent services
that it provides. CSFB may discontinue its voluntary fee waivers at any time.
J) OTHER -- The Portfolio invests in securities of foreign countries and
governments which involve certain risks in addition to those inherent in
domestic investments. Such risks generally include, among others, currency risks
(fluctuations in currency exchange rates), information risk (key information may
be inaccurate or unavailable) and political risk (expropriation, nationalization
or the imposition of capital or currency controls or punitive taxes). Other
risks of investing in foreign securities include liquidity and valuation risks.
The Portfolio may be subject to taxes imposed by countries in which it
invests, with respect to its investments in issuers existing or operating in
such countries. Such taxes are generally based on income earned or repatriated
and capital gains realized on the sale of such investments. The Portfolio
accrues such taxes when the related income or gains are earned.
The Portfolio may invest up to 10% of its net assets in non-publicly traded
securities. Non-publicly traded securities may be less liquid than publicly
16
<Page>
traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized from such sales could differ from
the price originally paid by the Portfolio or the current carrying values, and
the difference could be material.
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
CSAM serves as investment adviser for the Portfolio. For its investment
advisory services, CSAM is entitled to receive a fee from the Portfolio at an
annual rate of .80% of the Portfolio's average daily net assets. For the year
ended October 31, 2002, investment advisory fees earned and voluntarily waived
were $513,725 and $251,908, respectively.
Effective May 1, 2002, Credit Suisse Asset Management Limited (CSAM U.K.)
("CSAM Ltd. U.K.") and Credit Suisse Asset Management Limited (CSAM Japan)
("CSAM Ltd. Japan") affiliates of CSAM, became sub-investment advisers to the
Portfolio. CSAM Ltd. U.K. and CSAM Ltd. Japan's sub-investment advisory fees are
paid by CSAM out of CSAM's net investment advisory fee and are not paid by the
Portfolio.
Effective October 9, 2002, Credit Suisse Asset Management Limited (CSAM
Australia) ("CSAM Ltd. Australia") an affiliate of CSAM, became a sub-investment
adviser to the Portfolio. CSAM Ltd. Australia's sub-investment advisory fee is
paid by CSAM out of CSAM's net investment advisory fee and is not paid by the
Portfolio.
Credit Suisse Asset Management Securities, Inc. ("CSAMSI"), an affiliate of
CSAM, and State Street Bank and Trust Company ("SSB"), serve as
co-administrators to the Portfolio. At its meeting held on February 12, 2002 the
Board of Directors approved SSB to replace PFPC, Inc. ("PFPC"), as
co-administrator effective August 1, 2002.
For its co-administrative services, CSAMSI currently receives a fee
calculated at an annual rate of .10% of the Portfolio's average daily net
assets. For the year ended October 31, 2002, co-administrative services fees
earned by CSAMSI were $64,216.
For its co-administrative services, PFPC was entitled to receive a fee,
exclusive of out-of-pocket expenses, based on the following fee structure:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL RATE
------------------------ -----------
First $500 million .08% of average daily net assets
Next $1 billion .07% of average daily net assets
Over $1.5 billion .06% of average daily net assets
</Table>
17
<Page>
For the period November 1, 2001 through July 31, 2002, co-administrative
service fees earned by PFPC (including out-of-pocket expenses) were $46,681.
For its co-administrative services, SSB receives a fee, exclusive of
out-of-pocket expenses, based upon the following fee structure calculated in
total for all the Credit Suisse Funds co-administered by SSB and allocated based
upon relative average net assets of each fund.
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL RATE
------------------------ -----------
First $5 billion .050% of average daily net assets
Next $5 billion .035% of average daily net assets
Over $10 billion .020% of average daily net assets
</Table>
For the period August 1, 2002 through October 31, 2002, co-administrative
service fees earned by SSB (including out-of-pocket expenses) were $9,257.
Merrill Corporation ("Merrill"), an affiliate of CSAM, has been engaged by
the Portfolio to provide certain financial printing and fulfillment services.
For the year ended October 31, 2002, Merrill was paid $22,160 for its services
to the Portfolio.
NOTE 3. LINE OF CREDIT
Through June 18, 2002, the Portfolio, together with other funds/portfolios
advised by CSAM (collectively, the "Participating Funds"), participated in a
$200 million committed, unsecured line of credit facility ("Prior Credit
Facility") with Deutsche Bank, A.G. as administrative agent, State Street Bank
and Trust Company as operations agent, BNP Paribas as syndication agent and
certain other lenders for temporary or emergency purposes primarily relating to
unanticipated Participating Funds' share redemptions. Under the terms of the
Prior Credit Facility, the Participating Funds paid an aggregate commitment fee
at a rate of .10% per annum on the average unused amount of the Prior Credit
Facility, which was allocated among the Participating Funds in such a manner as
was determined by the governing Boards of the Participating Funds. In addition,
the Participating Funds paid interest on borrowings at the Federal funds rate
plus .50%.
Effective June 19, 2002, the Participating Funds, together with additional
funds/portfolios advised by CSAM (collectively with the Participating Funds, the
"New Participating Funds"), established a new $150 million committed, unsecured,
line of credit facility (the "New Credit Facility") with Deutsche Bank, A.G. as
administrative agent and syndication agent and State
18
<Page>
Street Bank and Trust Company as operations agent for the same purposes as the
Prior Credit Facility. Terms of the New Credit Facility remain the same as the
Prior Credit Facility. The commitment fee rate and interest rate are unchanged.
At October 31, 2002, there were no loans outstanding for the Portfolio either
under the New Credit Facility or the Prior Credit Facility.
During the year ended October 31, 2002, the Portfolio had borrowings under
the Prior Credit Facility and/or the New Credit Facility as follows:
<Table>
<Caption>
AVERAGE DAILY WEIGHTED AVERAGE MAXIMUM DAILY
LOAN BALANCE INTEREST RATE LOAN OUTSTANDING
------------- ---------------- ----------------
$ 5,802,455 2.397% $ 15,840,000
</Table>
NOTE 4. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 2002, purchases and sales of investment
securities (excluding short-term investments) were $94,269,520 and $135,801,041,
respectively.
NOTE 5. RESTRICTED SECURITIES
Certain of the Portfolio's investments are restricted as to resale, and are
valued at fair value as determined in good faith by the Board of Directors under
procedures established by the Board of Directors in the absence of readily
ascertainable market values. The table below shows the acquisition dates,
aggregate cost, fair value as of October 31, 2002, and percent of net assets
which the security represents.
<Table>
<Caption>
SECURITY ACQUISITION FAIR PERCENTAGE
SECURITY DESCRIPTION TYPE DATES COST VALUE OF NET ASSETS
- - -------------------- -------- ----------- ----------- ----- -------------
Wysdom, Inc. Warrants 2/22/2000 $ 1,362,300 $ -- 0.00%
</Table>
NOTE 6. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue up to sixteen billion full and fractional
shares of common stock of separate series having a $.001 par value per share.
19
<Page>
Shares of seven series have been classified, one of which constitutes the
interest in the Portfolio. Transactions in capital shares of the Portfolio were
as follows:
<Table>
<Caption>
FOR THE YEAR ENDED FOR THE YEAR ENDED
OCTOBER 31, 2002 OCTOBER 31, 2001
------------------ ------------------
Shares sold 5,543,906 6,673,621
Shares issued in reinvestment of
dividends and distributions -- 11,030,184
Shares redeemed (11,109,322) (26,162,618)
----------- -----------
Net decrease (5,565,416) (8,458,813)
=========== ===========
</Table>
On October 31, 2002, the number of shareholders that held 5% or more of the
outstanding shares were as follows:
<Table>
<Caption>
NUMBER OF APPROXIMATE PERCENTAGE
SHAREHOLDERS OF OUTSTANDING SHARES
------------ ----------------------
6 84%
</Table>
Some of the shareholders are comprised of omnibus accounts, which are held on
behalf of several individual shareholders.
NOTE 7. FEDERAL INCOME TAXES
Income and capital gain distributions are determined in accordance with
federal income tax regulations, which may differ from GAAP. These differences
are primarily due to differing treatments of foreign currency transactions,
losses deferred due to wash sales, and excise tax regulations.
The tax character of dividends and distributions paid during the period ended
October 31, 2002 and 2001, respectively for the Portfolio were as follows:
<Table>
<Caption>
ORDINARY INCOME LONG-TERM CAPITAL GAIN
------------------- ----------------------
2002 2001 2002 2001
---- ------------ ---- ------------
$ -- $ 30,465,790 $ -- $ 95,328,824
</Table>
20
<Page>
At October 31, 2002, the components of distributable earnings on a tax basis
for the Portfolio were as follows:
<Table>
Undistributed ordinary income $ 296,819
Accumulated realized gain (loss) (43,851,010)
Unrealized appreciation (depreciation) (3,092,957)
-------------
$ (46,647,148)
=============
</Table>
At October 31, 2002, the Portfolio had capital loss carryovers available to
offset possible future capital gains as follows:
<Table>
<Caption>
EXPIRES OCTOBER 31,
---------------------------
2009 2010
------------ ------------
$ 25,304,783 $ 18,546,227
</Table>
At October 31, 2002, the identified cost for federal income tax purposes, as
well as the gross unrealized appreciation from investments for those securities
having an excess of value over cost, gross unrealized depreciation from
investments for those securities having an excess of cost over value and the net
unrealized appreciation (depreciation) from investments were as follows
$46,887,320, $2,937,806, $(6,030,763) and $(3,092,957), respectively.
At October 31, 2002, the Portfolio reclassified $259,534 from accumulated
undistributed net investment income to accumulated net realized loss from
investments, to adjust for current period permanent book/tax differences which
arose principally from differing book/tax treatments of foreign currency
transactions. Net assets were not affected by these reclassifications.
21
<Page>
CREDIT SUISSE INSTITUTIONAL FUND, INC. -- INTERNATIONAL FOCUS PORTFOLIO
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Credit Suisse Institutional Fund, Inc. and Shareholders of
Credit Suisse Institutional Fund, Inc.- International Focus Portfolio:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Credit Suisse Institutional Fund,
Inc.- International Focus Portfolio (a portfolio of Credit Suisse Institutional
Fund, Inc., hereafter referred to as the "Fund") at October 31, 2002, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended and the financial highlights
for each of the years presented, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 2002 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
December 18, 2002
22
<Page>
CREDIT SUISSE INSTITUTIONAL FUND, INC. -- INTERNATIONAL FOCUS PORTFOLIO
INFORMATION CONCERNING DIRECTORS AND OFFICERS (UNAUDITED)
<Table>
<Caption>
TERM NUMBER OF
OF OFFICE(1) PORTFOLIOS IN
AND FUND
POSITION(S) LENGTH PRINCIPAL COMPLEX OTHER
HELD WITH OF TIME OCCUPATION(S) DURING OVERSEEN BY DIRECTORSHIPS
NAME, ADDRESS AND AGE FUND SERVED PAST FIVE YEARS DIRECTOR HELD BY DIRECTOR
- - ------------------------------ ------------ -------------- ------------------------ --------------- -----------------
INDEPENDENT DIRECTORS
Richard H. Francis Director and Since Currently retired; 53 Director of
c/o Credit Suisse Asset Audit 1999 Executive Vice The Indonesia
Management, LLC. Committee President and Fund, Inc.
466 Lexington Avenue Member Chief Financial
New York, New York Officer of Pan Am
10017-3147 Corporation and
Pan American
Age: 70 World Airways,
Inc. from 1988 to
1991
Jack W. Fritz Director and Since Private investor; 52 Director of
2425 North Fish Creek Road Audit Fund Consultant and Advo, Inc.
P.O. Box 1287 Committee Inception Director of Fritz (direct mail
Wilson, Wyoming 83014 Member Broadcasting, Inc. advertising)
and Fritz
Age: 75 Communications
(developers and
operators of radio
stations) since
1987
Jeffrey E. Garten Director and Since Dean of Yale 52 Director of
Box 208200 Audit Fund School of Aetna, Inc.;
New Haven, Connecticut Committee Inception Management and Director of
06520-8200 Member William S. Beinecke Calpine Energy
Professor in the Corporation;
Age: 56 Practice of Director of
International CarMax Group
Trade and Finance; (used car
Undersecretary of dealers)
Commerce for
International Trade
from November 1993
to October 1995;
Professor at
Columbia University
from September
1992 to November
1993
- - ----------
(1) Each Director and Officer serves until his or her respective successor has
been duly elected and qualified.
23
<Page>
<Caption>
TERM NUMBER OF
OF OFFICE(1) PORTFOLIOS IN
AND FUND
POSITION(S) LENGTH PRINCIPAL COMPLEX OTHER
HELD WITH OF TIME OCCUPATION(S) DURING OVERSEEN BY DIRECTORSHIPS
NAME, ADDRESS AND AGE FUND SERVED PAST FIVE YEARS DIRECTOR HELD BY DIRECTOR
- - ------------------------------ ------------ -------------- ------------------------ --------------- -----------------
INDEPENDENT DIRECTORS
--(CONTINUED)
Peter F. Krogh Director and Since Dean Emeritus and 52 Member of the
301 ICC Audit 2001 Distinguished Professor Board
Georgetown University Committee of International Affairs of The Carlisle
Washington, DC 20057 Member at the Edmund A. Companies Inc.;
Walsh School of Member of
Age: 65 Foreign Service, Selection
Georgetown University; Committee
Moderator of PBS for Truman
foreign affairs Scholars and
television series Henry Luce
Scholars; Senior
Associate of
Center for
Strategic and
International
Studies; Trustee
of numerous
world affairs
organizations
James S. Pasman, Jr. Director and Since Currently retired; 54 Director of
c/o Credit Suisse Asset Audit 1999 President and Chief Education
Management, LLC. Committee Operating Officer of Management
466 Lexington Avenue Member National InterGroup, Corp.; Director
New York, New York Inc. (holding company) of Credit Suisse
10017-3147 from April 1989 Asset
to March 1991; Management
Age: 71 Chairman of Permian Income Fund,
Oil Co. from April 1989 Inc.; Trustee of
to March 1991 Credit Suisse
High Yield Bond
Fund;
24
<Page>
<Caption>
TERM NUMBER OF
OF OFFICE(1) PORTFOLIOS IN
AND FUND
POSITION(S) LENGTH PRINCIPAL COMPLEX OTHER
HELD WITH OF TIME OCCUPATION(S) DURING OVERSEEN BY DIRECTORSHIPS
NAME, ADDRESS AND AGE FUND SERVED PAST FIVE YEARS DIRECTOR HELD BY DIRECTOR
- - ------------------------------ ------------ -------------- ------------------------ --------------- -----------------
INDEPENDENT DIRECTORS
--(CONTINUED)
Steven N. Rappaport Director and Since Partner of Lehigh Court 53 Director of
Lehigh Court, LLC Audit 1999 LLC Since July 2002; The First Israel
40 East 52nd Street Committee President of Sunguard Fund, Inc.
New York, New York Chairman Securities Finance, Inc.
10022 from 2001 to July
2002; President of
Age: 54 Loanet, Inc. (on-line
accounting service)
from 1995 to 2001;
Director, President,
North American
Operations, and former
Executive Vice President
from 1992 to 1993 of
Worldwide Operations
of Metallurg Inc.;
Executive Vice President,
from Telerate, Inc.
1987 to 1992; Partner in
the law firm of Hartman
& Craven until 1987
INTERESTED TRUSTEE
William W. Priest(2) Director Since Senior Partner and 59 Director of The
Steinberg Priest & Sloane 1999 Fund Manager, Brazilian Equity
Capital Management Steinberg Fund, Inc.; The
12 East 49th Street Priest & Sloane Capital Chile Fund, Inc.;
12th Floor Management since The Emerging
New York, New York March 2001; Chairman Markets Tele-
10017 and Managing communications
Director of CSAM Fund, Inc.; The
Age: 61 from 2000 to First Israel Fund,
February 2001; Chief Inc.; The Latin
Executive Officer and America Equity
Managing Director of Fund, Inc.; The
CSAM from 1990 to Indonesia Fund,
2000 Inc.; and Credit
Suisse Asset
Management
Income Fund,
Inc.
- - ------------------
(2) Mr. Priest is a Director who is an "interested person" of the Fund as
defined in the 1940 Act, because he was an officer of CSAM until February
2001.
25
<Page>
<Caption>
TERM
OF OFFICE(1)
AND
POSITION(S) LENGTH
HELD WITH OF TIME
NAME, ADDRESS AND AGE FUNDS SERVED PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- - --------------------- ------------ -------------- ----------------------------------------------
OFFICERS
Laurence R. Smith Chairman Since Managing Director and Global Chief Investment Officer of to
Credit Suisse Asset 2002 CSAM; Associated with JP Morgan Investment Management
Managment, LLC from 1981 to 1999; Officer of other Credit Suisse Funds
466 Lexington Avenue
New York, New York
10017-3147
Age: 44
Hal Liebes, Esq. Vice President Since Managing Director and Global General Counsel of CSAM;
Credit Suisse Asset and Secretary 1999 Associated with Lehman Brothers, Inc. from 1996 to 1997;
Management, LLC Associated with CSAM from 1995 to 1996; Associated
466 Lexington Avenue with CS First Boston Investment Management from
New York, New York 1994 to 1995; Associated with Division of Enforcement,
10017-3147 U.S. Securities and Exchange Commission from 1991 to
1994; Officer of other Credit Suisse Funds
Age: 38
Michael A. Pignataro Treasurer Since Director and Director of Fund Administration of CSAM;
Credit Suisse Asset and Chief 1999 Associated with CSAM since 1984; Officer of other Credit
Management, LLC Financial Suisse Funds
466 Lexington Avenue Officer
New York, New York
10017-3147
Age: 43
Gregory N. Bressler, Esq. Assistant Since Vice President and Legal Counsel of CSAM since January
Credit Suisse Asset Secretary 2000 2000; Associated with the law firm of Swidler Berlin Shereff
Management, LLC Friedman LLP from 1996 to 2000; Officer of other Credit
466 Lexington Avenue Suisse Funds
New York, New York
10017-3147
Age: 36
26
<Page>
<Caption>
TERM
OF OFFICE(1)
AND
POSITION(S) LENGTH
HELD WITH OF TIME
NAME, ADDRESS AND AGE FUNDS SERVED PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- - --------------------- ------------ -------------- -------------------------------------------------------------
OFFICERS--(CONTINUED)
Kimiko T. Fields, Esq. Assistant Since Assistant Vice President and Legal Counsel of CSAM
Credit Suisse Asset Secretary 2002 since December 2000; Assistant Vice President, Institutional
Management, LLC Marketing Department, CSAM, from January 2000 to
466 Lexington Avenue December 2000; Marketing Associate, International
New York, New York Equity Department, Warburg Pincus Asset Management,
10017-3147 Inc. from January of 1998 to January 2000; self-employed
author and consultant, from January 1996 to December
1997; Officer of other Credit Suisse Funds
Age: 38
Rocco A. Del Guercio Assistant Since Vice President and Administrative Officer of CSAM;
Credit Suisse Asset Treasurer 1999 Associated with CSAM since June 1996; Assistant
Management, LLC Treasurer, Bankers Trust Co. -- Fund Administration
466 Lexington Avenue from March 1994 to June 1996; Mutual Fund Accounting
New York, New York Supervisor, Dreyfus Corporation from April 1987 to March
10017-3147 1994; Officer of other Credit Suisse Funds
Age: 39
Joseph Parascondola Assistant Since Assistant Vice President -- Fund Administration of CSAM
Credit Suisse Asset Treasurer 2000 since April 2000; Assistant Vice President, Deutsche
Management, LLC Asset Management from January 1999 to April 2000;
466 Lexington Avenue Assistant Vice President, Weiss, Peck & Greer
New York, New York LLC from November 1995 to December 1998; Officer of
10017-3147 other Credit Suisse Funds
Age: 39
Robert M. Rizza Assistant Since Assistant Vice President of CSAM since January 2001;
Credit Suisse Asset Treasurer 2002 Administrative Officer of CSAM from March 1998
Management, LLC Since to December 2000; Assistant Treasurer of Bankers Trust
466 Lexington Avenue Co. from April 1994 to March 1998; Officer of other
New York, New York Credit Suisse Funds
10017-3147
Age: 37
</Table>
The Statement of Additional Information includes additional information about
the Directors and is available, without charge, upon request, by calling
800-927-2874.
27
<Page>
CREDIT SUISSE INSTITUTIONAL FUND, INC. -- INTERNATIONAL FOCUS PORTFOLIO
SHAREHOLDER MEETING RESULTS (UNAUDITED)
A special meeting of shareholders of the Portfolio was held at 466 Lexington
Avenue, 16th Floor, New York, NY 10017 on October 9, 2002. The following matter
was voted upon by the shareholders of the Portfolio and the results are
presented below. Shares delivered not voted are included on the total for the
proposal.
To approve a Sub-Investment Advisory Agreement for the Portfolio, Credit
Suisse Asset Management LLC and Credit Suisse Asset Management (Australia)
Limited ("CSAM Australia"):
<Table>
% OF TOTAL SHARES % OF TOTAL
SHARES OUTSTANDING SHARES VOTED
------------ ----------------- ------------
For 4,703,774.84 64.42% 99.97%
Against 476.00 0.01% 0.01%
Abstain 820.00 0.01% 0.02%
</Table>
28
<Page>
CREDIT SUISSE INSTITUTIONAL FUND, INC. -- INTERNATIONAL FOCUS PORTFOLIO
TAX INFORMATION LETTER (UNAUDITED)
October 31, 2002
IMPORTANT TAX INFORMATION FOR CORPORATE SHAREHOLDERS
During the fiscal year ended October 31, 2002, the Portfolio distributed
$1,216,673 of foreign source income on which the Fund paid foreign taxes of
$129,810. This information is being furnished to you pursuant to notice
requirements of Section 853(a) and 855(d) of the Internal Revenue Code 1986, as
amended the "Code", and the Treasury Regulations thereunder.
29
<Page>
P.O. BOX 55030, BOSTON, MA 02205-5030 [CREDIT SUISSE ASSET MANAGEMENT LOGO]
800-222-8977 -
CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC., DISTRIBUTOR. CSINI-2-1002
CREDIT SUISSE INSTITUTIONAL FUNDS
[CREDIT SUISSE LOGO]
INTERNATIONAL FUND
U.S. CORE EQUITY FUND
FIXED INCOME FUND
HIGH YIELD FUND
August 31, 2002 ANNUAL REPORT
More complete information about the Funds, including charges and expenses, is
provided in the PROSPECTUS, which must precede or accompany this document and
which should be read carefully before investing. Institutional shareholders may
obtain additional copies by calling 800-222-8977 or by writing to Credit Suisse
Institutional Funds, P.O. Box 8500, Boston, MA 02266-8500.
Credit Suisse Asset Management Securities, Inc., Distributor, is located at 466
Lexington Ave., New York, NY 10017-3147. Credit Suisse Institutional Funds are
advised by Credit Suisse Asset Management, LLC.
THE FUNDS' INVESTMENT ADVISER AND CO-ADMINISTRATORS MAY WAIVE SOME FEES
AND/OR REIMBURSE SOME EXPENSES, WITHOUT WHICH PERFORMANCE WOULD BE LOWER.
WAIVERS AND/OR REIMBURSEMENTS ARE SUBJECT TO CHANGE.
RETURNS INCLUDE CHANGE IN SHARE PRICE AND REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. RETURNS
AND SHARE PRICE WILL FLUCTUATE, AND REDEMPTION VALUE MAY BE MORE OR LESS
THAN ORIGINAL COST.
THE VIEWS OF THE FUNDS' MANAGEMENT ARE AS OF THE DATE OF THE LETTERS AND
PORTFOLIO HOLDINGS DESCRIBED IN THIS DOCUMENT ARE AS OF AUGUST 31, 2002;
THESE VIEWS AND PORTFOLIO HOLDINGS MAY HAVE CHANGED SUBSEQUENT TO THESE
DATES. NOTHING IN THIS DOCUMENT IS A RECOMMENDATION TO PURCHASE OR SELL
SECURITIES.
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF CREDIT SUISSE ASSET
MANAGEMENT, LLC ("CSAM") OR ANY AFFILIATE, ARE NOT FDIC INSURED AND ARE NOT
GUARANTEED BY CSAM OR ANY AFFILIATE.
CREDIT SUISSE INSTITUTIONAL INTERNATIONAL FUND
PORTFOLIO MANAGERS' LETTER
October 1, 2002
Dear Shareholder:
We are writing to report on the results of the Credit Suisse Institutional
International Fund (the "Fund") for the fiscal year ended August 31, 2002.
At August 31, 2002, the net asset value ("NAV") of the Fund's Institutional,
Class B and C Shares(1) were $8.65, $8.54 and $8.53 per share, respectively,
compared to an NAV at August 31, 2001 of $10.86, $10.84 and $10.84 for the
Institutional, Class B and Class C Shares, respectively. As a result, the Fund's
total returns were -20.35%, -21.22% and -21.31% for Institutional, Class B and
Class C shares, respectively. By comparison, the MSCI EAFE Index(2) ("EAFE")
declined 14.95% during the same period.
The Fund underperformed its EAFE benchmark as a result of adverse stock
selection in several countries. Most notable in this regard were Taiwan, Brazil,
Sweden, the U.K. and Australia.
- - In the cases of Taiwan and Brazil, we held positions in some of each
country's biggest names as part of our decision to raise exposure to
emerging markets in mid-2001. While this approach worked in much of the
fiscal year as emerging markets outperformed their developed-world
counterparts, it ended up reversing course. The blue-chip Taiwanese
technology stocks that we owned gave up their gains, while the Brazilian
market as a whole lost ground in response to rising concerns about the
outcome of the presidential election scheduled for October.
- - In Sweden, we held a small position in one of the nation's largest names, a
global producer of telecommunications equipment whose shares declined in
line with telecom industry fundamentals.
- - Our U.K. exposure was well-diversified across industries, but most of our
top individual holdings there underperformed EAFE.
- - Australian results were least favorable among the shares of prominent
financial and media names that we owned.
Stock selection proved much better in Switzerland, where our biggest
positions--some of the world's top makers of pharmaceuticals and consumer
products--outperformed both the broad Swiss market and EAFE.
The most positive contribution to overall performance came from country
weightings, primarily in emerging markets. Our rationale for raising the Fund's
allocation to emerging markets, which was their historical tendency to
outperform in times when global leading economic indicators rise, was on target
well into 2002. Country-specific weightings were most successful in South Korea,
Mexico, Taiwan, Finland, Brazil and China.
As other developments occur in the international equity markets, we will be sure
to keep you informed. Meanwhile, if you have questions, please feel free to call
upon us at any time.
Sincerely yours,
Credit Suisse Asset Management, LLC (CSAM)
Steven D. Bleiberg, Managing Director
Richard W. Watt, Managing Director
Emily Alejos, Director
Staci Lombard, Vice President
NOTE: INTERNATIONAL INVESTING ENTAILS SPECIAL RISK CONSIDERATIONS, INCLUDING
CURRENCY FLUCTUATIONS, LOWER LIQUIDITY, ECONOMIC AND POLITICAL RISKS, AND
DIFFERENCES IN ACCOUNTING METHODS; THESE RISKS ARE GENERALLY HEIGHTENED FOR
EMERGING-MARKET INVESTMENTS.
1
COMPARISON OF CHANGE IN VALUE OF $3 MILLION INVESTMENT IN THE CREDIT SUISSE
INSTITUTIONAL INTERNATIONAL FUND INSTITUTIONAL CLASS SHARES AND THE MSCI EAFE
INDEX(2) FROM INCEPTION (9/30/92). (UNAUDITED)
[CHART]
INSTITUTIONAL SHARES
CREDIT SUISSE
INSTITUTIONAL MSCI EAFE
INTERNATIONAL FUND INDEX(2)
$3,000,000 $3,000,000
9/92 $3,000,000 $2,941,710
10/92 $2,976,015 $2,788,300
11/92 $2,984,002 $2,815,374
12/92 $2,983,996 $2,830,802
1/93 $3,009,990 $2,831,284
2/93 $3,051,981 $2,917,666
3/93 $3,235,990 $3,172,816
4/93 $3,386,006 $3,474,805
5/93 $3,456,021 $3,549,027
6/93 $3,403,999 $3,494,478
7/93 $3,519,975 $3,617,623
8/93 $3,745,961 $3,813,735
9/93 $3,709,942 $3,728,727
10/93 $3,825,915 $3,844,466
11/93 $3,733,923 $3,509,229
12/93 $4,175,927 $3,763,402
1/94 $4,380,326 $4,082,388
2/94 $4,246,118 $4,071,937
3/94 $3,926,123 $3,897,414
4/94 $3,988,032 $4,063,678
5/94 $4,004,558 $4,041,206
6/94 $3,965,308 $4,099,197
7/94 $4,078,821 $4,139,533
8/94 $4,279,022 $4,238,427
9/94 $4,219,138 $4,105,849
10/94 $4,270,770 $4,243,518
11/94 $4,029,301 $4,040,508
12/94 $3,826,180 $4,066,771
1/95 $3,575,783 $3,911,502
2/95 $3,522,261 $3,901,293
3/95 $3,646,355 $4,145,709
4/95 $3,800,397 $4,302,748
5/95 $3,850,094 $4,252,578
6/95 $3,806,928 $4,179,136
7/95 $4,022,602 $4,440,457
8/95 $3,934,147 $4,272,164
9/95 $3,966,532 $4,356,710
10/95 $3,837,092 $4,240,735
11/95 $3,869,420 $4,359,857
12/95 $3,992,079 $4,536,649
1/96 $4,184,761 $4,556,338
2/96 $4,156,612 $4,572,878
3/96 $4,241,016 $4,671,149
4/96 $4,334,068 $4,808,107
5/96 $4,327,569 $4,720,792
6/96 $4,351,382 $4,748,503
7/96 $4,121,885 $4,610,891
8/96 $4,201,984 $4,622,188
9/96 $4,301,582 $4,746,155
10/96 $4,240,955 $4,698,788
11/96 $4,409,775 $4,886,928
12/96 $4,461,460 $4,825,206
1/97 $4,478,994 $4,657,433
2/97 $4,549,185 $4,734,747
3/97 $4,511,936 $4,753,070
4/97 $4,503,178 $4,779,450
5/97 $4,781,564 $5,091,643
6/97 $5,057,855 $5,373,568
7/97 $5,292,400 $5,461,587
8/97 $4,871,461 $5,054,808
9/97 $5,285,879 $5,339,090
10/97 $4,961,456 $4,929,902
11/97 $5,007,482 $4,880,800
12/97 $5,138,151 $4,924,484
1/98 $5,255,927 $5,150,862
2/98 $5,636,667 $5,482,578
3/98 $6,032,426 $5,652,647
4/98 $6,165,164 $5,698,660
5/98 $6,247,851 $5,672,275
6/98 $6,375,577 $5,716,462
7/98 $6,513,404 $5,775,685
8/98 $5,686,771 $5,061,406
9/98 $5,453,806 $4,907,539
10/98 $5,596,629 $5,420,475
11/98 $5,894,781 $5,699,521
12/98 $6,200,120 $5,925,735
1/99 $6,285,689 $5,909,558
2/99 $5,976,625 $5,770,092
3/99 $6,073,194 $6,012,378
4/99 $6,211,173 $6,257,383
5/99 $5,860,782 $5,936,504
6/99 $6,255,367 $6,169,334
7/99 $6,420,902 $6,354,105
8/99 $6,476,120 $6,378,759
9/99 $6,550,686 $6,444,397
10/99 $6,912,160 $6,687,222
11/99 $7,408,813 $6,920,940
12/99 $8,356,472 $7,543,478
1/00 $7,813,641 $7,065,524
2/00 $8,026,821 $7,257,070
3/00 $8,198,157 $7,539,733
4/00 $7,846,003 $7,144,349
5/00 $7,603,613 $6,971,242
6/00 $7,920,308 $7,245,490
7/00 $7,610,148 $6,943,136
8/00 $7,629,565 $7,004,861
9/00 $7,102,842 $6,665,195
10/00 $6,928,355 $6,509,096
11/00 $6,563,224 $6,266,372
12/00 $6,819,941 $6,490,583
1/01 $6,796,763 $6,487,532
2/01 $6,087,430 $6,001,681
3/01 $5,637,677 $5,604,309
4/01 $5,911,227 $5,997,396
5/01 $5,697,932 $5,790,486
6/01 $5,410,488 $5,555,855
7/01 $5,187,961 $5,455,239
8/01 $5,034,992 $5,318,148
9/01 $4,529,637 $4,780,696
10/01 $4,691,900 $4,902,939
11/01 $4,784,614 $5,084,004
12/01 $4,840,238 $5,114,305
1/02 $4,589,860 $4,842,940
2/02 $4,562,038 $4,877,131
3/02 $4,812,494 $5,143,374
4/02 $4,775,438 $5,180,612
5/02 $4,784,702 $5,250,861
6/02 $4,576,089 $5,043,819
7/02 $4,061,370 $4,546,297
8/02 $4,010,400 $4,537,068
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE CREDIT SUISSE
INSTITUTIONAL INTERNATIONAL FUND CLASS B(1) SHARES AND THE MSCI EAFE
INDEX(2), FROM INCEPTION (7/31/01). (UNAUDITED)
[CHART]
CLASS B
CREDIT SUISSE
INSTITUTIONAL MSCI EAFE
INTERNATIONAL FUND(1) INDEX(2)
$10,000 $10,000
7/01 $10,000 $10,000
8/01 $9,687 $9,749
9/01 $8,722 $8,764
10/01 $9,026 $8,988
11/01 $9,186 $9,319
12/01 $9,294 $9,375
1/02 $8,802 $8,878
2/02 $8,749 $8,940
3/02 $9,222 $9,428
4/02 $9,132 $9,497
5/02 $9,151 $9,625
6/02 $8,856 $9,246
7/02 $7,864 $8,334
8/02 $7,403 $8,317
2
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE CREDIT SUISSE
INSTITUTIONAL INTERNATIONAL FUND CLASS C SHARES(1) AND THE MSCI EAFE INDEX(2)
FROM INCEPTION (7/31/01). (UNAUDITED)
[CHART]
CLASS C
CREDIT SUISSE
INSTITUTIONAL MSCI EAFE
INTERNATIONAL FUND(1) INDEX(2)
$10,000 $10,000
7/01 $10,000 $10,000
8/01 $9,687 $9,749
9/01 $8,712 $8,764
10/01 $9,017 $8,988
11/01 $9,186 $9,319
12/01 $9,284 $9,375
1/02 $8,793 $8,878
2/02 $8,740 $8,940
3/02 $9,213 $9,428
4/02 $9,124 $9,497
5/02 $9,142 $9,625
6/02 $8,856 $9,246
7/02 $7,864 $8,334
8/02 $7,623 $8,317
Note: Past performance is not predictive of future performance. Investment
return and principal value of an investment will fluctuate so that an investor's
shares upon redemption may be worth more or less than their original cost. The
performance results on this page do not reflect the deduction of taxes that a
shareholder would pay on fund distributions or the redemption of fund shares.
