485BPOS 1 w46571ae485bpos.txt CREDIT SUISSE WARBURG PINCUS CASH RESERVE FUND 1 As Filed with the Securities and Exchange Commission on April 27, 2001 Securities Act File No. 2-94840 Investment Company Act File No. 811-4171 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x] Pre-Effective Amendment No. [ ] Post-Effective Amendment No. 19 [x] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x] Amendment No. 21 [x] (Check appropriate box or boxes) Credit Suisse Warburg Pincus Cash Reserve Fund, Inc. (formerly Warburg, Pincus Cash Reserve Fund, Inc.) -------------------------------------------------- (Exact Name of Registrant as Specified in Charter) 466 Lexington Avenue New York, New York 10017-3147 ---------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 878-0600 Hal Liebes, Esq. Credit Suisse Warburg Pincus Cash Reserve Fund, Inc. 466 Lexington Avenue New York, New York 10017-3147 ---------------------------------------- (Name and Address of Agent for Services) Copy to: Rose F. DiMartino, Esq. Willkie Farr & Gallagher 787 Seventh Avenue New York, New York 10019-6099 2 Approximate Date of Proposed Public Offering: May 1, 2001 It is proposed that this filing will become effective (check appropriate box): [ ] immediately upon filing pursuant to paragraph (b) [X] on May 1, 2001 pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [ ] on (date) pursuant to paragraph (a)(1) [ ] 75 days after filing pursuant to paragraph (a)(2) [ ] on (date) pursuant to paragraph (a)(2) of Rule 485. If appropriate, check the following box: [ ] This post-effective amendment designates a new effective date for a previously filed post-effective amendment. 3 [CREDIT SUISSE WARBURG PINCUS FUNDS LOGO] PROSPECTUS May 1, 2001 CREDIT SUISSE WARBURG PINCUS CASH RESERVE FUND CREDIT SUISSE WARBURG PINCUS NEW YORK TAX EXEMPT FUND 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 Warburg Pincus Funds are advised by Credit Suisse Asset Management, LLC. 4 CONTENTS KEY POINTS.................... .................... 4 Goals and Principal Strategies.................. 4 A Word About Risk............................... 5 Investor Profile................................ 6 PERFORMANCE SUMMARY................................ 8 Year-by-Year Total Returns...................... 8 Average Annual Total Returns.................... 9 INVESTOR EXPENSES.................................. 10 Fees and Fund Expenses.......................... 10 Example......................................... 11 THE FUNDS IN DETAIL................................ 12 The Management Firms............................ 12 Fund Information Key............................ 13 CASH RESERVE FUND.................................. 14 NEW YORK TAX EXEMPT FUND........................... 16 MORE ABOUT RISK.................................... 18 Introduction.................................... 18 Types of Investment Risk........................ 18 Certain Investment Practices.................... 20 ABOUT YOUR ACCOUNT................................. 22 Share Valuation................................. 22 Buying and Selling Shares....................... 22 Account Statements.............................. 22 Distributions................................... 22 Taxes........................................... 23 OTHER INFORMATION.................................. 25 About the Distributor........................... 25 FOR MORE INFORMATION............................... back cover
3 5 KEY POINTS GOALS AND PRINCIPAL STRATEGIES
FUND/RISK FACTORS GOAL STRATEGIES CASH RESERVE FUND High current income - Invests in high-quality Risk factors: consistent with liquidity money-market instruments: Credit risk and stability of - obligations issued or guaranteed Income risk principal by the U.S. government, its Industry agencies or instrumentalities concentration - bank and corporate debt Interest-rate risk obligations Market risk - Concentrates its investments in the banking industry - Portfolio managers select investments based on factors such as yield, maturity and liquidity, within the context of their interest-rate outlook - Seeks to maintain a stable share price of $1 NEW YORK TAX EXEMPT As high a level of - Invests in high-quality, FUND current interest income short-term Risk factors: exempt from federal, New tax-exempt New York municipal Credit risk York state and New York securities -- debt obligations Income risk City personal income whose interest is exempt from Interest-rate risk taxes as is consistent federal, New York state and New Market risk with preservation of York City income taxes New York municipal capital and liquidity - Fund dividends derived from securities interest on New York municipal Non-diversified securities remain tax-exempt when status distributed to New York state residents - Portfolio managers select investments based on factors such as yield, maturity and liquidity, within the context of their interest-rate outlook - Seeks to maintain a stable share price of $1
4 6 A WORD ABOUT RISK All investments involve some level of risk. Simply defined, risk is the possibility that you will lose money or not make money. Principal risk factors for the funds are discussed below. Before you invest, please make sure you understand the risks that apply to your fund. 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. Although each fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in a fund. CREDIT RISK Both funds The issuer of a security or the counterparty to a contract may default or otherwise become unable to honor a financial obligation. An issuer's failure to make scheduled interest or principal payments to a fund could reduce the fund's income level and share price. INCOME RISK Both funds A fund's income level may decline because of falling interest rates and other market conditions. Each fund's yield will vary from day to day, generally reflecting changes in overall short-term interest rates. This should be an advantage when interest rates are rising, but not when rates are falling. INDUSTRY CONCENTRATION Cash Reserve Fund Investing more than 25% of its assets in the banking industry will subject the fund to risks associated with investing in banks and banking-related companies. These risks include interest-rate, market and regulatory risks. INTEREST-RATE RISK Both funds Changes in interest rates may cause a decline in the market value of an investment. With fixed-income securities, a rise in interest rates typically causes a fall in values, while a fall in interest rates typically causes a rise in values. A sharp and unexpected rise in interest rates could cause a money-market fund's share price to drop below $1. However, the extremely short maturity of securities held in money-market portfolios -- a means of achieving an overall fund objective of principal safety -- reduces their potential for price fluctuation. MARKET RISK Both funds The market value of a security may move up and down, sometimes rapidly and unpredictably. 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 debt securities and the mutual funds that invest in them. NEW YORK MUNICIPAL SECURITIES New York Tax Exempt Fund The default or credit-rating downgrade of a New York state or New York City 5 7 issuer could affect the market values and marketability of all New York municipal securities and hurt the fund's yield or share price. NON-DIVERSIFIED STATUS New York Tax Exempt Fund The fund is considered a non-diversified investment company under the Investment Company Act of 1940 and is permitted to invest a greater proportion of its assets in the securities of a smaller number of issuers. As a result, the fund may be subject to greater volatility with respect to its portfolio securities than a fund that is more broadly diversified. INVESTOR PROFILE THESE FUNDS ARE DESIGNED FOR INVESTORS WHO: - want to preserve the value of their investment - are seeking a mutual fund for the money-market portion of an asset- allocation portfolio - want easy access to their money through checkwriting and wire-redemption privileges - are investing emergency reserves or other money for which safety and accessibility are more important than total return - for the New York Tax Exempt Fund only, seek tax-exempt income from their investment THESE FUNDS MAY NOT BE APPROPRIATE IF YOU: - want federal deposit insurance - desire the higher income available from longer-term fixed-income funds - are investing for capital appreciation In addition, the New York Tax Exempt Fund is not appropriate for IRAs or other tax-advantaged retirement plans. You should base your selection of a fund on your own goals, risk preferences and time horizon. 6 8 This page intentionally left blank 7 9 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 each fund's performance has varied from year to year over the past 10 years. As with all mutual funds, past performance is not a prediction of the future. YEAR-BY-YEAR TOTAL RETURNS
YEAR ENDED 12/31: 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 CASH RESERVE FUND Best quarter: 2.37% (Q2 89) Worst quarter: 0.67% (Q2 93) Inception date: 4/16/85 6.00% 3.57% 2.77% 3.88% 5.63% 5.05% 5.19% 5.12% 4.74% 6.08% Total return for the period 1/1/01 - 3/31/01: 1.31% (not annualized) NEW YORK TAX EXEMPT FUND Best quarter: 1.47% (Q2 89) Worst quarter: 0.41% (Q1 94) Inception date: 4/18/85 3.62% 2.36% 1.78% 2.25% 3.32% 2.92% 3.10% 2.92% 2.70% 3.46% Total return for the period 1/1/01 - 3/31/01: 0.63% (not annualized)
8 10 AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR 5 YEARS 10 YEARS LIFE OF INCEPTION PERIOD ENDED 12/31/00: 2000 1996-2000 1991-2000 FUND DATE CASH RESERVE FUND 6.08% 5.24% 4.80% 5.81% 4/16/85 NEW YORK TAX EXEMPT FUND 3.46% 3.02% 2.84% 3.51% 4/18/85
The total returns shown above are not the funds' yields. A fund's yield more closely reflects the fund's current earnings. YIELD To obtain a fund's current 7-day yield, call toll-free 800-WARBURG (800-927-2874). 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. 9 11 INVESTOR EXPENSES FEES AND FUND EXPENSES This table describes the fees and expenses you may bear as a shareholder. Annual fund operating expense figures are for the fiscal year ended December 31, 2000 with respect to the New York Tax Exempt Fund and, with respect to the Cash Reserve Fund, use the fund's current fees as if they had been in effect for such fiscal year.
NEW YORK CASH RESERVE TAX EXEMPT FUND** FUND SHAREHOLDER FEES (paid directly from your investment) Sales charge "load" on purchases NONE NONE Deferred sales charge "load" NONE NONE Sales charge "load" on reinvested distributions NONE NONE Redemption fees NONE NONE Exchange fees NONE NONE ANNUAL FUND OPERATING EXPENSES (deducted from fund assets) Management fee .35% .50% Distribution and service (12b-1) fee NONE NONE Other expenses .28% .18% TOTAL ANNUAL FUND OPERATING EXPENSES* .63% .68%
* Actual fees and expenses for the fiscal year ended December 31, 2000 are shown below. Fee waivers, expense reimbursements or credits reduced some expenses during 2000 but may be discontinued at any time.