AVERAGE ANNUAL RETURNS AS OF AUGUST 31, 2002
INCEPTION
1 YEAR 3 YEARS 5 YEARS 10 YEARS TO DATE
-------- ------- ------- --------- ---------
Institutional Class (20.35%) (14.77%) (3.82%) -- 2.97%
Class B Without CDSC (21.22%) -- -- -- (22.00%)
Class B With CDSC (24.37%) -- -- -- (24.16%)
Class C Without CDSC (21.31%) -- -- -- (22.09%)
Class C With CDSC (22.10%) -- -- -- (22.09%)
AVERAGE ANNUAL RETURNS AS OF SEPTEMBER 30, 2002
INCEPTION
1 YEAR 3 YEARS 5 YEARS 10 YEARS TO DATE
-------- ------- ------- --------- ---------
Institutional Class (20.78%) (18.18%) (7.46%) 1.81% 1.81%
Class B Without CDSC (21.82%) -- -- -- (27.92%)
Class B With CDSC (24.95%) -- -- -- (29.77%)
Class C Without CDSC (21.74%) -- -- -- (27.92%)
Class C With CDSC (22.53%) -- -- -- (27.92%)
(1) Total return for Class B shares for the reporting period, based on
redemption value (including contingent deferred sales charge) was -24.37%.
Total return for Class C shares for the reporting period, based on
redemption value (including contingent deferred sales charge) was -22.10%.
(2) The Morgan Stanley Capital International EAFE Index (Europe, Australasia,
Far East) is a free float-adjusted market capitalization index that is
designed to measure developed-market equity performance, excluding the U.S.
and Canada. It is the exclusive property of Morgan Stanley Capital
International Inc. Investors cannot invest directly in an index.
3
CREDIT SUISSE INSTITUTIONAL INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS
AUGUST 31, 2002
NUMBER
OF SHARES VALUE
----------- -----------
COMMON STOCKS (92.5%)
AUSTRALIA (6.7%)
BANKS (3.4%)
Australia & New Zealand Banking Group, Ltd. 214,256 $ 2,237,719
National Australia Bank, Ltd. 108,317 2,067,445
-----------
4,305,164
-----------
BEVERAGES (1.7%)
Foster's Group, Ltd. 817,150 2,228,133
-----------
METALS & MINING (1.6%)
Rio Tinto, Ltd. 111,573 2,017,735
-----------
TOTAL AUSTRALIA 8,551,032
-----------
BRAZIL (1.1%)
METALS & MINING (1.1%)
Companhia Vale do Rio Doce 34,668 887,501
Companhia Vale do Rio Doce ADR 22,700 527,775
-----------
TOTAL BRAZIL 1,415,276
-----------
FINLAND (1.0%)
COMMUNICATIONS EQUIPMENT (1.0%)
Nokia Oyj 94,585 1,263,339
-----------
TOTAL FINLAND 1,263,339
-----------
FRANCE (11.2%)
AUTOMOBILES (1.3%)
PSA Peugeot Citroen 36,561 1,635,663
-----------
BANKS (2.9%)
BNP Paribas SA 48,129 2,244,755
Credit Agricole SA & 68,748 1,476,470
-----------
3,721,225
-----------
CONSTRUCTION & ENGINEERING (1.0%)
Vinci SA & 20,267 1,233,251
-----------
ELECTRICAL EQUIPMENT (1.3%)
Schneider Electric SA* 37,630 1,730,722
-----------
INSURANCE (1.9%)
Axa 176,422 2,416,960
-----------
MULTI-UTILITIES (1.0%)
Suez SA 55,386 1,271,516
-----------
OIL & GAS (1.8%)
TotalFinaElf SA 16,738 2,386,648
-----------
TOTAL FRANCE 14,395,985
-----------
GERMANY (1.2%)
ELECTRIC UTILITIES (1.2%)
E.ON AG 30,226 1,557,367
-----------
TOTAL GERMANY 1,557,367
-----------
HONG KONG (2.6%)
BANKS (1.0%)
Hang Seng Bank, Ltd. 122,430 1,318,479
-----------
ELECTRIC UTILITIES (1.1%)
Hongkong Electric Holdings, Ltd. 344,000 1,340,721
-----------
See Accompanying Notes to Financial Statements.
4
NUMBER
OF SHARES VALUE
----------- -----------
HONG KONG -- (CONTINUED)
WIRELESS TELECOMMUNICATION SERVICES (0.5%)
China Mobile, Ltd.* 248,300 $ 687,601
-----------
TOTAL HONG KONG 3,346,801
-----------
IRELAND (1.0%)
BANKS (1.0%)
Allied Irish Banks PLC 98,725 1,277,972
-----------
TOTAL IRELAND 1,277,972
-----------
ITALY (4.1%)
INSURANCE (1.1%)
Assicurazioni Generali SpA 70,716 1,343,977
-----------
OIL & GAS (1.9%)
ENI SpA 157,227 2,380,645
-----------
WIRELESS TELECOMMUNICATION SERVICES (1.1%)
Telecom Italia Mobile SpA & 315,839 1,468,130
-----------
TOTAL ITALY 5,192,752
-----------
JAPAN (21.5%)
AUTOMOBILES (3.0%)
Honda Motor Company, Ltd. 50,200 2,125,450
Nissan Motor Company, Ltd. 242,500 1,771,223
-----------
3,896,673
-----------
BEVERAGES (1.5%)
Asahi Breweries, Ltd. 241,000 1,920,845
-----------
DIVERSIFIED FINANCIALS (2.3%)
ACOM Company, Ltd. 31,590 1,862,388
Nomura Holdings, Inc. 85,000 1,120,525
-----------
2,982,913
-----------
HOUSEHOLD DURABLES (2.8%)
Nintendo Co., Ltd. 13,000 1,572,302
Sony Corp. & 45,600 1,988,378
-----------
3,560,680
-----------
MACHINERY (1.9%)
NSK, Ltd.* 275,000 971,830
SMC Corp. 14,400 1,440,425
-----------
2,412,255
-----------
MARINE (0.8%)
Nippon Yusen Kabushiki Kaisha & 318,000 984,321
-----------
MULTILINE RETAIL (1.1%)
Ito-Yokado Co., Ltd. 32,000 1,362,965
-----------
OFFICE ELECTRONICS (2.1%)
Canon, Inc. 78,000 2,670,940
-----------
PERSONAL PRODUCTS (1.0%)
Shiseido Company, Ltd. 101,000 1,332,299
-----------
PHARMACEUTICALS (1.5%)
Takeda Chemical Industries, Ltd.* 47,000 1,985,999
-----------
See Accompanying Notes to Financial Statements.
5
NUMBER
OF SHARES VALUE
----------- -----------
JAPAN -- (CONTINUED)
REAL ESTATE (1.3%)
Mitsui Fudosan Company, Ltd. 213,000 $ 1,634,799
-----------
TRADING COMPANIES & DISTRIBUTORS (1.1%)
Sumitomo Corp. 251,000 1,356,986
-----------
WIRELESS TELECOMMUNICATION SERVICES (1.1%)
NTT DoCoMo, Inc. & 687 1,460,161
-----------
TOTAL JAPAN 27,561,836
-----------
LUXEMBOURG (1.0%)
METALS & MINING (1.0%)
Arcelor* 100,574 1,223,004
-----------
TOTAL LUXEMBOURG 1,223,004
-----------
MEXICO (1.3%)
BANKS (0.4%)
Grupo Financiero BBVA Bancomer SA de CV ADR & 32,500 510,250
-----------
DIVERSIFIED TELECOMMUNICATION SERVICES (0.5%)
Telefonos de Mexico SA de CV ADR 21,700 642,971
-----------
MEDIA (0.4%)
Grupo Televisa SA ADR* 15,900 504,666
-----------
TOTAL MEXICO 1,657,887
-----------
NETHERLANDS (5.3%)
AIR FREIGHT & COURIERS (1.0%)
TPG NV 63,282 1,247,994
-----------
DIVERSIFIED FINANCIALS (1.4%)
ING Groep NV 78,423 1,711,942
-----------
DIVERSIFIED TELECOMMUNICATION SERVICES (0.7%)
Koninklijke (Royal) KPN NV* 168,011 921,022
-----------
FOOD & DRUG RETAILING (1.2%)
Koninklijke Ahold NV & 94,653 1,578,916
-----------
SEMICONDUCTOR EQUIPMENT & PRODUCTS (1.0%)
ASML Holding NV* 127,868 1,307,876
-----------
TOTAL NETHERLANDS 6,767,750
-----------
NORWAY (0.6%)
BANKS (0.6%)
DnB Holding ASA 160,837 813,542
-----------
TOTAL NORWAY 813,542
-----------
SINGAPORE (2.0%)
BANKS (2.0%)
DBS Group Holdings, Ltd. 170,900 1,162,195
United Overseas Bank, Ltd. 189,896 1,432,451
-----------
TOTAL SINGAPORE 2,594,646
-----------
SOUTH KOREA (3.2%)
BANKS (1.2%)
Kookmin Bank ADR 32,423 1,517,396
-----------
SEMICONDUCTOR EQUIPMENT & PRODUCTS (1.3%)
Samsung Electronics Co., Ltd. GDR* 12,608 1,739,904
-----------
See Accompanying Notes to Financial Statements.
6
NUMBER
OF SHARES VALUE
----------- -----------
SOUTH KOREA -- (CONTINUED)
WIRELESS TELECOMMUNICATION SERVICES (0.7%)
SK Telecom Co., Ltd. ADR 39,100 $ 850,816
-----------
TOTAL SOUTH KOREA 4,108,116
-----------
SWEDEN (0.7%)
MACHINERY (0.7%)
SKF AB Series B & 39,300 929,386
-----------
TOTAL SWEDEN 929,386
-----------
SWITZERLAND (7.8%)
BANKS (1.5%)
UBS AG* 41,705 1,964,891
-----------
CHEMICALS (0.8%)
Ciba Specialty Chemicals AG 14,498 1,038,598
-----------
FOOD PRODUCTS (2.6%)
Nestle SA 15,412 3,307,089
-----------
INSURANCE (0.4%)
Converium Holding AG 11,903 552,867
-----------
PHARMACEUTICALS (2.5%)
Novartis AG 77,678 3,152,436
-----------
TOTAL SWITZERLAND 10,015,881
-----------
TAIWAN (1.2%)
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.2%)
Hon Hai Precision Industry Co., Ltd. GDR 144A & 26,880 210,336
-----------
SEMICONDUCTOR EQUIPMENT & PRODUCTS (1.0%)
Taiwan Semiconductor Manufacturing Co., Ltd. ADR 48,400 395,428
United Microelectronics Corp. 211,407 944,988
-----------
1,340,416
-----------
TOTAL TAIWAN 1,550,752
-----------
UNITED KINGDOM (19.0%)
AIR FREIGHT & COURIERS (1.0%)
Exel PLC 109,381 1,248,707
-----------
BANKS (4.1%)
Abbey National PLC 77,398 893,163
HBOS PLC 122,397 1,370,793
HSBC Holdings PLC 79,607 905,725
Lloyds TSB Group PLC 42,883 370,817
Royal Bank of Scotland Group PLC 70,746 1,688,613
-----------
5,229,111
-----------
BEVERAGES (1.5%)
Diageo PLC 112,186 1,357,087
Scottish & Newcastle PLC 60,061 511,461
-----------
1,868,548
-----------
COMMERCIAL SERVICES & SUPPLIES (0.8%)
Brambles Industries PLC 263,665 957,460
-----------
DIVERSIFIED TELECOMMUNICATION SERVICES (0.8%)
BT Group PLC 349,679 1,081,837
-----------
ELECTRIC UTILITIES (1.6%)
Scottish Power PLC 362,996 2,066,389
-----------
See Accompanying Notes to Financial Statements.
7
NUMBER
OF SHARES VALUE
----------- -----------
UNITED KINGDOM -- (CONTINUED)
FOOD PRODUCTS (1.0%)
Cadbury Schweppes PLC 171,677 $ 1,242,191
------------
HEALTHCARE EQUIPMENT & SUPPLIES (0.5%)
Amersham PLC 78,716 692,847
------------
HOTELS RESTAURANTS & LEISURE (0.9%)
Six Continents PLC 123,072 1,155,607
------------
INSURANCE (0.7%)
Aviva PLC 123,099 950,205
------------
OIL & GAS (4.0%)
BG Group PLC 286,219 1,193,217
BP PLC 242,282 1,875,805
Shell Transport & Trading Co. PLC 309,496 2,075,423
------------
5,144,445
------------
SOFTWARE (0.6%)
Sage Group PLC 366,045 730,443
------------
WIRELESS TELECOMMUNICATION SERVICES (1.5%)
Vodafone Group PLC 1,226,756 1,964,088
------------
TOTAL UNITED KINGDOM 24,331,878
------------
TOTAL COMMON STOCKS (Cost $120,640,439) 118,555,202
------------
PAR
(000)
---------
SHORT-TERM INVESTMENT (6.9%)
State Street Bank and Trust Co. Euro Time Deposit, 1.688%, 9/03/02 (Cost $8,886,000) $8,886 8,886,000
------------
TOTAL INVESTMENTS AT VALUE (99.4%) (Cost $129,526,439) 127,441,202
------------
OTHER ASSETS IN EXCESS OF LIABILITIES (0.6%) 742,155
------------
NET ASSETS (100.0%) $128,183,357
============
* Non-income producing security.
& Security or portion thereof is out on loan.
INVESTMENT ABBREVIATIONS
ADR American Depository Receipt
GDR Global Depository Receipt
See Accompanying Notes to Financial Statements.
8
CREDIT SUISSE INSTITUTIONAL U.S. CORE EQUITY FUND
PORTFOLIO MANAGERS' LETTER
October 1, 2002
Dear Shareholder:
For the 12 months ended August 31, 2002, Credit Suisse Institutional U.S.
Core Equity Fund(1) (the "Fund") had a loss of 21.01%, vs. a decline of
17.99% for the S&P 500 Index.(2)
The period was a poor one for equities. While the economy showed surprising
resilience in the wake of September 11, helping markets to rally in late 2001,
sentiment deteriorated in 2002. This was largely due to widespread concerns over
accounting and corporate-governance issues, lackluster profit growth, and
increasingly mixed signals about the economy's prospects heading toward 2003.
There were few places to hide, with even many traditionally defensive sectors
posting significant losses. Technology and telecommunications stocks were the
worst performers, spiraling further downward in the wake of their strong surge
in the late 1990s.
Against this backdrop, the Fund lost value and marginally underperformed its
benchmark. The Fund was hurt by the broad decline in equities and by weakness
in certain areas, chiefly the media sector. On the positive side, the Fund
was aided by its continued underweighting in the technology and
telecommunications sectors, a reflection of the tepid business spending and
overcapacity, respectively, we see within many of these companies. The Fund
was also helped by good stock selection in the health-care area.
Looking ahead, we believe that the economy should remain on a growth path,
avoiding a "double dip" recession. However, we also believe that the recovery
will be a modest one for at least several quarters. Until growth turns more
substantial, we expect the general profit, revenue, and capital-expenditure
backdrop to remain less than robust as well, potentially restraining equity
markets for a while. Ongoing accounting worries could also weigh on stocks, as
could heightened geopolitical risk.
Amid the uncertainty, we will, as always, focus on companies that we deem to
have positive or improving return on invested capital, which we see as crucial
to fueling longer-term growth and creating shareholder value. In terms of sector
allocation, we intend to maintain exposure to companies that we believe will
perform better than the broad market in the context of our economic viewpoint.
These include specific energy, materials and industrial companies that we think
have compelling valuations at present (we were significantly overweighted in
energy at the end of the period).
Elsewhere of note, we continue to see opportunities in a variety of other
sectors, such as health care. We ended the period with a roughly neutral
weighting in the consumer area, broadly defined, but with limited exposure to
retail companies. We continue to closely monitor the consumer's sentiment and
spending prospects, and will adjust the Fund's exposure as we deem appropriate.
We expect to remain underweighted in technology, at least until capital
expenditures pick up, and will likely continue to avoid telecommunications
companies. We maintain a positive outlook on certain financial-services
companies (e.g., large insurers), but intend to remain underweighted here based
on broad credit-quality concerns.
Sincerely yours,
Credit Suisse Asset Management, LLC (CSAM)
D. Susan Everly Sheryl Hempel Maragaret D. Miller
Director and Co-Portfolio Manager Director and Co-Portfolio Manager Vice President and Co-Portfolio
Manager
THE FUND IS PERMITTED TO INVEST A GREATER PROPORTION OF ITS ASSETS IN THE
SECURITIES OF A SMALLER NUMBER OF ISSUERS. AS A RESULT, THE FUND MAY BE SUBJECT
TO GREATER VOLATILITY WITH RESPECT TO ITS RESPECTIVE PORTFOLIO SECURITIES THAN A
FUND THAT IS MORE BROADLY DIVERSIFIED.
9
COMPARISON OF CHANGE IN VALUE OF $3 MILLION INVESTMENT IN THE CREDIT SUISSE
INSTITUTIONAL U.S. CORE EQUITY FUND(1), AND THE S&P 500 INDEX(2) FROM
INCEPTION (8/31/94). (UNAUDITED)
[CHART]
CREDIT SUISSE
INSTITUTIONAL U.S. S&P 500
CORE EQUITY FUND(1) INDEX(2)
$3,000,000 $3,000,000
8/94 $3,000,000 $3,123,000
9/94 $2,958,015 $3,046,455
10/94 $2,996,004 $3,115,336
11/94 $2,866,018 $3,001,844
12/94 $2,908,526 $3,046,331
1/95 $2,962,822 $3,125,566
2/95 $3,075,476 $3,247,463
3/95 $3,139,831 $3,343,264
4/95 $3,192,104 $3,441,556
5/95 $3,330,892 $3,579,218
6/95 $3,415,345 $3,662,291
7/95 $3,556,153 $3,783,989
8/95 $3,592,353 $3,793,525
9/95 $3,690,909 $3,953,270
10/95 $3,624,538 $3,939,039
11/95 $3,823,674 $4,111,923
12/95 $3,944,731 $4,191,283
1/96 $4,082,183 $4,333,787
2/96 $4,181,941 $4,374,004
3/96 $4,150,877 $4,415,995
4/96 $4,261,760 $4,480,998
5/96 $4,314,966 $4,596,563
6/96 $4,317,144 $4,614,076
7/96 $4,144,187 $4,410,134
8/96 $4,224,046 $4,502,967
9/96 $4,470,135 $4,756,574
10/96 $4,561,029 $4,887,618
11/96 $4,844,798 $5,257,317
12/96 $4,808,239 $5,153,012
1/97 $5,038,135 $5,475,230
2/97 $5,035,792 $5,517,937
3/97 $4,805,901 $5,291,150
4/97 $5,083,711 $5,607,031
5/97 $5,383,016 $5,948,612
6/97 $5,672,762 $6,215,883
7/97 $6,096,617 $6,709,859
8/97 $5,842,747 $6,333,838
9/97 $6,247,489 $6,681,059
10/97 $6,043,970 $6,457,912
11/97 $6,139,808 $6,756,978
12/97 $6,262,087 $6,872,522
1/98 $6,373,125 $6,948,670
2/98 $6,869,761 $7,449,738
3/98 $7,080,675 $7,831,165
4/98 $7,247,157 $7,910,260
5/98 $6,933,660 $7,774,599
6/98 $7,102,908 $8,090,403
7/98 $6,925,424 $8,003,593
8/98 $6,029,210 $6,847,634
9/98 $6,412,059 $7,284,787
10/98 $6,997,446 $7,877,550
11/98 $7,441,363 $8,355,402
12/98 $7,810,231 $8,836,590
1/99 $8,010,119 $9,205,959
2/99 $7,848,621 $8,919,930
3/99 $8,065,431 $9,276,727
4/99 $8,337,567 $9,635,922
5/99 $8,222,709 $9,408,418
6/99 $8,601,055 $9,931,526
7/99 $8,299,267 $9,621,166
8/99 $8,324,857 $9,573,637
9/99 $8,125,102 $9,311,224
10/99 $8,920,244 $9,900,438
11/99 $8,954,176 $10,103,001
12/99 $9,624,665 $10,696,957
1/00 $9,366,243 $10,159,542
2/00 $9,301,579 $9,967,425
3/00 $10,300,344 $10,942,538
4/00 $9,962,410 $10,613,386
5/00 $9,624,472 $10,395,600
6/00 $9,927,523 $10,651,955
7/00 $9,718,826 $10,485,465
8/00 $10,230,656 $11,136,403
9/00 $9,579,697 $10,548,512
10/00 $9,490,220 $10,503,892
11/00 $8,720,068 $9,675,765
12/00 $8,893,099 $9,723,079
1/01 $9,189,286 $10,068,054
2/01 $8,340,105 $9,150,049
3/01 $8,037,348 $8,570,394
4/01 $8,610,025 $9,236,399
5/01 $8,524,496 $9,298,283
6/01 $8,563,984 $9,071,962
7/01 $8,386,258 $8,982,694
8/01 $7,885,986 $8,420,378
9/01 $7,148,693 $7,740,432
10/01 $7,254,012 $7,888,042
11/01 $7,951,757 $8,493,134
12/01 $7,923,946 $8,567,534
1/02 $7,778,292 $8,442,534
2/02 $7,486,986 $8,279,761
3/02 $7,731,810 $8,591,163
4/02 $7,308,107 $8,070,281
5/02 $7,407,497 $8,010,884
6/02 $6,825,268 $7,440,269
7/02 $6,229,200 $6,860,448
8/02 $6,229,200 $6,905,316
Note: Past performance is not predictive of future performance. Investment
return and principal value of an investment will fluctuate so that an
investor's shares upon redemption may be worth more or less than their
original cost. The performance results on this page do not reflect the
deduction of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares.
AVERAGE ANNUAL RETURNS AS OF AUGUST 31, 2002
INCEPTION
1 YEAR 3 YEARS 5 YEARS TO DATE
------ ------- ------- -------
(21.01%) (9.21%) 1.29% 9.56%
AVERAGE ANNUAL RETURNS AS OF SEPTEMBER 30, 2002
INCEPTION
1 YEAR 3 YEARS 5 YEARS TO DATE
------ ------- ------- -------
(22.49%) (11.98%) (2.37%) 7.88%
(1) Fee waivers and/or expense reimbursements reduced expenses for the Fund,
without which performance would be lower. Waivers and/or reimbursements may
be discontinued at any time.
(2) The S&P 500 Index is an unmanaged index (with no defined investment
objective) of common stocks, includes reinvestment of dividends, and is a
registered trademark of McGraw-Hill Co., Inc. Investors cannot invest
directly in an index.
10
CREDIT SUISSE INSTITUTIONAL U.S. CORE EQUITY FUND
SCHEDULE OF INVESTMENTS
AUGUST 31, 2002
NUMBER
OF SHARES VALUE
--------- -----------
COMMON STOCKS (98.6%)
AEROSPACE & DEFENSE (1.0%)
United Technologies Corp. 1,400 $ 83,146
-----------
AIRLINES (1.0%)
AMR Corp.* 8,300 84,577
-----------
BANKS (2.0%)
Bank of America Corp. 2,300 161,184
-----------
BEVERAGES (4.9%)
Coca-Cola Co. 2,700 137,700
PepsiCo, Inc. 6,600 261,030
-----------
398,730
-----------
BIOTECHNOLOGY (0.7%)
Gilead Sciences, Inc.* 1,725 55,338
-----------
CHEMICALS (4.6%)
Du Pont (E.I.) de Nemours & Co. 8,600 346,666
PPG Industries, Inc. 500 28,135
-----------
374,801
-----------
COMMERCIAL SERVICES & SUPPLIES (4.9%)
Cendant Corp.* 27,900 399,249
-----------
COMMUNICATIONS EQUIPMENT (1.5%)
Cisco Systems, Inc.* 3,000 41,460
Motorola, Inc. 6,600 79,200
-----------
120,660
-----------
COMPUTERS & PERIPHERALS (1.4%)
Dell Computer Corp.* 4,400 117,084
-----------
DIVERSIFIED FINANCIALS (7.5%)
CIT Group, Inc.* 3,600 78,300
Citigroup, Inc. 4,581 150,028
Freddie Mac 2,474 158,583
Lehman Brothers Holdings, Inc. 2,124 121,089
The Goldman Sachs Group, Inc. 1,436 111,003
-----------
619,003
-----------
ELECTRICAL EQUIPMENT (3.4%)
Emerson Electric Co. 5,700 278,046
-----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.5%)
Agilent Technologies, Inc.* 3,237 43,473
-----------
ENERGY EQUIPMENT & SERVICES (2.7%)
Transocean, Inc. 9,100 222,950
-----------
HEALTHCARE EQUIPMENT & SUPPLIES (8.1%)
Baxter International, Inc. 2,200 79,838
Biomet, Inc. 7,000 188,020
Guidant Corp.* 1,000 36,800
Medtronic, Inc. 8,700 358,266
-----------
662,924
-----------
HOTELS, RESTAURANTS & LEISURE (2.3%)
McDonald's Corp. 7,900 187,704
-----------
See Accompanying Notes to Financial Statements.
11
NUMBER
OF SHARES VALUE
--------- -----------
INSURANCE (6.8%)
AFLAC, Inc. 8,400 $ 257,124
American International Group, Inc. 4,766 299,305
Travelers Property Casualty Corp. Class A* 1 15
Travelers Property Casualty Corp. Class B* 1 10
-----------
556,454
-----------
MACHINERY (3.8%)
Illinois Tool Works, Inc. 4,600 315,192
-----------
MEDIA (7.5%)
AOL Time Warner, Inc.* 11,900 150,535
Clear Channel Communications, Inc.* 6,100 208,498
Viacom, Inc. Class B* 6,300 256,410
-----------
615,443
-----------
METALS & MINING (2.2%)
Alcoa, Inc. 7,181 180,171
-----------
OIL & GAS (7.7%)
Burlington Resources, Inc. 900 34,623
Conoco, Inc. 14,700 360,885
Exxon Mobil Corp. 6,600 233,970
-----------
629,478
-----------
PAPER & FOREST PRODUCTS (0.9%)
International Paper Co. 2,000 75,300
-----------
PERSONAL PRODUCTS (5.4%)
Estee Lauder Cos., Inc. Class A 2,700 80,865
Gillette Co. 11,400 359,442
-----------
440,307
-----------
PHARMACEUTICALS (7.0%)
Pfizer, Inc. 12,000 396,960
Pharmacia Corp. 4,106 179,432
-----------
576,392
-----------
SEMICONDUCTOR EQUIPMENT & PRODUCTS (4.1%)
Intel Corp. 10,200 170,034
Novellus Systems, Inc.* 1,987 48,602
Texas Instruments, Inc. 1,700 33,490
Xilinx, Inc.* 4,300 83,076
-----------
335,202
-----------
SOFTWARE (3.5%)
Microsoft Corp.* 5,900 289,572
-----------
SPECIALTY RETAIL (3.2%)
Staples, Inc.* 11,900 165,410
The Gap, Inc. 8,500 99,705
-----------
265,115
-----------
TOTAL COMMON STOCKS
(Cost $8,608,840) 8,087,495
-----------
See Accompanying Notes to Financial Statements.
12
PAR
(000) VALUE
------- -----------
SHORT-TERM INVESTMENT (2.1%)
State Street Bank and Trust Co. Euro Time Deposit, 1.688%, 9/03/02 (Cost $176,000) $176 $ 176,000
-----------
TOTAL INVESTMENTS (100.7%) (Cost $8,784,840) 8,263,495
-----------
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.7%) (58,075)
-----------
NET ASSETS (100.0%) $ 8,205,420
===========
* Non-income producing security.
See Accompanying Notes to Financial Statements.
13
CREDIT SUISSE INSTITUTIONAL FIXED INCOME FUND
PORTFOLIO MANAGERS' LETTER
October 1, 2002
Dear Shareholder:
We are writing to report on the results of the Credit Suisse Institutional Fixed
Income Fund(1) (the "Fund") for the fiscal year ended August 31, 2002.
At August 31, 2002, the net asset value ("NAV") of the Fund's shares was
$14.12, compared to an NAV of $15.79 at August 31, 2001. Assuming the
reinvestment of distributions totaling $1.23 per share, the Fund's total
return was -2.92%. By comparison, the Lehman Brothers Aggregate Bond Index(2)
returned 8.11% during the same period.
The Fund underperformed its Lehman benchmark as a result of several factors
over the course of the fiscal year:
- - As the year began in September 2001, there was a classic "flight to
quality" in response to the tragic events of September 11. Highest-quality
instruments like U.S. Treasury issues and government agency securities
thrived, while comparatively risky sectors endured heavy selling. Our
holdings in spread-based categories like investment-grade corporate bonds,
high yield and emerging market debt dampened the Fund's overall return
accordingly.
- - We had exposure (albeit low) to Argentine sovereign debt and certain high
yield issuers in late 2001, at a time when each fared poorly.
- - Early in 2001, the unfolding Enron scandal triggered anxiety about
questionable accounting practices and corporate governance issues across
financial markets. Unfortunately for the Fund, we held above-market
positions in the bonds of a handful of telecommunications and power
companies that were tarred by the broad strokes of the Enron brush.
- - Toward the end of the year, performance suffered from our security
selection in the telecom and energy sectors, as well as our small
allocation to high yield. Our analysis at the time concluded that telecom's
historically generous yields offered satisfactory compensation for the
fundamental credit risk of the underlying issuers, but the sector
nonetheless crumbled under the weight of accounting-based improprieties by
companies like WorldCom and Qwest Communications International. [Note: at
August 31, the Fund did not own securities of WorldCom or Qwest.] Bonds of
a number of energy companies, which experienced problems much like those in
telecom, similarly declined.
On the positive side of the ledger, we added value within our approach to
securitized debt. This was most pronounced in mortgage-backed securities (MBS),
in which our sector allocation and security selection were particularly
effective. We underweighted MBS while they underperformed in the early part of
the year, and then capitalized on their attractive valuations to overweight them
in late 2001, when they started to outperform. Throughout the year, furthermore,
we tended to focus our MBS holdings on high-coupon issues that were protected
from prepayment, which benefited from their comparatively low availability as
interest rates fell.
It's also worth noting that our holdings in corporate bonds began to
meaningfully help overall performance as the year drew to a close in August,
when the flow of negative news subsided and investors started to become less
pessimistic than previously about the outlook for corporate credit quality.
As developments occur in the fixed income markets that we believe would be of
interest to you, we will be sure to keep you informed. Meanwhile, if you have
questions, please feel free to call upon us at any time.
Sincerely yours,
Credit Suisse Asset Management, LLC (CSAM)
Jo Ann Corkran, Managing Director and Co-Portfolio Manager
Leland E. Crabbe, Director and Co-Portfolio Manager
Suzanne E. Moran, Director and Co-Portfolio Manager
14
COMPARISON OF CHANGE IN VALUE OF $3 MILLION INVESTMENT IN THE CREDIT SUISSE
INSTITUTIONAL FIXED INCOME FUND(1) AND THE LEHMAN BROTHERS AGGREGATE BOND
INDEX(2) FROM INCEPTION (3/31/94). (UNAUDITED)
[CHART]
CREDIT SUISSE LEHMAN BROTHERS
INSTITUTIONAL AGGREGATE
FIXED INCOME FUND(1) BOND INDEX(2)
$3,000,000 $3,000,000
3/94 $3,000,000 $2,926,050
4/94 $2,966,015 $2,902,671
5/94 $2,974,020 $2,902,264
6/94 $2,945,995 $2,895,850
7/94 $2,992,799 $2,953,362
8/94 $3,005,008 $2,957,024
9/94 $2,961,967 $2,913,497
10/94 $2,949,608 $2,910,904
11/94 $2,943,411 $2,904,442
12/94 $2,951,956 $2,924,511
1/95 $2,998,163 $2,982,387
2/95 $3,061,190 $3,053,309
3/95 $3,088,687 $3,072,056
4/95 $3,131,312 $3,114,973
5/95 $3,259,110 $3,235,522
6/95 $3,282,544 $3,259,238
7/95 $3,280,395 $3,251,970
8/95 $3,323,500 $3,291,222
9/95 $3,354,806 $3,323,245
10/95 $3,396,405 $3,366,447
11/95 $3,442,416 $3,416,877
12/95 $3,490,685 $3,464,815
1/96 $3,526,867 $3,487,822
2/96 $3,477,153 $3,427,203
3/96 $3,450,757 $3,422,714
4/96 $3,439,321 $3,384,243
5/96 $3,439,302 $3,377,373
6/96 $3,478,732 $3,422,731
7/96 $3,495,005 $3,432,109
8/96 $3,497,318 $3,426,343
9/96 $3,559,096 $3,486,064
10/96 $3,634,717 $3,563,280
11/96 $3,698,554 $3,624,319
12/96 $3,680,118 $3,590,613
1/97 $3,699,549 $3,601,601
2/97 $3,726,248 $3,610,569
3/97 $3,689,095 $3,570,563
4/97 $3,728,405 $3,624,015
5/97 $3,770,211 $3,658,262
6/97 $3,820,751 $3,701,685
7/97 $3,920,470 $3,801,520
8/97 $3,900,544 $3,769,093
9/97 $3,955,442 $3,824,687
10/97 $3,978,247 $3,880,183
11/97 $3,998,478 $3,898,032
12/97 $4,035,735 $3,937,285
1/98 $4,090,594 $3,987,840
2/98 $4,101,045 $3,984,849
3/98 $4,127,356 $3,998,557
4/98 $4,143,231 $4,019,429
5/98 $4,169,647 $4,057,614
6/98 $4,195,497 $4,091,982
7/98 $4,214,224 $4,100,698
8/98 $4,203,543 $4,167,416
9/98 $4,265,645 $4,265,017
10/98 $4,249,357 $4,242,455
11/98 $4,314,432 $4,266,552
12/98 $4,333,695 $4,279,395
1/99 $4,367,215 $4,309,949
2/99 $4,305,839 $4,234,698
3/99 $4,349,737 $4,258,158
4/99 $4,394,881 $4,271,656
5/99 $4,346,937 $4,234,237
6/99 $4,331,808 $4,220,729
7/99 $4,314,585 $4,202,749
8/99 $4,303,106 $4,200,606
9/99 $4,347,782 $4,249,375
10/99 $4,368,172 $4,265,055
11/99 $4,391,475 $4,264,756
12/99 $4,381,852 $4,244,200
1/00 $4,369,939 $4,230,322
2/00 $4,426,516 $4,281,466
3/00 $4,464,804 $4,337,853
4/00 $4,404,497 $4,325,447
5/00 $4,392,420 $4,323,457
6/00 $4,497,015 $4,413,385
7/00 $4,527,655 $4,453,459
8/00 $4,579,733 $4,517,989
9/00 $4,607,723 $4,546,407
10/00 $4,610,838 $4,576,505
11/00 $4,648,091 $4,651,331
12/00 $4,761,347 $4,737,613
1/01 $4,922,584 $4,815,073
2/01 $4,941,547 $4,857,012
3/01 $4,955,580 $4,881,394
4/01 $4,955,592 $4,861,136
5/01 $5,010,238 $4,890,449
6/01 $5,015,720 $4,908,935
7/01 $5,114,030 $5,018,699
8/01 $5,176,352 $5,076,163
9/01 $5,156,214 $5,135,300
10/01 $5,232,619 $5,242,782
11/01 $5,182,834 $5,170,484
12/01 $5,143,113 $5,137,651
1/02 $5,163,873 $5,179,215
2/02 $5,170,797 $5,229,402
3/02 $5,115,780 $5,142,384
4/02 $5,168,265 $5,242,095
5/02 $5,182,012 $5,286,653
6/02 $5,046,513 $5,332,383
7/02 $4,928,935 $5,396,744
8/02 $5,025,000 $5,487,841
Note: Past performance is not predictive of future performance. Investment
return and principal value of an investment will fluctuate so that an investor's
shares upon redemption may be worth more or less than their original cost. The
performance results on this page do not reflect the deduction of taxes that a
shareholder would pay on fund distributions or the redemption of fund shares.
AVERAGE ANNUAL TOTAL RETURNS AS OF AUGUST 31, 2002
INCEPTION
1 YEAR 3 YEARS 5 YEARS TO DATE
------ ------- ------- -------
(2.92%) 5.31% 5.20% 6.32%
AVERAGE ANNUAL RETURNS AS OF SEPTEMBER 30, 2002
INCEPTION
1 YEAR 3 YEARS 5 YEARS TO DATE
------ ------- ------- -------
(2.15%) 5.08% 4.99% 6.30%
(1) Fee waivers and/or expense reimbursements reduced expenses for the Fund,
without which performance would be lower. Waivers and/or reimbursements may
be discontinued at any time.
(2) The Lehman Brothers Aggregate Bond Index is composed of the Lehman Brothers
Government/Corporate Bond Index and the Lehman Brothers Mortgage-Backed
Securities Index. The U.S. Aggregate Bond Index includes U.S. Treasury and
agency issues, corporate bond issues and mortgage-backed securities rated
investment-grade or higher by Moody's Investors Service, Standard & Poor's
Corporation or Fitch Investors' Service. Investors cannot invest directly
in an index.
15
CREDIT SUISSE INSTITUTIONAL FIXED INCOME FUND
SCHEDULE OF INVESTMENTS
AUGUST 31, 2002
PAR RATINGS(#)
(000) (S&P / MOODY'S) MATURITY RATE% VALUE
------- --------------- -------- ----- -----------
CORPORATE BONDS (46.9%)
AEROSPACE & DEFENSE (0.8%)
$ 1,125 Lockheed Martin Corp., Bonds (BBB , Baa2) 12/01/29 8.500 $ 1,438,965
301 Sequa Corp., Senior Notes (BB- , Ba3) 08/01/09 9.000 285,475
225 Sequa Corp., Series B, Senior Notes (BB- , Ba3) 04/01/08 8.875 214,875
260 The Boeing Co., Debentures (A+ , A2) 08/15/42 7.500 279,030
----------
2,218,345
----------
APPAREL (0.1%)
560 Levi Strauss & Co. (BB- , Caa1) 11/01/06 7.000 422,800
----------
AUTOMOBILE MANUFACTURERS (2.7%)
835 DaimlerChrysler NA Holding Corp., Company
Guaranteed, Global Notes (BBB+ , A3) 01/18/31 8.500 976,205
250 Ford Motor Co., Unsecured Notes (BBB+ , Baa1) 07/16/31 7.450 218,171
3,095 General Motors Corp., Global Bonds (BBB+ , A3) 05/01/28 6.750 2,781,932
2,220 General Motors Corp., Global Notes (BBB+ , A3) 01/15/11 7.200 2,267,865
1,200 General Motors Corp., Series MTN, Notes (BBB+ , A2) 05/16/05 5.250 1,204,631
----------
7,448,804
----------
AUTOMOBILE PARTS & EQUIPMENT (0.3%)
415 Collins & Aikman Products Corp., Company
Guaranteed Notes (Callable 10/07/02 @ $103.83) & (B , B2) 04/15/06 11.500 393,21
460 Metaldyne Corp., Rule 144A, Private Placement,
Senior Subordinated Notes
(Callable 06/15/07 @ $105.50) ++ (B , B3) 06/15/12 11.000 405,950
----------
799,163
----------
BANKING (0.1%)
290 Sovereign Bancorp, Inc., Senior Notes (BBB- , Ba2) 11/15/06 10.500 323,350
----------
BANKS (0.9%)
200 Bank of America Corp., Series MTN, Senior Notes (A+ , Aa2) 03/01/04 5.750 209,214
2,260 First Republic Bank, Subordinated Notes (BB+ , NR) 09/15/12 7.750 2,242,883
----------
2,452,097
----------
BROADCAST/OUTDOOR (0.1%)
180 Chancellor Media Corp., Company Guaranteed, Senior
Subordinated Notes (BBB- , Ba1) 11/01/08 8.000 182,925
----------
BUILDING MATERIALS (0.6%)
360 Brand Scaffold Services, Senior Unsecured Notes
(Callable 02/15/03 @ $105.12) (B- , B2) 02/15/08 10.250 361,800
455 Building Materials Corp., Company Guaranteed (B , B2) 12/01/08 8.000 366,275
495 Dayton Superior Corp., Company Guaranteed Notes
(Callable 06/15/07 @ $102.17) (B- , B3) 06/15/09 13.000 477,675
480 Nortek, Inc., Series B, Global Senior Subordinated
Notes (Callable 06/15/06 @ $104.94) (B- , B3) 06/15/11 9.875 472,800
----------
1,678,550
----------
CABLE (0.3%)
115 Charter Communications Holdings LLC, Senior
Discount Notes (Callable 04/01/04 @ $104.96)+ (B- , B2) 04/01/11 9.920 55,775
90 CSC Holdings, Inc., Senior Notes (BB+ , B1) 12/15/07 7.875 76,500
238 DIVA Systems Corp., Series B, Senior Discount
Notes (Callable 03/01/03 @ $106.31)+ [0] (NR , NR) 03/01/08 0.00 30,643
255 James Cable Partners LP, Series B, Senior Notes
(Callable10/11/02 @ $102.69) (NR , Caa2) 08/15/04 10.750 121,125
See Accompanying Notes to Financial Statements.
16
PAR RATINGS(#)
(000) (S&P / MOODY'S) MATURITY RATE% VALUE
------- --------------- -------- ----- -----------
CABLE -- (CONTINUED)
$ 270 Mediacom LLC Capital Corp., Senior Notes
(Callable 01/15/06 @ $104.75) (B+ , B2) 01/15/13 9.500 $ 221,400
195 Northland Cable Television, Company Guaranteed
(Callable 11/15/02 @ $105.12) (B- , Caa1) 11/15/07 10.250 128,212
180 Rogers Communications, Inc., Yankee Senior Notes
(Callable 01/15/03 @ $101.52) (BB- , Ba2) 01/15/06 9.125 155,700
----------
789,355
----------
CHEMICALS (0.5%)
425 Applied Extrusion Technologies, Inc., Series B,
Company Guaranteed (Callable 07/01/06 @ $105.38) (B , B2) 07/01/11 10.750 352,750
465 Avecia Group PLC, Global Company Guaranteed
(Callable 07/01/04 @ $105.50) (B- , B3) 07/01/09 11.000 455,700
260 Mississippi Chemical Corp. (B , B3) 11/15/17 7.250 89,700
480 Scotts Co., Company Guaranteed
(Callable 01/15/04 @ $104.31) (B+ , B2) 01/15/09 8.625 494,400
----------
1,392,550
----------
COMMERCIAL SERVICES (0.2%)
270 Iron Mountain, Inc., Company Guaranteed
(Callable 04/01/06 @ $104.31) (B , B2) 04/01/13 8.625 276,075
275 La Petite Academy, Inc., Series B, Company Guaranteed
(Callable 05/15/03 @ $105.00) (CC , Ca) 05/15/08 10.000 150,219
----------
426,294
----------
COMPUTERS (0.1%)
410 Unisys Corp., Senior Notes (BB+ , Ba1) 01/15/05 7.250 403,850
----------
DIVERSIFIED FINANCIALS (6.1%)
415 Armkel LLC, Global Senior Subordinated Notes
(Callable 08/15/05 @ $104.75) (B- , B2) 08/15/09 9.500 440,938
1,625 Boeing Capital Corp., Global Bonds (A+ , A3) 01/15/13 5.800 1,605,775
285 Burlington Resources Finance Co., Yankee Company
Guaranteed (BBB+ , Baa1) 03/01/07 5.700 300,002
1,385 Conseco Finance Trust III Bonds (CC , Ca) 04/01/27 8.796 10,388
500 Ford Motor Credit Co., Global Bonds (BBB+ , A3) 02/01/11 7.375 486,392
225 Ford Motor Credit Co., Global Notes (BBB+ , A3) 02/01/06 6.875 226,141
4,100 Ford Motor Credit Co., Global Notes & (BBB+ , A3) 01/25/07 6.500 4,042,452
780 Ford Motor Credit Co., Global Notes (BBB+ , A3) 10/28/09 7.375 764,480
240 Ford Motor Credit Co., Global Notes (BBB+ , A3) 06/15/10 7.875 240,425
100 General Motors Acceptance Corp., Global Notes (BBB+ , A2) 01/15/06 6.750 103,490
100 General Motors Acceptance Corp., Global Notes (BBB+ , A2) 08/28/07 6.125 100,211
1,400 General Motors Acceptance Corp., Global Notes (BBB+ , A2) 09/15/11 6.875 1,397,050
765 Household Finance Corp., Global Notes (A, A2) 05/09/05 8.000 822,838
125 International Lease Finance Corp., Notes (AA- , A1) 01/15/03 5.750 126,285
580 PCA LLC/PCA Finance Corp.,
Rule 144A, Private Placement ++ (B- , B3) 08/01/09 11.875 582,900
3,240 Verizon Global Funding Corp., Global Notes (A+ , A1) 06/15/12 6.875 3,142,256
1,960 Verizon Global Funding Corp., Global Notes (A+ , A1) 12/01/30 7.750 1,861,739
620 Verizon Global Funding Corp., Global Notes (A+ , A1) 06/15/32 7.750 585,232
----------
16,838,994
----------
ELECTRIC (3.5%)
555 Calpine Corp., Senior Notes (B+ , B1) 08/15/10 8.625 302,475
1,695 Calpine Corp., Senior Notes & (B+ , B1) 02/15/11 8.500 898,350
See Accompanying Notes to Financial Statements.
17
PAR RATINGS(#)
(000) (S&P / MOODY'S) MATURITY RATE% VALUE
------- --------------- -------- ----- -----------
ELECTRIC -- (CONTINUED)
$ 1,005 Cilcorp, Inc., Bonds (BB+ , Baa2) 10/15/29 9.375 $ 954,757
525 CMS Energy Corp., Senior Notes (B+ , B3) 01/15/09 7.500 399,559
355 CMS Energy Corp., Series B, Senior Notes (B+ , B3) 01/15/04 6.750 294,755
850 Dominion Resources, Inc., Notes (BBB+ , Baa1) 01/31/03 6.000 859,573
1,140 Dominion Resources, Inc., Notes (BBB+ , Baa1) 06/30/12 6.250 1,194,399
725 Energy East Corp., Notes (BBB , Baa2) 06/15/12 6.750 778,285
1,215 PG&E National Energy Group, Global Senior Notes (BBB , Baa2) 05/16/11 10.375 455,625
1,655 Progress Energy, Inc., Senior Notes (BBB , Baa1) 03/01/06 6.750 1,764,202
1,675 PSEG Power LLC, Global Company Guaranteed (BBB , Baa1) 04/15/06 6.875 1,664,156
----------
9,566,136
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.1%)
165 Motors & Gears, Inc., Series D, Senior Notes
(Callable 10/07/02 @ $105.38) (B- , Caa1) 11/15/06 10.750 152,625
----------
ELECTRONICS (0.4%)
350 Fisher Scientific International, Senior
Subordinated Notes (Callable 02/01/03 @ $104.50) (B , B3) 02/01/08 9.000 364,000
595 Flextronics International, Ltd., Yankee
Senior Subordinated Notes
(Callable 07/01/05 @ $104.94)+ & (BB- , Ba2) 07/01/10 9.875 618,800
----------
982,800
----------
ENVIRONMENTAL CONTROL (1.3%)
310 Allied Waste North America, Series B, Company
Guaranteed (Callable 08/01/04 @ $105.00) (B+ , B2) 08/01/09 10.000 306,900
240 Allied Waste North America, Series B, Company
Guaranteed, Senior Subordinated Notes (Callable
01/01/04 @ $103.94) (BB- , Ba3) 01/01/09 7.875 235,200
945 Allied Waste North America, Series B, Global
Company Guaranteed (BB- , Ba3) 04/01/08 8.875 954,450
1,390 Waste Management, Inc., Rule144A, Private
Placements, Bonds ++ (BBB , Ba1) 05/15/32 7.750 1,365,264
750 Waste Management, Inc., Senior Notes (BBB , Ba1) 08/01/10 7.375 764,671
----------
3,626,485
----------
FINANCE (0.2%)
450 Countrywide Home Loans, Inc., Global Company
Guaranteed (A, A3) 06/15/04 6.850 475,039
----------
FOOD (2.0%)
515 Archibald Candy Corp., Company Guaranteed, Senior
Secured Notes (Callable 10/11/02 @ $102.56) [0] (NR , Caa2) 07/01/04 10.250 270,375
420 Aurora Foods, Inc., Series B, Senior Subordinated
Notes (Callable 07/01/03 @ $106.38) (CCC , Caa3) 07/01/08 8.750 246,750
505 ConAgra Foods, Inc., Notes (BBB+ , Baa1) 09/15/11 6.750 556,801
640 ConAgra Foods, Inc., Notes (BBB+ , Baa1) 09/15/30 8.250 798,763
210 Fleming Companies, Inc., Company Guaranteed
(Callable 06/15/06 @ $104.62) & (BB- , Ba3) 06/15/10 9.250 203,700
110 Fleming Companies, Inc., Global Company Guaranteed
(Callable 04/01/05 @ $105.06) & (BB- , Ba3) 04/01/08 10.125 108,900
1,235 Kraft Foods, Inc., Global Notes (A- , A2) 06/01/12 6.250 1,347,263
505 Land O' Lakes, Inc., Global Senior Notes
(Callable 11/15/06 @ $104.38) (BB , Ba3) 11/15/11 8.750 325,725
250 Safeway, Inc., Notes (BBB , Baa2) 09/15/09 7.500 289,228
See Accompanying Notes to Financial Statements.
18
PAR RATINGS(#)
(000) (S&P / MOODY'S) MATURITY RATE% VALUE
------- --------------- -------- ----- -----------
FOOD -- (CONTINUED)
$ 700 Safeway, Inc., Debentures (BBB , Baa2) 02/01/31 7.250 $ 778,864
350 Stater Brothers Holdings, Inc., Senior Notes
(Callable 08/15/03 @ $105.38) (B- , B2) 08/15/06 10.750 364,000
300 Tyson Foods, Inc., Global Notes ++ (BBB , Baa3) 10/01/04 6.625 316,785
----------
5,607,154
----------
FOOD PROCESSORS/BEVERAGE/BOTTLING (0.0%)
90 Premier International Foods PLC, Yankee Senior Notes
(Callable 09/01/04 @ $106.00) (B- , B3) 09/01/09 12.000 97,200
----------
FOREST PRODUCTS, PAPER (0.3%)
470 Appleton Papers, Inc., Series B, Global Company
Guaranteed, (Callable 12/15/05 @ $106.25) (B+ , B3) 12/15/08 12.500 488,800
400 Georgia-Pacific Corp., Notes (BBB- , Ba1) 05/15/31 8.875 324,860
----------
813,660
----------
GAMING (1.5%)
80 Ameristar Casinos, Inc., Company Guaranteed
(Callable 02/15/06 @ $105.38) (B- , B3) 02/15/09 10.750 87,000
385 Argosy Gaming Co., Company Guaranteed
(Callable 06/01/04 @ $105.38) (B+ , B2) 06/01/09 10.750 420,612
390 Aztar Corp., Senior Subordinated Notes
(Callable 05/15/03 @ $104.44) (B+ , Ba3) 05/15/07 8.875 393,900
235 Circus Circus Enterprises, Inc., Senior Subordinated
Notes (Callable 12/01/02 @ $104.63) (BB- , Ba3) 12/01/05 9.250 242,050
365 Horseshoe Gaming Holding Corp., Series B, Company
Guaranteed (Callable 05/15/04 @ $104.31) (B+ , B2) 05/15/09 8.625 380,512
225 Isle of Capri Casinos, Inc., Company Guaranteed
(Callable 04/15/04 @ $104.38) (B , B2) 04/15/09 8.750 227,531
450 Majestic Investor Holdings LLC, Rule144A, Private
Placement, Company Guaranteed
(Callable 11/30/05 @ $105.83) ++ (B , B2) 11/30/07 11.653 416,250
325 MGM Mirage, Inc., Company Guaranteed (BB+ , Ba2) 06/01/07 9.750 352,625
80 Mohegan Tribal Gaming, Global Senior Subordinated
Notes (Callable 07/01/06 @ $104.19) (BB- , Ba3) 07/01/11 8.375 81,800
1,210 Park Place Entertainment Corp., Senior
Subordinated Notes (BB+ , Ba2) 12/15/05 7.875 1,228,150
495 Penn National Gaming, Inc., Company Guaranteed
(Callable 03/15/06 @ $104.44) (B- , B3) 03/15/10 8.875 492,525
----------
4,322,955
----------
GAS (0.7%)
1,605 Key Span Corp., Senior Notes (A, A3) 11/15/30 8.000 1,960,785
----------
HEALTHCARE FACILITIES/SUPPLIES (0.2%)
430 Baxter International, Inc., Notes (A, A3) 05/01/07 5.250 445,665
280 Extendicare Health Services, Inc., Company Guaranteed
(Callable 12/15/02 @ $104.68) (CCC+ , B3) 12/15/07 9.350 253,400
----------
699,065
----------
HEALTHCARE SERVICES (0.9%)
20 HCA - The Healthcare Co. (BBB- , Ba1) 09/01/10 8.750 22,830
665 HCA, Inc., Notes (BBB- , Ba1) 06/15/05 6.910 695,383
1,600 HCA, Inc., Notes (BBB- , Ba1) 07/01/07 7.000 1,684,731
See Accompanying Notes to Financial Statements.
19
PAR RATINGS(#)
(000) (S&P / MOODY'S) MATURITY RATE% VALUE
------- --------------- -------- ----- -----------
HEALTHCARE SERVICES -- (CONTINUED)
$ 415 Magellan Health Services, Inc., Senior Subordinated Notes
(Callable 02/15/03 @ $104.50) (CCC , Caa1) 02/15/08 9.000 $ 122,425
----------
2,525,369
----------
HOLDING COMPANIES (0.2%)
430 Werner Holding Co., Inc., Series A, Company Guaranteed
(Callable 11/15/02 @ $105.00) (B- , B2) 11/15/07 10.000 $432,150
----------
HOME BUILDERS (0.2%)
225 KB Home, Senior Subordinated Notes
(Callable 02/15/06 @ $104.75) (BB- , Ba3) 02/15/11 9.500 228,938
220 Ryland Group, Senior Notes
(Callable 09/01/05 @ $104.88) (BB+ , Ba2) 09/01/10 9.750 232,100
----------
461,038
----------
HOTELS, RESTAURANTS & LEISURE (0.2%)
495 Prime Hospitality Corp., Series B, Global Senior
Subordinated Notes (Callable 05/01/07 @ $104.19) (B+ , B1) 05/01/12 8.375 475,200
----------
IRON & STEEL (0.2%)
530 AK Steel Corp., Company Guaranteed
(Callable 02/15/04 @ $103.94) (BB , B1) 02/15/09 7.875 532,650
----------
LODGING (2.3%)
480 Hard Rock Hotel, Inc., Series B, Senior Subordinated
Notes (Callable 10/07/02 @ $104.62) (B- , Caa2) 04/01/05 9.250 475,200
1,115 Hilton Hotels Corp., Notes (BBB- , Ba1) 02/15/11 8.250 1,124,660
825 ITT Corp. (BBB- , Ba1) 11/15/05 6.750 805,056
445 Riviera Holdings Corp., Rule 144A,
Private Placement, Company Guaranteed
(Callable 06/15/06 @ $105.50) ++ (B+ , B2) 06/15/10 11.000 416,631
1,920 Starwood Hotels & Resorts Worldwide, Inc.,
Rule 144A, Private Placement, Notes [0] ++ (BBB- , Ba1) 05/01/07 7.375 1,886,400
500 Station Casinos, Inc., Senior Subordinated Notes
(Callable 07/01/05 @ $103.70) (B+ , B2) 07/01/10 9.875 536,250
465 Sun International Hotels, Ltd., Global Company
Guaranteed (Callable 08/15/06 @ $104.44) (B+ , B2) 08/15/11 8.875 469,069
780 Windsor Woodmont Black Hawk, Series B,
First Mortgage (Callable 10/07/02 @ $113) (CC , NR) 03/15/05 13.000 588,900
----------
6,302,166
----------
MEDIA (3.7%)
1,985 AOL Time Warner, Inc., Global Bonds (BBB+ , Baa1) 04/15/31 7.625 1,661,028
1,930 AOL Time Warner, Inc., Global Notes (BBB+ , Baa1) 05/01/07 6.150 1,766,745
50 AOL Time Warner, Inc., Global Notes (BBB+ , Baa1) 05/01/12 6.875 45,139
680 Charter Communications Holdings LLC,
Global Senior Notes (B+ , B2) 10/01/09 10.750 479,400
695 Charter Communications Holdings LLC,
Global Senior Notes (B- , B2) 11/15/09 9.625 486,500
515 Charter Communications Holdings LLC, Senior Notes
(Callable 04/01/04 @ $104.31) (B- , B2) 04/01/09 8.625 357,925
775 Clear Channel Communications, Inc.,
Global Senior Notes (BBB- , Baa3) 11/01/06 6.000 747,976
485 Coaxial Communications/Phoenix, Company
Guaranteed, Senior Notes (Callable 10/07/02 @ $105.00) (B , B3) 08/15/06 10.000 417,100
535 Comcast Cable Communications, Inc., Senior Notes & (BBB , Baa2) 01/30/11 6.750 492,449
See Accompanying Notes to Financial Statements.
20
PAR RATINGS(#)
(000) (S&P / MOODY'S) MATURITY RATE% VALUE
------- --------------- -------- ----- -----------
MEDIA-- (CONTINUED)
$ 65 CSC Holdings, Inc., Series B, Senior Notes (BB+ , B1) 07/15/09 8.125 $ 55,250
520 CSC Holdings, Inc., Series B, Senior Notes (BB+ , Ba2) 04/01/11 7.625 436,800
150 Echostar DBS Corp., Senior Notes
(Callable 02/01/03 @ $104.63) (B+ , B1) 02/01/06 9.250 150,000
610 News America Holdings, Inc., Company Guaranteed (BBB- , Baa3) 02/01/13 9.250 681,179
700 News America Holdings, Inc., Debentures (BBB- , Baa3) 08/10/18 8.250 693,752
65 Salem Communications Corp., Series B, Company
Guaranteed (Callable 10/07/02 @ $104.75) (B- , B3) 10/01/07 9.500 66,787
545 Viacom, Inc., Global Company Guaranteed (A- , A3) 08/15/12 5.625 547,387
1,015 Walt Disney Co., Global Notes (A- , A3) 03/01/12 6.375 1,048,424
30 Young Broadcasting, Inc., Global Company
Guaranteed (Callable 03/01/06 @ $105.00) (B- , B2) 03/01/11 10.000 27,600
----------
10,161,441
----------
METAL FABRICATE/HARDWARE (0.0%)
165 Gulf States Steel, Inc., First Mortgage
(Callable 04/15/03 @ $100.00) [0] (NR , Caa3) 04/15/03 13.500 1,238
----------
METALS & MINING (0.2%)
485 Alltrista Corp., Rule144A, Private Placement,
Senior Subordinated Notes
(Callable 05/01/07 @ $104.87) ++ (B- , B3) 05/01/12 9.750 472,875
----------
OIL & GAS (4.1%)
360 Abraxas Petroleum Corp., Series B, Company Guaranteed (CCC- , B3) 03/15/03 12.875 358,200
2,280 Conoco Funding Co., Global Company Guaranteed (A- , A3) 10/15/31 7.250 2,622,807
410 Consolidated Natural Gas Co., Debentures
(Putable 10/15/06 @ $100.00) (BBB+ , A3) 10/15/26 6.875 450,749
640 Devon Energy Corp., Debentures (BBB , Baa2) 04/15/32 7.950 746,523
590 Devon Financing Corp. ULC, Global Company Guaranteed (BBB , Baa2) 09/30/11 6.875 643,806
1,500 Enterprise Products Partners LP, Company Guaranteed (BBB , Baa2) 02/01/11 7.500 1,637,929
350 Forest Oil Corp., Global Company Guaranteed
(Callable 05/01/07 @ $103.88) (BB , Ba3) 05/01/14 7.750 343,875
150 Mission Resources Corp., Series C, Global Company
Guaranteed (Callable 10/07/02 @ $105.44) (B- , Caa1) 04/01/07 10.875 108,750
390 Ocean Energy, Inc., Series B, Company Guaranteed
(Callable 07/01/03 @ $104.19) (BB+ , Ba1) 07/01/08 8.375 411,450
145 Parker Drilling Co., Rule 144A, Private Placement,
Company Guaranteed (Callable 11/15/04 @ $105.06) ++ (B+ , B1) 11/15/09 10.125 145,725
1,615 Petronas Capital Ltd., Rule144A, Private Placement,
Company Guaranteed ++ (BBB+ , Baa1) 05/22/22 7.875 1,733,570
630 Tesoro Petroleum Corp., Rule144A, Private Placement,
Senior Subordinated Notes
(Callable 04/01/07 @ $104.81) ++ & (B+ , B2) 04/01/12 9.625 466,200
1,560 Union Pacific Res. Group, Inc., Debentures (BBB+ , Baa1) 10/15/26 7.500 1,725,084
----------
11,394,668
----------
PACKAGING & CONTAINERS (0.9%)
550 Crown Packaging, Ltd., Yankee Senior Discount Notes
(Callable 08/01/03 @ $102.00) [0] (NR , Ca) 08/01/06 14.000 55
450 Four M Corp., Series B, Senior Secured Notes
(Callable 10/07/02 @ $104.00) & (B , B3) 06/01/06 12.000 461,250
420 Owens-Brockway Glass Containers, Global Company
Guaranteed (Callable 02/15/06 @ $104.44) (BB , B2) 02/15/09 8.875 433,650
475 Owens-Illinois, Inc., Senior Notes (B+ , B3) 05/15/08 7.350 422,750
See Accompanying Notes to Financial Statements.
21
PAR RATINGS(#)
(000) (S&P / MOODY'S) MATURITY RATE% VALUE
------- --------------- -------- ----- -----------
PACKAGING & CONTAINERS -- (CONTINUED)
$ 470 Packaged Ice, Inc., Series B, Company Guaranteed
(Callable 10/07/02 @ $104.88) & (B- , Caa3) 02/01/05 9.750 $ 397,150
640 Stone Container Corp., Rule 144A, Private Placement,
Senior Notes (Callable 07/01/07 @ $104.19) ++ (B , B2) 07/01/12 8.375 649,600
----------
2,364,455
----------
PHARMACEUTICALS (0.0%)
40 NBTY, Inc., Series B, Senior Subordinated Notes
(Callable 10/07/02 @ $104.31) (B+ , B1) 09/15/07 8.625 40,200
----------
PIPELINES (0.7%)
310 Duke Energy Field Services LLC, Notes (BBB , Baa2) 08/16/05 7.500 316,285
440 Western Gas Resources, Inc., Company Guaranteed
(Callable 06/15/04 @ $105.00) (BB- , Ba3) 06/15/09 10.000 464,200
860 Williams Companies, Inc., Notes (B , B1) 09/01/21 7.875 520,300
1,175 Williams Companies, Inc., Notes (B , B1) 06/15/31 7.750 699,125
----------
1,999,910
----------
REAL ESTATE (0.3%)
775 EOP Operating LP, Senior Notes (BBB+ , Baa1) 02/15/05 6.625 825,361
----------
REAL ESTATE INVESTMENT TRUST (0.1%)
340 Meristar Hospitality Corp., Global Company
Guaranteed (B+ , B1) 01/15/08 9.000 324,700
----------
RETAIL (1.4%)
735 Federated Department Stores, Inc., Debentures (BBB+ , Baa1) 02/15/28 7.000 754,073
720 Federated Department Stores, Inc., Senior Notes (BBB+ , Baa1) 04/01/11 6.625 766,889
375 Hockey Co. & Sport Maska, Inc., Rule144A,
Private Placement, Units
(Callable 04/15/06 @ $105.62) ++ (NR , NR) 04/15/09 11.250 354,375
70 Kmart Corp., Series 1995, Class K2, Pass Through
Certificates [0] (D , Caa2) 01/05/20 9.780 28,035
904 Kmart Corp., Series 1995, Class K3, Pass Through
Certificates (Callable 06/29/07 @ $100.00) [0] (D , Caa2) 01/02/15 8.540 344,016
580 Leslie's Poolmart, Senior Notes
(Callable 10/24/02 @ $102.59) (B- , B3) 07/15/04 10.375 545,200
620 Sbarro, Inc., Company Guaranteed, Senior Notes
(Callable 09/15/04 @ $105.50) (B+ , B2) 09/15/09 11.000 610,700
370 Yum! Brands, Inc., Senior Notes (BB , Ba1) 07/01/12 7.700 378,325
----------
3,781,613
----------
SECONDARY OIL & GAS PRODUCERS (0.9%)
725 Chesapeake Energy Corp., Global Company
Guaranteed, Senior Notes
(Callable 04/01/06 @ $104.06) (B+ , B1) 04/01/11 8.125 714,125
520 Denbury Management, Inc., Company Guaranteed,
Senior Subordinated Notes
(Callable 03/01/03 @ $104.50) (B , B3) 03/01/08 9.000 516,100
500 Magnum Hunter Resources, Inc., Company Guaranteed
(Callable 10/11/02 @ $105.00) (B , B2) 06/01/07 10.000 507,500
485 Seagull Energy Corp., Senior Notes (BBB- , Baa3) 08/01/03 7.875 493,487
350 Southwest Royalties, Inc., Company Guaranteed
(Callable 09/03/02 @ $100.00) (NR , NR) 06/30/04 10.500 349,563
----------
2,580,775
----------
See Accompanying Notes to Financial Statements.