EXPENSES AFTER WAIVERS, NEW YORK REIMBURSEMENTS CASH RESERVE TAX EXEMPT OR CREDITS FUND** FUND Management fee .29% .39% Distribution and service (12b-1) fee NONE NONE Other expenses .26% .16% ----- ----- TOTAL ANNUAL FUND OPERATING EXPENSES .55% .55%
**Annual operating expense figures for the Cash Reserve Fund are shown using the fund's current fees as if they had been in effect for the fiscal year ended December 31, 2000. 10 12 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 first table on the opposite page (before fee waivers and expense reimbursements or credits) and you close your account at the end of each of the time periods shown. Based on these assumptions, your cost would be:
ONE YEAR THREE YEARS FIVE YEARS 10 YEARS CASH RESERVE FUND $64 $202 $351 $786 NEW YORK TAX EXEMPT FUND $69 $218 $379 $847
11 13 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 - A member of Credit Suisse Asset Management, the institutional asset management and mutual fund arm of Credit Suisse Group (Credit Suisse), one of the world's leading banks - Credit Suisse Asset Management companies manage approximately $94 billion in the U.S. and $298 billion globally - Credit Suisse Asset Management has offices in 14 countries, including SEC-registered offices in New York and London; other offices (such as those in Budapest, Frankfurt, Milan, Moscow, Paris, Prague, Sydney, Tokyo, Warsaw and Zurich) are not registered with the U.S. Securities and Exchange Commission For easier reading, Credit Suisse Asset Management, LLC will be referred to as "CSAM" or "we" throughout this Prospectus. BLACKROCK INSTITUTIONAL MANAGEMENT CORPORATION 400 Bellevue Parkway Wilmington, DE 19809 - Sub-investment adviser for the New York Tax Exempt Fund - Responsible for providing investment research and credit analysis, and managing the day-to-day operations of the funds - A majority owned indirect subsidiary of PNC Bank, N.A. - Manages approximately $57 billion in assets 12 14 FUND INFORMATION KEY Concise fund-by-fund descriptions begin on the next page. 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 primary types of securities in which the fund invests. Secondary investments are described in "More About Risk." RISK FACTORS The major risk factors associated with the fund. Additional risk factors are included in "More About Risk." INVESTOR EXPENSES Actual fund expenses for the 2000 fiscal year. Future expenses may be higher or lower. - MANAGEMENT FEE The fee paid to the investment adviser for providing investment advice and, with respect to the New York Tax Exempt Fund, to the sub-investment adviser for its services. Expressed as a percentage of average net assets after waivers. - OTHER EXPENSES Fees paid by the fund for items such as administration, transfer agency, custody, auditing, legal and registration fees and miscellaneous expenses. Expressed as a percentage of average net assets after waivers, credits and reimbursements. FINANCIAL HIGHLIGHTS A table showing the 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 distributions. The Annual Report includes the auditor's report, along with the fund's financial statements. It is available free upon request. 13 15 CASH RESERVE FUND GOAL AND STRATEGIES The Cash Reserve Fund seeks high current income consistent with liquidity and stability of principal. To pursue this goal, it invests in high-quality, U.S. dollar-denominated money-market instruments. The fund seeks to maintain a stable $1 share price. In selecting securities, the portfolio managers may examine the relationships among yields on various types and maturities of money-market securities in the context of their outlook for interest rates. For example, commercial paper often offers a yield advantage over Treasury bills. And if rates are expected to fall, longer maturities may be purchased to try to preserve the fund's income level. Conversely, shorter maturities may be favored if rates are expected to rise. PORTFOLIO INVESTMENTS This fund invests in the following types of money-market instruments: - Government securities, including U.S. Treasury bills and other obligations of the U.S. government, its agencies or instrumentalities - U.S. and foreign bank obligations such as certificates of deposit, bankers' acceptances, time deposits, commercial paper and debt obligations - commercial paper and notes of other corporate issuers, including variable-rate master demand notes and other variable-rate obligations - repurchase agreements - when-issued securities No more than 5% of assets may be invested in securities rated in the second- highest short-term rating category (or unrated equivalents). The rest of the fund's investments must be in the highest short-term rating category. Under normal conditions, the fund will invest at least 25% of assets in the banking industry. The fund maintains an average maturity of 90 days or less, and only purchases securities that have (as determined under SEC rules) remaining maturities of 397 days or less. To a limited extent, the fund may also engage in other investment practices. RISK FACTORS This fund's principal risk factors are: - credit risk - income risk - industry concentration - interest-rate risk - market risk The fund's yield will vary with changes in interest rates. If interest rates fall, your dividend income will likely decline. Since it is managed to maintain a constant $1 share price, the fund should have little risk of principal loss. However, there is no assurance the fund will avoid principal losses in the rare event that fund holdings default or interest rates rise sharply in an unusually short period. Concentrating its investments in the banking industry will subject the fund to risks associated with investing in banks and banking-related companies. These risks are discussed in "More About Risk." That section also details other investment practices the fund may use. Please read "More About Risk" carefully before you invest. 14 16 PORTFOLIO MANAGEMENT CSAM makes the fund's day-to-day investment decisions. INVESTOR EXPENSES Management fee .29% All other expenses .26% ------ Total expenses .55% FINANCIAL HIGHLIGHTS The figures below have been audited by the fund's independent auditors, PricewaterhouseCoopers LLP.
PERIOD ENDED: 12/00 12/99 12/98 12/97(1) 2/97 2/96 2/95 PER SHARE DATA Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 Investment activities: Net investment income 0.06 0.05 0.05 0.04 0.05 0.05 0.04 Dividends: Dividends from net investment income (0.06) (0.05) (0.05) (0.04) (0.05) (0.05) (0.04) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ======== ======== ======== ======== ======== ======== ======== Total return 6.08% 4.74% 5.12% 4.28%(2) 5.03% 5.57% 4.35% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000s omitted) $343,623 $463,971 $429,978 $472,675 $416,735 $383,607 $403,211 Ratio of expenses to average net assets .57%(3) .56%(3) .56%(3) .55%(3,4) .55%(3) .56%(3) .55% Ratio of net income to average net assets 5.87% 4.66% 5.00% 5.11%(4) 4.93% 5.43% 4.41% Decrease reflected in above operating expense ratios due to waivers/reimbursements .11% .12% .12% .12%(4) .14% .16% .19%
-------------------------------------------------------------------------------- (1) For the 10 months ended December 31, 1997. In 1997, the fund changed its fiscal year-end to December 31. (2) Not annualized. (3) Interest earned on uninvested cash balances is used to offset part of the transfer agent expense. These arrangements resulted in a reduction to the fund's net expense ratio by .02%, .01%, .01%, .00%, .00% and for each of the years ended December 31, 2000, 1999, 1998 and 1997 and the years ended February 28 and 29, 1997 and 1996, respectively. The operating expense ratio after reflecting these arrangements was .55% for the years or period ended December 31, 2000, 1999, 1998 and 1997 and the years ended February 28 or 29, 1997 and 1996, respectively. (4) Annualized. 15 17 NEW YORK TAX EXEMPT FUND GOAL AND STRATEGIES The New York Tax Exempt Fund seeks as high a level of current income exempt from federal, New York state and New York City personal income taxes as is consistent with preservation of capital and liquidity. The fund seeks to maintain a stable $1 share price. Under normal market conditions, the fund will invest at least 65% of assets in New York municipal securities. In selecting investments, fund managers may examine the relationships among yields on various types and maturities of municipal securities in the context of their outlook for interest rates. For example, if rates are expected to fall, longer maturities may be purchased to try to preserve the fund's income level. Conversely, shorter maturities may be favored if rates are expected to rise. PORTFOLIO INVESTMENTS This fund invests at least 80% of assets in high-quality short-term tax- exempt municipal securities. These include: - tax-exempt commercial paper - variable-rate demand notes - bonds - municipal put bonds - bond-anticipation notes - revenue-anticipation notes No more than 5% of assets may be invested in securities rated in the second- highest short-term rating category (or unrated equivalents). The rest of the fund's investments must be in the highest short-term rating category. The fund maintains an average maturity of 90 days or less, and only purchases securities that have (as determined under SEC rules) remaining maturities of 397 days or less. To a limited extent, the fund may also engage in other investment practices. RISK FACTORS This fund's principal risk factors are: - credit risk - income risk - interest-rate risk - market risk - New York municipal securities - non-diversified status The fund's yield will vary with changes in interest rates. If interest rates fall, your dividend income will likely decline. Since it is managed to maintain a constant $1 share price, the fund should have little risk of principal loss. However, there is no assurance the fund will avoid principal losses in the rare event that fund holdings default or interest rates rise sharply in an unusually short period. The fund's ability to maintain a stable share price also depends upon guarantees from banks and other financial institutions that back certain securities the fund invests in. Changes in the credit quality of these institutions could cause losses to the fund and affect its share price. New York state and New York City have at times faced serious economic problems that have adversely affected New York municipal issuers. The default or credit-rating downgrade of one of these issuers could affect the market values and marketability of all New York municipal 16 18 securities and hurt the fund's yield or share price. As a result, this fund may be riskier than a more geographically diversified municipal money-market fund. Compared to a diversified mutual fund, a non-diversified fund may invest a greater portion of its assets in the securities of fewer issuers. Because this fund is non-diversified, it may involve more risk than a diversified money-market fund. The fund also may, and currently does, invest in alternative minimum tax (AMT) securities, the income from which is a tax preference item. "More About Risk" details these and certain other investment practices the fund may use. Please read that section carefully before you invest. PORTFOLIO MANAGEMENT Under the supervision of CSAM, a portfolio-management team at BlackRock Institutional Management Corporation, the fund's sub-investment adviser, makes the fund's day-to-day investment decisions. INVESTOR EXPENSES Management fee .39% All other expenses .16% ----------- Total expenses .55% FINANCIAL HIGHLIGHTS The figures below have been audited by the fund's independent auditors, PricewaterhouseCoopers LLP.