22
PAR RATINGS(#)
(000) (S&P / MOODY'S) MATURITY RATE% VALUE
------- --------------- -------- ----- -----------
SUPERNATIONAL (0.1%)
$ 300 Petronas Capital Ltd., Rule 144A, Private
Placement, Company Guaranteed ++ (BBB+ , Baa1) 05/22/22 7.875 $ 322,025
----------
TELECOMMUNICATIONS (5.9%)
475 Alamosa PCS Holdings, Inc., Company Guaranteed
(Callable 02/15/05 @ $106.44)+ (CCC , Caa1) 02/15/10 12.875 68,875
10 AT&T Corp., Global Notes (BBB+ , Baa2) 03/15/04 5.625 9,804
385 AT&T Corp., Global Notes (BBB+ , Baa2) 03/15/09 6.000 339,329
445 AT&T Corp., Global Notes (BBB+ , Baa2) 03/15/29 6.500 352,709
2,000 AT&T Corp., Global Senior Notes (BBB+ , Baa2) 11/15/11 7.300 1,893,700
2,310 AT&T Wireless Services, Inc., Global Senior Notes (BBB , Baa2) 05/01/07 7.500 2,035,098
520 AT&T Wireless Services, Inc., Global Senior Notes (BBB , Baa2) 03/01/31 8.750 401,432
880 AT&T Wireless Services, Inc., Senior Notes (BBB , Baa2) 03/01/11 7.875 749,310
1,160 Citizens Communications Co., Global Senior Notes (BBB , Baa2) 08/15/08 7.625 1,022,201
1,580 Citizens Communications Co., Notes (BBB , Baa2) 05/15/06 8.500 1,423,299
1,515 Cox Communications, Inc. (BBB , Baa2) 11/01/10 7.750 1,527,935
3,085 Global Crossing Holdings, Ltd., Yankee Company
Guaranteed (Callable 11/01/04 @ $104.75) [0] (NR , Ca) 11/15/09 9.500 50,131
230 Insight Midwest, Global Senior Notes
(Callable 11/01/05 @ $105.25) (B+ , B1) 11/01/10 10.500 208,150
140 Insight Midwest, Senior Notes
(Callable 10/01/04 @ $104.88) (B+ , B2) 10/01/09 9.750 125,300
228 Level 3 Communications, Inc., Senior Notes
(Callable 05/01/03 @ $104.563) & (CC , Caa3) 05/01/08 9.125 137,940
420 Lucent Technologies, Inc., Notes & (B+ , B2) 07/15/06 7.250 266,700
1,160 Nextel Communications, Inc., Senior Notes
(Callable 11/15/04 @ $104.688) & (B , B1) 11/15/09 9.375 910,600
240 Nextlink Communications, Senior Discount Notes
(Callable 04/15/03 @ $104.72)+, [0] (NR , Ca) 04/15/08 9.45 3,600
2,585 Nextlink Communications, Senior Discount Notes
(Callable 12/01/04 @ $106.06)+ [0] (NR , Ca) 12/01/09 12.12 38,775
2,660 Nextlink Communications, Senior Notes
(Callable 12/01/04 @ $105.25)+ [0] (NR , Ca) 12/01/09 10.500 39,900
100 Rogers Wireless Communications, Inc., Global Secured (BB+ , Ba3) 05/01/11 9.625 69,500
470 SBC Communications, Inc., Global Notes (AA- , Aa3) 08/15/12 5.875 478,301
1,110 Sprint Capital Corp., Global Company Guaranteed (BBB- , Baa3) 01/15/07 6.000 917,612
850 Sprint Capital Corp., Global Company Guaranteed (BBB- , Baa3) 11/15/28 6.875 609,877
2,950 Sprint Capital Corp., Global Notes & (BBB- , Baa3) 03/15/12 8.375 2,546,346
----------
16,226,424
----------
TEXTILES (0.1%)
45 Simmons Co., Series B, Senior Subordinated Notes
(Callable 03/15/04 @ $105.12) (B- , B3) 03/15/09 10.250 48,038
330 Westpoint Stevens, Inc., Senior Notes (CCC+ , Ca) 06/15/05 7.875 169,950
----------
217,988
----------
WIRELESS (1.5%)
145 ALLTEL Corp., Global Senior Notes (NR , A2) 07/01/12 7.000 153,579
915 ALLTEL Corp., Global Senior Notes (A, A2) 07/01/32 7.875 977,791
1,240 Orange PLC, Yankee Senior Notes
(Callable 06/01/04 @ $104.50) (BBB- , Baa3) 06/01/09 9.000 1,247,043
417 TeleCorp PCS, Inc., Company Guaranteed, Senior
Subordinated Notes (Callable 04/15/04 @ $105.81)+ (BBB , Baa2) 04/15/09 11.625 337,770
225 U.S. Unwired, Inc., Series B, Company Guaranteed
(Callable 11/01/04 @ $106.69)+ (CCC+ , B3) 11/01/09 13.375 52,875
See Accompanying Notes to Financial Statements.
23
PAR RATINGS(#)
(000) (S&P / MOODY'S) MATURITY RATE% VALUE
------- --------------- -------- ----- -----------
$ 1,064 Voicestream Wireless Corp., Senior Discount Notes
(Callable 11/15/04 @ $105.94)+ (BBB+ , Baa2) 11/15/09 11.875 $ 856,520
619 Voicestream Wireless Corp., Senior Notes
(Callable 11/15/04 @ $105.19) (BBB+ , Baa2) 11/15/09 10.375 622,095
-----------
4,247,673
-----------
TOTAL CORPORATE BONDS (Cost $143,077,570) 129,370,900
-----------
ASSET BACKED SECURITIES (1.9%)
1,875 Conseco Finance, Series 2000-D, Class A4 (AAA , Aaa) 12/15/25 8.170 1,997,242
880 Contimortgage Home Equity Loan Trust,
Series 1996-4, Class A8 (AAA , A aa) 01/15/28 7.220 895,038
283 Green Tree Recreational, Equipment and Consumer
Trust, Series 1997-C, Class A1 (AAA , NR) 02/15/18 6.490 288,516
432 Korea Asset Funding, Ltd., Series 2000-1A, Class 15 (NR , NR) 02/10/09 3.710 433,035
1,580 MMCA Automobile Trust, Series 2002-2, Class A3 (AAA , Aaa) 07/17/06 3.670 1,603,700
-----------
TOTAL ASSET BACKED SECURITIES (Cost $5,118,175) 5,217,531
-----------
MORTGAGE-BACKED SECURITIES (42.4%)
2,104 Carousel Center Finance, Inc., Series 1, Class C (BBB+ , NR) 09/15/07 7.527 2,123,666
4 Fannie Mae, Series 1991-165 Class M (AAA , Aaa) 12/25/21 8.250 3,907
7,507 Fannie Mae Pool, 650077 (AAA , Aaa) 07/01/32 7.500 7,907,897
328 Fannie Mae Pool #077774 (AAA , Aaa) 01/01/10 10.000 364,308
24 Fannie Mae Pool #124032 (AAA , Aaa) 02/01/05 10.000 24,643
26 Fannie Mae Pool #531072 (AAA , Aaa) 01/01/30 6.000 26,430
2,828 Fannie Mae Pool #535101 (AAA , Aaa) 08/01/13 6.500 2,969,014
552 Fannie Mae Pool #588970 (AAA , Aaa) 06/01/31 7.000 575,704
6,010 Fannie Mae TBA (AAA , Aaa) 09/01/17 6.500 6,274,813
12,970 Fannie Mae TBA (AAA , Aaa) 09/01/32 6.000 13,225,379
11,440 Fannie Mae TBA (AAA , Aaa) 09/01/32 6.500 11,811,800
21,900 Fannie Mae TBA (AAA , Aaa) 09/01/32 7.000 22,810,164
5,600 Fannie Mae TBA (AAA , Aaa) 09/01/32 7.500 5,892,264
22,715 Fannie Mae TBA (AAA , Aaa) 09/01/32 8.000 24,212,827
69 Freddie Mac, Series Gold (AAA , Aaa) 12/01/09 7.000 72,878
0 Ginnie Mae Pool #002938(1) (AAA , Aaa) 09/15/03 6.500 451
0 Ginnie Mae Pool #003322(1) (AAA , Aaa) 11/15/04 9.000 125
0 Ginnie Mae Pool #003766(1) (AAA , Aaa) 08/15/04 8.250 33
0 Ginnie Mae Pool #004923(1) (AAA , Aaa) 12/15/04 9.000 132
0 Ginnie Mae Pool #009827(1) (AAA , Aaa) 04/15/06 8.250 186
1 Ginnie Mae Pool #112986 (AAA , Aaa) 07/15/14 13.500 845
8 Ginnie Mae Pool #186563 (AAA , Aaa) 12/15/16 9.000 9,290
32 Ginnie Mae Pool #210216 (AAA , Aaa) 04/15/17 8.000 34,507
183 Ginnie Mae Pool #312635 (AAA , Aaa) 08/15/21 9.000 203,762
7,350 Ginnie Mae Pool #508483 (AAA , Aaa) 05/15/31 7.000 7,700,816
675 Ginnie Mae Pool #545822 (AAA , Aaa) 06/15/31 7.500 713,928
2,543 Ginnie Mae Pool #559037 (AAA , Aaa) 07/15/31 7.000 2,664,171
2,085 Ginnie Mae Pool TBA (AAA , Aaa) 09/01/32 7.000 2,180,118
491 GMAC Commercial Mortgage Securities, Inc.,
Series 1997-C1, Class A2 (NR , Aaa) 07/15/29 6.853 522,612
See Accompanying Notes to Financial Statements.
24
PAR RATINGS(#)
(000) (S&P / MOODY'S) MATURITY RATE% VALUE
------- --------------- -------- ----- -----------
MORTGAGE-BACKED SECURITIES -- (CONTINUED)
$ 355 Option One Mortgage Securities Corp.,
Series 1999-2, Class CTFS6 (NR , NR) 06/26/29 9.660 $ 344,929
1,050 Salomon Brothers Mortgage Securities VII,
Series 1997-TZH, Class B (NR , Aa1) 03/25/22 7.491 1,149,020
1,300 Salomon Brothers Mortgage Securities VII,
Series 1997-TZH, Class D (NR , A2) 03/25/22 7.902 1,406,032
775 UCFC Home Equity Loan Trust, Series 1996-B1,
Class A7 (AAA , Aaa) 09/15/27 8.200 806,196
820 UCFC Home Equity Loan Trust, Series 1998-A,
Class A7 (AAA , Aaa) 07/15/29 6.870 879,403
-----------
TOTAL MORTGAGE-BACKED SECURITIES (Cost $116,127,897) 116,912,250
-----------
FOREIGN BONDS (3.8%)
BANKS (0.7%)
1,800 Royal Bank of Scotland Group PLC, Series 3,
Perpetual Global Bonds (Callable 12/31/05 @ $100.00)
(United Kingdom) (A- , A1) 11/29/49 7.816 2,007,722
-----------
FOREIGN GOVERNMENT BONDS (0.5%)
1,495 Republic of Philippines, Series B, Restructured
Debt, Foreign Government Guaranteed
(Callable 06/03/02 @ $100.00) (Philippines) (BB+ , Ba1) 12/01/17 6.500 1,389,342
-----------
REAL ESTATE (0.1%)
195 Intrawest Corp., Yankee Senior Notes
(Callable 02/01/05 @ $105.25) (Canada) & (B+ , B1) 02/01/10 10.500 202,800
-----------
SOVEREIGN (0.8%)
895 Ministry Finance of Russia (BB- , B3) 05/14/08 3.000 604,125
2,030 Russian Federation, Rule 144A, Private Placement,
Unsubordinated Notes (Russia)+ ++ (B+ , B1) 03/31/30 5.000 1,423,538
-----------
2,027,663
-----------
TELECOMMUNICATIONS (1.7%)
2,345 British Telecommunications PLC, Global Bonds
(United Kingdom) (A- , Baa1) 12/15/30 8.875 2,765,667
670 Orange PLC, Yankee Senior Notes (United Kingdom) (BBB- , Baa3) 06/01/06 8.750 672,868
305 Rogers Wireless Telecommunications, Yankee Senior
Subordinated Notes (Callable10/07/02 @ $104.40)
(Canada) (BB- , B2) 10/01/07 8.800 138,775
1,030 TELUS Corp., Yankee Notes (Canada) (BBB+ , Ba1) 06/01/07 7.500 818,850
500 TELUS Corp., Yankee Notes (Canada) (BBB , Ba1) 06/01/11 8.000 387,500
-----------
4,783,660
-----------
TOTAL FOREIGN BONDS (Cost $10,209,580) 10,411,187
-----------
UNITED STATES TREASURY OBLIGATIONS (3.0%)
775 United States Treasury Bills ++++ (AAA , Aaa) 02/13/03 0.010 769,315
210 United States Treasury Bonds (AAA , Aaa) 02/15/31 5.375 224,036
170 United States Treasury Notes & (AAA , Aaa) 08/15/07 3.250 170,372
4,330 United States Treasury Notes(2) (AAA , Aaa) 01/15/10 4.250 4,892,656
2,106 United States Treasury Notes(2) (AAA , Aaa) 07/15/12 3.000 2,216,007
-----------
TOTAL UNITED STATES TREASURY OBLIGATIONS (Cost $7,972,763) 8,272,386
-----------
See Accompanying Notes to Financial Statements.
25
NUMBER
OF SHARES VALUE
- --------- ------------
COMMON STOCKS (0.0%)
HOME BUILDERS (0.0%)
328 Capital Pacific Holdings, Inc.* $ 1,337
------------
PAPER & FOREST PRODUCTS (0.0%)
45,544 Crown Packaging Enterprises, Ltd.* 455
------------
SECONDARY OIL & GAS PRODUCERS (0.0%)
5,252 Southwest Royalties, Inc., Class A* (##) ^ 79,463
------------
TELECOMMUNICATIONS (0.0%)
61,450 Arch Wireless, Inc.* 310
------------
TOTAL COMMON STOCKS (Cost $908,824) 81,565
------------
PREFERRED STOCK (0.5%)
TELECOMMUNICATIONS (0.5%)
1,535 Centaur Funding Corp. (Cost $1,697,504) 1,482,715
------------
WARRANTS (0.0%)
BUILDING MATERIALS (0.0%)
240 Dayton Superior Corp., Wts., Rule 144A, strike $0.01, expires June 2009* ++ 2,400
------------
CHEMICALS (0.0%)
10,800 Uniroyal Technology Corp., Wts., strike $2.19, expires June 2003* 324
------------
TELECOMMUNICATIONS (0.0%)
130 GT Group Telecom, Inc., Rule 144A, strike $0.00 expires Feburary 2010* ++ 195
50 IWO Holdings, Inc., Rts. strike $7.00, expires January 2011* 1,506
------------
1,701
------------
TOTAL WARRANTS (Cost $33,476) 4,425
------------
RIGHTS (0.0%)
DIVERSIFIED FINANCIALS (0.0%)
1,000 Mexican Value Recovery, Rts., expires June 2003* (Cost $0) 3
------------
PAR
(000)
--------
SHORT-TERM INVESTMENT (31.7%)
State Street Bank and Trust Co. Euro Time Deposit, 1.688%, 9/3/02
(Cost $87,386,000)(2) $87,386 87,386,000
------------
TOTAL INVESTMENTS (130.2%) (Cost $372,531,789) 359,138,962
LIABILITIES IN EXCESS OF OTHER ASSETS (-30.2%) (83,275,856)
------------
NET ASSETS (100.0%) $275,863,106
============
(#) Credit ratings given by Moody's Investors Services, Inc. and Standard &
Poor's Ratings Group are unaudited.
+ Step Bond-- The interest as of August 31, 2002 is 0% and will reset to the
interest rate shown at a future date.
++ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At August 31,
2002, these securities amounted to a value of $10,960,683 or 4.0% of net
assets.
++++ Collateral segregated for futures contracts.
* Non-income producing security.
[0] Security in default.
& Security or portion thereof is out on loan.
(##) Security is valued in good faith by management and approved by the
Board of Directors.
^ Illiquid security that is restricted as to resale.
(1) Par value of security held is less than 1.
(2) Collateral segregated for TBA securities.
INVESTMENT ABBREVIATIONS
TBA To Be Announced
See Accompanying Notes to Financial Statements.
26
CREDIT SUISSE INSTITUTIONAL HIGH YIELD FUND
PORTFOLIO MANAGERS' LETTER
October 1, 2002
Dear Shareholder:
We are writing to report on the results of the Credit Suisse Institutional High
Yield Fund (the "Fund")(1) for the fiscal year ended August 31, 2002.
At August 31, 2002, the net asset value ("NAV") of the Fund was $9.90 per share,
compared to an NAV of $11.84 on August 31, 2001. Assuming the reinvestment of
distributions totalling $1.17 per share, the Fund's total return was -6.88%. By
comparison, the Credit Suisse First Boston High Yield Index, Developed Countries
Only (CSFBHYID)(2) gained 4.45% during the same period.
[Note: The Fund performed in line with a broad universe of other high yield
funds which, as represented by the Lipper High Current Yield Funds Average(3),
returned -6.98%.]
We attribute the Fund's underperformance of its CSFBHYID benchmark to two
factors. The first was our positioning of the portfolio in certain industry
sectors, as follows:
- - Compared to CSFBHYID, we overweighted two subcategories in the
telecommunications universe--I.E., competitive local-exchange carriers and
providers of broadband transmission services--whose debt securities endured
harsh selling.
- - Security selection among providers of satellite transmission services was
ineffective.
- - We underweighted the homebuilders sector, which greatly outperformed the
high yield market as a whole.
The second factor that especially hurt was a combination of technical matters
related to CFSBHYID's construction, which had the effect of magnifying our
exposure to the telecom industry. Specifically, CSFBHYID differs from most other
high yield indices in that it does not include the bonds of companies downgraded
to junk status until three months after the downgrade has occurred. In addition,
CSFBHYID includes only the two largest debt issues (I.E., in terms of face
value) per issuer, while most other indices include all issues of each issuer.
What this meant in the fiscal year was that CSFBHYID's return was not hurt by
the impact of the ratings downgrades of two large telecom providers--WorldCom
and Qwest Communications International--to "junk" status in May. This was
because CSFBHYID did not yet include WorldCom and Qwest securities. CSFBHYID's
return thus contrasted greatly with the returns of most other leading high yield
indices, which quickly incorporated WorldCom and Qwest once they were
downgraded. [Note: as of August 31, the Fund did not own securities of WorldCom
or Qwest.]
Since we held a small position in bonds of a WorldCom unit, Intermedia
Communications (which we sold in June), our own performance thus appears
much less favorable relative to CSFBHYID than to other leading high yield
indices (and, as we've noted, the Lipper surrogate for high yield funds as
a group). This was because our allocations to both WorldCom and the beleaguered
telecom sector more broadly were higher versus CSFBHYID than its index
counterparts.
On the positive side of the ledger, our holdings in several other
industry sectors added value to the Fund's overall return:
- - We significantly underweighted utilities, airlines and diversified telecom
service providers, based on our pessimistic evaluation of their respective
industry fundamentals. Each performed poorly.
- - We continued to overweight leisure and gaming, both of which meaningfully
ourperformed the broad high yield market.
- - We overweighted retail stores, which magnified the benefits of good
security selection.
27
As developments occur that we believe would be of interest to you, we will be
sure to keep you informed. Meanwhile, if you have questions, please feel free to
call upon us at any time.
Sincerely yours,
Credit Suisse Asset Management, LLC (CSAM)
Richard J. Lindquist, CFA, Managing Director
Misia K. Dudley, Director
Philip L. Schantz, Director
Mary Ann Thomas, CFA, Director
John M. Tobin, CFA, Director
John F. Dessauer, CFA, Vice President
Michael J. Dugan, Assistant Vice President
NOTE: HIGH YIELD BONDS ARE LOWER-QUALITY BONDS ALSO KNOWN AS "JUNK BONDS." SUCH
BONDS ENTAIL GREATER RISKS THAN THOSE FOUND IN HIGHER-RATED SECURITIES.
28
COMPARISON OF CHANGE IN VALUE OF $3 MILLION INVESTMENT IN THE CREDIT SUISSE
INSTITUTIONAL HIGH YIELD FUND(1) AND THE CREDIT SUISSE FIRST BOSTON HIGH YIELD
INDEX, DEVELOPED COUNTRIES ONLY(2) FROM INCEPTION (2/26/93). (UNAUDITED)
[CHART]
CSFB HIGH
CREDIT SUISSE YIELD INDEX,
INSTITUTIONAL DEVELOPED
HIGH YIELD FUND(1) COUNTRIES ONLY(2)
2/93 $3,000,000 $3,000,000
2/93 $3,000,000 $3,059,430
3/93 $3,094,015 $3,124,015
4/93 $3,122,004 $3,141,884
5/93 $3,183,979 $3,187,661
6/93 $3,275,975 $3,245,358
7/93 $3,343,971 $3,279,110
8/93 $3,387,993 $3,307,048
9/93 $3,402,000 $3,325,832
10/93 $3,552,003 $3,386,694
11/93 $3,563,984 $3,429,299
12/93 $3,661,988 $3,472,577
1/94 $3,746,004 $3,534,389
2/94 $3,640,940 $3,539,690
3/94 $3,404,791 $3,435,659
4/94 $3,366,291 $3,389,586
5/94 $3,447,539 $3,408,907
6/94 $3,376,978 $3,385,999
7/94 $3,374,802 $3,402,015
8/94 $3,463,925 $3,426,510
9/94 $3,505,424 $3,440,147
10/94 $3,467,768 $3,442,521
11/94 $3,436,768 $3,402,691
12/94 $3,370,332 $3,438,691
1/95 $3,281,348 $3,474,832
2/95 $3,290,474 $3,560,313
3/95 $3,312,229 $3,600,544
4/95 $3,458,781 $3,680,476
5/95 $3,605,293 $3,784,229
6/95 $3,624,560 $3,809,243
7/95 $3,679,201 $3,868,286
8/95 $3,733,843 $3,879,156
9/95 $3,800,693 $3,923,766
10/95 $3,820,175 $3,967,320
11/95 $3,837,213 $3,985,966
12/95 $3,918,819 $4,036,508
1/96 $4,021,421 $4,113,283
2/96 $4,101,516 $4,135,124
3/96 $4,089,808 $4,123,877
4/96 $4,120,283 $4,146,228
5/96 $4,199,058 $4,179,730
6/96 $4,184,366 $4,189,009
7/96 $4,158,269 $4,226,710
8/96 $4,197,383 $4,272,781
9/96 $4,320,123 $4,346,230
10/96 $4,322,815 $4,382,738
11/96 $4,373,579 $4,451,022
12/96 $4,414,815 $4,537,861
1/97 $4,480,347 $4,571,078
2/97 $4,559,491 $4,656,969
3/97 $4,476,838 $4,604,811
4/97 $4,493,493 $4,645,839
5/97 $4,607,434 $4,739,128
6/97 $4,701,053 $4,803,580
7/97 $4,817,118 $4,905,464
8/97 $4,834,066 $4,931,953
9/97 $4,958,005 $5,029,606
10/97 $4,992,693 $5,029,053
11/97 $4,998,486 $5,064,809
12/97 $5,070,210 $5,110,849
1/98 $5,179,821 $5,197,682
2/98 $5,256,844 $5,238,328
3/98 $5,332,073 $5,264,519
4/98 $5,335,043 $5,303,951
5/98 $5,356,146 $5,319,809
6/98 $5,369,419 $5,331,034
7/98 $5,357,110 $5,368,352
8/98 $5,099,044 $5,003,733
9/98 $4,995,294 $5,003,183
10/98 $4,872,591 $4,903,669
11/98 $5,001,579 $5,152,334
12/98 $5,005,467 $5,140,433
1/99 $5,069,757 $5,205,922
2/99 $5,060,149 $5,186,191
3/99 $5,134,136 $5,221,405
4/99 $5,261,875 $5,322,231
5/99 $5,186,586 $5,269,008
6/99 $5,186,627 $5,261,579
7/99 $5,199,990 $5,266,893
8/99 $5,132,981 $5,216,331
9/99 $5,080,748 $5,169,332
10/99 $5,046,451 $5,133,612
11/99 $5,125,393 $5,196,345
12/99 $5,230,301 $5,256,570
1/00 $5,276,216 $5,224,558
2/00 $5,459,826 $5,244,411
3/00 $5,385,995 $5,149,540
4/00 $5,284,701 $5,148,458
5/00 $5,208,719 $5,076,328
6/00 $5,260,824 $5,183,947
7/00 $5,253,449 $5,224,848
8/00 $5,227,526 $5,255,675
9/00 $5,157,256 $5,206,797
10/00 $5,005,104 $5,046,480
11/00 $4,742,688 $4,831,954
12/00 $4,810,292 $4,930,960
1/01 $5,060,977 $5,237,715
2/01 $5,057,035 $5,295,906
3/01 $4,967,496 $5,192,583
4/01 $4,899,139 $5,141,748
5/01 $4,971,551 $5,236,305
6/01 $4,849,696 $5,144,669
7/01 $4,870,515 $5,216,232
8/01 $4,928,790 $5,285,555
9/01 $4,581,519 $4,941,994
10/01 $4,701,313 $5,068,509
11/01 $4,829,657 $5,238,304
12/01 $4,852,975 $5,239,352
1/02 $4,888,480 $5,286,873
2/02 $4,826,371 $5,243,362
3/02 $4,913,246 $5,368,154
4/02 $4,958,447 $5,453,239
5/02 $4,913,529 $5,432,844
6/02 $4,692,130 $5,246,987
7/02 $4,553,435 $5,096,765
8/02 $4,590,300 $5,162,055
NOTE: Past performance is not predictive of future performance. Investment
return and principal value of an investment will fluctuate so that an investor's
shares upon redemption may be worth more or less than their original cost. The
performance results on this page do not reflect the deduction of taxes that a
shareholder would pay on fund distributions or the redemption of fund shares.
AVERAGE ANNUAL RETURNS AS OF AUGUST 31, 2002
INCEPTION
ONE YEAR THREE YEARS FIVE YEARS TO DATE
- -------- ----------- ---------- ---------
(6.88%) (3.66%) (1.03%) 4.57%
AVERAGE ANNUAL RETURNS AS OF SEPTEMBER 30, 2002
INCEPTION
ONE YEAR THREE YEARS FIVE YEARS TO DATE
- -------- ----------- ---------- ---------
(1.52%) (3.88%) (1.87%) 4.35%
(1) Fee waivers and/or expense reimbursements reduced expenses for the Fund,
without which performance would be lower. Waivers and/or reimbursements may
be discontinued at any time.
(2) The Credit Suisse First Boston High Yield Index, Developed Countries Only
is an unmanaged index (with no defined investment objective) of domestic
high yield bonds and is compiled by Credit Suisse First Boston, an
affiliate of the Fund's adviser. Name changed from The Credit Suisse First
Boston Domestic+ High Yield Index effective May 31, 2001. Investors cannot
invest directly in an index.
(3) Lipper Inc. is a nationally recognized organization that reports on mutual
fund total return performance and calculates fund rankings. The Lipper High
Current Yield Funds Average is the average total return of mutual funds
with high current yields during a given period tracked by Lipper Inc.
29
CREDIT SUISSE INSTITUTIONAL HIGH YIELD FUND
SCHEDULE OF INVESTMENTS
AUGUST 31, 2002
PAR RATINGS(#)
(000) (S&P / MOODY'S) MATURITY RATE% VALUE
- --------- --------------- -------- ----- ----------
CORPORATE BONDS (95.2%)
AEROSPACE (0.5%)
$ 250 K&F Industries, Inc., Series B, Senior
Subordinated Notes (Callable 10/15/02 @ $104.63) (B , B2) 10/15/07 9.250 $ 257,500
250 200 L-3 Communications Corp., Senior Subordinated
Notes (callable 05/15/03 @ $104.25) (BB- , Ba3) 05/15/08 8.500 207,000
----------
464,500
----------
AIRLINES (0.1%)
250 Amtran, Inc., Company Guaranteed
(Callable 12/15/03 @ $104.81) (CCC , Caa1) 12/15/05 9.625 118,750
----------
AUTOMOBILE MANUFACTURING/VEHICLE PARTS (2.7%)
350 ADV Accessory Systems, Series B, Company
Guaranteed, Senior Subordinated Notes
(Callable 10/01/02 @ $104.88) (CCC+ , B3) 10/01/07 9.750 322,000
350 Collins & Aikman Products Corp., Company
Guaranteed Notes (Callable 10/07/02 @ $103.83) & (B , B2) 04/15/06 11.500 331,625
400 Delco Remy International, Inc., Company
Guaranteed, Senior Subordinated Notes
(Callable 08/01/02 @ $103.54) (CCC+ , B3) 08/01/06 10.625 278,000
250 Holley Performance Products, Series B, Company
Guaranteed, Senior Subordinated Notes
(Callable 09/15/03 @ $106.12) (CCC- , Caa2) 09/15/07 12.250 124,063
250 LDM Technologies, Inc., Series B, Company
Guaranteed, Senior Subordinated Notes
(Callable 07/22/02 @ $105.37) (C , Caa3) 01/15/07 10.750 198,750
550 Oshkosh Truck Corp., Company Guaranteed, Senior
Subordinated Notes (Callable 03/01/03 @ $104.38) (BB- , Ba3) 03/01/08 8.750 569,937
500 Stanadyne Automotive Corp., Series B, Company
Guaranteed (Callable 12/15/02 @ $105.12) (B , Caa1) 12/15/07 10.250 402,500
250 Titan Wheel International, Inc., Senior
Subordinated Notes (Callable 07/22/02 @ $104.38) (CCC+ , Caa1) 04/01/07 8.750 146,875
----------
2,373,750
----------
BANKING (0.9%)
200 Sovereign Bancorp, Inc., Company Guaranteed (BBB- , Ba2) 03/15/04 8.625 209,669
500 Sovereign Bancorp, Inc., Senior Notes (BBB- , Ba2) 11/15/06 10.500 557,500
----------
767,169
----------
BROADCAST/OUTDOOR (4.0%)
250 Allbritton Communications Co., Series B, Senior
Subordinated Debentures
(Callable 02/01/03 @ $104.44) (B- , B3) 02/01/08 8.875 253,750
250 Allbritton Communications Co., Series B, Senior
Subordinated Debentures
(Callable 11/30/02 @ $103.90) (B- , B3) 11/30/07 9.750 256,250
260 Chancellor Media Corp., Company Guaranteed, Senior
Subordinated Notes (BBB- , Ba1) 11/01/08 8.000 264,225
500 Entravision Communications Corp., Rule 144A,
Series A, Company Guaranteed
(Callable 03/15/06 @ 104.063) ++ (B- , B3) 03/15/09 8.125 513,750
500 Interep National Radio Sales, Inc., Series B,
Company Guaranteed, Senior Subordinated Notes
(Callable 07/01/03 @ $105.00) (CCC- , B3) 07/01/08 10.000 450,000
See Accompanying Notes to Financial Statements.