PERIOD ENDED: 12/00 12/99 12/98 12/97(1) 2/97 2/96 2/95 PER-SHARE DATA Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 Investment activities: Net investment income 0.03 0.03 0.03 0.03 0.03 0.03 0.02 Distributions: From net investment income (0.03) (0.03) (0.03) (0.03) (0.03) (0.03) (0.02) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ======== ======== ======== ======== ======= ======= ======= Total return 3.46% 2.70% 2.92% 2.64%(2) 2.92% 3.31% 2.48% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000s omitted) $197,544 $181,842 $174,743 $151,173 $124,191 $96,584 $77,111 Ratio of expenses to average net assets .57%(3) .56%(3) .55%(3) .55%(3,4) .55%(3) .56%(3) .55% Ratio of net income to average net assets 3.39% 2.68% 2.86% 3.12%(4) 2.88% 3.24% 2.46% Decrease reflected in above operating expense ratio due to waivers/reimbursements .11% .13% .14% .12%(4) .17% .27% .27%
(1) For the 10 months ended December 31, 1997. In 1997, the fund changed its fiscal year-end to December 31. (2) Not annualized. (3) Interest earned on uninvested cash balances is used to offset part of the transfer agent expense. These arrangements resulted in a reduction to the fund's net expense ratio by .02%, .01%, .00%, .00%, .00% and .01% for each of the years or period ended December 31, 2000, 1999, 1998 and 1997 and the years ended February 28 or 29, 1997 and 1996, respectively. The operating expense ratio after reflecting these arrangements was .55% for each of the years or period ended December 31, 2000, 1999, 1998 and 1997 and the years ended February 28 or 29, 1997 and 1996, respectively. (4) Annualized. 17 19 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 "Certain Investment Practices" table takes a more detailed look at certain investment practices the funds may use. Some of these practices may have higher risks associated with them. However, each fund has limitations and policies designed to reduce many of the risks. TYPES OF INVESTMENT RISK The following risks are referred to throughout this Prospectus. CREDIT RISK The issuer of a security or the counterparty to a contract may default or otherwise become unable to honor a financial obligation. An issuer's failure to make scheduled interest or principal payments to a fund could reduce the fund's income level and share price. EXPOSURE RISK The risk associated with investments or practices 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, the fund is directly exposed to its risks. EXTENSION RISK An unexpected rise in interest rates may extend the life of a mortgage-backed security beyond the expected prepayment time, typically reducing the security's value. INCOME RISK A fund's income level may decline because of falling interest rates. INTEREST-RATE RISK Changes in interest rates may cause a decline in the market value of an investment. With bonds and other fixed-income securities, a rise in interest rates typically causes a fall in values, while a fall in interest rates typically causes a rise in values. LIQUIDITY RISK Certain fund securities may be difficult or impossible to sell at the time and the price that the fund would like. A fund may have to lower the price, sell other securities instead or forego an investment opportunity. Any of these could have a negative effect on fund management or performance. 18 20 MARKET RISK The market value of a security may move up and down, sometimes rapidly and unpredictably. These fluctuations, which are often referred to as "volatility," may cause a security to be worth less than it was worth at an earlier time. Market risk may affect a single issuer, industry, sector of the economy, or the market as a whole. Market risk is common to most investments -- including debt securities and the mutual funds that invest in them. 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. 19 21 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: [-] 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 AMT SECURITIES Municipal securities whose interest is a tax-preference item for purposes of the federal alternative minimum tax. Credit, interest-rate, liquidity, market, regulatory risks. [ ] 20% ---------------------------------------------------------------------------- EURODOLLAR AND YANKEE OBLIGATIONS U.S. dollar-denominated certificates of deposit issued or backed by foreign banks and foreign branches of U.S. banks. Credit, income, interest rate, market, political risks. [-] [ ] ---------------------------------------------------------------------------- INDUSTRY CONCENTRATION -- BANKING Investing more than 25% of a fund's net assets in obligations of banks and banking-related companies. Risks affecting the industry will have a greater effect on the fund. Credit, interest-rate, market, regulatory risks. [-] -- ---------------------------------------------------------------------------- MORTGAGE-BACKED AND ASSET-BACKED SECURITIES Debt securities backed by pools of mortgages, including passthrough certificates and other senior classes of collateralized mortgage obligations (CMOs), or other receivables. Credit, extension, interest-rate, liquidity, prepayment risks. [-] [ ] ---------------------------------------------------------------------------- MUNICIPAL SECURITIES Debt obligations issued by or on behalf of the state of New York and other states and jurisdictions of the U.S. and their authorities, agencies and instrumentalities. May include tax-exempt commercial paper, variable-rate demand notes, bonds, municipal put bonds, bond-anticipation notes and revenue-anticipation notes. Credit, interest-rate, market risks. [ ] [-] ---------------------------------------------------------------------------- REPURCHASE AGREEMENTS The purchase of a security with a commitment to resell the security back to the counterparty at the same price plus interest. Credit risk. [-] [ ] ---------------------------------------------------------------------------- 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% 10% ----------------------------------------------------------------------------
20 22
NEW YORK CASH TAX RESERVE EXEMPT FUND FUND ------- -------- INVESTMENT PRACTICE LIMIT TEMPORARY DEFENSIVE TACTICS Placing some or all of a fund's assets in defensive investments when the investment adviser or sub-investment adviser believes that doing so would be in the best interests of fund shareholders. For the New York Tax Exempt Fund, these investments may include taxable securities and municipal securities that are not exempt from New York state and New York City taxes. Although intended to avoid losses in unusual market conditions, defensive tactics might prevent a fund from achieving its goal. [ ] [ ] -------------------------------------------------------------------------------- VARIABLE-RATE MASTER DEMAND NOTES Unsecured instruments that provide for periodic adjustments in their interest rate and permit the indebtedness of the issuer to vary. Credit, interest-rate, liquidity, market risks. [ ] [-] -------------------------------------------------------------------------------- WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The purchase or sale of securities for delivery at a future date; market value may change before delivery. Liquidity, market, speculative exposure risks. 20% 20% --------------------------------------------------------------------------------
21 23 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 12:00 noon and 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 a fund's total assets, less its liabilities, by the number of shares outstanding. Each fund values its securities using amortized cost. This method values a fund holding initially at its cost and then assumes a constant amortization to maturity of any discount or premium. The amortized cost method ignores any impact of fluctuating interest rates. BUYING AND SELLING SHARES The accompanying Shareholder Guide explains how to invest directly with the funds. You will find additional information about purchases, redemptions, exchanges and services. Each fund is open on those days when the NYSE is open, typically Monday through Friday. Your transaction will be priced at the NAV next computed after we receive your request in proper form. Each fund reserves the right to: - modify or terminate the check-redemption privilege - limit the number of check redemptions - begin charging a fee for checks 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 quarter You will also receive annual and semiannual financial reports. DISTRIBUTIONS As a fund investor, you will receive distributions. Each fund may earn interest from its 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. Money-market funds usually do not make capital-gain distributions. The funds declare dividend distributions daily and pay them monthly. Each of the funds typically distributes long-term capital gains (if any) to shareholders annually, at the end of its 22 24 fiscal year. The New York Tax Exempt Fund distributes short-term capital gains (if any) at the end of its fiscal year; the Cash Reserve Fund distributes them periodically as determined by the Board of Directors. Most investors have their distributions reinvested in additional shares of the same fund. Alternatively, you can choose to have a check for your distributions mailed to you or sent by electronic transfer. Distributions will be reinvested unless you select another option on your account application. Estimated year-end distribution information, including record and payment dates, will be available late in the year at www.warburg.com or by calling 800-WARBURG (800-927-2874). 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 retirement account, you should be especially aware of the following potential tax implications. Please consult your tax professional concerning your own tax situation. Each fund intends to meet the requirements for being a tax-qualified regulated investment company. As long as a fund continues to qualify, it pays no federal income tax on the earnings it distributes to shareholders. Any time you sell or exchange shares, it is considered a taxable event for you. Because each fund seeks to maintain a stable $1 share price, you should not realize a taxable gain or loss when you sell shares. The Form 1099-DIV that is mailed to you every January details your distributions and their federal-tax category. CASH RESERVE FUND Distributions you receive from the Cash Reserve Fund, whether reinvested or taken in cash, are generally considered taxable. The fund does not expect to realize long-term capital gains or make capital-gain distributions. Distributions from other sources are generally taxed as ordinary income. Depending on provisions in your state's tax law, the portion of the fund's income derived from "full faith and credit" U.S. Treasury obligations may be exempt from state and local taxes. The fund will indicate each year the portion of its income, if any, that may qualify for this exemption. NEW YORK TAX EXEMPT FUND Interest income that the fund earns is distributed to shareholders as income dividends. Interest that is federally tax-free when received by the fund remains tax-free when it is distributed. 23 25 However, gain on the sale of tax-free securities results in taxable distributions. Short-term capital gains and a portion of the gain on bonds purchased at a discount are distributed as dividends and taxed as ordinary income. Although the fund does not expect to make them, long-term capital-gain distributions would be taxed as long-term capital gains. Distributions of capital gains are taxable whether you take them in cash or reinvest them. The interest from some municipal securities is subject to the federal alternative minimum tax. The fund may invest up to 100% of its assets in these securities during temporary defensive periods. Individuals who are subject to the tax must report this interest on their tax returns. In addition, the fund may invest a portion of its assets in securities that generate income that is not exempt from federal income tax. To the extent that the fund's income dividends are derived from state tax-free investments, they will be free from New York state and City personal income taxes. The fund will indicate each year the portion of its dividends that may qualify for this exemption. Corporate taxpayers should note that the fund's income dividends and other distributions are not exempt from New York state and City franchise or corporate income taxes. 24 26 OTHER INFORMATION ABOUT THE DISTRIBUTOR Credit Suisse Asset Management Securities, Inc. ("CSAMSI"), located at 466 Lexington Avenue, New York, New York 10017, is the funds' distributor. CSAMSI is affiliated with CSAM, and is responsible for: - making the funds available to you - account servicing and maintenance - other administrative services related to sale of the funds' shares CSAMSI, CSAM or their affiliates may make payments out of their own resources to firms offering shares for providing administration, subaccounting, transfer agency and/or other services. Under certain circumstances, the funds may reimburse a portion of these payments. 25 27 This page intentionally left blank 26 28 FOR MORE INFORMATION More information about these funds is available free upon request, including the following: SHAREHOLDER GUIDE Explains how to buy and sell shares. The Shareholder Guide is incorporated by reference into (is legally part of ) this Prospectus. ANNUAL/SEMIANNUAL REPORTS TO SHAREHOLDERS Includes financial statements, portfolio investments and detailed performance information. The Annual Report also contains a letter from the fund's manager discussing market conditions and investment strategies that significantly affected fund performance during its 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 Web site (www.sec.gov) to view the SAI, material incorporated by reference, and other information. You can also obtain copies by visiting the SEC's Public Reference Room in Washington, DC (phone 202-942-8090) or by sending your request and a duplicating fee to the SEC's Public Reference Section, Washington, DC 20549-6009 or electronically at publicinfo@sec.gov. Please contact Credit Suisse Warburg Pincus Funds to obtain, without charge, the SAI, Annual and Semiannual Reports and portfolio holdings and other information, and to make shareholder inquiries: BY TELEPHONE: 800-WARBURG (800-927-2874) BY FACSIMILE: 646-354-5026 BY MAIL: Credit Suisse Warburg Pincus Funds P.O. Box 9030 Boston, MA 02205-9030 BY OVERNIGHT OR COURIER SERVICE: Boston Financial Data Services, Inc. Attn: Credit Suisse Warburg Pincus Funds 66 Brooks Drive Braintree, MA 02184 ON THE INTERNET: www.warburg.com SEC FILE NUMBERS: Credit Suisse Warburg Pincus Cash Reserve Fund 811-04171 Credit Suisse Warburg Pincus New York Tax Exempt Fund 811-04170 [CREDIT SUISSE WARBURG PINCUS FUNDS LOGO] P.O. BOX 9030, BOSTON, MA 02205-9030 800-WARBURG (800-927-2874) - www.warburg.com CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC., DISTRIBUTOR. WPMMF-1-0501 29 [WARBURG PINCUS FUNDS LOGO] [PART OF CREDIT SUISSE ASSET MANAGEMENT LOGO] WARBURG PINCUS FUNDS SHAREHOLDER GUIDE Common Class February 28, 2001 This Shareholder Guide is incorporated into and legally part of each Warburg Pincus (Common Class) prospectus. Warburg Pincus Funds are advised by Credit Suisse Asset Management, LLC 30 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 Shareholder Service Center to receive one by mail or fax. Or you can download it from our Internet Web site: www.warburg.com. You can make your initial investment by check or wire. The "By Wire" method in the table enables you to buy shares on a particular day at that day's closing NAV. ADDING TO AN ACCOUNT You can add to your account in a variety of ways, as shown in the table. If you want to use Automated Clearing House (ACH) transfer, be sure to complete the "ACH on Demand" section of the Common Class account application. INVESTMENT CHECKS Checks should be made payable in U.S. dollars to Warburg Pincus Funds. Unfortunately, we cannot accept "starter" checks that do not have your name preprinted on them. We also cannot accept checks payable to you or to another party and endorsed to the order of Warburg Pincus Funds. These types of checks may be returned to you and your purchase order may not be processed. MINIMUM INITIAL INVESTMENT Cash Reserve Fund: $ 1,000 New York Tax Exempt Fund: $ 1,000 Balanced Fund: $ 1,000 Value Fund: $ 1,000 WorldPerks(R) Funds: $ 5,000 Long-Short Fund: $ 25,000 All other funds: $ 2,500 IRAs: $ 500* Transfers/Gifts to Minors: $ 500*
* $25,000 minimum for Long-Short Fund. WIRE INSTRUCTIONS State Street Bank and Trust Company ABA# 0110 000 28 Attn: Mutual Funds/Custody Dept. [Warburg Pincus Fund Name] DDA# 9904-649-2 F/F/C: [Account Number and Registration] HOW TO REACH US SHAREHOLDER SERVICE CENTER Toll free: 800-WARBURG (800-927-2874) Fax: 646-354-5026 MAIL Warburg Pincus Funds P.O. Box 9030 Boston, MA 02205-9030 OVERNIGHT/COURIER SERVICE Boston Financial Data Services, Inc. Attn: Warburg Pincus Funds 66 Brooks Drive Braintree, MA 02184 INTERNET WEB SITE www.warburg.com 2 31
OPENING AN ACCOUNT ADDING TO AN ACCOUNT BY CHECK - Complete the New Account Application. - Make your check payable to Warburg For IRAs use the Universal IRA Pincus Funds. Application. - Write the account number and the fund - Make your check payable to Warburg name on your check. Pincus Funds. - Mail to Warburg Pincus Funds. - Mail to Warburg Pincus Funds. - Minimum amount is $100. BY EXCHANGE - Call our Shareholder Service Center to - Call our Shareholder Service Center to request an exchange. Be sure to read request an exchange. the current prospectus for the new - Minimum amount is $250. fund. Also please observe the minimum - If you do not have telephone initial investment. privileges, mail or fax a letter of - If you do not have telephone instruction signed by all shareholders. privileges, mail or fax a letter of instruction signed by all shareholders. BY WIRE - Complete and sign the New Account - Call our Shareholder Service Center by Application. 4 p.m. ET to inform us of the incoming - Call our Shareholder Service Center and wire. Please be sure to specify your fax the signed New Account Application name, the account number and the fund by 4 p.m. ET. name on your wire advice. - Shareholder Services will telephone you - Wire the money for receipt that day. with your account number. Please be - Minimum amount is $500. sure to specify your name, the account number and the fund name on your wire advice. - Wire your initial investment for receipt that day. - Mail the original, signed application to Warburg Pincus Funds. This method is not available for IRAs. BY AUTOMATED CLEARING HOUSE (ACH) TRANSFER - Cannot be used to open an account. - Call our Shareholder Service Center to request an ACH transfer from your bank. - Your purchase will be effective at the next NAV calculated after we receive your order in proper form. - Minimum amount is $50. - Requires ACH on Demand privileges.
800-WARBURG (800-927-2874) MONDAY - FRIDAY, 8 A.M. - 8 P.M. ET SATURDAY, 8 A.M. - 4 P.M. ET 3 32 SELLING SHARES(*)
SELLING SOME OR ALL OF YOUR SHARES CAN BE USED FOR BY MAIL Write us a letter of instruction that - Accounts of any type. includes: - Sales of any amount. - your name(s) and signature(s) For IRAs please use the IRA Distribution - the fund name and account number Request Form. - the dollar amount you want to sell - how to send the proceeds Obtain a signature guarantee or other documentation, if required (see "Selling Shares in Writing"). Mail the materials to Warburg Pincus Funds. If only a letter of instruction is required, you can fax it to the Shareholder Service Center. BY EXCHANGE - Call our Shareholder Service Center to - Accounts with telephone privileges. request an exchange. Be sure to read If you do not have telephone privileges, the current prospectus for the new fund. mail or fax a letter of instruction to Also please observe the minimum initial exchange shares. investment. BY PHONE Call our Shareholder Service Center to - Non-IRA accounts with telephone request a redemption. You can receive the privileges. proceeds as: - a check mailed to the address of record ($100 minimum) - an ACH transfer to your bank ($50 minimum) - a wire to your bank ($500 minimum) See "By Wire or ACH Transfer" for details. BY WIRE OR ACH TRANSFER - Complete the "Wire Instructions" or - Non-IRA accounts with wire-redemption "ACH on Demand" section of your New or ACH on Demand privileges. Account Application. - Requests by phone or mail. - For federal-funds wires, proceeds will be wired on the next business day. For ACH transfers, proceeds will be delivered within two business days.