30
PAR RATINGS(#)
(000) (S&P / MOODY'S) MATURITY RATE% VALUE
- --------- --------------- -------- ----- ----------
BROADCAST/OUTDOOR -- (CONTINUED)
$ 500 Paxson Communications Corp., Global Company
Guaranteed (Callable 01/15/06 @ $106.12)+ (B- ,B3) 01/15/09 12.250 $ 237,500
350 Radio One, Inc., Series B, Global Company
Guaranteed (Callable 07/01/06 @ $104.44) (B- ,B2) 07/01/11 8.875 363,125
400 Salem Communications Corp., Series B, Company
Guaranteed (Callable 10/07/02 @ $104.75) (B- ,B3) 10/01/07 9.500 411,000
300 Sinclair Broadcast Group, Inc., Global Company
Guaranteed (Callable 12/15/06 @ $104.38) (B , B2) 12/15/11 8.750 306,750
400 Young Broadcasting, Inc., Rule 144A, Global Company
Guaranteed (Callable 12/15/05 @ $104.25) ++ (B , B2) 12/15/08 8.500 402,000
----------
3,458,350
----------
BUILDING PRODUCTS (1.4%)
500 Associated Materials, Inc., Rule 144A, Private Placement,
Senior Subordinated Notes
(Callable 04/15/07 @ $104.88) ++ (B , B3) 04/15/12 9.750 510,625
250 Building Materials Corp., Company Guaranteed (B , B2) 12/01/08 8.000 201,250
300 Building Materials Corp., Series B, Senior Notes (B , B2) 07/15/05 7.750 256,500
250 Dayton Superior Corp., Company Guaranteed Notes
(Callable 06/15/07 @ $102.17) (B- , B3) 06/15/09 13.000 241,250
----------
1,209,625
----------
CABLE (7.4%)
250 Adelphia Communications Corp., Series B, Notes [0] (NR , Caa2) 03/01/05 9.875 85,000
350 Adelphia Communications Corp., Series B,
Senior Notes [0] (NR , Caa2) 07/15/04 10.500 121,625
294 Australis Holdings, Ltd., Yankee Senior Discount Notes
(Callable 07/22/02 @ $103.75) [0] (D , NR) 11/01/02 15.000 29
900 Australis Media, Ltd., Unit, Yankee
(Callable 07/22/02 @ $104.00) [0] (NR , NR) 05/15/03 15.750 81
15 Australis Media, Ltd., Yankee Senior Discount Notes
(Callable 07/22/02 @ $104.00) [0] (NR , NR) 05/15/03 15.750 2
500 Century Communications Corp., Series B, Senior
Discount Notes [0] (NR , Ca) 03/15/03 0.000 117,500
355 Charter Communications Holdings LLC, Senior
Discount Notes (Callable 04/01/04 @ $104.96) [0] (B- , B2) 04/01/11 9.920 172,175
350 Charter Communications Holdings LLC, Senior Notes
(Callable 01/15/05 @ $105.12) [0] (B- , B2) 01/15/10 10.250 245,000
460 Charter Communications Holdings LLC, Senior Notes
(Callable 04/01/04 @ $104.31) (B- , B2) 04/01/09 8.625 319,700
400 Coaxial Communications/Phoenix, Company Guaranteed,
Senior Notes (Callable 10/07/02 @ $105.00) (B , B3) 08/15/06 10.000 344,000
400 Coaxial LLC, Company Guaranteed
(Callable 08/15/03 @ $106.44)+, [0] (CCC+ , Caa1) 08/15/08 12.875 262,000
250 Comcast UK Cable Partners, Ltd., Senior Debentures
(Callable 11/15/02 @ $101.40) (C , Caa2) 11/15/07 11.200 211,250
85 CSC Holdings, Inc., Senior Notes (BB+ , B1) 12/15/07 7.875 72,250
35 CSC Holdings, Inc., Senior Notes (BB+ , B1) 07/15/08 7.250 29,050
500 CSC Holdings, Inc., Senior Subordinated Debentures
(Callable 02/15/03 @ $104.80) & (BB- , B2) 02/15/13 9.875 377,500
250 Diamond Cable Communications PLC, Yankee Senior
Discount Notes (Callable 07/22/02 @ $102.94) [0] (D , Ca) 12/15/05 11.750 40,000
2,427 DIVA Systems Corp., Series B, Senior Discount Notes
(Callable 03/01/03 @ $106.31) [0] (NR , NR) 03/01/08 12.625 312,476
See Accompanying Notes to Financial Statements.
31
PAR RATINGS(#)
(000) (S&P / MOODY'S) MATURITY RATE% VALUE
- --------- --------------- -------- ----- ----------
CABLE -- (CONTINUED)
$ 350 Frontiervision Holdings LP, Senior Discount Notes
(Callable 07/22/02 @ $107.92)+, [0] (NR , Caa1) 09/15/07 11.875 $ 166,250
500 Insight Communications Co., Inc., Senior Discount Notes
(Callable 02/15/06 @ $106.13)+, [0] (B- , Caa1) 02/15/11 12.250 170,000
350 Insight Midwest, Senior Notes
(Callable 10/01/04 @ $104.88) (B+ , B2) 10/01/09 9.750 313,250
410 James Cable Partners LP, Series B, Senior Notes
(Callable 10/11/02 @ $102.69) (NR , Caa2) 08/15/04 10.750 194,750
500 Jones Intercable, Inc., Senior Notes (BBB , Baa2) 04/15/08 7.625 465,619
300 Lenfest Communications, Inc., Senior Notes (BBB , Baa2) 11/01/05 8.375 282,228
400 MDC Communications Corp., Yankee Senior
Subordinated Notes (Callable 12/01/02 @ $103.50) (B , B2) 12/01/06 10.500 334,000
250 Mediacom LLC Capital Corp., Senior Notes
(Callable 01/15/06 @ $104.75) (B+ , B2) 01/15/13 9.500 205,000
400 Mediacom LLC Capital Corp., Senior Notes
(Callable 02/15/06 @ $103.94) (B+ , B2) 02/15/11 7.875 314,000
250 Northland Cable Television, Company Guaranteed
(Callable 11/15/02 @ $105.12) (B- , Caa1) 11/15/07 10.250 164,375
550 Olympus Communications LP, Series B, Senior Notes
(Callable 07/22/02 @ $105.31) [0] (NR , Caa1) 11/15/06 10.625 393,250
550 Rogers Communications, Inc., Yankee Senior Notes
(Callable 01/15/03 @ $101.52) (BB- , Ba2) 01/15/06 9.125 475,750
250 Rogers Communications, Inc., Yankee Senior Notes
(Callable 07/15/02 @ $104.44) (BB- , Ba1) 07/15/07 8.875 213,750
----------
6,401,860
----------
CHEMICALS (3.1%)
300 Acetex Corp., Global Senior Notes
(Callable 08/01/05 @ $105.44) (B+ , B2) 08/01/09 10.875 313,500
300 Airgas, Inc., Global Company Guaranteed
(Callable 10/01/06 @ $104.56) (B+ , Ba2) 10/01/11 9.125 319,500
300 Buckeye Technologies, Inc.,
Senior Subordinated Notes (B+ , Caa1) 12/15/05 8.500 268,500
250 Equistar Chemicals LP/ Equistar Funding Corp.,
Global Company Guaranteed (BB , B1) 09/01/08 10.125 241,250
300 IMC Global, Inc., Series B, Global Company Guaranteed
(Callable 06/01/06 @ $105.63) (BB , Ba1) 06/01/11 11.250 325,500
260 Lyondell Chemical Co., Series B, Senior Subordinated
Notes (Callable 05/01/04 @ $104.94) (BB , Ba3) 05/01/07 9.875 258,050
300 Mississippi Chemical Corp. (B , B3) 11/15/17 7.250 103,500
250 Radnor Holdings, Inc., Series B, Company
Guaranteed, Senior Subordinated Notes
(Callable 12/01/02 @ $100.00) (B- , B2) 12/01/03 10.000 223,750
430 Scotts Co., Company Guaranteed
(Callable 01/15/04 @ $104.31) (B+ , B2) 01/15/09 8.625 442,900
250 Terra Industries, Inc., Series B, Senior Notes
(Callable 07/22/02 @ $102.62) (B , Caa3) 06/15/05 10.500 201,250
----------
2,697,700
----------
COMPETITIVE LOCAL EXCHANGE CARRIER (CLEC) (1.6%)
500 Block Communications, Inc., Rule 144A,
Private Placement, Senior Subordinated Notes
(Callable 04/15/09 @ $104.62) ++ (B- , B2) 04/15/09 9.250 499,375
550 e.spire Communications, Inc., Senior Discount Notes
(Callable 11/01/02 @ $103.33) [0], & (NR , NR) 11/01/05 13.000 55
500 Knology Holdings, Inc., Senior Discount Notes
(Callable 10/15/02 @ $105.94)+, [0] (NR , NR) 10/15/07 11.875 162,500
See Accompanying Notes to Financial Statements.
32
PAR RATINGS(#)
(000) (S&P / MOODY'S) MATURITY RATE% VALUE
- --------- --------------- -------- ----- ----------
COMPETITIVE LOCAL EXCHANGE CARRIER (CLEC) -- (CONTINUED)
$ 250 MJD Communications, Inc., Series B, Senior
Subordinated Notes (Callable 05/01/03 @ $104.75) (B- , Caa1) 05/01/08 9.500 $ 163,750
400 RCN Corp., Senior Unsecured Notes
(Callable 10/15/02 @ $105.00) [0] (CCC- , Ca) 10/15/07 10.000 82,000
232 RCN Corp., Series B, Senior Discount Notes
(Callable 02/15/03 @ $104.90)+, [0] (CCC- , Ca) 02/15/08 9.800 37,120
500 Time Warner Telecom LLC, Senior Notes
(Callable 07/15/03 @ $104.87) (B- , B3) 07/15/08 9.750 230,000
250 United States West Communications Inc. (B- , Ba3) 09/15/05 6.625 221,250
----------
1,396,050
----------
CONGLOMERATE/DIVERSIFIED MANUFACTURING (0.9%)
300 Day International Group, Inc., Series B, Senior Notes (B- , B2) 06/01/05 11.125 300,000
500 Jordan Industries, Inc., Series D, Senior Notes
(Callable 08/01/02 @ $105.19) (B- , Caa3) 08/01/07 10.375 292,500
173 Knoll, Inc., Senior Subordinated Notes
(Callable 07/22/02 @ $103.63) (B+ , Ba3) 03/15/06 10.875 168,675
----------
761,175
----------
CONSUMER PRODUCTS/TOBACCO (3.1%)
715 Diamond Brands Operating, Company Guaranteed, Senior
Subordinated Notes (Callable 12/15/02 @ $101.47) [0] (NR , NR) 04/15/08 10.125 7,150
250 DIMON, Inc., Series B, Global Company Guaranteed
(Callable 10/15/06 @ $104.81) (BB , Ba3) 10/15/11 9.625 261,250
500 Holmes Products Corp., Series D, Senior Subordinated
Notes (Callable 11/15/02 @ $100.00) (NR , Caa2) 11/15/07 9.875 332,500
250 Jackson Products, Inc., Series B, Company Guaranteed
(Callable 07/22/02 @ $103.17) (CCC , Caa3) 04/15/05 9.500 163,750
500 Johnsondiversey, Inc., Rule 144A, Private
Placement, Senior Subordinated Notes
(Callable 05/15/07 @ $104.81) ++ (B , B2) 05/15/12 9.625 497,500
500 Packaged Ice, Inc., Series B, Company Guaranteed
(Callable 10/07/02 @ $104.88) & (B- , Caa3) 02/01/05 9.750 422,500
500 Revlon Consumer Products Corp.,
Global Company Guaranteed (B- , Caa1) 12/01/05 12.000 462,500
200 Sealy Mattress Co., Series B, Company Guaranteed, Senior
Discount Notes (Callable 12/15/02 @ $105.44)+, [0] (B- , B3) 12/15/07 10.875 163,000
400 Werner Holding Co., Inc., Series A, Company Guaranteed
(Callable 11/15/02 @ $105.00) (B- , B2) 11/15/07 10.000 402,000
----------
2,712,150
----------
CONTAINERS (0.8%)
250 Berry Plastics Corp., Rule 144A, Private Placement, Senior
Subordinated Notes, (Callable 07/15/07@ $105.37) ++ (B- , B3) 07/15/12 10.750 256,250
250 Owens-Illinois, Inc., Senior Notes (B+ , B3) 05/15/07 8.100 230,000
250 Owens-Illinois, Inc., Senior Notes (B+ , B3) 05/15/08 7.350 222,500
----------
708,750
----------
DIVERSIFIED TELECOMMUNICATIONS (0.1%)
250 Primus Telecommunications Group, Inc., Senior
Unsecured Notes (Callable 01/15/04 @ $105.625) (CCC- , Caa3) 01/15/09 11.250 121,250
----------
ELECTRONICS/INFORMATION/DATA TECHNOLOGY (1.3%)
295 Ampex Corp., Series B, Secured Notes
(Callable 07/24/02 @ $100.00) (NR , NR) 08/15/08 12.000 44,282
500 Flextronics International, Ltd., Yankee Senior
Subordinated Notes (Callable 07/01/05 @ $104.94)+, & (BB- , Ba2) 07/01/10 9.875 520,000
See Accompanying Notes to Financial Statements.
33
PAR RATINGS(#)
(000) (S&P / MOODY'S) MATURITY RATE% VALUE
- --------- --------------- -------- ----- ----------
ELECTRONICS/INFORMATION/DATA TECHNOLOGY-- (CONTINUED)
$ 250 Seagate Technology HDD Holding, Rule 144A,
Private Placement (Callable 05/15/06 @ $104.00) ++ (BB+ , Ba2) 05/15/09 8.000 $ 248,750
300 Solectron Corp., Senior Notes
(Callable 02/15/06 @ $104.81) & (BB , Ba3) 02/15/09 9.625 280,500
----------
1,093,532
----------
ENERGY - OTHER (2.6%)
450 Compton Petroleum Corp., Rule 144A, Private Placement,
Senior Notes (Callable 05/15/06 @ $104.95) ++ (B , B2) 05/15/09 9.900 452,250
380 Crown Central Petroleum, Senior Notes
(Callable 02/01/03 @ $100.00) (B , Caa1) 02/01/05 10.875 316,825
500 Eagle Geophysical, Inc., Liquidating Trust [0]+ (NR , NR) 07/15/08 10.750 50
250 Frontier Oil Corp., Senior Notes
(Callable 11/15/04 @ $105.87) (B , B2) 11/15/09 11.750 254,375
500 Swift Energy Co., Senior Subordinated Notes
(Callable 05/01/07 @ $104.69) (B , B3) 05/01/12 9.375 477,500
250 Tesoro Petroleum Corp., Rule 144A,
Private Placement, Senior Subordinated Notes
(Callable 04/01/07 @ $104.81) ++, & (B+ , B2) 04/01/12 9.625 185,000
350 Trico Marine Services, Inc., Rule 144A, Private
Placement, Senior Notes (Callable 05/15/07 @ $104.44) ++ (B , B2) 05/15/12 8.875 322,000
250 Western Resources, Inc., Rule 144A, Private Placement ++ (BBB- , Ba1) 05/01/07 7.875 238,646
----------
2,246,646
----------
ENVIRONMENTAL SERVICES (0.2%)
200 Allied Waste North America, Series B,
Company Guaranteed, Senior Subordinated Notes
(Callable 01/01/04 @ $103.94) (BB- , Ba3) 01/01/09 7.875 196,000
----------
FOOD PROCESSORS/BEVERAGE/BOTTLING (4.5%)
250 Agrilink Foods, Inc., Company Guaranteed, Senior
Subordinated Notes (Callable 11/01/03 @ $105.94) (B- , B3) 11/01/08 11.875 261,875
420 Archibald Candy Corp., Company Guaranteed, Senior
Secured Notes (Callable 10/11/02 @ $102.56) [0] (NR , Caa2) 07/01/04 10.250 220,500
600 Aurora Foods, Inc., Series B, Senior Subordinated
Notes (Callable 02/15/03 @ $105.2917) (CCC , Caa3) 02/15/07 9.875 375,000
350 Eagle Family Foods, Inc., Series B, Company
Guaranteed (Callable 01/15/03 @ $104.38) (CCC+ , B3) 01/15/08 8.750 246,750
500 Fleming Companies., Inc., Rule 144A, Private
Placement, Senior Subordinated Notes
(Callable 05/01/07 @ $104.94) ++, & (B+ , B2) 05/01/12 9.875 407,500
250 Fleming Companies., Inc., Series D, Global Company
Guaranteed (Callable 08/26/02 @ $105.31) (B+ , B2) 07/31/07 10.625 223,750
400 Land O' Lakes, Inc., Rule 144A, Senior Notes
(Callable 11/15/06 @ $104.38) ++ (BB , Ba3) 11/15/11 8.750 258,000
500 Luiginos, Inc., Senior Subordinated Notes
(Callable 02/01/03 @ $105.00) (B- , B3) 02/01/06 10.000 502,500
430 National Wine & Spirits, Inc., Company Guaranteed
(Callable 01/15/04 @ $105.06) (B , B2) 01/15/09 10.125 421,400
250 New World Pasta Co., Company Guaranteed, Senior
Subordinated Notes (Callable 02/15/04 @ $104.63) (B- , Caa1) 02/15/09 9.250 238,750
350 Pilgrim's Pride Corp., Senior Notes
(Callable 09/15/06 @ $104.81) (BB- , Ba3) 09/15/11 9.625 341,250
400 Premier International Foods PLC, Yankee Senior Notes
(Callable 09/01/04 @ $106.00) (B- , B3) 09/01/09 12.000 432,000
----------
3,929,275
----------
See Accompanying Notes to Financial Statements.
34
PAR RATINGS(#)
(000) (S&P / MOODY'S) MATURITY RATE% VALUE
- --------- --------------- -------- ----- ----------
GAMING (10.2%)
$ 300 Ameristar Casinos, Inc., Company Guaranteed
(Callable 02/15/06 @ $105.38) (B- , B3) 02/15/09 10.750 $ 326,250
500 Argosy Gaming Co., Company Guaranteed
(Callable 06/01/04 @ $105.38) (B+ , B2) 06/01/09 10.750 546,250
250 Argosy Gaming Co., Senior Subordinated Notes
(Callable 09/01/06 @ $104.50) (B+ , B2) 09/01/11 9.000 259,375
250 Aztar Corp., Global Senior Subordinated Notes
(Callable 08/15/06 @ $104.50) (B+ , Ba3) 08/15/11 9.000 255,000
250 Aztar Corp., Senior Subordinated Notes
(Callable 05/15/03 @ $104.44) (B+ , Ba3) 05/15/07 8.875 252,500
400 Boyd Gaming Corp., Senior Subordinated Notes
(Callable 07/15/02 @ $104.75) (B+ , B1) 07/15/07 9.500 415,000
480 Circus Circus Enterprises, Inc., Senior Subordinated
Notes (Callable 12/01/02 @ $104.63) (BB- , Ba3) 12/01/05 9.250 494,400
550 Coast Hotels & Casinos, Inc., Company Guaranteed,
Senior Subordinated Notes
(Callable 04/01/04 @ 104.75) (B , B2) 04/01/09 9.500 573,375
400 Hard Rock Hotel, Inc., Series B, Senior Subordinated
Notes (Callable 10/07/02 @ $104.62) (B- , Caa2) 04/01/05 9.250 396,000
250 Harrahs Operating Co., Inc., Company Guaranteed,
Senior Subordinated Notes (BB+ , Ba1) 12/15/05 7.875 261,250
400 Herbst Gaming, Inc., Series B, Global Secured Notes
(Callable 09/01/05 @ $105.37) (B , B2) 09/01/08 10.750 416,000
223 Hollywood Casino Corp., Company Guaranteed
(Callable 05/01/03 @ $107.00) (B , B3) 05/01/07 11.250 243,628
250 Hollywood Park, Inc., Series B,
Company Guaranteed, Senior Subordinated Notes
(Callable 02/15/03 @ $104.62) (CCC+ , Caa1) 02/15/07 9.250 223,750
250 Isle of Capri Casinos, Inc., Company Guaranteed
(Callable 04/15/04 @ $104.38) (B , B2) 04/15/09 8.750 252,812
500 Majestic Investor Holdings LLC, Rule 144A,
Private Placement, Company Guaranteed
(Callable 11/30/05 @ $105.83) ++ (B , B2) 11/30/07 11.653 462,500
400 Majestic Star Casino LLC, Series B,
Company Guaranteed, Senior Secured Notes
(Callable 07/01/03 @ $105.44) (B , B2) 07/01/06 10.875 404,000
500 MGM Mirage, Inc., Company Guaranteed (BB+ , Ba2) 06/01/07 9.750 542,500
400 Mohegan Tribal Gaming, Senior Subordinated Notes
(Callable 01/01/04 @ $104.38) (BB- , Ba3) 01/01/09 8.750 415,000
250 Park Place Entertainment Corp.,
Senior Subordinated Notes (BB+ , Ba2) 12/15/05 7.875 253,750
500 Penn National Gaming, Inc., Series B,
Company Guaranteed, Senior Subordinated Notes
(Callable 03/01/05 @ $105.56) (B- , B3) 03/01/08 11.125 542,500
250 Peninsula Gaming LLC, Series B,
Company Guaranteed, Senior Subordinated Notes
(Callable 07/01/03 @ $108.00) (B , B2) 07/01/06 12.250 251,250
400 Sun International Hotels, Ltd., Rule 144A,
Private Placement, Senior Subordinated Notes
(Callable 08/15/06 @ $104.44) ++ (B+ , B2) 08/15/11 8.875 403,500
350 Venetian Casino Resort LLC, Rule 144A, Private
Placement (Callable 06/15/06 @ $105.50) ++ (B- , Caa1) 06/15/10 11.000 353,062
319 Waterford Gaming LLC, Rule 144A, Senior Notes
(Callable 07/22/02 @ $108.64) ++ (B+ , B1) 03/15/10 9.500 328,969
----------
8,872,621
----------
See Accompanying Notes to Financial Statements.
35
PAR RATINGS(#)
(000) (S&P / MOODY'S) MATURITY RATE% VALUE
- --------- --------------- -------- ----- ----------
HEALTHCARE FACILITIES/SUPPLIES (5.3%)
$ 550 Alaris Medical Systems, Company Guaranteed
(Callable 12/01/02 @ $103.25) (B- , Caa1) 12/01/06 9.750 $ 530,750
250 Beverly Enterprises, Inc., Company Guaranteed,
Senior Notes (Callable 02/15/03 @ $101.50) (B+ , B1) 02/15/06 9.000 223,750
500 Extendicare Health Services, Inc., Company
Guaranteed (Callable 12/15/02 @ $104.68) (CCC+ , B3) 12/15/07 9.350 452,500
250 Fisher Scientific International, Inc., Global Senior
Subordinated Notes (Callable 05/01/07 @ $104.06) (B , B3) 05/01/12 8.125 256,250
250 Fisher Scientific International, Inc., Senior
Subordinated Notes (Callable 02/01/03 @ $104.50) (B , B3) 02/01/08 9.000 260,000
300 HEALTHSOUTH Corp., Rule 144A,
Private Placement, Notes ++ (BBB- , Ba1) 06/01/12 7.625 240,777
300 Magellan Health Services, Inc., Rule 144A, Senior
Notes (Callable 11/15/05 @ $104.69) ++ (B- , B3) 11/15/07 9.375 208,500
250 Magellan Health Services, Inc., Senior
Subordinated Notes (Callable 02/15/03 @ $104.50) (CCC , Caa1) 02/15/08 9.000 73,750
300 Rotech Healthcare, Inc., Rule 144A, Private Placement,
Senior Subordinated Notes
(Callable 04/01/07 @ $104.75) ++ (B+ , B2) 04/01/12 9.500 252,000
500 Triad Hospital Holdings, Inc., Series B, Company
Guaranteed, Senior Subordinated Notes
(Callable 05/15/04 @ $105.50) (B- , B2) 05/15/09 11.000 552,500
400 Unilab FinanceCorp., Senior Subordinated Notes
(Callable 10/01/04 @ $106.37) (B- , B3) 10/01/09 12.750 462,000
400 Vanguard Health Systems, Rule 144A, Senior
Subordinated Notes (Callable 08/01/06 @ $104.87) (B- , B3) 08/01/11 9.750 406,000
400 Ventas Realty, Ltd., Rule 144A, Global Company
Guaranteed ++ (BB- , Ba3) 05/01/12 9.000 408,000
250 Vicar Operating, Inc., Company Guaranteed
(Callable 12/01/05 @ $104.94) (B- , B3) 12/01/09 9.875 266,250
----------
4,593,027
----------
HOME BUILDERS (1.6%)
350 Beazer Homes USA, Inc., Rule 144A, Private Placement,
Senior Notes (Callable 04/15/07 @ $104.19) ++ (BB , Ba2) 04/15/12 8.375 353,500
400 D.R. Horton, Inc., Rule 144A, Global Company
Guaranteed (Callable 04/15/07 @ $104.25) ++ (BB , Ba1) 04/15/12 8.500 396,000
300 KB Home, Senior Subordinated Notes (BB- , Ba3) 12/15/08 8.625 299,250
300 Toll Corp., Senior Subordinated Notes
(Callable 12/01/06 @ $104.12) (BB+ , Ba2) 12/01/11 8.250 298,500
----------
1,347,250
----------
INDUSTRIAL - OTHER (1.9%)
300 Amerigas Partners LP Eagle Finance Corp., Global
Senior Notes (Callable 05/20/06 @ $104.438) (BB+ , Ba3) 05/20/11 8.875 310,500
500 Brand Scaffold Services, Senior Unsecured Notes
(Callable 02/15/03 @ $105.12) (B , B2) 02/15/08 10.250 502,500
400 Del Monte Corp., Series B, Global Company
Guaranteed (Callable 05/15/06 @ $104.63) (B- , B3) 05/15/11 9.250 406,000
400 Synagro Technologies, Inc., Rule 144A, Private
Placement, Senior Subordinated Notes
(Callable 04/01/06 @ $104.75) ++ (B , B3) 04/01/09 9.500 414,000
----------
1,633,000
----------
See Accompanying Notes to Financial Statements.
36
PAR RATINGS(#)
(000) (S&P / MOODY'S) MATURITY RATE% VALUE
- --------- --------------- -------- ----- ----------
LEISURE (3.7%)
$ 500 AMC Entertainment, Inc., Senior Subordinated Notes
(Callable 02/01/04 @ $104.75) (CCC+ , Caa3) 02/01/11 9.500 $ 463,750
400 Booth Creek Ski Holdings, Inc., Series B,
Company Guaranteed (CCC+ , Caa1) 03/15/07 12.500 348,000
450 Cinemark USA, Inc., Series D, Senior Subordinated
Notes (Callable 08/01/02 @ $102.41) (B- , Caa2) 08/01/08 9.625 429,750
250 Florida Panthers Holdings, Company Guaranteed,
Senior Subordinated Notes
(Callable 04/15/04 @ $104.94) (B- , B2) 04/15/09 9.875 260,000
500 Icon Health & Fitness, Inc., Rule 144A, Private
Placement, Company Guaranteed
(Callable 04/01/07 @ $105.62) ++ (B- , B3) 04/01/12 11.250 485,000
750 Imax Corp., Yankee Senior Unsecured Notes
(Callable 12/01/02 @ $103.94) (CCC , Caa2) 12/01/05 7.875 558,750
250 Intrawest Corp., Yankee Senior Unsecured Notes
(Callable 08/15/03 @ $104.87) (B+ , B1) 08/15/08 9.750 256,250
271 KSL Recreation Group, Inc., Series B, Senior
Subordinated Notes (Callable 07/22/02 @ $105.12) (B- , B2) 05/01/07 10.250 277,601
75 SFX Entertainment, Inc., Series B, Company
Guaranteed, Senior Subordinated Notes
(Callable 02/01/03 @ $104.56) (NR , Ba3) 02/01/08 9.125 82,125
----------
3,161,226
----------
LODGING (0.8%)
250 Capstar Hotel Co., Senior Subordinated Notes
(Callable 08/15/02 @ $104.38) (B- , B3) 08/15/07 8.750 208,750
300 HMH Properties, Inc., Series B, Company Guaranteed
(Callable 08/01/03 @ $103.99) (BB- , Ba3) 08/01/08 7.875 286,500
220 HMH Properties, Inc., Series C, Senior Notes
(Callable 12/01/03 @ $104.23) (BB- , Ba3) 12/01/08 8.450 214,225
----------
709,475
----------
MACHINERY (0.3%)
260 Motors & Gears, Inc., Series D, Senior Notes
(Callable 10/07/02 @ $105.38) (B- , Caa1) 11/15/06 10.750 240,500
----------
METALS & MINING (4.6%)
500 AEI Resources LLC/Horizon Finance Corp., Company
Guaranteed, Senior Secured Notes
(Callable 07/18/02 @ $100.00) (NR , NR) 05/08/09 11.750 187,500
400 Alltrista Corp., Rule 144A, Private Placement, Senior
Subordinated Notes (Callable 05/01/07 @ $104.87) ++ (B- , B3) 05/01/12 9.750 390,000
300 Earle M. Jorgensen Co., Rule 144A, Global Secured
(Callable 06/01/07 @ $104.88) ++ (B- , B2) 06/01/12 9.750 295,875
400 Golden Northwest Aluminum, Company Guaranteed,
Senior Subordinated Notes
(Callable 12/15/02 @ $108.00) (CC , B3) 12/15/06 12.000 158,000
560 Great Lakes Carbon Corp., Series B, Company
Guaranteed (Callable 05/15/03 @ $105.13) (B- , B3) 05/15/08 10.250 393,400
100 Haynes International, Inc., Senior Notes
(Callable 09/01/02 @ $100.00) (CCC+ , Caa2) 09/01/04 11.625 77,500
250 Intermet Corp., Rule 144A, Private Placement,
Senior Notes (Callable 06/15/06 @ $104.88) ++ (B+ , B2) 06/15/09 9.750 255,000
100 Luscar Coal, Ltd., Global Senior Notes
(Callable 10/15/06 @ $104.88) (BB , Ba3) 10/15/11 9.750 107,500
200 Maxxam Group Holdings, Inc., Series B, Senior
Secured Notes (Callable 08/01/02 @ $100.00) (CCC+ , Caa1) 08/01/03 12.000 175,000
See Accompanying Notes to Financial Statements.
37
PAR RATINGS(#)
(000) (S&P / MOODY'S) MATURITY RATE% VALUE
- --------- --------------- -------- ----- ----------
METALS & MINING -- (CONTINUED)
$ 300 Metallurg, Inc., Series B, Company Guaranteed,
Senior Notes (Callable 12/01/02 @ $105.50) (B- , B3) 12/01/07 11.000 $ 264,000
400 TriMas Corp., Rule 144A, Private Placement, Senior
Subordinated Notes (Callable 06/15/07 @ $104.94) ++ (B , B3) 06/15/12 9.875 398,000
500 UCAR Finance, Inc., Global Company Guaranteed
(Callable 02/15/07 @ $105.12) (B , B2) 02/15/12 10.250 505,000
250 WCI Steel, Inc., Series B, Senior Secured Notes (B- , Caa2) 12/01/04 10.000 118,750
250 WHX Corp., Senior Notes
(Callable 07/31/02 @ $105.25) (CCC+ , Caa3) 04/15/05 10.500 205,000
500 WolverineTube, Inc., Rule 144A, Private Placement,
Company Guaranteed (Callable 04/01/06 @ $105.25) ++ (BB- , B1) 04/01/09 10.500 477,500
----------
4,008,025
----------
OIL EQUIPMENT (2.3%)
341 Key Energy Services, Inc, Series B, Company
Guaranteed, Senior Subordinated Notes
(Callable 01/15/04 @ $107.00) (B+ , B2) 01/15/09 14.000 397,265
250 Parker Drilling Co., Rule 144A, Private Placement,
Company Guaranteed (Callable 11/15/04 @ $105.06) ++ (B+ , B1) 11/15/09 10.125 251,250
250 Pride International, Inc., Senior Notes
(Callable 07/22/02 @ $104.69) (BB , Ba2) 05/01/07 9.375 262,500
500 Transocean Sedco, Notes (NR , Baa2) 12/15/08 9.500 620,251
500 Universal Compression, Inc., Senior Discount Notes
(Callable 02/15/03 @ $104.94)+ (B+ , B1) 02/15/08 9.875 478,125
----------
2,009,391
----------
PAPER & FOREST PRODUCTS (3.8%)
500 Ainsworth Lumber Co., Ltd., Senior Secured Notes (B- , B3) 07/15/07 12.500 522,500
400 Four M Corp., Series B, Senior Secured Notes
(Callable 10/07/02 @ $104.00) (B , B3) 06/01/06 12.000 410,000
250 Mail-Well, Inc., Rule 144A, Private Placement,
Company Guaranteed (Callable 03/15/07 @ $104.81) ++ (BB- , B1) 03/15/12 9.625 173,750
400 Mail-Well, Inc., Series B, Company Guaranteed, Senior
Subordinated Notes (Callable 12/15/03 @ $104.38) (B , B3) 12/15/08 8.750 162,000
400 Norampac, Inc., Yankee Senior Notes
(Callable 02/01/03 @ $104.75) (BB+ , Ba2) 02/01/08 9.500 426,000
300 Playtex Products, Inc., Global Company Guaranteed
(Callable 06/01/06 @ $104.69) (B , B2) 06/01/11 9.375 322,500
150 Riverwood International Corp., Company Guaranteed (CCC+ , Caa1) 04/01/08 10.875 153,000
250 Speciality Paperboard, Inc., Senior Notes
(Callable 10/15/02 @ $103.13) (B+ , B1) 10/15/06 9.375 241,250
200 Stone Container Corp., Senior Unsecured Notes
(Callable 02/01/06 @ $104.87) (B , B2) 02/01/11 9.750 211,000
250 Stone Container Finance Co., Rule 144A, Company
Guaranteed, Senior Notes
(Callable 08/15/04 @ $100.00) ++ (B , B2) 08/15/06 11.500 265,937
250 Tembec Industries, Inc., Company Guaranteed, Senior
Unsecured Notes (Callable 06/30/04 @ $104.31) (BB+ , Ba1) 06/30/09 8.625 253,125
150 Tembec Industries, Inc., Global Company Guaranteed (BB+ , Ba1) 02/01/11 8.500 151,875
----------
3,292,937
----------
PHARMACEUTICALS (0.5%)
250 aaiPharma Inc., Company Guaranteed
(Callable 04/01/06 @ 105.50) (B- , Caa1) 04/01/10 11.000 222,500
250 Biovail Corp., Yankee Senior Subordinated Notes
(Callable 04/01/06 @ 103.94) (BB- , B2) 04/01/10 7.875 241,250
----------
463,750
----------
See Accompanying Notes to Financial Statements.