(*) For the Japan Growth Fund and Japan Small Company Fund only: Each fund imposes a 2.00% redemption fee (short-term trading fee) on fund shares redeemed or exchanged less than six months from purchase. This fee is calculated based on the shares' net asset value at redemption and deducted from the redemption proceeds. The fee is paid to the fund to offset costs associated with short-term shareholder trading. It does not apply to shares acquired through reinvestment of distributions. For purposes of computing the redemption fee, any shares bought through reinvestment of distributions will be redeemed first without charging the fee, followed by the shares held longest. The redemption fee applies to fund shares purchased on or after May 30, 2000. 4 33 SELLING SHARES IN WRITING Some circumstances require a written sell order, along with a signature guarantee. These include: - accounts whose address of record has been changed within the past 30 days - redemptions in certain large amounts (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 fund shares purchased other than by bank wire, bank check, U.S. Treasury check, certified check or money order, the funds 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 fund. LOW-BALANCE ACCOUNTS 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 60 days, the fund may close your account and mail you the proceeds. MINIMUM TO KEEP AN ACCOUNT OPEN Cash Reserve Fund: $ 750 New York Tax Exempt Fund: $ 750 Balanced Fund: $ 500 Value Fund: $ 500 WorldPerks Funds: $ 750 All other funds: $2,000 IRAs: $ 250 Transfers/Gifts to Minors: $ 250
800-WARBURG (800-927-2874) MONDAY - FRIDAY, 8 A.M. - 8 P.M. ET SATURDAY, 8 A.M. - 4 P.M. ET 5 34 SHAREHOLDER SERVICES AUTOMATIC SERVICES Buying or selling shares automatically is easy with the services described below. You can set up most of these services with your account application or by calling our Shareholder Service Center. SAVEMYMONEY PROGRAM SaveMyMoney(SM) is a low minimum, automatic investing program that makes it easy to build a mutual fund portfolio. For an initial investment of $250 along with a minimum $50 monthly investment, you can invest in certain Warburg Pincus funds. The SaveMyMoney Program will automatically transfer the monthly investment amount you designate from your bank account. AUTOMATIC MONTHLY INVESTMENT PLAN For making automatic investments ($50 minimum) from a designated bank account. AUTOMATIC WITHDRAWAL PLAN For making automatic monthly, quarterly, semiannual or annual withdrawals of $250 or more. DISTRIBUTION SWEEP For automatically reinvesting your dividend and capital-gain distributions into another identically registered Warburg Pincus fund. Not available for IRAs. STATEMENTS AND REPORTS Each Fund produces financial reports, which include among other things 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, proxy statement or information statement, as applicable, to your household, even if more than one person in the household has an account with the same Fund. Please call 800-WARBURG if you would like to receive additional reports, prospectuses or proxy statements. RETIREMENT PLANS Warburg Pincus offers a range of tax-advantaged retirement accounts, including: - Traditional IRAs - Roth IRAs - Spousal IRAs - Rollover IRAs - SEP IRAs To transfer your IRA to Warburg Pincus, use the IRA Transfer/Direct Rollover Form. If you are opening a new IRA, you will also need to complete the Universal IRA Application. Please consult your tax professional concerning your IRA eligibility and tax situation. TRANSFERS/GIFTS TO MINORS Depending on state laws, you can set up a custodial account under the Uniform Transfers-to-Minors Act (UTMA) or the Uniform Gifts-to-Minors Act (UGMA). Please consult your tax professional about these types of accounts. ACCOUNT CHANGES Call our Shareholder Service Center to update your account records whenever you change your address. Shareholder Services can also help you change your account information or privileges. 6 35 OTHER POLICIES TRANSACTION DETAILS You are entitled to capital-gain and earned dividend distributions as soon as your purchase order is executed. For the Intermediate Maturity Government, New York Intermediate Municipal and Fixed Income Funds and the Money Market Funds, you begin to earn dividend distributions the business day after your purchase order is executed. However, if we receive your purchase order and payment to purchase shares of a Money Market Fund before 12 p.m. (noon), you begin to earn dividend distributions on that day. Your purchase order will be canceled and you may be liable for losses or fees incurred by the fund if: - your investment check or ACH transfer does not clear - you place a telephone order by 4 p.m. ET and we do not receive your wire that day. If you wire money without first calling Shareholder Services 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 A fund reserves the right to: - refuse any purchase or exchange request, including those from any person or group who, in the fund's view, is likely to engage in excessive trading - change or discontinue its exchange privilege after 30 days' notice to current investors, or temporarily suspend this privilege during unusual market conditions - change its minimum investment amounts after 15 days' notice to current investors of any increases - charge a wire-redemption fee - make a "redemption in kind"--payment in portfolio securities rather than cash--for certain large redemption amounts that could hurt fund operations - suspend redemptions or postpone payment dates as permitted by the Investment Company Act of 1940 (such as during periods other than weekends or holidays when the NYSE is closed or trading on the NYSE is restricted, or any other time that the SEC permits) - modify or waive its minimum investment requirements for investments through certain financial-services firms and for employees and clients of its adviser, sub-adviser, distributor and their affiliates and, for the Long-Short Fund, investments through certain financial-services firms ($10,000 minimum) and through retirement plan programs (no minimum) - stop offering its shares for a period of time (such as when management believes that a substantial increase in assets could adversely affect it) 800-WARBURG (800-927-2874) MONDAY - FRIDAY, 8 A.M. - 8 P.M. ET SATURDAY, 8 A.M. - 4 P.M. ET 7 36 [WARBURG PINCUS FUNDS LOGO] [CREDIT SUISSE ASSET MANAGEMENT LOGO] P.O. BOX 9030, BOSTON, MA 02205-9030 800-WARBURG (800-927-2874) - www.warburg.com CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC., DISTRIBUTOR. WPCOM-31-0201 37 STATEMENT OF ADDITIONAL INFORMATION MAY 1, 2001 CREDIT SUISSE WARBURG PINCUS CASH RESERVE FUND CREDIT SUISSE WARBURG PINCUS NEW YORK TAX EXEMPT FUND This combined Statement of Additional Information provides information about Credit Suisse Warburg Pincus Cash Reserve Fund (the "Cash Reserve Fund") and Credit Suisse Warburg Pincus New York Tax Exempt Fund (the "Tax Exempt Fund" and collectively with the Cash Reserve Fund, the "Funds") which supplements the information that is contained in the combined Prospectus of the Funds, dated May 1, 2001. Each Fund's audited annual report dated December 31, 2000, 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 a prospectus and should be read in conjunction with the Prospectus. Copies of the Prospectus and the Annual Report can be obtained by writing or telephoning: Credit Suisse Warburg Pincus Funds P.O. Box 9030 Boston, Massachusetts 02205-9030 800-WARBURG (800-927-2874) 38 Table of Contents
Page INVESTMENT OBJECTIVES .................................................... 1 GENERAL .................................................................. 1 Price and Portfolio Maturity ....................................... 1 Portfolio Quality and Diversification .............................. 1 INVESTMENT POLICIES ...................................................... 2 Municipal Securities ............................................... 2 Bank Obligations ................................................... 3 Variable Rate Master Demand Notes .................................. 3 Government Securities .............................................. 4 When-Issued Securities ............................................. 4 Repurchase Agreements .............................................. 5 Reverse Repurchase Agreements and Borrowings ....................... 5 Stand-By Commitment Agreements ..................................... 5 Third Party Puts ................................................... 6 Taxable Investments ................................................ 7 Alternative Minimum Tax Bonds ...................................... 7 Other Investment Policies and Practices of the Tax Exempt Fund ..... 8 Non-Diversified Status .......................................... 8 Special Considerations and Risk Factors ......................... 8 Other Investment Limitations ....................................... 9 Cash Reserve Fund ............................................... 9 Tax Exempt Fund ................................................. 11 PORTFOLIO VALUATION ...................................................... 12 PORTFOLIO TRANSACTIONS ................................................... 13 SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL SECURITIES ......... 14 State Economy ...................................................... 14 State Budget ....................................................... 15 Debt Limits and Outstanding Debt ................................... 19 Litigation ......................................................... 20 Authorities ........................................................ 22 New York City and Other Localities ................................. 22 MANAGEMENT OF THE FUNDS .................................................. 26 Officers and Board of Directors .................................... 26 Directors' Compensation ............................................ 29 Investment Adviser, Sub-Investment Adviser and Administrator and Co-Administrators ................................................ 30 Banking Laws ....................................................... 34 Custodian and Transfer Agent ....................................... 34 Organization of the Funds .......................................... 34 Distribution and Shareholder Servicing ............................. 35 ADDITIONAL PURCHASE AND REDEMPTION INFORMATION ........................... 36
(i) 39 Table of Contents
Page Automatic Cash Withdrawal Plan ..................................... 36 EXCHANGE PRIVILEGE ....................................................... 36 ADDITIONAL INFORMATION CONCERNING TAXES .................................. 37 DETERMINATION OF YIELD ................................................... 40 INDEPENDENT ACCOUNTANTS AND COUNSEL ...................................... 41 MISCELLANEOUS ............................................................ 41 FINANCIAL STATEMENTS ..................................................... 43 APPENDIX ................................................................. A-1 Description of Commercial Paper Ratings ............................ A-2 Description of Municipal Securities Ratings ........................ A-3
(ii) 40 INVESTMENT OBJECTIVES The following information supplements the discussion of each Fund's investment objective and policies in the Prospectus. There are no assurances that the Funds will achieve their investment objectives. The investment objective of the Cash Reserve Fund is to provide investors with high current income consistent with liquidity and stability of principal. The investment objective of the Tax Exempt Fund is to provide investors with as high a level of current income that is excluded from gross income for federal income tax purposes and exempt from New York State and New York City personal income taxes as is consistent with preservation of capital and liquidity. GENERAL Unless otherwise indicated, each Fund is permitted, but not obligated, to engage in the following investment strategies subject to any percentage limitations set forth below. The Funds are not obligated to pursue any of the following strategies and do not represent that these techniques are available now or will be available at any time in the future. Price and Portfolio Maturity. Each Fund invests only in securities which are purchased with and payable in U.S. dollars and which have (or, pursuant to regulations adopted by the Securities and Exchange Commission (the "SEC"), are deemed to have) remaining maturities of 397 calendar days or less at the date of purchase by the Fund. For this purpose, variable rate master demand notes (as described below), which are payable on demand, or, under certain conditions, at specified periodic intervals not exceeding 397 calendar days, in either case on not more than 30 days' notice, will be deemed to have remaining maturities of 397 calendar days or less. Each Fund maintains a dollar-weighted average portfolio maturity of 90 days or less. Each Fund follows these policies to maintain a constant net asset value of $1.00 per share, although there is no assurance that it can do so on a continuing basis. Portfolio Quality and Diversification. Each Fund will limit its portfolio investments to securities that its Board determines present minimal credit risks and which are "Eligible Securities" at the time of acquisition by the Fund. The term Eligible Securities includes securities rated by the "Requisite NRSROs" in one of the two highest short-term rating categories, securities of issuers that have received such ratings with respect to other short-term debt securities and comparable unrated securities. "Requisite NRSROs" means (i) any two nationally recognized statistical rating organizations ("NRSROs") that have issued a rating with respect to a security or class of debt obligations of an issuer, or (ii) one NRSRO, if only one NRSRO has issued a rating with respect to such security or issuer at the time that the Fund acquires the security. The Funds may purchase securities that are unrated at the time of purchase that a Fund's investment adviser and, for the Tax Exempt Fund, sub-investment adviser deem to be of comparable quality to rated securities that the Fund may purchase. The NRSROs currently designated as such by the SEC are Standard & Poor's Ratings Services ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch Investors Services, Inc., Duff and Phelps, 41 Inc. and IBCA Limited and its affiliate, IBCA, Inc. A discussion of the ratings categories of the NRSROs is contained in the Appendix to the Fund's Statement of Additional Information. The Funds have adopted certain credit quality, maturity and diversification requirements under Rule 2a-7 under the Investment Company Act of 1940, as amended (the "1940 Act"), as operating policies. Under these policies, there are two tiers of Eligible Securities, first and second tier, based on their ratings by NRSROs or, if the securities are unrated, on determinations by a Fund's investment adviser and, for the Tax Exempt Fund, sub-investment adviser. These policies generally restrict a Fund from investing more than 5% of its assets in second tier securities and limit to 5% of assets the portion that may be invested in any one issuer. The Tax Exempt Fund may invest up to 25% of its assets without regard to this per issuer limit. In addition, the credit quality and diversification policies vary to some extent between the Cash Reserve and Tax Exempt Funds because the Tax Exempt Fund is a single-state tax exempt fund. INVESTMENT POLICIES Municipal Securities. Under normal circumstances, substantially all of the Tax Exempt Fund's assets will be invested in Municipal Securities. Municipal Securities include short-term debt obligations 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 securities that are issued by or on behalf of public authorities to finance various privately-operated facilities are included within the term Municipal Securities if the interest paid thereon is excluded from gross income for federal income tax purposes. The two principal types of Municipal Securities consist of "general obligation" and "revenue" issues, and the Tax Exempt Fund's portfolio may also include "moral obligation" issues, which are normally issued by special purpose authorities. 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 only 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. Private activity securities held by the Fund are in most cases revenue bonds and are not payable from the unrestricted revenues of the issuer. Consequently, the credit quality of such private activity securities is usually directly related to the credit standing of the corporate user of the facility involved. There are, of course, variations in the quality of Municipal Securities, both within a particular classification and between classifications, and the yields on Municipal Securities 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. The ratings of rating agencies represent their opinions as to the quality of Municipal Securities. It should be emphasized, however, that ratings are general and are not absolute standards of quality, and Municipal Securities with the same maturity, interest rate and rating may have different yields while 2 42 Municipal Securities of the same maturity and interest rate with different ratings may have the same yield. Subsequent to its purchase by the Tax Exempt Fund, an issue of Municipal Securities may cease to be rated or its rating may be reduced below the minimum rating required for purchase by the Fund. The Fund's investment adviser and sub-investment adviser will consider such an event in determining whether the Fund should continue to hold the obligation. See the Appendix attached hereto for further information concerning ratings and their significance. An issuer's obligations under its Municipal Securities are 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 federal 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 Securities may be materially adversely affected. Among other instruments, the Tax Exempt Fund 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. Bank Obligations. The Cash Reserve Fund may purchase bank obligations, including United States dollar-denominated instruments issued or supported by the credit of the United States or foreign banks or savings institutions having total assets at the time of purchase in excess of $1 billion. While the Cash Reserve Fund will invest in obligations of foreign banks or foreign branches of United States banks only if the Fund's investment adviser deem the instrument to present minimal credit risks, such investments may nevertheless entail risks that are different from those of investments in domestic obligations of United States banks due to differences in political, regulatory and economic systems and conditions. Such risks include future political and economic developments, the possible imposition of withholding taxes on interest income, possible establishment of exchange controls or the adoption of other foreign governmental restrictions which might adversely affect the payment of principal and interest on such obligations. The Cash Reserve Fund may also make interest-bearing savings deposits in commercial and savings banks in amounts not in excess of 5% of its assets. Variable Rate Master Demand Notes. Each Fund may also purchase variable rate master demand notes, which are unsecured instruments that permit the indebtedness thereunder to vary and provide for periodic adjustments in the interest rate. Although the notes are not normally traded and there may be no secondary market in the notes, the Fund may demand payment of principal and accrued interest at any time and may resell the note at any time to a third party. In the event an issuer of a variable rate master demand note defaulted on its payment obligation, the Fund might be unable to dispose of the note because of the absence of a secondary market and might, for this or other reasons, suffer a loss to the extent of the default. Variable rate master demand notes held by a Fund may have maturities of more than thirteen months, provided: (i) the Fund is entitled to payment of principal and accrued 3 43 interest upon not more than seven days' notice and (ii) the rate of interest on such notes is adjusted automatically at periodic intervals which may extend up to thirteen months. In determining the Fund's average weighted portfolio maturity and whether a variable rate master demand note has a remaining maturity of thirteen months or less, each note will be deemed by the Fund to have a maturity equal to the longer of the period remaining until its next interest rate adjustment or the period remaining until the principal amount owed can be recovered through demand. In determining whether an unrated variable rate master demand note is of comparable quality at the time of purchase to instruments rated "high quality" by any major rating service or when purchasing variable rate master demand notes, the Fund's investment adviser and, for the Tax Exempt Fund, sub-investment adviser will consider the earning power, cash flow and other liquidity ratios of the issuer of the note and will continuously monitor its financial condition. In addition, when necessary to ensure that a note is of "high quality," the Fund will require that the issuer's obligation to pay the principal of the note be backed by an unconditional bank letter of line of credit, guarantee or commitment to lend. In the event an issuer of a variable rate master demand note defaults on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and might, for this or other reasons, suffer a loss to the extent of the default. However, a Fund will invest in such instruments only where its investment adviser and, for the Tax Exempt Fund, sub-investment adviser believe that the risk of such loss is minimal. In determining average weighted portfolio maturity, a variable rate master demand note will be deemed to have a maturity equal to the longer of the period remaining to the next interest rate adjustment or the demand note period. Government Securities. Government Securities in which the Funds may invest include Treasury Bills, Treasury Notes and Treasury Bonds; other obligations that are supported by the full faith and credit of the United States Treasury, such as Government National Mortgage Association pass-through certificates; obligations that are supported by the right of the issuer to borrow from the Treasury, such as securities of Federal Home Loan Banks; and obligations that are supported only by the credit of the instrumentality, such as Federal National Mortgage Association bonds. When-Issued Securities. A Fund may purchase Municipal Securities or portfolio securities, as the case may be, on a "when-issued" basis (i.e., for delivery beyond the normal settlement date at a stated price and yield). Each Fund may purchase portfolio securities on a "when-issued" basis. When-issued securities are securities purchased for delivery beyond the normal settlement date at a stated price and yield. A Fund will generally not pay for such securities or start earning interest on them until they are received. Securities purchased on a when-issued basis are recorded as an asset and are subject to changes in value based upon changes in the general level of interest rates. Each Fund expects that commitments to purchase when-issued securities will not exceed 20% of the value of its total assets absent unusual market conditions, and that a commitment by the Fund to purchase when-issued securities will generally not exceed 45 days. Neither Fund intends to purchase when-issued securities for speculative purposes but only in furtherance of its investment objectives. When a Fund agrees to purchase when-issued securities, its custodian will set aside cash or liquid securities in a segregated account equal to the amount of the commitment. 4 44 Normally, the custodian will set aside portfolio securities to satisfy a purchase commitment, and in such a case the 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 the 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. Because the Fund will set aside cash and liquid assets to satisfy its purchase commitments in the manner described, the Fund's liquidity and ability to manage its portfolio might be affected in the event its commitments to purchase when-issued securities ever exceeded 25% of the value of its assets. When a Fund engages in when-issued transactions, it relies on the seller to consummate the trade. Failure of the seller to do so may result in the Fund's incurring a loss or missing an opportunity to obtain a price considered to be advantageous. Repurchase Agreements. Each Fund may agree to purchase money market instruments from financial institutions such as banks and broker-dealers subject to the seller's agreement to repurchase them at an agreed-upon date and price ("repurchase agreements"). The repurchase price generally equals the price paid by the Fund plus interest negotiated on the basis of current short-term rates (which may be more or less than the rate on the securities underlying the repurchase agreement). Default by a seller, if the Fund is delayed or prevented from exercising its rights to dispose of the collateral securities, could expose the Fund to possible loss, including the risk of a possible decline in the value of the underlying securities during the period while the Fund seeks to assert its rights thereto. Repurchase agreements are considered to be loans by the Fund under the 1940 Act. The seller under a repurchase agreement will be required to maintain the value of the securities subject to the agreement at not less than the repurchase price (including accrued interest). Securities subject to repurchase agreements will be held by the Fund's custodian or in the Federal Reserve/Treasury book-entry system or another authorized securities depository. Reverse Repurchase Agreements and Borrowings. Each Fund may borrow funds for temporary purposes and not for leverage by agreeing to sell portfolio securities to financial institutions such as banks and broker-dealers and to repurchase them at a mutually agreed-upon date and price. At the time the Fund enters into such an arrangement (a "reverse repurchase agreement"), it will place in a segregated custodial account cash or liquid securities having a value equal to the repurchase price (including accrued interest) and will subsequently monitor the account to ensure that such equivalent value is maintained. Reverse repurchase agreements involve the risk that the market value of the securities sold by the Fund may decline below the repurchase price of those securities. Reverse repurchase agreements are considered to be borrowings by