38
PAR RATINGS(#)
(000) (S&P / MOODY'S) MATURITY RATE% VALUE
- --------- --------------- -------- ----- ----------
PUBLISHING (1.2%)
$ 400 Hollinger International Publishing, Inc., Company
Guaranteed, Senior Subordinated Notes (B , Ba3) 03/15/07 9.250 $ 412,000
300 Liberty Group Publishing+, [0] (CCC+ , Caa2) 02/01/09 11.625 196,125
250 Phoenix Color Corp., Company Guaranteed
(Callable 02/01/04 @ 105.19) (CCC+ , Caa2) 02/01/09 10.375 201,250
500 Premier Graphics, Inc., Company Guaranteed, Senior
Unsecured Notes (Callable 12/01/02 @ 105.75) [0]+ (NR , Caa3) 12/01/05 11.500 18,125
194 Sun Media Corp., Yankee Senior Subordinated Notes
(Callable 02/15/03 @ $103.167) (B+ , B2) 02/15/07 9.500 198,123
----------
1,025,623
----------
RESTAURANTS (2.3%)
500 American Restaurant Group, Inc., Rule 144A,
Private Placement, Company Guaranteed
(Callable 11/01/04 @ $105.75) ++ (B , B2) 11/01/06 11.500 456,250
250 Carrols Corp., Company Guaranteed, Senior
Subordinated Notes (Callable 12/01/03 @ $104.75) (B- , B3) 12/01/08 9.500 244,063
500 Hockey Co. & Sport Maska, Inc., Units, Private
Placement (Callable 04/15/06 @ $105.62) ++ (B , B2) 04/15/09 11.250 472,500
215 National Restaurant, Private Placement, Senior
Notes (Callable 08/01/02 @ $104.00) [0] (D , Caa2) 11/15/07 10.750 32,250
200 National Restaurant, Private Placement, Senior
Notes (Callable 08/01/02 @ $104.00) [0] (C , Caa2) 05/15/08 13.000 30,000
500 New World Coffee - Manhattan Bagel, Inc., Rule 144A,
Company Guaranteed, Private Placement
(Callable 06/15/03 @ $100.00) +, ++ (CCC+ , Caa2) 06/15/03 17.000 475,000
265 Sbarro, Inc., Company Guaranteed, Senior Notes
(Callable 09/15/04 @ $105.50) (B+ , B2) 09/15/09 11.000 261,025
----------
1,971,088
----------
RETAIL-FOOD & DRUG (2.7%)
300 B&G Foods, Inc., Series D, Global Company
Guaranteed (Callable 09/03/02 @ $104.81) (B- , B3) 08/01/07 9.625 306,750
250 Great Atlantic & Pacific Tea Co., Inc., Notes (BB , B2) 04/15/07 7.750 218,750
331 Mrs. Field's Original Cookies Co., Series B,
Company Guaranteed (Callable 12/01/02 @ $101.69) (CCC , Caa1) 12/01/04 10.125 213,172
260 Pantry, Inc., Company Guaranteed
(Callable 10/15/02 @ $105.12) (B- , B3) 10/15/07 10.250 231,400
250 Petco Animal Supplies, Inc., Global Senior
Subordinated Notes (Callable 11/01/01 @ $105.37) (NR , B3) 11/01/11 10.750 267,500
189 Pueblo Xtra International, Inc., Senior Notes
(Callable 08/01/03 @ $100.00) (D , Ca) 08/01/03 9.500 93,555
500 Stater Brothers Holdings, Inc., Senior Notes
(Callable 08/15/03 @ $105.38) (B- , B2) 08/15/06 10.750 520,000
500 United Auto Group, Inc., Rule 144A, Senior
Subordinated Notes (Callable 03/15/07 @ $104.81) ++ (B , B3) 03/15/12 9.625 507,500
----------
2,358,627
----------
RETAIL STORES (3.4%)
500 Advance Holding Corp., Series B, Senior Discount
Debenture (Callable 04/15/03 @ $106.44)+, [0] (B , Caa1) 04/15/09 12.875 502,500
250 Advance Stores Co., Inc., Rule 144A, Company
Guaranteed (Callable 04/15/03 @ $105.12) ++ (B , B3) 04/15/08 10.250 261,562
250 Advance Stores Co., Inc., Series B, Company
Guaranteed (Callable 04/15/03 @ $105.12) (B , B3) 04/15/08 10.250 261,563
250 Auto Nation, Inc., Global Company Guaranteed (BB+ , Ba2) 08/01/08 9.000 262,500
See Accompanying Notes to Financial Statements.
39
PAR RATINGS(#)
(000) (S&P / MOODY'S) MATURITY RATE% VALUE
- --------- --------------- -------- ----- ----------
RETAIL STORES -- (CONTINUED)
$ 500 County Seat Stores, Inc., Rule 144A, Unit
(Callable 11/01/03 @ $100.00) [0], ++ (NR , NR) 11/01/04 12.750 $ 50
370 Flooring America, Inc., Series B, Company
Guaranteed, Senior Unsecured Notes
(Callable 10/15/02 @ $104.63) [0] (D , C) 10/15/07 9.250 37
500 Jostens, Inc., Senior Subordinated Notes
(Callable 05/01/05 @ $106.37) (B , NR) 05/01/10 12.750 565,000
500 Leslie's Poolmart, Senior Notes
(Callable 10/07/02 @ $102.59) (B- , B3) 07/15/04 10.375 470,000
250 Michaels Stores, Inc., Senior Notes
(Callable 07/01/05 @ $104.63) (BB , Ba2) 07/01/09 9.250 264,375
250 Nebraska Book Co., Senior Subordinated Notes
(Callable 02/15/03 @ $104.38) (B- , B3) 02/15/08 8.750 242,500
125 Pep Boys - Manny, Moe & Jack, Series MTNB, Notes (BB- , B2) 07/07/06 6.920 118,281
----------
2,948,368
----------
SATELLITE (1.4%)
500 EchoStar DBS Corp., Senior Notes
(Callable 02/01/04 @ $104.69) (B+ , B1) 02/01/09 9.375 500,000
300 Loral Cyberstar, Inc., Company Guaranteed (B , Caa1) 07/15/06 10.000 112,500
500 Loral Space & Communications, Ltd., Senior Notes
(Callable 01/15/03 @ $104.75) (CCC+ , Ca) 01/15/06 9.500 127,500
550 Pegasus Communications Corp., Series B, Senior
Notes (Callable 12/01/02 @ $104.88) (CCC+ , Ca) 12/01/06 9.750 262,625
750 Pegasus Satellite Communication, Senior Discount
Notes (Callable 03/01/04 @ $106.75)+, [0] (CCC+ , C) 03/01/07 13.500 208,125
----------
1,210,750
----------
SECONDARY OIL & GAS PRODUCERS (4.4%)
500 Abraxas Petroleum Corp., Series A, Company
Guaranteed, Senior Subordinated Notes
(Callable 11/01/02 @ $100.00) (CC , Caa3) 11/01/04 11.500 280,000
500 Chesapeake Energy Corp., Global Company Guaranteed,
Senior Notes (Callable 04/01/06 @ $104.06) (B+ , B1) 04/01/11 8.125 492,500
500 Continental Resources, Inc., Company Guaranteed, Senior
Subordinated Notes (Callable 08/01/03 @ $105.12) (CCC+ , Caa1) 08/01/08 10.250 431,250
350 Denbury Management, Inc., Company Guaranteed,
Senior Subordinated Notes
(Callable 03/01/03 @ $104.50) (B , B3) 03/01/08 9.000 347,375
250 Giant Industries, Inc., Rule 144A, Private
Placement, Senior Subordinated Notes
(Callable 05/15/07 @ $105.50) ++ (B , B3) 05/15/12 11.000 183,750
200 Magnum Hunter Resources, Inc., Company Guaranteed
(Callable 10/11/02 @ $105.00) (B , B2) 06/01/07 10.000 203,000
250 Magnum Hunter Resources, Inc., Rule 144A, Private
Placement, Senior Notes
(Callable 03/15/07 @ $104.80) ++ (B+ , B2) 03/15/12 9.600 256,250
250 Mission Resources Corp., Series C, Global Company
Guaranteed (Callable 10/07/02 @ $105.44) (B- , Caa1) 04/01/07 10.875 181,250
250 Plains Exploration & Production Co., Rule 144A,
Private Placement, Senior Subordinated Notes,
(Callable 01/15/04 @ $100.00) ++ (NR , B2) 07/01/12 8.750 249,375
500 Pogo Producing Co., Series B, Senior Subordinated
Note (Callable 07/22/02 @ $104.38) (BB , B1) 05/15/07 8.750 513,750
30 Seagull Energy Corp., Senior Notes (BBB- , Baa3) 08/01/03 7.875 30,525
209 Southwest Royalties, Inc., Company Guaranteed
(Callable 09/03/02 @ $100.00) (NR , NR) 06/30/04 10.500 208,739
See Accompanying Notes to Financial Statements.
40
PAR RATINGS(#)
(000) (S&P / MOODY'S) MATURITY RATE% VALUE
- --------- --------------- -------- ----- ----------
SECONDARY OIL & GAS PRODUCERS -- (CONTINUED)
$ 250 Vintage Petroleum, Inc., Global Senior Subordinated
Notes (Callable 05/15/06 @ $103.94) (B , B1) 05/15/11 7.875 $ 233,750
300 Wiser Oil Co., Company Guaranteed, Senior
Subordinated Notes (Callable 06/17/02 @ $104.75) (CCC+ , Caa3) 05/15/07 9.500 229,500
----------
3,841,014
----------
SERVICES - OTHER (1.7%)
250 Ameriserve Finance Trust, Rule 144A, Senior
Secured Notes (Callable 09/15/03 @ $106.00)+ [0], ++ (NR , Caa1) 09/15/06 12.000 13,750
500 Applied Extrusion Technologies, Inc., Series B,
Company Guaranteed (Callable 07/01/06 @ $105.37) (B , B2) 07/01/11 10.750 415,000
500 IESI Corp., Rule 144A, Senior Subordinated Notes
(Callable 06/15/07 @ $105.12) ++ (B- , B3) 06/15/12 10.250 477,500
250 Iron Mountain, Inc., Company Guaranteed
(Callable 04/01/06 @ $104.31) (B , B2) 04/01/13 8.625 255,625
350 La Petite Academy, Inc., Series B, Company
Guaranteed (Callable 05/15/03 @ $105.00) (CC , Ca) 05/15/08 10.000 191,188
150 United Rentals, Inc., Series B, Company
Guaranteed, Senior Subordinated Notes
(Callable 01/15/04 @ $104.63) & (BB- , B2) 01/15/09 9.250 141,750
----------
1,494,813
----------
TECHNOLOGY (1.0%)
550 Fairchild Semiconductor Corp., Company Guaranteed
(Callable 04/01/03 @ $105.19) (B , B2) 10/01/07 10.375 577,500
500 Lucent Technologies, Inc., Notes & (B+ , B2) 07/15/06 7.250 317,500
----------
895,000
----------
TEXTILE/APPAREL/SHOE MANUFACTURING (1.1%)
250 Advanced Glass Fiber Yarns, Senior Subordinated
Notes (Callable 01/15/04 @ $105.06) (D , Caa3) 01/15/09 9.875 76,250
400 BGF Industries, Inc., Series B, Senior
Subordinated Notes (Callable 01/15/04 @ $105.25) (CC , Caa3) 01/15/09 10.250 222,000
210 Phillips Van-Heusen, Senior Subordinated Notes
(Callable 05/01/03 @ $104.75) (B+ , Ba3) 05/01/08 9.500 215,513
400 Russell Corp., Rule 144A, Private Placement, Senior
Notes (Callable 05/01/06 @ $104.62) ++ (BB , B1) 05/01/10 9.250 411,000
----------
924,763
----------
TRANSPORTATION/OTHER (0.9%)
250 Oglebay Norton Co., Senior Subordinated Notes
(Callable 02/01/04 @ $105.00) (CCC+ , Caa1) 02/01/09 10.000 183,750
250 Petroleum Helicopters, Inc., Rule 144A, Series B,
Global Company Guaranteed,
(Callable 05/01/06 @ $104.69) ++ (BB- , B1) 05/01/09 9.375 255,000
450 Transportation Manufacturing Operations, Company
Guaranteed, Senior Subordinated Notes
(Callable 05/01/04 @ $105.63) (CCC+ , Caa1) 05/01/09 11.250 301,500
----------
740,250
----------
UTILITIES (1.3%)
250 AES Corp., Senior Unsecured Notes (BB- , Ba3) 06/01/09 9.500 138,750
250 Calpine Canada Energy, Company Guaranteed (B+ , B1) 05/01/08 8.500 138,750
550 Calpine Corp., Senior Notes (B+ , B1) 04/15/09 7.750 283,250
250 CMS Energy Corp., Senior Notes (B+ , B3) 07/15/08 8.900 202,759
500 CMS Energy Corp., Senior Notes (B+ , B3) 01/15/09 7.500 380,532
----------
1,144,041
----------
See Accompanying Notes to Financial Statements.
41
PAR RATINGS(#)
(000) (S&P / MOODY'S) MATURITY RATE% VALUE
- --------- --------------- -------- ----- ----------
WIRELESS (3.6%)
$ 500 Airgate PCS, Inc., Senior Subordinated Notes
(Callable 10/01/04 @ $106.75)+, & (CCC , Caa1) 10/01/09 13.500 $ 122,500
250 American Cellular Corp., Company Guaranteed
(Callable 10/15/05 @ $104.75) (CCC- , Caa3) 10/15/09 9.500 35,000
300 Centennial Cellular Corp., Senior Subordinated
Notes (Callable 12/15/03 @ $105.37) (B- , B3) 12/15/08 10.750 151,500
250 Dobson/Sygnet Communications, Senior Unsecured
Notes (Callable 12/15/03 @ $106.13) (NR , B3) 12/15/08 12.250 158,750
600 IPCS, Inc., Senior Discount Notes
(Callable 07/15/05 @ $107.00)+, [0] (CCC , Caa1) 07/15/10 14.000 93,000
600 Microcell Telecommunications, Inc., Series B,
Yankee Senior Discount Notes
(Callable 12/01/02 @ $104.67) (NR , Caa3) 06/01/06 14.000 7,500
525 Nextel Partners, Inc., Senior Discount Notes
(Callable 02/01/04 @ $107.00)+, [0] (CCC+ , B3) 02/01/09 14.000 228,375
500 Orange PLC, Yankee Senior Notes
(Callable 06/01/04 @ $104.50) (BBB- , Baa3) 06/01/09 9.000 502,840
250 Polska Telefonica Cyfrowa International Finance II
SA, Company Guaranteed, Senior Subordinated Notes
(Callable 12/01/04 @ $105.625) (B+ , B1) 12/01/09 11.250 249,375
130 TeleCorp PCS, Inc., Company Guaranteed, Senior
Subordinated Notes (Callable 04/15/04 @ $105.81) [0] (BBB , Baa2) 04/15/09 11.625 105,300
325 TeleCorp PCS, Inc., Company Guaranteed, Senior
Subordinated Notes (Callable 07/15/05 @ $105.31)+ (BBB , Baa2) 07/15/10 10.625 313,625
325 Tritel PCS, Inc., Company Guaranteed
(Callable 05/15/04 @ $106.37) [0]+ (BBB , Baa2) 05/15/09 12.750 268,125
250 Triton PCS, Inc., Company Guaranteed, Senior
Subordinated Discount Notes
(Callable 05/01/03 @ $105.50)+, [0] (B- , B2) 05/01/08 11.000 187,500
300 Triton PCS, Inc., Global Company Guaranteed
(Callable 11/15/06 @ $104.38) (B- , B2) 11/15/11 8.750 231,000
500 U.S. Unwired, Inc., Series B, Company Guaranteed
(Callable 11/01/04 @ $106.69)+ (CCC+ , B3) 11/01/09 13.375 117,500
37 Voicestream Wireless Corp., Senior Discount Notes
(Callable 11/15/04 @ $105.94) (BBB+ , Baa2) 11/15/09 11.875 29,785
292 Voicestream Wireless Corp., Senior Notes
(Callable 11/15/04 @ $105.19) (BBB+ , Baa2) 11/15/09 10.375 293,460
----------
3,095,135
----------
TOTAL CORPORATE BONDS (Cost $98,202,257) 82,637,206
----------
See Accompanying Notes to Financial Statements.
42
NUMBER
OF SHARES VALUE
- --------- ----------
COMMON STOCKS (0.3%)
AUTOMOBILE MANUFACTURING/VEHICLE PARTS (0.0%)
413,097 Cambridge Industries Liquidating Trust* (##) ^ $ 248
----------
DIVERSIFIED TELECOMMUNICATIONS (0.0%)
286 WorldCom, Inc.- MCI Group ++, & 63
5,552 WorldCom, Inc.- WorldCom Group ++, & 616
----------
679
----------
ENERGY - OTHER (0.0%)
3,914 Eagle Geophysical, Inc.*, (##) ^ 9,785
----------
FOOD PROCESSORS/BEVERAGE/BOTTLING (0.0%)
10,626 Aurora Foods, Inc.* 15,195
----------
HOME BUILDERS (0.0%)
1,600 Capital Pacific Holdings, Inc.* 6,520
----------
INDUSTRIAL - OTHER (0.0%)
287 First Wave Marine, Inc.* 7,175
----------
MACHINERY (0.0%)
962 The Manitowoc Company, Inc. 31,743
----------
RETAIL STORES (0.0%)
8,710 Safelite Glass Corp., Class B*, (##) ^ 435
588 Safelite Realty Corp.*, (##) ^ 6
----------
441
----------
SECONDARY OIL & GAS PRODUCERS (0.1%)
3,135 Southwest Royalties, Inc., Class A* (##) ^ 47,433
----------
TEXTILE/APPAREL/SHOE MANUFACTURING (0.2%)
24,285 HCIDirect, Inc., Class A* (##) ^ 135,996
2,800 Worldtex, Inc* (##) ^ 5,600
----------
141,596
----------
WIRELESS (0.0%)
2 Microcell Telecommunications, Inc.* 0
----------
TOTAL COMMON STOCKS (Cost $1,551,513) 260,815
----------
PREFERRED STOCK (0.3%)
CABLE (0.1%)
8 Adelphia Business Solutions, Inc., Series B 0
2,000 Cablevision Systems Corp., Series H 122,500
11,890 DIVA Systems Corp., Series C*, (##) ^ 119
----------
122,619
----------
COMPETITIVE LOCAL EXCHANGE CARRIER (CLEC) (0.0%)
1,398 e.spire Communications, Inc.* 14
----------
ENERGY - OTHER (0.1%)
150 Metretek Technologies, Inc., Series B*, (##) ^ 60,000
----------
GAMING (0.0%)
1,170 Peninsula Gaming LLC* 7,020
----------
RESTAURANTS (0.0%)
10,084 AmeriKing, Inc. 101
----------
See Accompanying Notes to Financial Statements.
43
NUMBER
OF SHARES VALUE
- --------- ----------
SERVICES - OTHER (0.0%)
15,938 Source Media, Inc.* $ 797
----------
TEXTILE/APPAREL/SHOE MANUFACTURING (0.0%)
857 Worldtex, Inc* (##) ^ 25,710
----------
TRANSPORTATION/OTHER (0.0%)
9,320 Pegasus Shipping Hellas, Ltd.* (##) ^ 6,710
----------
WIRELESS (0.1%)
3,930 Rural Cellular Corp., Series B 80,565
----------
TOTAL PREFERRED STOCK (Cost $2,422,685) 303,536
----------
WARRANTS (0.2%)
BROADBAND (0.0%)
146 PLD Telekom, Inc., strike $10.86 expires March 2003* 1
----------
CABLE (0.0%)
7,581 DIVA Systems Corp., Rule 144A, strike $0.01 expires March 2008*, ++ [0] 76
----------
COMPETITIVE LOCAL EXCHANGE CARRIER (CLEC) (0.0%)
500 Carrier1 International SA, Rule 144A, strike $6.71 expires Feburary 2009*, ++ 5
2,960 Loral Space & Communications, Ltd.* 296
----------
301
----------
CONSUMER PRODUCTS/TOBACCO (0.0%)
500 Jostens, Inc., Rule 144A, strike $0.01 expires May 2010*, ++ 9,125
----------
DIVERSIFIED TELECOMMUNICATIONS (0.0%)
1,010 PLD Telekom, Inc., strike $10.86 expires March 2003* (##) ^ 10
642 PLD Telekom, Inc., strike $10.86 expires March 2003* 7
----------
17
----------
ELECTRONICS/INFORMATION/DATA TECHNOLOGY (0.0%)
500 Orbital Imaging Corp., Rule 144A, strike $1.00 expires March 2005*, ++ 250
----------
ENERGY - OTHER (0.0%)
15,000 Metretek Technologies, Inc., strike $4.00 expires September 2003*, (##) ^ 900
----------
INDUSTRIAL - OTHER (0.1%)
617 Grove Investments, Inc., Class A, expires December 2008* 0
617 Grove Investments, Inc., Class B, expires December 2008* 0
504,000 International Utility Structures, Inc., strike $1.98 expires February 2003 100,800
----------
100,800
----------
OIL EQUIPMENT (0.1%)
750 Key Energy Services, Inc, strike $4.88 expires January 2009* 48,750
----------
RESTAURANTS (0.0%)
200 National Restaurant, expires May 2008* 2
500 New World Coffee- Manhattan Bagel, Inc., strike $0.01 expires June 2006 475
----------
477
----------
RETAIL-FOOD & DRUG (0.0%)
200 Mrs. Field's Holding Co., Rule 144A, strike $0.01 expires May 2005*, ++ 200
----------
RETAIL STORES (0.0%)
21,345 Safelite Glass Corp., Class A, strike $6.50 expires January 2010*, (##) ^ 214
14,230 Safelite Glass Corp., Class B, strike $6.50 expires January 2010*, (##) ^ 142
----------
356
----------
See Accompanying Notes to Financial Statements.
44
NUMBER
OF SHARES VALUE
- --------- -----------
WIRELESS (0.0%)
500 Airgate PCS, Inc., strike $0.01 expires October 2009* $ 11,250
500 IPCS, Inc., Rule 144A, strike $5.50 expires July 2010*, ++ 187
300 Metricom, Inc., strike $87.00 expires February 2010* 3
-----------
11,440
-----------
TOTAL WARRANTS (Cost $578,640) 172,693
----------->
PAR
(000)
--------
SHORT-TERM INVESTMENT (2.1%)
State Street Bank and Trust Co. Euro Time Deposit 1.688%, 09/03/02 (Cost $1,781,000) $1,781 1,781,000
-----------
TOTAL INVESTMENTS AT VALUE (98.1%) (Cost $104,536,095) 85,155,250
OTHER ASSETS IN EXCESS OF LIABILITIES (1.9%) 1,691,215
-----------
NET ASSETS (100.0%) $86,846,465
===========
(#) Credit ratings given by Moody's Investors Services, Inc. and Standard &
Poor's Ratings Group are unaudited.
+ Step Bond -- The interest as of August 31, 2002 is 0% and will reset to the
interest rate shown at a future date.
++ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At August 31,
2002, these securities amounted to a value of $15,807,025 or 18.2% of net
assets.
[0] Security in default.
# Variable rate obligations -- The interest rate shown is the rate as of
August 31, 2002.
* Non-income producing security.
& Security or portion thereof is out on loan.
(##) Security is valued in good faith by management and approved by the Board of
Directors.
^ Illiquid security that is restricted as to resale.
See Accompanying Notes to Financial Statements.
45
CREDIT SUISSE INSTITUTIONAL FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
AUGUST 31, 2002
INTERNATIONAL U.S. CORE FIXED HIGH
FUND EQUITY FUND INCOME FUND YIELD FUND
---------------- ------------ -------------- -------------
ASSETS
Investments at value (Cost $129,526,439, $8,784,840,
$372,531,789, $104,536,095, respectively) $127,441,202(1) $ 8,263,495 $359,138,962(2) $85,155,250(3)
Cash 775 787 901 52,679
Foreign currency (Cost $34,386) 34,376 -- -- --
Receivable for investments sold 1,099,870 -- 45,344,947 --
Dividend, interest and reclaim receivable 704,974 15,243 3,343,049 2,278,045
Receivable from investment adviser -- 9,718 -- --
Receivable for fund shares sold 9,350 -- 111,776 42,497
Collateral received for securities loaned 9,219,827 -- 11,076,361 3,184,772
Prepaid expenses and other assets 20,351 16,004 65,226 15,453
------------ ----------- ------------ -----------
Total Assets 138,530,725 8,305,247 419,081,222 90,728,696
------------ ----------- ------------ -----------
LIABILITIES
Advisory fee payable 97,060 -- 74,524 9,620
Payable upon return of securities loaned 9,219,827 -- 11,076,361 3,184,772
Payable for investments purchased 919,477 75,822 131,913,153 --
Payable for futures variation margin -- -- 23,703 --
Payable for fund shares redeemed 7,822 141 49,586 645,225
Dividends payable -- -- -- --
Other accrued expenses and payables 103,182 23,864 80,789 42,614
------------ ----------- ------------ -----------
Total Liabilities 10,347,368 99,827 143,218,116 3,882,231
------------ ----------- ------------ -----------
NET ASSETS
Capital stock, $0.001 par value 14,812 872 19,542 8,773
Paid-in capital 279,952,894 21,127,656 314,559,029 147,321,658
Accumulated undistributed net investment income (loss) (1,336,345) 5,987 5,128,511 2,345,554
Accumulated net realized loss from investments, futures
transactions and foreign currency (148,393,519) (12,407,750) (30,422,551) (43,448,675)
Net unrealized depreciation from investments, futures
transactions and foreign currency translations (2,054,485) (521,345) (13,421,425) (19,380,845)
------------ ----------- ------------ -----------
Net Assets $128,183,357 $ 8,205,420 $275,863,106 $86,846,465
============ =========== ============ ===========
INSTITUTIONAL SHARES
Net assets $128,158,324 $ 8,205,420 $275,863,106 $86,846,465
Shares outstanding 14,808,718 872,224 19,541,847 8,772,683
------------ ----------- ------------ -----------
Net asset value,
offering price and redemption price per share $8.65 $9.41 $14.12 $9.90
===== ===== ====== =====
B SHARES
Net assets $ 9,269 N/A N/A N/A
Shares outstanding 1,085 N/A N/A N/A
------------ ----------- ------------ -----------
Net asset value and offering price per share $8.54 N/A N/A N/A
===== ===== ====== =====
C SHARES
Net assets $ 15,764 N/A N/A N/A
Shares outstanding 1,848 N/A N/A N/A
------------ ----------- ------------ -----------
Net asset value and offering price per share $8.53 N/A N/A N/A
===== ===== ====== =====
(1) Including $6,899,899 of securities on loan.
(2) Including $10,392,437 of securities on loan.
(3) Including $3,011,984 of securities on loan.
See Accompanying Notes to Financial Statements.
46
CREDIT SUISSE INSTITUTIONAL FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 2002
INTERNATIONAL U.S. CORE FIXED HIGH
FUND EQUITY FUND INCOME FUND YIELD FUND
---------------- ------------ -------------- -------------
INVESTMENT INCOME
Dividends $ 3,967,501 $ 351,988 $ 483,545 $ 84,405
Interest 101,122 10,175 26,692,786 11,266,084
Securities Lending 247,645 1,631 17,062 7,442
Foreign taxes withheld (541,816) -- -- --
------------ ----------- ------------ -----------
Total investment income 3,774,452 363,794 27,193,393 11,357,931
------------ ----------- ------------ -----------
EXPENSES:
Investment advisory fees 1,732,357 185,831 1,740,910 689,973
Administrative service fees 170,729 20,164 293,280 91,741
Shareholder servicing/Distribution fees 291 -- -- --
Custodian fees 101,678 25,052 71,755 16,344
Legal fees 31,123 31,877 35,460 33,097
Audit fees 36,696 14,324 20,511 21,904
Registration fees 5,158 21,685 43,655 31,050
Interest expense 1,193 2,870 -- 16,354
Directors fees 22,770 16,794 22,014 19,350
Printing fees 83,237 2,571 57,542 15,813
Insurance expense 58,452 4,215 17,357 7,320
Transfer agent expense 14,948 5,677 -- 15,199
Miscellaneous expense 13,216 1,482 2,802 3,694
------------ ----------- ------------ -----------
Total expenses 2,271,848 332,542 2,305,286 961,839
Less: fees waived and transfer agent offsets (47) (84,646) (216,196) (271,867)
------------ ----------- ------------ -----------
Net expenses 2,271,801 247,896 2,089,090 689,972
------------ ----------- ------------ -----------
Net investment income 1,502,651 115,898 25,104,303 10,667,959
------------ ----------- ------------ -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENTS AND FOREIGN CURRENCY RELATED ITEMS
Net realized (loss) from investments (61,168,338) (5,814,969) (18,530,594 ) (23,260,912)
------------ ----------- ------------ -----------
Net realized loss from foreign currency transactions (2,131,392) -- (124,742) --
Net realized gain (loss) from futures contracts -- -- (1,259,651) --
Net change in unrealized appreciation (depreciation)
from investments 14,186,458 2,560,487 (20,208,763) 5,900,085
Net change in unrealized appreciation (depreciation)
from futures transactions -- -- (7,516) --
Net change in unrealized appreciation (depreciation)
from foreign currency translations 1,104,697 -- (189,361) --
------------ ----------- ------------ -----------
Net realized and unrealized gain (loss) from
investments, futures transactions and foreign
currency related items (48,008,575) (3,254,482) (40,320,627) (17,360,827)
------------ ----------- ------------ -----------
Net decrease in net assets resulting from
operations $(46,505,924) $(3,138,584) $(15,216,324) $(6,692,868)
============ =========== ============ ===========
See Accompanying Notes to Financial Statements.
47
CREDIT SUISSE INSTITUTIONAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
INTERNATIONAL FUND U.S. CORE EQUITY FUND
------------------------------- ---------------------------------
FOR THE YEAR ENDED AUGUST 31, FOR THE YEAR ENDED AUGUST 31,
------------------------------- ---------------------------------
2002 2001 2002 2001
------------ ----------- ----------- -----------
FROM OPERATIONS
Net investment income $ 1,502,651 $ 1,640,656 $ 115,898 $ 173,363
Net realized gain (loss) from investments and
foreign currency transactions (63,299,730) (86,879,050) (5,814,969) (5,477,345)
Net change in unrealized appreciation
(depreciation) from investments and
foreign currency translations 15,291,155 (58,077,766) 2,560,487 (10,085,274)
------------ ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from operations (46,505,924) (143,316,160) (3,138,584) (15,389,256)
------------ ------------ ------------ -----------
FROM DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income
Institutional class shares -- (1,756,238) (263,603) (128,200)
B class shares -- -- -- --
C class shares
Distributions from net realized gains
Institutional class shares -- (119,091,123) (2,312) (14,288,404)
B class shares -- -- -- --
C class shares -- -- -- --
------------ ------------ ------------ -----------
Net decrease in net assets from dividends
and distributions -- (120,847,361) (265,915) (14,416,604)
------------ ------------ ------------ -----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares 80,078,479 60,903,358 4,286,718 9,777,045
Reinvestment of dividends and distributions -- 117,864,284 263,905 14,301,493
Net asset value of shares redeemed (150,137,832) (175,769,750)(1) (40,204,048) (15,352,515)
------------ ------------ ------------ -----------
Net increase (decrease) in net assets from
capital share transactions: (70,059,353) 2,997,892 (35,653,425) 8,726,023
------------ ------------ ------------ -----------
Net increase (decrease) in net assets (116,565,277) (261,165,629) (39,057,924) (21,079,837)
NET ASSETS
Beginning of year 244,748,634 505,914,263 47,263,344 68,343,181
------------ ------------ ------------ -----------
End of year $128,183,357 $244,748,634 $ 8,205,420 $47,263,344
============ ============ ============ ===========
UNDISTRIBUTED NET INVESTMENT INCOME (LOSS) $ (1,336,345) $ (2,281,471) $ 5,987 $ 154,395
============ ============ ============ ===========
(1) Includes redemption of $35,702,991 as a result of redemption in-kind on
October 31, 2000.
See Accompanying Notes to Financial Statements.
48
FIXED INCOME FUND HIGH YIELD FUND
---------------------------------- -----------------------------
FOR THE YEAR ENDED AUGUST 31, FOR THE YEAR ENDED AUGUST 31,
---------------------------------- -----------------------------
2002 2001 2002 2001
------------ ------------ ------------ -----------
FROM OPERATIONS
Net investment income $ 25,104,303 $ 30,363,208 $ 10,667,959 $11,161,972
Net realized gain (loss) from investments
and foreign currency transactions (19,914,987) 13,444,352 (23,260,912) (8,259,158)
Net change in unrealized appreciation
(depreciation) from investments, futures
transactions and foreign currency translations (20,405,640) 11,770,852 5,900,085 (9,384,238)
------------ ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from operations (15,216,324) 55,578,412 (6,692,868) (6,481,424)
------------ ------------ ------------ -----------
FROM DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income
Common class shares -- -- -- (986,354)
Institutional class shares (26,229,334) (30,049,605) (10,578,107) (10,607,499)
Distributions from net realized gains
Institutional class shares (13,093,545) -- -- --
------------ ------------ ------------ -----------
Net decrease in net assets from dividends
and distributions (39,322,879) (30,049,605) (10,578,107) (11,593,853)
------------ ------------ ------------ -----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares 52,659,591 154,952,904 51,739,931 37,133,368
Reinvestment of dividends and distributions 38,737,562 29,412,949 8,243,070 10,365,013
Net asset value of shares redeemed (293,621,793) (117,612,337) (53,873,881) (47,274,311)
------------ ------------ ------------ -----------
Net increase (decrease) in net assets from
capital share transactions (202,224,640) 66,753,516 6,109,120 224,070
------------ ------------ ------------ -----------
Net increase (decrease) in net assets (256,763,843) 92,282,323 (11,161,855) (17,851,207)
------------ ------------ ------------ -----------
NET ASSETS
Beginning of year 532,626,949 440,344,626 98,008,320 115,859,257
------------ ------------ ------------ -----------
End of year $275,863,106 $532,626,949 $ 86,846,465 $98,008,320
============ ============ ============ ===========
UNDISTRIBUTED NET INVESTMENT INCOME (LOSS) $ 5,128,511 $ 4,297,059 $ 2,345,554 $ 1,601,036
============ ============ ============ ===========
See AccompanyingNotes to Financial Statements.