the Fund under the 1940 Act. Stand-By Commitment Agreements. (Tax Exempt Fund only). The Fund may acquire "stand-by commitments" with respect to Municipal Securities held in its portfolio. Under a stand-by commitment, a dealer agrees to purchase at the Fund's option specified Municipal Securities at a specified price. Stand-by commitments acquired by the Fund may also be referred to as "put" options. The Fund's right to exercise stand-by commitments is unconditional and unqualified. A stand-by commitment is not transferable by the Fund, although the Fund can sell the underlying securities to a third party at any time. 5 45 The principal risk of a stand-by commitment is that the writer of a commitment may default on its obligation to repurchase the securities acquired with it. The Fund intends to enter into stand-by commitments only with brokers, dealers and banks that, in the opinion of Credit Suisse Asset Management, LLC, each Fund's investment adviser ("CSAM"), present minimal credit risks. In evaluating the creditworthiness of the issuer of a stand-by commitment, CSAM will periodically review relevant financial information concerning the issuer's assets, liabilities and contingent claims. The amount payable to the Fund upon its exercise of a stand-by commitment is normally (i) the Fund's acquisition cost of the Municipal Securities (excluding any accrued interest which the Fund paid on their acquisition), less any amortized market premium or plus any amortized market or original issue discount during the period the Fund owned the securities, plus (ii) all interest accrued on the securities since the last interest payment date during that period. The Fund expects that stand-by commitments will generally be available without the payment of any direct or indirect consideration. However, if necessary or advisable, the Fund may pay for a stand-by commitment either separately in cash or by paying a higher price for portfolio securities which are acquired subject to the commitment (thus reducing the yield to maturity otherwise available for the same securities). The total amount paid in either manner for outstanding stand-by commitments held in the Fund's portfolio will not exceed 1/2 of 1% of the value of the Fund's total assets calculated immediately after each stand-by commitment is acquired. The Fund would acquire stand-by commitments solely to facilitate portfolio liquidity and does not intend to exercise its rights thereunder for trading purposes. The acquisition of a stand-by commitment would not affect the valuation or assumed maturity of the underlying Municipal Securities which, as noted, would continue to be valued in accordance with the amortized cost method. Stand-by commitments acquired by the Fund would be valued at zero in determining net asset value. Where the Fund paid any consideration directly or indirectly for a stand-by commitment, its cost would be reflected as unrealized depreciation for the period during which the commitment was held by the Fund. Stand-by commitments would not affect the average weighted maturity of the Fund's portfolio. The Internal Revenue Service has issued a revenue ruling to the effect that a registered investment company will be treated for federal income tax purposes as the owner of the Municipal Securities acquired subject to a stand-by commitment and the interest on the Municipal Securities will be tax-exempt to the Fund. Third Party Puts. (Tax Exempt Fund only). The Fund may purchase long-term fixed rate bonds that have been coupled with an option granted by a third party financial institution allowing the Fund at specified intervals to tender (or "put") the bonds to the institution and receive the face value thereof (plus accrued interest). These third party puts are available in several different forms, may be represented by custodial receipts or trust certificates and may be combined with other features such as interest rate swaps. The Fund receives a short-term rate of interest (which is periodically reset), and the interest rate differential between that rate and the fixed rate on the bond is retained by the financial institution. The financial institution granting 6 46 the option does not provide credit enhancement, and in the event that there is a default in the payment of principal or interest, or downgrading of a bond to below investment grade, or a loss of the bond's tax-exempt status, the put option will terminate automatically, the risk to the Fund will be that of holding such a long-term bond and the dollar-weighted average maturity of the Fund's portfolio would be adversely affected. These bonds coupled with puts may present the same tax issues as are associated with stand-by commitments. As with any stand-by commitment, the Fund intends to take the position that it is the owner of any municipal obligation acquired subject to a third party put, and that tax-exempt interest earned with respect to such municipal obligations will be tax-exempt in its hands. There is no assurance that the Internal Revenue Service will agree with such position in any particular case. Additionally, the federal income tax treatment of certain other aspects of these investments, including the treatment of tender fees and swap payments, in relation to various regulated investment company tax provisions is unclear. However, CSAM, intends to manage the Fund's portfolio in a manner designed to minimize any adverse impact from these investments. Taxable Investments. (Tax Exempt Fund only). Because the Fund's purpose is to provide income excluded from gross income for federal income tax purposes and exempt from New York State and New York City personal income taxes, the Fund generally will invest in taxable obligations only if and when the investment adviser believes it would be in the best interests of the Fund's investors to do so. Situations in which the Fund may invest up to 20% of its total assets in taxable securities include: (i) pending investment of proceeds of sales of Fund shares or the sale of its portfolio securities or (ii) when the Fund requires highly liquid securities in order to meet anticipated redemptions. The Fund may temporarily invest more than 20% of its total assets in taxable securities to maintain a "defensive" posture when the Fund's investment adviser determines that it is advisable to do so because of adverse market conditions affecting the market for Municipal Securities generally. Among the taxable investments in which the Fund may invest are repurchase agreements and time deposits maturing in not more than seven days. The Fund may agree to purchase money market instruments from financial institutions such as banks and broker-dealers subject to the seller's agreement to repurchase them at an agreed-upon date and price ("repurchase agreements"). The seller under a repurchase agreement will be required to maintain the value of the securities subject to the agreement at not less than the repurchase price (including accrued interest). Securities subject to repurchase agreements will be held by the Fund's custodian or in the Federal Reserve/Treasury book-entry system or another authorized securities depository. Alternative Minimum Tax Bonds. Each Fund may invest in "Alternative Minimum Tax Bonds," which are certain bonds issued after August 7, 1986 to finance certain non-governmental activities (in the case of the Tax Exempt Fund, up to 20% of its total assets). While the income from Alternative Minimum Tax Bonds is exempt from regular federal income tax, it is a tax preference item for purposes of the federal individual and corporate "alternative minimum tax." The alternative minimum tax is a special tax that applies to a limited number of taxpayers who have certain adjustments or tax preference items. Available returns on Alternative Minimum Tax Bonds acquired by a Fund may be lower than those from other 7 47 Municipal Obligations acquired by a Fund due to the possibility of federal, state and local alternative minimum tax liability on Alternative Minimum Tax Bonds. At present, the Cash Reserve Fund does not intend to purchase Alternative Minimum Tax Bonds. Other Investment Policies and Practices of the Tax Exempt Fund. Non-Diversified Status. The Tax Exempt Fund is classified as non-diversified within the meaning of the 1940 Act, which means that it is not limited by such Act in the proportion of its assets that it may invest in securities of a single issuer. The Fund's investments will be limited, however, in order to qualify as a "regulated investment company" for purposes of the Code. See "Additional Information Concerning Taxes." To qualify, the Fund will comply with certain requirements, including limiting its investments so that at the close of each quarter of the taxable year (a) not more than 25% of the market value of its total assets will be invested in the securities of a single issuer, and (b) 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. Special Considerations and Risk Factors. In seeking to achieve its investment objective the Tax Exempt Fund may invest all or any part of its assets in Municipal Securities which are industrial development bonds. Moreover, although the Tax Exempt Fund does not currently intend to do so on a regular basis, it may invest more than 25% of its assets in Municipal Securities the interest on which is paid solely from revenues of economically related projects, if such investment is deemed necessary or appropriate by the Fund's investment adviser and sub-investment adviser. To the extent that the Fund's assets are concentrated in Municipal Securities payable from revenues on economically related projects and facilities, the Fund will be subject to the peculiar risks presented by such projects to a greater extent than it would be if the Fund's assets were not so concentrated. The Tax Exempt Fund also invests in securities backed by guarantees from banks and other financial institutions. The Fund's ability to maintain a stable share price is largely dependent upon such guarantees, which are not supported by federal deposit insurance. Consequently, changes in the credit quality of these institutions could have an adverse impact on securities they have guaranteed or backed, which could cause losses to the Fund and affect its share price. As a non-diversified mutual fund, the Tax Exempt Fund may invest a greater proportion of its assets in the obligations of a smaller number of issuers and, as a result, will be subject to greater credit risk with respect to its portfolio securities. In the opinion of the Fund's adviser, any risk to the Fund should be limited by its intention to continue to conduct its operations so as to qualify as a "regulated investment company" for purposes of the Internal Revenue Code of 1986, as amended (the "Code"), and by its policies restricting investments to obligations with short-term maturities and high quality credit ratings. The Tax Exempt Fund's ability to achieve its investment objective is dependent upon the ability of the issuers of New York Municipal Securities to meet their continuing obligations for the payment of principal and interest. New York State and New York City face 8 48 long-term economic problems that could seriously affect their ability and that of other issuers of New York Municipal Securities to meet their financial obligations. Certain substantial issuers of New York Municipal Securities (including issuers whose obligations may be acquired by the Fund) have, at times, experienced serious financial difficulties. These difficulties have jeopardized the credit standing and impaired the borrowing abilities of all New York issuers and have generally contributed to higher interest costs for their borrowings and fewer markets for their outstanding debt obligations. Although several different issues of municipal securities of New York State and its agencies and instrumentalities and of New York City have been downgraded by S&P and Moody's in recent years, the most recent actions of S&P and Moody's have been to place the debt obligations of New York State on CreditWatch with positive implications and to upgrade the debt obligations of New York City, respectively. Strong demand for New York Municipal Securities has also at times had the effect of permitting New York Municipal Securities to be issued with yields relatively lower, and after issuance, to trade in the market at prices relatively higher, than comparably rated municipal obligations issued by other jurisdictions. A recurrence of the financial difficulties previously experienced by certain issuers of New York Municipal Securities could result in defaults or declines in the market values of those issuers' existing obligations and, possibly, in the obligations of other issuers of New York Municipal Securities. Although as of the date of this Statement of Additional Information, no issuers of New York Municipal Securities are in default with respect to the payment of their municipal securities, the occurrence of any such default could affect adversely the market values and marketability of all New York Municipal Securities and, consequently, the net asset value of the Fund's portfolio. Other Investment Limitations. Cash Reserve Fund. The investment limitations numbered 1 through 10 may not be changed without the affirmative vote of the holders of a majority of the Fund's outstanding shares. Such majority is defined as the lesser of (i) 67% or more of the shares present at a meeting, if the holders of more than 50% of the outstanding shares of the Fund are present or represented by proxy, or (ii) more than 50% of the outstanding shares. Investment limitations 11 and 12 may be changed by a vote of the Fund's Board of Directors (the "Board") at any time. The Cash Reserve Fund may not: 1. Invest in common stocks, preferred stocks, warrants, other equity securities, corporate bonds or indentures, state bonds, municipal bonds or industrial revenue bonds. 