49
CREDIT SUISSE INSTITUTIONAL INTERNATIONAL FUND
FINANCIAL HIGHLIGHTS
(FOR AN INSTITUTIONAL CLASS SHARE OF THE FUND OUTSTANDING THROUGHOUT EACH YEAR)
FOR THE YEAR ENDED AUGUST 31,
---------------------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- -------- -------
PER SHARE DATA
Net asset value, beginning of period $ 10.86 $ 23.61 $ 23.47 $ 22.70 $ 22.22
-------- -------- -------- -------- --------
INVESTMENT OPERATIONS
Net investment income 0.07(1) 0.08 0.05 0.14 0.15
Net gain (loss) on investments
and foreign currency related items
(both realized and unrealized) (2.28) (6.45) 4.19 2.90 3.26
-------- -------- -------- -------- --------
Total from investment operations (2.21) (6.37) 4.24 3.04 3.41
-------- -------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -- (0.09) (0.10) (0.28) --
Distributions from net realized gains -- (6.29) (4.00) (1.99) (2.93)
-------- -------- -------- -------- --------
Total dividends and distributions -- (6.38) (4.10) (2.27) (2.93)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 8.65 $ 10.86 $ 23.61 $ 23.47 $ 22.70
======== ======== ======== ======== ========
Total Return(2) (20.35)% (34.01)% 17.81% 13.88% 16.74%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(000s omitted) $128,158 $244,726 $505,914 $675,118 $623,482
Ratio of expenses to average
net assets 1.05%(3) 1.08%(3) 1.07% 1.21% 1.14%
Ratio of net investment income to
average net assets 0.69% 0.49% 0.04% 0.60% 0.72%
Decrease reflected in above operating expense
ratios due to waivers/reimbursements -- -- -- 0.01% 0.09%
Portfolio turnover rate 163% 139% 128% 182% 141%
- ----------
(1) Per share information is calculated using the average share outstanding
method.
(2) Total returns are historical and assume changes in share price,
reinvestments of all dividends and distributions, and no sales charge. Had
certain expenses not been reduced during the periods shown, total returns
would have been lower. Total returns for periods of less than one year are
not annualized.
(3) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expenses. These arrangements had no effect on the Fund's
expense ratio.
See Accompanying Notes to Financial Statements.
50
CREDIT SUISSE INSTITUTIONAL INTERNATIONAL FUND
FINANCIAL HIGHLIGHTS
(FOR A CLASS B SHARE OF THE FUND OUTSTANDING THROUGHOUT EACH PERIOD)
FOR THE YEAR ENDED AUGUST 31,
-----------------------------
2002 2001(1)
------ ------
PER SHARE DATA
Net asset value, beginning of period $10.84 $11.19
------ ------
INVESTMENT OPERATIONS
Net investment income (loss) (0.02)(2) --(3)
Net gain (loss) on investments and foreign currency related items
(both realized and unrealized) (2.28) (0.35)
------ ------
Total from investment operations (2.30) (0.35)
------ ------
NET ASSET VALUE, END OF PERIOD $8.54 $10.84
====== ======
Total Return(4) (21.22)% (3.13)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $ 9 $ 1
Ratio of expenses to average net assets(5) 2.05% 1.96%(6)
Ratio of net investment income to average net assets (0.18)% (0.20)%(6)
Portfolio turnover rate 163 % 139%
- ----------
(1) For the period July 31, 2001 (inception date) through August 31, 2001.
(2) Per share information is calculated using the average share outstanding
method.
(3) This amount represents less than 0.01 per share.
(4) Total returns are historical and assume changes in share price,
reinvestments of all dividends and distributions, and no sales charge. Had
certain expenses not been reduced during the periods shown, total returns
would have been lower. Total returns for periods of less than one year are
not annualized.
(5) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expenses. These arrangements had no effect on the Fund's
expense ratio.
(6) Annualized.
See Accompanying Notes to Financial Statements.
51
CREDIT SUISSE INSTITUTIONAL INTERNATIONAL FUND
FINANCIAL HIGHLIGHTS
(FOR A CLASS C SHARE OF THE FUND OUTSTANDING THROUGHOUT EACH PERIOD)
FOR THE YEAR ENDED AUGUST 31,
-----------------------------
2002 2001(1)
------ ------
PER SHARE DATA
Net asset value, beginning of period $10.84 $11.19
------ ------
INVESTMENT OPERATIONS
Net investment income (loss) (0.03)(2) --(3)
Net gain (loss) on investments and foreign currency related items
(both realized and unrealized) (2.28) (0.35)
------ ------
Total from investment operations (2.31) (0.35)
------ ------
NET ASSET VALUE, END OF PERIOD $ 8.53 $10.84
======= ======
Total Return(4) (21.31)% (3.13)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $ 16 $ 20
Ratio of expenses to average net assets(5) 2.05% 1.89%(6)
Ratio of net investment income to average net assets (0.27)% (0.03)%(6)
Portfolio turnover rate 163% 139%
- ----------
(1) For the period July 31, 2001 (inception date) through August 31, 2001.
(2) Per share information is calculated using the average share outstanding
method.
(3) This amount represents less than 0.01 per share.
(4) Total returns are historical and assume changes in share price,
reinvestments of all dividends and distributions, and no sales charge. Had
certain expenses not been reduced during the periods shown, total returns
would have been lower. Total returns for periods of less than one year are
not annualized.
(5) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expenses. These arrangements had no effect on the Fund's
expense ratio.
(6) Annualized.
See Accompanying Notes to Financial Statements.
52
CREDIT SUISSE INSTITUTIONAL U.S. CORE EQUITY FUND
FINANCIAL HIGHLIGHTS
(FOR AN INSTITUTIONAL CLASS SHARE OF THE FUND OUTSTANDING THROUGHOUT EACH YEAR)
FOR THE YEAR ENDED AUGUST 31,
-----------------------------------------------
2002 2001 2000 1999 1998
-------- -------- ------- ------- --------
PER SHARE DATA
Net asset value, beginning of period $11.98 $ 20.59 $ 19.58 $ 21.73 $ 24.40
-------- -------- ------- ------- --------
INVESTMENT OPERATIONS
Net investment income 0.05(1) 0.05 0.07 0.07 0.01
Net gain (loss) on investments
(both realized and unrealized) (2.55) (4.21) 3.99 7.56 0.88
-------- -------- ------- ------- --------
Total from investment operations (2.50) (4.16) 4.06 7.63 0.89
-------- -------- ------- ------- --------
LESS DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (0.07) (0.04) (0.07) (0.04) (0.13)
Distributions from net realized gains --(2) (4.41) (2.98) (9.74) (3.43)
-------- -------- ------- ------- --------
Total dividends and distributions (0.07) (4.45) (3.05) (9.78) (3.56)
-------- -------- ------- ------- --------
NET ASSET VALUE, END OF PERIOD $ 9.41 $ 11.98 $ 20.59 $ 19.58 $ 21.73
======== ======== ======= ======= ========
Total Return(3) (21.01)% (22.92)% 22.90% 38.07% 3.18%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(000s omitted) $8,205 $ 47,263 $68,343 $70,081 $ 63,514
Ratio of expenses to average net assets 1.00%(4) 1.00%(4) 1.00% 0.99% 1.00%
Ratio of net investment income to average net assets 0.47% 0.31% 0.32% 0.32% 0.23%
Decrease reflected in above operating expense
ratios due to waivers/reimbursements 0.34% 0.08% 0.14% 0.23% 0.18%
Portfolio turnover rate 185% 83% 97% 110% 164%
- ----------
(1) Per share information is calculated using the average share outstanding
method.
(2) This amount represents less than 0.01 per share.
(3) Total returns are historical and assume changes in share price,
reinvestments of all dividends and distributions, and no sales charge. Had
certain expenses not been reduced during the periods shown, total returns
would have been lower. Total returns for periods of less than one year are
not annualized.
(4) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expenses. These arrangements had no effect on the Fund's
expense ratio.
See Accompanying Notes to Financial Statements.
53
CREDIT SUISSE INSTITUTIONAL FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
(FOR AN INSTITUTIONAL CLASS SHARE OF THE FUND OUTSTANDING THROUGHOUT EACH YEAR)
FOR THE YEAR ENDED AUGUST 31,
-----------------------------------------------------
2002(1) 2001 2000 1999 1998
-------- -------- -------- -------- --------
PER SHARE DATA
Net asset value, beginning of period $ 15.79 $ 14.95 $ 15.01 $ 15.72 $ 15.65
-------- -------- -------- -------- --------
INVESTMENT OPERATIONS
Net investment income(loss) 0.83 1.02 0.94 0.93 0.84
Net gain (loss) on investments and futures transactions
(both realized and unrealized) (1.27) 0.85 (0.01) (0.56) 0.33
-------- -------- -------- -------- --------
Total from investment operations (0.44) 1.87 0.93 0.37 1.17
-------- -------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (0.83) (1.03) (0.97) (0.91) (0.87)
Distributions from net realized gains (0.40) -- (0.02) (0.17) (0.23)
-------- -------- -------- -------- --------
Total dividends and distributions (1.23) (1.03) (0.99) (1.08) (1.10)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 14.12 $ 15.79 $ 14.95 $ 15.01 $ 15.72
======== ======== ======== ========
Total Return(2) (2.92)% 13.02% 6.43% 2.37% 7.77%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(000s omitted) $275,863 $532,627 $440,345 $350,844 $393,533
Ratio of expenses to average net assets 0.45%(3) 0.45%(3) 0.45% 0.44% 0.47%
Ratio of net investment income to average net assets 5.41% 6.71% 6.51% 5.90% 5.87%
Decrease reflected in above operating expense
ratios due to waivers/reimbursements 0.05% 0.06% 0.11% 0.18 % 0.27%
Portfolio turnover rate 526% 449% 520% 569% 372%
- ----------
(1) As required, effective September 1, 2001, the Fund adopted the provisions
of AICPA Audit and Accounting Guide for Investment Companies and began
including paydown gains and losses in interest income. The effect of this
change for the year ended August 31, 2002 was to increase net investment
income per share by $0.01, decrease net realized and unrealized gains and
losses per share by $0.01 and increase the ratio of net investment income
to average net assets from 5.37% to 5.41%. Per share ratios and
supplemental data for prior periods have not been restated to reflect this
change.
(2) Total returns are historical and assume changes in share price,
reinvestments of all dividends and distributions, and no sales charge. Had
certain expenses not been reduced during the periods shown, total returns
would have been lower. Total returns for periods of less than one year are
not annualized.
(3) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expenses. These arrangements had no effect on the Fund's
expense ratio.
See Accompanying Notes to Financial Statements.
54
CREDIT SUISSE INSTITUTIONAL HIGH YIELD FUND
FINANCIAL HIGHLIGHTS
(FOR AN INSTITUTIONAL CLASS SHARE OF THE FUND OUTSTANDING THROUGHOUT EACH YEAR)
FOR THE YEAR ENDED AUGUST 31,
------------------------------------------------------
2002 2001 2000 1999 1998
-------- ------- -------- ------- -------
PER SHARE DATA
Net asset value, beginning of period $ 11.84 $ 14.11 $ 15.32 $ 16.60 $ 17.08
-------- ------- -------- ------- -------
INVESTMENT OPERATIONS
Net investment income (loss) 1.17 1.40 1.41 1.42 1.43
Net gain (loss) on investments
(both realized and unrealized) (1.94) (2.21) (1.13) (1.33) (0.49)
-------- ------- -------- ------- -------
Total from investment operations (0.77) (0.81) 0.28 0.09 0.94
-------- ------- -------- ------- -------
LESS DIVIDENDS
Dividends from net investment income (1.17) (1.46) (1.49) (1.37) (1.42)
-------- ------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.90 $ 11.84 $ 14.11 $ 15.32 $ 16.60
======== ======= ======== ======= =======
Total Return(1) (6.88)% (5.71)% 1.84% 0.67% 5.48%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(000s omitted) $ 86,846 $98,008 $ 94,333 $95,129 $94,044
Ratios of expenses to average net assets 0.70%(2) 0.70%(2) 0.70%(2) 0.69% 0.70%
Ratio of net investment income to average net assets 10.15%(3) 11.06% 9.59% 9.10% 8.12%
Decrease reflected in above operating expense
rations due to waivers/reimbursements 0.27% 0.30% 0.45% 0.35% 0.44%
Portfolio turnover rate 52% 20% 31% 40% 60%
- ----------
(1) Total returns are historical and assume changes in share price,
reinvestments of all dividends and distributions, and no sales charge. Had
certain expenses not been reduced during the periods shown, total returns
would have been lower. Total returns for periods of less than one year are
not annualized.
(2) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expenses. These arrangements had no effect on the Fund's
expense ratio.
(3) During the year ended August 31, 2002, the Fund experienced an increase in
its interest income of 0.67% as a result of additional accretion income not
accrued for in prior periods. The Fund's net investment income ratio
disclosed above excludes the effect of the increase.
See Accompanying Notes to Financial Statements.
55
CREDIT SUISSE INSTITUTIONAL FUNDS
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2002
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Credit Suisse Institutional Funds covered in the report are
comprised of Credit Suisse Institutional International Fund
("International"), Credit Suisse Institutional U.S. Core Equity Fund ("Core
Equity"), Credit Suisse Institutional Fixed Income Fund ("Fixed Income"), and
Credit Suisse Institutional High Yield Fund ("High Yield") (each, a "Fund"
and collectively, the "Funds"), which are registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as non-diversified,
open-end management investment companies. The Funds were incorporated on July
31, 1998 as a Maryland Corporation.
Investment objectives for each Fund are as follows: International and Core
Equity seek long-term appreciation of capital; Fixed Income and High Yield seek
high total return.
Core Equity, Fixed Income and High Yield are authorized to offer three
classes of shares: Common, Advisor and Institutional, although only
Institutional shares of each Fund are currently offered. International is
authorized to offer six classes of shares: Common, Advisor, Institutional, Class
A (ceased operations August 29, 2002), Class B and Class C, although only
Institutional shares are currently offered. Effective December 12, 2001, the
Class A, Class B and Class C shares of International are closed to new
investments. Class B shares are sold with a contingent deferred sales charge
which declines from 4.00% to zero depending on the period of time the shares are
held and bear expenses paid pursuant to a plan of distribution at an annual rate
of 1.00% of the average daily net asset value of the Fund's Class B shares.
Class C shares are sold with a contingent deferred sales charge of 1.00% if
redeemed within the first year of purchase and bear expenses paid pursuant to a
plan of distribution at an annual rate of 1.00% of the average daily net asset
value of the Fund's Class C shares. In addition, Common, Class A, Class B and
Class C shares bear a co-administration fee. No compensation is payable for
distribution services for each Fund's Institutional shares.
A) SECURITY VALUATION -- The net asset value of each Fund is
determined daily as of the close of regular trading on the New York Stock
Exchange, Inc. Each Fund's investments are valued at market value, which is
generally determined using the last reported sales price. If no sales are
reported, investments are generally valued at the last reported bid price.
Debt securities are valued on the basis of broker quotations or valuations
provided by a pricing service which may use a matrix, formula or other
objective method that takes into consideration market indices, matrices,
yield curves and other specific adjustments. If market quotations are not
readily available, securities and other assets are valued by another method
that the Board of Directors believes accurately reflects fair value. Debt
obligations that will mature in 60 days or less are valued on the basis of
amortized cost, which approximates market value, unless the Board
determines that using this method would not reflect an investment's value.
B) FOREIGN CURRENCY TRANSACTIONS -- The books and records of the
Funds are maintained in U.S. dollars. Transactions denominated in foreign
currencies are recorded at the current prevailing exchange rates. All
assets and liabilities denominated in foreign currencies are translated
into U.S. dollar amounts at the current exchange rate at the end of the
period. Translation gains or losses resulting from changes in the exchange
rate during the reporting period and realized gains and losses on the
settlement of foreign currency transactions are reported in the results of
operations for the current period. The Funds do not isolate that portion of
realized gains and losses on investments in equity securities which is due
to changes in the foreign exchange rate from that which is due to changes
in market prices of equity securities. The Funds isolate that portion of
realized gains and losses on investments in debt securities which is due to
changes in the foreign exchange rate from that which is due to changes in
market prices of debt securities.
C) SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security
transactions are accounted for on a trade date basis. Interest income is
recorded on the accrual basis. Dividends are recorded on the ex-dividend
date. Income, expenses and realized/unrealized gains/losses are
allocated proportionately to each class of shares based upon the
relative net asset value of the outstanding shares of that class. The
cost of investments sold is determined by use of the specific
identification method for both financial reporting and income tax
purposes.
56
Effective September 1, 2001, the Funds adopted the revised AICPA
Audit and Accounting Guide, Audits of Investment Companies and began to
classify gains and losses on paydowns of mortgage- and asset-backed
securities presently included in realized gains and losses, as a
component of interest income. The effect of this change for the year
ended August 31, 2002 to Fixed Income was to increase net investment
income by $175,029 and to decrease net realized gains (losses) by
$175,029. These reclassifications had no impact on net assets or net
asset value per share. The statements of changes in net assets and the
financial highlights for all prior periods shown have not been restated to
reflect this change.
D) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from
net investment income are declared and paid quarterly for Fixed Income and
High Yield. Dividends from net investment income are declared and paid
annually for International and Core Equity. Distributions of net
realized capital gains, if any, are declared and paid at least annually
for all Funds. However, to the extent that a net realized capital gain
can be reduced by a capital loss carryover, such gain will not be
distributed. Income and capital gain distributions are determined in
accordance with federal income tax regulations which may differ from
accounting principles generally accepted in the United States of America
("GAAP").
E) FEDERAL INCOME TAXES -- No provision is made for federal taxes
as it is each Fund's intention to continue to qualify for and elect the tax
treatment applicable to regulated investment companies under the Internal
Revenue Code of 1986, as amended, and make the requisite distributions to
its shareholders, which will be sufficient to relieve it from federal
income and excise taxes.
F) USE OF ESTIMATES -- The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
G) SHORT-TERM INVESTMENTS -- The Funds, together with other funds
advised by Credit Suisse Asset Management, LLC ("CSAM"), an indirect,
wholly-owned subsidiary of Credit Suisse Group, pool available cash into a
short-term time deposit issued by State Street Bank and Trust Company, the
Funds' custodian. The short-term time deposit is a variable rate account
classified as a short-term investment.
H) FORWARD FOREIGN CURRENCY CONTRACTS -- Each Fund may enter into
forward foreign currency contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of
counter-parties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency. Each Fund will enter into
forward foreign currency contracts primarily for hedging purposes. Forward
foreign currency contracts are adjusted by the daily exchange rate of the
underlying currency and any gains or losses are recorded for financial
statement purposes as unrealized until the contract settlement date or an
offsetting position is entered into. International and Fixed Income had no
open forward foreign currency contracts at August 31, 2002.
I) FUTURES TRANSACTIONS -- Each Fund may enter into futures
contracts to the extent permitted by its investment policies and
objectives. Upon entering into a futures contract, each Fund is required
to deposit cash or pledge U.S. Government securities as an initial
margin. Subsequent payments, which are dependent on the daily
fluctuations in the value of the underlying instrument, are made or
received by the Fund each day (daily variations margin) and are recorded
as unrealized gains or losses until the contracts are closed. When the
contracts are closed, the Fund records a realized gain or loss equal to
the difference between the proceeds from (or cost of) the closing
transaction and the Fund's basis in the contracts. Risks of entering
into futures contracts for hedging purposes include the possibility that
a change in the value of the contract may not correlate with the changes
in the value of the underlying
57
instruments. In addition, the purchase of a futures contract involves
the risk that a Fund could lose more than the original margin deposit
and subsequent payments required for a futures transaction. At August
31, 2002, Fixed Income held the following futures contracts:
UNREALIZED
FUTURES EXPIRATION CONTRACT CONTRACTS APPRECIATION
CONTRACT DATE AMOUNT VALUE (DEPRECIATION)
---------------------------------------------------------------------------------------------------------------
U.S. Treasury 2 Year Notes Futures 12/30/2002 $ 34,840,718 $ 34,883,312 $ 42,594
U.S. Treasury 10 Year Notes Futures 12/19/2002 5,101,245 5,141,938 40,693
------------- ------------- ----------
$ 39,941,963 $ 40,025,250 $ 83,287
============= ============= ==========
U.S. Treasury 5 Year Notes Futures 12/19/2002 (15,129,116) (15,230,547) (101,431)
U.S. Treasury Bond Futures 12/20/2002 (1,415,422) (1,425,938) (10,516)
------------- ------------- ----------
$(16,544,538) $(16,656,485) $(111,947)
============= ============= ==========
J) TBA PURCHASE COMMITMENTS -- The Funds may enter into "TBA" (to be
announced) purchase commitments to purchase securities for a fixed price at a
future date, typically not exceeding 45 days. TBA purchase commitments may be
considered securities in themselves, and involve a risk of loss if the value
of the security to be purchased declines prior to settlement date. This risk
is in addition to the risk of decline in each Fund's other assets. Unsettled
TBA purchase commitments are valued at the current market value of the
underlying securities, according to the procedures described under "Security
Valuation" above.
K) SECURITIES LENDING -- Loans of securities are required at all times
to be secured by collateral at least equal to 102% of the market value of
domestic securities on loan including any accrued interest thereon and 105%
of the market value of foreign securities on loan including any accrued
interest thereon. Cash collateral received by the Fund in connection with
securities lending activity is invested in the AIM Institutional Funds --
Liquid Asset Portfolio. However, in the event of default or bankruptcy by the
other party to the agreement, realization and/or retention of the collateral
may be subject to legal proceedings.
The market value of securities on loan to brokers and the value of
collateral held by International, Fixed Income, and High Yield Funds with
respect to such loans (including the right to draw on letters of credits) at
August 31, 2002 is as follows:
MARKET VALUE OF VALUE OF
FUND SECURITIES LOANED COLLATERAL RECEIVED
-----------------------------------------------------------------------------
International $ 6,899,899 $ 7,434,206
Fixed Income 10,392,437 11,076,361
High Yield 3,011,984 3,184,772
Credit Suisse First Boston ("CSFB"), an affiliate of CSAM, is
engaged by the Funds' to act as the securities lending agent. For the year
ended August 31, 2002, income earned for the Funds from securities lending
transactions are as follows:
FUND INCOME EARNED
--------------------------------------------------------------
International $247,645
Core Equity 1,631
Fixed Income 17,062
High Yield 7,442
Pending receipt of an exemption from the Securities and Exchange
Commission ("SEC"), CSFB has agreed to charge the Funds fees for its
securities lending activities equal to its costs in providing services as
securities lending agent. CSFB also has voluntarily agreed to waive its fees
for the securities lending agent services that it provides. CSFB may
discontinue its voluntary fee waivers at any time.
58
L) OTHER -- The Funds may invest in securities of foreign
countries and governments which involve certain risks in addition to those
inherent in domestic investments. Such risks generally include, among
others, currency risks (fluctuations in currency exchange rates),
information risk (key information may be inaccurate or unavailable) and
political risk (expropriation, nationalization or the imposition of
capital or currency controls or punitive taxes). Other risks of investing
in foreign securities include liquidity and valuation risks.
The Funds may be subject to taxes imposed by countries in which
they invest, with respect to their investments in issuers existing or
operating in such countries. Such taxes are generally based on income
earned or repatriated and capital gains realized on the sale of such
investments. The Funds accrue such taxes when the related income or capital
gains are earned.
Lower-rated debt securities (commonly known as "junk bonds")
possess speculative characteristics and are subject to greater market
fluctuations and risk of lost income and principal than higher-rated debt
securities for a variety of reasons. Also, during an economic downturn or
substantial period of rising interest rates, highly leveraged issuers may
experience financial stress which would adversely affect their ability to
service their principal and interest payments obligations, to meet
projected business goals and to obtain additional financing.
In addition, periods of economic uncertainty and changes can be
expected to result in increased volatility of market prices of lower-rated
debt securities and (to the extent a Fund invests in junk bonds) the Fund's
net asset value.
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
CSAM serves as investment adviser for each of the four Funds described
herein. For its investment advisory services, CSAM is entitled to receive a fee
from the Funds based on the following fee structure:
FUND ANNUAL RATE
------------------------------------------------------------------------
International 0.80% of average daily net assets
Core Equity 0.75% of average daily net assets
Fixed Income 0.375% of average daily net assets
High Yield 0.70% of average daily net assets
For the year ended August 31, 2002, investment advisory fees earned and
voluntarily waived for each of the four Funds were as follows:
GROSS NET
ADVISORY ADVISORY
FUND FEE WAIVER FEE
------------------------------------------------------------------------------------------------------
International $1,732,357 $-- $1,732,357
Core Equity 185,831 (84,641) 101,190
Fixed Income 1,740,910 (216,189) 1,524,721
High Yield 689,973 (269,003) 420,970
Subsequent to the period covered by this report, management determined that
the Funds' advisory contract had lapsed due to an administrative error. The
Funds' adviser intends to take all necessary steps to remedy this error,
including seeking Board and shareholder approval to retain the amounts paid to
the adviser during the period the contract had lapsed and of a new contract on
the same terms as in the lapsed contract. Disclosure in these financial
statements related to or dependent upon CSAM's advisory fees have been set forth
assuming that this remedial action has been taken.
Credit Suisse Asset Management Securities, Inc. ("CSAMSI"), an affiliate
of CSAM, and State Street Bank and Trust Company ("SSB") serve as
co-administrators to the Funds. At its meeting held on February 12, 2002 the
Board of Directors approved SSB to replace PFPC, Inc. ("PFPC") as
co-administrator effective June 1, 2002.
For its administrative services, CSAMSI currently receives a fee
calculated at an annual rate of .10% of International Fund's average daily
net assets of the Class B and Class C shares. No compensation is payable by
the Funds to CSAMSI for administrative services for the Institutional shares.
For the year ended August 31, 2002, administrative services fees earned and
voluntarily waived for the International Fund by CSAMSI were $30 and $30,
respectively.
59
For its co-administrative services, PFPC was entitled to receive a fee,
exclusive of out-of-pocket expenses, based on the following fee structure:
FUND ANNUAL RATE
--------------------------------------------------------------------------
International .08% for first $500 million
.07% for next $1 billion
.06% for over $1.5 billion
Core Equity .075% for first $500 million
.065% for next $1 billion
.055% for over $1.5 billion
Fixed Income & High Yield .07% for first $150 million
.06% for next $150 million
.05% for over $300 million
For the period September 1, 2001 through May 31, 2002, co-administrative
services fees earned, by PFPC (including out-of-pocket expenses) were as
follows:
FUND CO-ADMINISTRATION FEE
----------------------------------------------------------------
International $131,616
Core Equity 17,864
Fixed Income 216,610
High Yield 70,012
For its co-administrative services SSB receives a fee, exclusive of
out-of-pocket expenses, based upon the following fee structure calculated in
total for all the Credit Suisse Funds administered by SSB and allocated based
upon relative average net assets of each fund.
AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------------------------------------------------
First $5 billion .050% of average daily net assets
Next $5 billion .035% of average daily net assets
Over $10 billion .020% of average daily net assets
For the period June 1, 2002 to August 31, 2002, administrative service fees
earned by SSB (including out-of-pocket expenses) were as follows:
FUND CO-ADMINISTRATOR FEE
---------------------------------------------------------------
International $39,083
Core Equity 2,300
Fixed Income 76,670
High Yield 21,729
In addition to serving as each Fund's co-administrator, CSAMSI currently
serves as distributor of each Fund's shares. Pursuant to a distribution plan
adopted by each Fund pursuant to Rule 12b-1 under the 1940 Act, CSAMSI receives
a fee for its distribution services. This fee was calculated at an annual rate
of .25% of the average daily net assets of the Class A shares of International.
For Class B and Class C shares, the fee is calculated at an annual rate of 1.00%
of average daily net assets of the Class B and Class C shares of International.
For the year ended August 31, 2002, distribution fees paid to CSAMSI
were as follows:
FUND DISTRIBUTION FEE
-------------------------------------------------------------
International
Class A(1) $ 3
Class B 103
Class C 185
(1) For the period ended August 29, 2002 (ceased operations).
60
Boston Financial Data Services, Inc. ("BFDS") serves as each Funds'
transfer and dividend disbursement agent. The Funds have an arrangement with
BFDS whereby interest earned on uninvested cash balances was used to offset a
portion of their transfer agent expense. For the year ended August 31, 2002, the
Funds received credits or reimbursements under this arrangement as follows:
FUND DISTRIBUTION FEE
-------------------------------------------------------------
International $17
Core Equity 5
Fixed Income 7
High Yield 8
Certain brokers, dealers and financial representatives provide transfer
agent related services to the Funds, and receive compensation from CSAM. CSAM is
then reimbursed by the Funds. For the year ended August 31, 2002, there were no
reimbursements paid to CSAM by any of the Funds.
Merrill Corporation ("Merrill"), an affiliate of CSAM, has been engaged by
the Funds to provide certain financial printing services. For the year ended
August 31, 2002, Merrill was paid for its services by the Funds as follows:
FINANCIAL
FUND PRINTING SERVICES
--------------------------------------------------------------
International $66,886
Core Equity 8,805
Fixed Income 49,866
High Yield 14,387
NOTE 3. LINE OF CREDIT
Through June 18, 2002, the Funds, together with other funds/portfolios
advised by CSAM (collectively, the "Participating Funds"), participated in a
$200 million committed, unsecured line of credit facility ("Prior Credit
Facility") with Deutsche Bank, A.G. as administrative agent, State Street Bank
and Trust Company as operations agent, BNP Paribas as syndication agent and
certain other lenders, for temporary or emergency purposes primarily relating to
unanticipated Participating Funds' share redemptions. Under the terms of the
Prior Credit Facility, the Participating Funds paid an aggregate commitment fee
at a rate of .10% per annum on the average unused amount of the Prior Credit
Facility, which was allocated among the Participating Funds in such a manner as
was determined by the governing Boards of the Participating Funds. In addition,
the Participating Funds paid interest on borrowings at the Federal funds rate
plus .50%.
Effective June 19, 2002, the Participating Funds, together with
additional funds/portfolios advised by CSAM (collectively with the
Participating Funds, the "New Participating Funds"), established a new $150
million committed, unsecured, line of credit facility (the "New Credit
Facility") with Deutsche Bank, A.G. as administrative agent and syndication
agent and State Street Bank and Trust Company as operations agent for the
same purposes as the Prior Credit Facility. Terms of the New Credit Facility
remain the same as the Prior Credit Facility. The commitment fee rate and
interest rate is unchanged. At August 31, 2002, there were no loans
outstanding for the Funds either under the New Credit Facility or the Prior
Credit Facility. For the year ended August 31, 2002, the following Funds had
borrowings under the Prior Credit Facility and/or the New Credit Facility as
follows:
WEIGHTED
AVERAGE MAXIMUM
AVERAGE DAILY INTEREST DAILY LOAN
FUND LOAN BALANCE RATE% OUTSTANDING
---------------------------------------------------------------------------------------------
International $6,458,267 2.269% $11,439,000
Core Equity 3,173,364 2.345% 6,882,000
Fixed Income 1,271,000 2.325% 1,477,000
High Yield 2,391,467 2.290% 4,339,000
61
NOTE 4. PURCHASE AND SALES OF SECURITIES
For the year ended August 31, 2002, purchases and sales of investment securities
(excluding short-term investments) were as follows:
U.S. GOVERNMENT AND
INVESTMENT SECURITIES AGENCY OBLIGATIONS
----------------------------- -------------------------------
FUND PURCHASES SALES PURCHASES SALES
--------------------------------------------------------------------------------------------------------------
International $351,740,613 $427,937,489 $ -- $ --
Core Equity 46,625,302 82,536,655 -- --
Fixed Income 266,320,178 397,357,786 2,128,154,177 2,189,063,653
High Yield 59,257,588 48,521,832 -- --
NOTE 5. CAPITAL SHARE TRANSACTIONS
Each Fund except the International Fund is authorized to issue three
billion full and fractional shares of capital stock, $.001 par value per share
and the International Fund is authorized to issue six billion full and
fractional shares of capital stock, $.001 par value per share. Transactions in
capital shares for each Fund were as follows:
INTERNATIONAL FUND
--------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
AUGUST 31, 2002 AUGUST 31, 2001
--------------------------- ---------------------------
SHARES VALUE SHARES VALUE
--------------------------------------------------------
Shares sold 8,022,504 $ 80,068,479 5,004,131 $ 60,879,964
Shares issued in reinvestment of distributions -- -- 8,023,437 117,864,284
Shares redeemed (15,755,602) (150,136,955) (11,915,181) (175,769,750)
----------- ------------- ----------- -------------
Net increase (decrease) (7,733,098) $ (70,068,476) 1,112,387 $ 2,974,498
=========== ============= =========== =============
INTERNATIONAL FUND
--------------------------------------------------------
CLASS A
--------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
AUGUST 31, 2002(1) AUGUST 31, 2001(2)
--------------------------- ---------------------------
SHARES VALUE SHARES VALUE
--------------------------------------------------------
Shares sold -- $ -- 98 $1,094
Shares redeemed (98) (839) -- --
----------- ------------- ----------- -------------
Net increase (decrease) (98) $(839) 98 $1,094
=========== ============= =========== =============
INTERNATIONAL FUND
--------------------------------------------------------
CLASS B
--------------------------------------------------------
FOR THE YEAR ENDED FOR THE PERIOD ENDED
AUGUST 31, 2002 AUGUST 31, 2001(2)
--------------------------- ---------------------------
SHARES VALUE SHARES VALUE
--------------------------------------------------------
Shares sold 984 $10,000 104 $1,151
Shares redeemed (2) (19) -- --
----------- ------------- ----------- -------------
Net increase 982 $ 9,981 104 $1,151
=========== ============= =========== =============
62
INTERNATIONAL FUND
--------------------------------------------------------
CLASS C
--------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
AUGUST 31, 2002 AUGUST 31, 2001(2)
--------------------------- ---------------------------
SHARES VALUE SHARES VALUE
--------------------------------------------------------
Shares sold -- $-- 1,850 $21,150
Shares redeemed (2) (19) -- --
----------- ------------- ----------- -------------
Net increase (2) $(19) 1,850 $21,150
=========== ============= =========== =============
U.S. CORE EQUITY FUND
--------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
AUGUST 31, 2002 AUGUST 31, 2001
--------------------------- ---------------------------
SHARES VALUE SHARES VALUE
--------------------------------------------------------
Shares sold 372,572 $ 4,286,718 714,002 $ 9,777,045
Shares issued in reinvestment of dividend and distributions 21,685 263,905 1,043,143 14,301,493
Shares redeemed (3,466,576) (40,204,048) (1,131,651) (15,352,515)
---------- ------------ ---------- ------------
Net increase (decrease) (3,072,319) $(35,653,425) 625,494 $ 8,726,023
========== ============ ========== ============
FIXED INCOME FUND
--------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
AUGUST 31, 2002 AUGUST 31, 2001
--------------------------- ---------------------------
SHARES VALUE SHARES VALUE
--------------------------------------------------------
Shares sold 3,512,892 $ 52,659,591 9,975,897 $ 154,952,904
Shares issued in reinvestment of dividend and distributions 2,624,602 38,737,562 1,946,116 29,412,949
Shares redeemed (20,325,988) (293,621,793) (7,644,915) (117,612,337)
----------- ------------- ---------- -------------
Net increase (decrease) (14,188,494) $(202,224,640) 4,277,098 $ 66,753,516
=========== ============= ========== =============
HIGH YIELD FUND
--------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
AUGUST 31, 2002 AUGUST 31, 2001
--------------------------- ---------------------------
SHARES VALUE SHARES VALUE
--------------------------------------------------------
Shares sold 4,709,817 $ 51,739,931 2,664,686 $ 33,025,601
Shares issued in reinvestment of dividends 766,978 8,243,070 787,182 9,686,761
Shares redeemed (4,982,604) (53,873,881) (1,859,830) (23,538,789)
---------- ------------- ---------- ------------
Net increase 494,191 $ 6,109,120 1,592,038 $ 19,173,573
========== ============= ========== ============
(1) For the period ended August 29, 2002 (ceased operations).
(2) For the period July 31, 2001 (inception date) to August 31, 2001.
63
On August 31, 2002, the number of shareholders that held 5% or more of the
outstanding shares were as follows:
NUMBER OF APPROXIMATE PERCENTAGE
SHAREHOLDERS OF OUTSTANDING SHARES
--------------------------------------------------------------------------
International
Institutional Class 5 76%
Class B 2 98%
Class C 1 94%
U.S. Core Equity
Institutional Class 3 93%
Fixed Income
Institutional Class 5 81%
High Yield
Institutional Class 2 67%
Some of the shareholders are comprised of omnibus accounts, which are held
on behalf of several individual shareholders.
NOTE 6. FEDERAL INCOME TAXES
Income and capital gain distributions are determined in accordance with
federal income tax regulations, which may differ from GAAP. These differences
are primarily due to differing treatments of foreign currency transactions,
losses deferred due to wash sales and Post-October losses, paydowns and excise
tax regulations.
The tax character of dividends and distributions paid during the period
ended August 31 were as follows:
ORDINARY INCOME LONG-TERM CAPITAL GAIN
--------------------------- --------------------------
2002 2001 2002 2001
--------------------------------------------------------------------------------------------------------------
International $ -- $80,720,722 $ -- $40,126,639
Core Equity 263,595 10,185,053 2,320 4,231,551
Fixed Income 37,144,329 30,049,605 2,178,550 --
High Yield 10,578,107 11,593,853 -- --
At August 31, 2002, the components of distributable earnings on a tax basis
were as follows:
INTERNATIONAL CORE EQUITY FIXED INCOME HIGH YIELD
---------------------------------------------------------------------------------------------------------------
Undistributed ordinary income $ (1,336,345) $ 5,987 $ 5,600,395 $ 2,780,053
Accumulated net realized loss (144,945,519) (12,151,578) (30,308,004) (43,308,851)
Unrealized appreciation (depreciation) (5,502,485) (777,517) (14,007,856) (19,955,168)
------------- ------------ ------------ ------------
(151,784,349) (12,923,108) (38,715,465) (60,483,966)
============= =========== ============ ============
At August 31, 2002, the Fund's had capital loss carryovers available to
offset possible future capital gains as follows:
EXPIRES AUGUST 31,
2003 2005 2007 2008 2009 2010
--------------------------------------------------------------------------------------------------------------
International $ -- $ -- $ -- $ -- $3,553,884 $85,088,492
Core Equity -- -- -- -- -- 12,151,578
Fixed Income -- -- -- -- -- --
High Yield 4,986,021 3,354,749 341,638 1,857,162 -- 9,989,083
64
Under current tax law, certain capital losses realized after October 31
within a taxable year may be deferred and treated as occurring on the first day
of the following tax year. For the tax period ended August 31, 2002, the
following Funds elected to defer net losses arising between November 1, 2001 and
August 31, 2002.
AMOUNT
----------------------------------------------------------
International $57,639,488
Core Equity --
Fixed Income 30,308,004
High Yield 22,780,198
At August 31, 2002, the identified cost for federal income tax purposes, as
well as the gross unrealized appreciation from investments for those securities
having an excess of value over cost, gross unrealized depreciation from
investments for those securities having an excess of cost over value and the net
unrealized appreciation (depreciation) from investments were as follows:
NET UNREALIZED
GROSS UNREALIZED GROSS UNREALIZED APPRECIATION/
FUND IDENTIFIED COST APPRECIATION (DEPRECIATION) (DEPRECIATION)
-----------------------------------------------------------------------------------------------------------------
International $132,974,439 $6,232,751 $(11,735,236) $ (5,502,485)
Core Equity 9,041,012 296,636 (1,074,153) (777,517)
Fixed Income 373,118,220 4,970,515 (18,978,371) (14,007,856)
High Yield 105,110,417 2,378,189 (22,333,356) (19,955,167)
At August 31, 2002, accumulated undistributed net investment income,
accumulated net realized gain (loss) from investments and Paid-in Capital have
been adjusted for current period permanent book/tax differences which arose
principally from differing book/tax treatments of net operating losses,
paydowns, defaulted bonds, passive foreign investment companies and forward
foreign currency contracts. Net assets were not affected by these
reclassifications:
INCREASE (DECREASE)
-----------------------------------------
ACCUMULATED NET
PAID-IN UNDISTRIBUTED NET REALIZED GAIN (LOSS)
FUND CAPITAL INVESTMENT INCOME ON INVESTMENTS
-------------------------------------------------------------------------------------------------------
International $(640,747) $ (557,525) $ 1,198,272
Core Equity -- (703) 703
Fixed Income -- 1,956,483 (1,956,483)
High Yield -- 654,666 (654,666)
NOTE 7. SUBSEQUENT EVENTS
Effective October 24, 2002, the International Funds Class B and Class C
shares closed. The Class B and Class C shares had no assets as of this date and
there is no plan to reopen these classes at this time. In addition,
Institutional US Core Equity Fund ceased operations. The Fund had no assets as
of this date and there is no plan to reopen this Fund at this time.
At a special meeting of shareholders of the International Fund, held at 466
Lexington Avenue 16th Floor, New York, NY 10017 on Wednesday October 9, 2002 at
2:00 P.M., a Sub-Investment Advisory Agreement among the Fund, CSAM and Credit
Suisse Asset Management Limited ("CSAM Australia") was approved.
65
CREDIT SUISSE INSTITUTIONAL FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Credit Suisse Institutional International Fund, Inc.;
Credit Suisse Institutional U.S. Core Equity Fund, Inc.;
Credit Suisse Institutional Fixed Income Fund, Inc.;
Credit Suisse Institutional High Yield Fund, Inc.:
In our opinion, the accompanying statements of assets and liabilities,
including the schedules of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Credit Suisse Institutional
International Fund, Inc., Credit Suisse Institutional U.S. Core Equity Fund,
Inc., Credit Suisse Institutional Fixed Income Fund, Inc. and Credit Suisse
Institutional High Yield Fund, Inc. (collectively referred to as the "Funds") at
August 31, 2002, the results of their operations for the year then ended, the
changes in each of their net assets for each of the two years in the period then
ended and the financial highlights for each of the years (or periods) presented,
in conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Funds'
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at August 31, 2002 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
October 21, 2002
66
CREDIT SUISSE INSTITUTIONAL FUNDS
SHAREHOLDER MEETING RESULTS (UNAUDITED)
A special meeting of shareholders of the International Fund was held at
466 Lexington Avenue, 16th Floor, New York, NY 10017 on Friday May 1, 2002 at
2:00 p.m. The following matters were voted upon by the shareholders of the
International Fund and the results are presented below. Shares delivered but
not voted are included on the total for each proposal.
To approve a Sub-Investment Advisory Agreement among the Fund, CSAM and
Credit Suisse Asset Management Limited ("CSAM U.K."):
% OF TOTAL SHARES % OF TOTAL
SHARES OUTSTANDING SHARES VOTED
------------------------------------------------------------------------------------------------------------
For 13,562,644 62.19% 99.98%
Against 1,070 --% 0.01%
Abstain 1,489 0.01% 0.01%
To approve a Sub-Investment Advisory Agreement among the Fund, CSAM and
Credit Suisse Asset Management Limited ("CSAM Japan."):
% OF TOTAL SHARES % OF TOTAL
SHARES OUTSTANDING SHARES VOTED
-------------------------------------------------------------------------------------------------------------
For 13,562,644 62.19% 99.98%
Against 1,070 --% 0.01%
Abstain 1,489 0.01% 0.01%
67
CREDIT SUISSE INSTITUTIONAL FUNDS
INFORMATION CONCERNING DIRECTORS AND OFFICERS (UNAUDITED)
NUMBER
OF
PORTFOLIOS
IN FUND
TERM OF COMPLEX
OFFICE(1) OVERSEEN
POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) BY OTHER DIRECTORSHIPS
NAME, ADDRESS AND AGE WITH FUNDS TIME SERVED DURING PAST FIVE YEARS DIRECTOR HELD BY DIRECTOR
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
Richard H. Francis Director and Audit Since 2000 Currently retired; Executive 54 Director of The
40 Grosvenor Road Committee Member Vice President and Chief Indonesia Fund, Inc.
Short Hills, New Jersey 07078 Financial Officer of Pan Am
Corporation and Pan American
Age: 68 World Airways, Inc. from 1988
to 1991
Jack W. Fritz Director and Audit Since Fund Private investor; Consultant 54 Director of Advo,
2425 North Fish Creek Road Committee Member Inception and Director of Fritz Inc. (direct mail
P.O. Box 1287 Broadcasting, Inc. and Fritz advertising)
Wilson, Wyoming 83014 Communications (developers and
operators of radio stations)
Age: 73 since 1987
Jeffrey E. Garten Director and Audit Since 1998 Dean of Yale School of 54 Director of Aetna,
Box 208200 Committee Member Management and William S. Inc.; Director of
New Haven, Connecticut Beinecke Professor in the Calpine Energy
06520-8200 Practice of International Trade Corporation, Director
and Finance; Undersecretary of of CarMax Group (used
Age: 54 Commerce for International car dealers)
Trade from November 1993 to
October 1995; Professor at
Columbia University from
September 1992 to November 1993
Peter F. Krogh Director and Audit Since 2001 Dean Emeritus and 54 Member of the Board
301 ICC Committee Member Distinguished Professor of of The Carlisle
Georgetown University International Affairs at the Companies Inc.;
Washington, DC 20057 Edmund A. Walsh School of Member of Selection
Foreign Service, Georgetown Committee for Truman
Age: 64 University; Moderator of PBS Scholars and Henry
Foreign affairs television Luce Scholars; Senior
series Associate of Center
for Strategic and
International
Studies; Trustee of
numerous world
affairs organizations
James S. Pasman, Jr. Director and Audit Since 2000 Currently retired; President 54 Director of Education
29 The Trillium Committee Member and Chief Operating Officer of Management Corp.,
Pittsburgh, Pennsylvania 15238 National InterGroup, Inc. from Director of Tyco
April 1989 to March 1991; International Ltd.;
Age: 70 Chairman of Permian Oil Co. Director of Credit
from April 1989 to March 1991 Suisse Asset
Management Income
Fund, Inc.; Trustee
of Credit Suisse High
Yield Bond Fund;
Trustee of Deutsche
VIT Funds, overseeing
three portfolios
Steven N. Rappaport Director and Audit Since 2000 Partner RZ Capital LLC since 54 Director of The
RZ Capital LLC Committee Chairman 2001; President of Loanet, Inc. First Israel Fund,
40 East 52nd Street (on-line accounting service) Inc.
New York, New York 10022 from 1997 to 2001; Executive
Vice President of Loanet, Inc.
Age: 52 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.
(provider of real-time
information to the capital
market) from 1987 to 1992;
Partner in the law firm of
Hartman & Craven until 1987
INTERESTED DIRECTOR
William W. Priest(2) Director Since 1999 Senior Partner and Fund 54 Director of The
Steinberg Priest & Sloane Manager, Steinberg Priest & Brazilian Equity
Capital Management Sloane Capital Management since Fund, Inc.; The Chile
12 East 49th Street March 2001; Chairman and Fund, Inc.; The
12th Floor Managing Director of CSAM from Emerging Markets
New York, New York 10017 2000 to February 2001, Chief Telecommunications
Executive Officer and Managing Fund, Inc.; The First
Age: 60 Director of CSAM from 1990 to Israel Fund, Inc.;
2000 The Latin America
Equity Fund, Inc.;
The Indonesia Fund,
Inc.; and Credit
Suisse Asset
Management Income
Fund, Inc.
1 Each Director and Officer serves until his or her respective successor
has been duly elected and qualified.
2 Mr. Priest is a Director who is an "interested person" of the Funds as
defined in the 1940 Act, because he was an officer of CSAM until February
2001.
68
NUMBER
OF
PORTFOLIOS
IN FUND OTHER
TERM OF COMPLEX DIRECTOR-
OFFICE(1) OVERSEEN SHIPS
POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) BY HELD BY
NAME, ADDRESS AND AGE WITH FUNDS TIME SERVED DURING PAST FIVE YEARS DIRECTOR DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Laurence R. Smith Chairman Since 2002 Managing Director and Global Chief Investment NA NA
Credit Suisse Asset Officer of CSAM; acting Chief Executive
Management LLC Officer of CSAM Americas; Associated with
466 Lexington Avenue JP Morgan Investment Management from 1981 to
New York, New York 10017-3147 1999
Age: 44
Hal Liebes, Esq. Vice President Since 1999 Managing Director and Global General Counsel N/A N/A
Credit Suisse Asset and Secretary of CSAM; Associated with Lehman Brothers,
Management LLC Inc. from 1996 to 1997; Associated with CSAM
466 Lexington Avenue from 1995 to 1996; Associated with CS First
New York, New York 10017-3147 Boston Investment Management from 1994
to 1995; Associated with Division of Enforce-
Age: 38 ment, U.S. Securities and Exchange Commis-
sion from 1991 to 1994
Michael A. Pignataro Treasurer and Chief Since 1999 Director and Director of Fund Administration N/A N/A
Credit Suisse Asset Financial Officer of CSAM; Associated with CSAM since 1984
Management LLC
466 Lexington Avenue
New York, New York 10017-3147
Age: 42
Gregory N. Bressler, Esq. Assistant Secretary Since 2000 Vice President and Legal Counsel of CSAM since N/A N/A
Credit Suisse Asset January 2000; Associated with the law firm of
Management LLC Swidler Berlin Shereff Friedman LLP from 1996
466 Lexington Avenue to 2000
New York, New York 10017-3147
Age: 35
Kimiko T. Fields, Esq. Assistant Secretary Since 2002 Assistant Vice President and Legal Counsel of N/A N/A
Credit Suisse Asset CSAM since December 2000; Assistant Vice
Management LLC President, Institutional Marketing Department,
466 Lexington Avenue CSAM, from January 2000 to December 2000;
New York, New York 10017-3147 Marketing Associate, International Equity
Department, Warburg Pincus Asset
Age: 38 Management, Inc. from January 1998 to
January 2000; self-employed author and
consultant, from January 1996 to January 1997.
Rocco A. DelGuercio Assistant Treasurer Since 1999 Vice President and Administrative Officer of N/A N/A
Credit Suisse Asset CSAM; Associated with CSAM since June 1996;
Management LLC Assistant Treasurer, Bankers Trust Corp.-- Fund
466 Lexington Avenue Administration from March 1994 to June 1996;
New York, New York 10017-3147 Mutual Fund Accounting Supervisor, Dreyfus
Corporation from April 1987 to March 1994
Age: 38
Joseph Parascondola Assistant Treasurer Since 2001 Assistant Vice President-- Fund Administration N/A N/A
Credit Suisse Asset of CSAM since April 2000; Assistant Vice Presi-
Management LLC dent, Deutsche Asset Management from January
466 Lexington Avenue 1999 to April 2000; Assistant Vice President,
New York, New York 10017-3147 Weiss, Peck & Greer LLC from November 1995
to December 1998
Age: 38
The Statement of Additional Information includes additional information
about the Directors and is available, without charge, upon request, by calling
800-222-8977.
69
CREDIT SUISSE INSTITUTIONAL FUNDS
TAX INFORMATION LETTER
AUGUST 31, 2002
IMPORTANT TAX INFORMATION FOR CORPORATE SHAREHOLDERS (UNAUDITED)
Corporate shareholders should note for the year ended August 31, 2002,
the percentage of the Fund's investment income (I.E., net investment income plus
short-term capital gains) that qualified for the intercorporate dividends
received deduction is as follows:
FUND PERCENTAGE
------------------------------------------------------------------------
U.S. Core Equity Fund 100.00%
Fixed Income Fund 0.69%
IMPORTANT TAX INFORMATION FOR SHAREHOLDERS (UNAUDITED)
During the period or year ended August 31, 2002, the Funds declared the
following dividends that were designated as 20% long-term capital gains
dividends:
FUND AMOUNT
-------------------------------------------------------------------
U.S. Core Equity Fund $ 2,320
Fixed Income Fund 2,178,550
70
P.O. Box 8500, Boston, MA 02266-8500
800-222-8977
CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC., DISTRIBUTOR. CSIUS-2-0802
PART C
OTHER INFORMATION
Item 15. Indemnification. Registrant and officers and directors of
Credit Suisse Asset Management, LLC ("CSAM") and Credit Suisse
Asset Management Securities, Inc. ("CSAMSI") 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 25 of Part
C of Post-Effective Amendment No. 28 to Registrant's
Registration Statement on Form N-1A, filed on February 20,
2003.
Item 16. Exhibits
(1) (a) Articles of Incorporation dated May 13, 1992. 1
(1) (b) Articles of Amendment establishing the International Equity
and Global Fixed Income Portfolio dated July 27, 1992. 1
(1) (c) Articles Supplementary designating the Small Cap Growth
Portfolio dated August 16, 1995. 1
(1) (d) Articles Supplementary increasing the number of authorized
shares dated April 17, 1996. 2
(1) (e) Articles Supplementary designating the Emerging Markets
Portfolio dated July 25, 1996. 3
(1) (f) Articles Supplementary designating the Japan Growth Portfolio,
Small Company Value Portfolio and Post-Venture Capital
Portfolio dated July 30, 1997. 4
(1) (g) Articles of Amendment changing the name of the Post-Venture
Capital Portfolio to the Warburg Pincus Post-Venture Capital
Portfolio dated May 10, 2000. 5
- ---------------------
1 Incorporated by reference to Post-Effective Amendment No. 4 to
Registrant's Registration Statement on Form N-1A, filed on August 18,
1995.
2 Incorporated by reference to Post-Effective Amendment No. 7 to
Registrant's Registration Statement on Form N-1A, filed on April 19,
1996.
3 Incorporated by reference to Post-Effective Amendment No. 9 to
Registrant's Registration Statement on Form N-1A, filed on August 20,
1996.
4 Incorporated by reference to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A, filed on August 12,
1997.
5 Incorporated by reference to Post-Effective Amendment No. 19 to
Registrant's Registration Statement on Form N-1A, filed on May 30,
2000.
(1) (h) Articles of Amendment changing the name of Warburg, Pincus
Institutional Fund, Inc. to Credit Suisse Institutional Fund,
Inc. dated May 10, 2000. 5
(1) (i) Articles Supplementary designating the Cash Reserve Portfolio,
the Global Telecommunications Portfolio, the Long-Short Market
Neutral Portfolio and the Major Foreign Markets Portfolio
dated May 22, 2000. 5
(1) (j) Articles Supplementary designating the Investment Grade Fixed
Income Portfolio dated June 25, 2001. 6
(1) (k) Articles Supplementary designating the Select Equity
Portfolio, the Capital Appreciation Portfolio and the Small
Cap Value Portfolio dated October 3, 2001. 7
(1) (l) Articles of Amendment changing the name of the International
Equity Portfolio to the International Focus Portfolio, the
name of the Small Company Growth Portfolio to the Small Cap
Growth Portfolio and the Value Portfolio to the Large Cap
Value Portfolio dated October 17, 2001. 8
(1) (m) Articles Supplementary designating the Harbinger Portfolio
dated November 14, 2002. 9
(2) (a) By-Laws dated May 13, 1992. 1
(2) (b) Amendment to By-Laws dated April 25, 1996. 10
(2) (c) Amendment to By-Laws dated February 6, 1998. 11
(2) (d) Amendment to By-Laws dated May 11, 2000. 5
- ---------------------
6 Incorporated by reference to Post-Effective Amendment No. 24 to
Registrant's Registration Statement on Form N-1A, filed on June 29,
2001.
7 Incorporated by reference to Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A, filed on October 26,
2001.
8 Incorporated by reference to Post-Effective Amendment No. 26 to
Registrant's Registration Statement on Form N-1A, filed on February 13,
2002.
9 Incorporated by reference to Post-Effective Amendment No. 27 to
Registrant's Registration Statement on Form N-1A, filed on February 13,
2002.
10 Incorporated by reference to Post-Effective Amendment No. 8 to
Registrant's Registration Statement on Form N-1A, filed on July 2,
1996.
11 Incorporated by reference; material provisions of this exhibit are
substantially similar to those of the corresponding exhibit to
Post-Effective Amendment No. 8 to Registration Statement on Form N-1A
of Credit Suisse Global Fixed Income Fund, Inc., filed on February 17,
1998 (Securities Act File No. 33-36066).
2
(2)(e) Amended By-Laws dated February 5, 2001. 12
(2)(f) Amendment to By-Laws dated February 12, 2002. 13
(3) Not applicable.
(4) Form of the Plan of Reorganization (included as Exhibit A to
Registrant's Prospectus/Proxy Statement contained in Part A of
this Registration Statement).
(5) Registrant's Forms of Stock Certificates. 1
(6) (a) Investment Advisory Agreement. 14
(6) (b) Form of Investment Advisory Agreement -- Cash Reserve
Portfolio. 5
(6) (c) Form of Investment Advisory Agreement -- Global
Telecommunications Portfolio. 5
(6) (d) Form of Investment Advisory Agreement -- Long-Short Market
Neutral Portfolio. 5
(6) (e) Form of Investment Advisory Agreement -- Major Foreign Markets
Portfolio. 5
(6) (f) Form of Investment Advisory Agreement -- Investment Grade
Fixed Income Portfolio. 6
(6) (g) Form of Investment Advisory Agreement -- Select Focus
Portfolio. 7
(6) (h) Form of Investment Advisory Agreement -- Capital Appreciation
Portfolio. 7
(6) (i) Form of Investment Advisory Agreement -- Small Cap Value
Portfolio. 7
(6) (j) Form of Sub-Investment Advisory Agreement between Credit
Suisse Asset Management Limited and the Global
Telecommunication Portfolio. 5
(6) (k) Sub-Investment Advisory Agreement with CSAM U.K. on behalf of
International Focus Portfolio dated May 1, 2002. 13
- ---------------------
12 Incorporated by reference to Post-Effective Amendment No. 5 to the
Registration Statement on Form N-1A of Credit Suisse International
Small Company Fund, Inc., filed on February 22, 2001 (Securities Act
File No. 333-49537).
13 Incorporated by reference to Post-Effective Amendment No. 28 to
Registrant's Registration Statement on Form N-1A, filed on February 20,
2003.
14 Incorporated by reference; material provisions of this exhibit are
substantially similar to those of the corresponding exhibit to the
Registration Statement on Form N-14 of Credit Suisse Global
Post-Venture Capital Fund, Inc., filed on November 4, 1999 (Securities
Act File No. 333-90341).
3
(6) (l) Amendment to Sub-Investment Advisory Agreement with CSAM U.K.
dated July 22, 2002. 13
(6) (m) Sub-Investment Advisory Agreement with Credit Suisse Asset
Management Limited ("CSAM Japan") on behalf of International
Focus Portfolio dated May 1, 2002. 13
(6) (n) Amendment to Sub-Investment Advisory Agreement with CSAM Japan
dated July 22, 2002. 13
(6) (o) Sub-Investment Advisory Agreement with Credit Suisse Asset
Management (Australia) Limited ("CSAM Australia") on behalf of
International Focus Portfolio dated October 9, 2002. 13
(7) (a) Form of Distribution Agreement. 15
(7) (b) Form of Distribution Agreement with Credit Suisse Asset
Management Securities, Inc. ("CSAMSI"). 5
(7) (c) Form of Letter Agreement of Distribution Agreement with CSAMSI
pertaining to inclusion of the Investment Grade Fixed Income
Portfolio. 6
(7) (d) Form of Letter Agreement of Distribution Agreement with CSAMSI
pertaining to the inclusion of the Select Equity Portfolio,
the Capital Appreciation Portfolio and the Small Cap Value
Portfolio. 7
(8) Not applicable.
(9) (a) Custodian Agreement with State Street Bank and Trust Company
("State Street"). 16
(9) (b) Amendment to the Custodian Agreement with State Street dated
April 26, 2001. 17
(9) (c) Amendment to the Custodian Agreement with State Street dated
May 16, 2001. 17
(9) (d) Amended Exhibit I to the Custodian Agreement with State Street
dated May 16, 2001. 17
- ---------------------
15 Incorporated by reference; material provisions of this exhibit are
substantially similar to those of the corresponding exhibit in
Post-Effective Amendment No. 2 to the Registration Statement on Form
N-1A of Credit Suisse Long-Short Market Neutral Fund, Inc., filed on
November 2, 1999 (Securities Act File No. 333-60687).
16 Incorporated by reference to Post-Effective Amendment No. 14 to the
Registration Statement on Form N-1A of Credit Suisse Trust, filed on
November 22, 2000 (Securities Act File No. 33-58125).
17 Incorporated by reference to Post-Effective No. 16 to the Registration
Statement on Form N-1A of Credit Suisse Trust, filed June 29, 2001.
4
(10) Not applicable.
(11) Opinion and Consent of Willkie Farr & Gallagher, counsel to
the Registrant, with respect to validity of shares.
(12) Form of opinion of Willkie Farr & Gallagher with respect to
tax matters.
(13) (a) Form of Services Agreement. 18
(13) (b) Co-Administration Agreement with CSAMSI. 14
(13) (c) Form of Letter Agreement with CSAMSI relating to the
Investment Grade Fixed Income Portfolio. 6
(13) (d) Form of Letter Agreement with CSAMSI relating to the Select
Equity Portfolio, Capital Appreciation Portfolio and Small Cap
Value Portfolio. 7
(13) (e) Co-Administration Agreement with State Street. 19
(13) (f) Transfer Agency and Service Agreement with Boston Financial
Data Services, Inc. dated February 1, 2001. 13
(13) (g) Form of Letter Agreement with Boston Financial Data Services,
Inc. 7
(13) (h) Form of Letter Agreement with Boston Financial Data Services,
Inc. 8
(13) (i) Form of Letter Agreement with Boston Financial Data Services,
Inc. relating to the Harbinger Portfolio. 13
(13) (j) Amendment to the Transfer Agency and Service Agreement with
Boston Data Financial Services, Inc. dated December 31,
2002. 13
(14) Consent of PricewaterhouseCoopers, LLP, Independent
Accountants.
(15) Not Applicable.
(16) Powers of Attorney included on signature page to this
Registration Statement.
(17) Additional Exhibits.
- ---------------------
18 Incorporated by reference; material provisions of this exhibit are
substantially similar to those of the corresponding exhibit in
Pre-Effective Amendment No. 1 to the Registration Statement on Form
N-1A of Credit Suisse Japan Growth Fund, Inc., filed on December 18,
1995 (Securities Act File No. 33-63655).
19 Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of Credit Suisse Strategic Small
Cap Fund, filed on May 3, 2002 (Securities Act File No. 333-64554).
5
(a) Form of Proxy Card (included as an exhibit to
Registrant's Prospectus/Proxy Statement contained in
Part A of this Registration Statement).
(b) Prospectuses and Statement of Additional Information
of the Acquiring Fund, dated February 28, 2003 are
incorporated by reference to Registrant's
Registration Statement on Form N-1A, filed on
February 28, 2003.
(c) Prospectuses and Statement of Additional Information
of the Acquired Fund, dated January 1, 2003 are
incorporated by reference to Acquired Fund's
Registration Statement on Form N-1A, filed on
December 17, 2003.
(d) Annual Report of the Registrant, dated October 31,
2002 is incorporated herein by reference.
(e) Annual Report of the Acquired Fund, dated August 31,
2002 and the Semi-Annual report of the Acquired Fund
for the semi-annual period ended February 28, 2003
are incorporated herein by reference.
1. Undertakings
(1) The undersigned Registrant agrees that prior to any public reoffering of the
securities registered through the use of a prospectus which is part of this
Registration Statement by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) of the Securities Act [17 CFR 230.15c], the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as a part of an amendment to the Registration
Statement and will not be used until the amendment is effective, and that, in
determining any liability under the Securities Act of 1933, as amended, each
post-effective amendment shall be deemed to be a new registration statement for
the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
6
SIGNATURES
As required by the Securities Act of 1933, as amended, this Registration
Statement has been signed on behalf of the registrant, in the City of New York
and State of New York, on the 23rd day of May, 2003.
Credit Suisse Institutional Fund, Inc.
By: /s/ Joseph D. Gallagher
-----------------------
Joseph D. Gallagher
Chairman (Chief Executive Officer)
POWER OF ATTORNEY
Each person whose signature appears below, hereby makes, constitutes and
appoints each of Hal Liebes and Michael A. Pignataro, with full power to act
without the other, as his agent and attorney-in-fact for the purpose of
executing in his name, in his capacity as a Director of the Credit Suisse
Institutional Fund, Inc., this registration statement on Form N-14 (including
amendments thereto) to be filed with the United States Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, and the rules and regulations
promulgated thereunder.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Joseph D. Gallagher Chairman (Chief Executive May 23, 2003
- ----------------------- Officer)
Joseph D. Gallagher
/s/ Michael A. Pignataro Treasurer and Chief Financial May 23, 2003
- ------------------------ Officer
Michael A. Pignataro
/s/ Richard H. Francis Director May 23, 2003
- ----------------------
Richard H. Francis
/s/ Jack W. Fritz Director May 23, 2003
- -----------------
Jack W. Fritz
/s/ Jeffrey E. Garten Director May 23, 2003
- ---------------------
Jeffrey E. Garten
/s/ Peter F. Krogh Director May 23, 2003
- ------------------
Peter F. Krogh
/s/ James S. Pasman, Jr. Director May 23, 2003
- ------------------------
James S. Pasman, Jr.
/s/ William W. Priest Director May 23, 2003
- ---------------------
William W. Priest
/s/ Steven N. Rappaport Director May 23, 2003
- -----------------------
Steven N. Rappaport