2. Purchase the securities of any issuer if as a result more than 5% of the value of the Fund's assets would be invested in the securities of such issuer, except that this 5% limitation does not apply to securities issued or guaranteed by the United States government, its agencies or instrumentalities, and except that up to 25% of the value of the Fund's assets may be invested without regard to this 5% limitation. 3. Borrow money, issue senior securities or enter into reverse repurchase agreements except for temporary or emergency purposes and not for leveraging, and then in 9 49 amounts not in excess of 10% of the value of the Fund's assets at the time of such borrowing; or mortgage, pledge or hypothecate any assets except in connection with any such borrowing and in amounts not in excess of the lesser of the dollar amounts borrowed or 10% of the value of the Fund's assets at the time of such borrowing. The Fund does not currently intend to enter into reverse repurchase agreements in amounts in excess of 5% of its assets at the time the agreement is entered into. Whenever borrowings exceed 5% of the value of the Fund's total assets, the Fund will not make any additional investments. 4. Purchase any securities which would cause more than 25% of the value of the Fund's total assets at the time of purchase to be invested in the securities of issuers conducting their principal business activities in the same industry; provided that there shall be no limit on the purchase of obligations issued or guaranteed by the United States, any state, territory or possession of the United States, the District of Columbia or any of their authorities, agencies, instrumentalities or political sub-divisions or certificates of deposit, time deposits, savings deposits and bankers' acceptances. 5. Make loans except that the Fund may purchase or hold debt obligations in accordance with its investment objective, policies and limitations and enter into repurchase agreements. 6. Underwrite any issue of securities except to the extent that the purchase of debt obligations directly from the issuer thereof in accordance with the Fund's investment objective, policies and limitations may be deemed to be underwriting. 7. Purchase securities on margin, make short sales of securities or maintain a short position. 8. Write or sell puts, calls, straddles, spreads or combinations thereof. 9. Purchase or sell real estate, real estate investment trust securities, commodities or commodity contracts, or invest in oil, gas or mineral exploration or development programs, except that the Fund may purchase commercial paper issued by companies that invest in real estate or interests therein. 10. Purchase securities of other investment companies except in connection with a merger, consolidation, acquisition or reorganization. 11. Invest more than 10% of the value of the Fund's total assets in securities which may be illiquid because of legal or contractual restrictions on resale or securities for which there are no readily available market quotations. For purposes of this limitation, repurchase agreements with maturities greater than seven days after notice by the Fund, variable rate master demand notes providing for settlement upon maturities longer than seven days and savings accounts which require more than seven days' notice prior to withdrawal shall be considered illiquid securities. 12. Invest in oil, gas or mineral leases. 10 50 If a percentage restriction (other than the percentage limitation set forth in No. 3 above) is adhered to at the time of an investment, a later increase or decrease in the percentage of assets resulting from a change in the values of portfolio securities or in the amount of the Fund's assets will not constitute a violation of such restriction. Tax Exempt Fund. The investment limitations numbered 1 through 9 may not be changed without the affirmative vote of the holders of a majority of the Fund's outstanding shares. Such majority is defined as the lesser of (i) 67% or more of the shares present at a meeting, if the holders of more than 50% of the outstanding shares of the Fund are present or represented by proxy, or (ii) more than 50% of the outstanding shares. Investment limitations 10 and 11 may be changed by a vote of the Fund's Board of Directors (the "Board") at any time. The Tax Exempt Fund may not: 1. Invest less than 80% of its assets in securities the interest on which is exempt from federal income tax, except during temporary defensive periods or under unusual market conditions, as determined by the Fund's investment adviser. 2. Borrow money, issue senior securities or enter into reverse repurchase agreements except for temporary or emergency purposes, and not for leveraging, and then in amounts not in excess of 10% of the value of the Fund's assets at the time of such borrowing; or mortgage, pledge or hypothecate any assets except in connection with any such borrowing and in amounts not in excess of the lesser of the dollar amounts borrowed or 10% of the value of the Fund's assets at the time of such borrowing. The Fund does not currently intend to enter into reverse repurchase agreements in amounts in excess of 5% of its assets at the time the agreement is entered into. Whenever borrowings exceed 5% of the value of the Fund's total assets, the Fund will not make any additional investments. 3. Purchase any securities which would cause more than 25% of the value of the Fund's total assets at the time of purchase to be invested in the securities of issuers conducting their principal business activities in the same industry; provided that there shall be no limit on the purchase of (i) obligations issued by the United States, any state, territory or possession of the United States, the District of Columbia or any of their authorities, agencies, instrumentalities or political sub-divisions, (ii) certificates of deposit issued by United States branches of United States banks or (iii) Municipal Securities the interest on which is paid solely from revenues of economically related projects. For purposes of this restriction, private activity securities ultimately payable by companies within the same industry are treated as if they were issued by issuers in the same industry. 4. Make loans except that the Fund may purchase or hold debt obligations and enter into repurchase agreements in accordance with its investment objective, policies and limitations. 5. Underwrite any issue of securities except to the extent that the purchase of debt obligations directly from the issuer thereof in accordance with the Fund's investment objective, policies and limitations may be deemed to be underwriting. 10 51 6. Purchase or sell real estate, real estate investment trust securities, commodities or commodity contracts, or invest in oil, gas or mineral exploration or development programs, except that the Fund may invest in debt obligations secured by real estate, mortgages or interests therein. 7. Purchase securities on margin, make short sales of securities or maintain short positions. 8. Write or sell puts, calls, straddles, spreads or combinations thereof, except that the Fund may acquire stand-by commitments. 9. Purchase securities of other investment companies except in connection with a merger, consolidation, acquisition or reorganization. 10. Invest more than 10% of the value of the Fund's total assets in securities which may be illiquid because of legal or contractual restrictions on resale or securities for which there are not readily available market quotations. For purposes of this limitation, repurchase agreements with maturities greater than seven days and variable rate master demand notes providing for settlement upon more than seven days notice by the Fund and time deposits maturing in more than seven calendar days shall be considered illiquid securities. 11. Invest in oil, gas or mineral leases. If a percentage restriction (other than the percentage limitation set forth in No. 2 above) is adhered to at the time of an investment, a later increase or decrease in the percentage of assets resulting from a change in the values of portfolio securities or in the amount of the Fund's assets will not constitute a violation of such restriction. PORTFOLIO VALUATION Each Fund's portfolio securities are valued on the basis of amortized cost. Under this method, the Fund values a portfolio security at cost on the date of purchase and thereafter assumes a constant value of the security for purposes of determining net asset value, which normally does not change in response to fluctuating interest rates. Although the amortized cost method seems to provide certainty in portfolio valuation, it may result in periods during which values, as determined by amortized cost, are higher or lower than the amount the Fund would receive if it sold the securities. In connection with amortized cost valuation, the Board has established procedures that are intended to stabilize the Fund's net asset value per share for purposes of sales and redemptions at $1.00. These procedures include review by the Board, at such intervals as it deems appropriate, to determine the extent, if any, to which the Fund's net asset value per share calculated by using available market quotations deviates from $1.00 per share. In the event such deviation exceeds 1/2 of 1%, the Board will promptly consider what action, if any, should be initiated. If the Board believes that the amount of any deviations from the Fund's $1.00 amortized cost price per share may result in material dilution or other unfair results to investors or existing shareholders, it will take such steps as it considers appropriate to eliminate or reduce to the extent reasonably practicable any such dilution or unfair results. These steps may include selling portfolio instruments prior to maturity; shortening the Fund's average portfolio maturity; withholding or reducing dividends; redeeming shares in kind; reducing the 12 52 number of the Fund's outstanding shares without monetary consideration; or utilizing a net asset value per share determined by using available market quotations. PORTFOLIO TRANSACTIONS CSAM is responsible for establishing, reviewing, and, where necessary, modifying a Fund's investment program to achieve its investment objective and, with respect to the Tax Exempt Fund, for supervising the activities of BlackRock Institutional Management Corporation ("BIMC"), the Tax Exempt Fund's sub-investment adviser. CSAM and, with respect to the Tax Exempt Fund, BIMC generally will select specific portfolio investments and effect transactions for the relevant Fund. Purchases and sales of portfolio securities are usually principal transactions without brokerage commissions effected directly with the issuer or with dealers who specialize in money market instruments. CSAM and BIMC seek to obtain the best net price and the most favorable execution of Fund orders. To the extent that the execution and price offered by more than one dealer are comparable, CSAM and BIMC may, each in its discretion, effect transactions in portfolio securities with dealers who provide the relevant Fund with research advice or other services. Investment decisions for a Fund concerning specific portfolio securities are made independently from those for other clients advised by CSAM and BIMC. Such other investment clients may invest in the same securities as a Fund. When purchases or sales of the same security are made at substantially the same time on behalf of such other clients, transactions are averaged as to price, and available investments allocated as to amount, in a manner which CSAM and BIMC, as applicable, believe to be equitable to each client, including the relevant Fund. In some instances, this investment procedure may adversely affect the price paid or received by a Fund or the size of the position obtained or sold for a Fund. To the extent permitted by law, CSAM and BIMC, as applicable, may aggregate the securities to be sold or purchased for a Fund with those to be sold or purchased for such other investment clients in order to obtain best execution. In no instance will portfolio securities of either Fund be purchased from or sold to CSAM, Credit Suisse Asset Management Securities, Inc. ("CSAMSI") or Credit Suisse First Boston ("CS First Boston") or any affiliated person of such companies, except pursuant to an exemption received from the SEC. Similarly, no portfolio securities of the Tax Exempt Fund will be purchased from or sold to BIMC or any affiliate except pursuant to an SEC exemption. In addition, a Fund will not give preference to any institutions with whom the Fund enters into distribution or shareholder servicing agreements concerning the provision of distribution services or support services. The Tax Exempt Fund may participate, if and when practicable, in bidding for the purchase of Municipal Securities directly from an issuer for the Fund's portfolio in order to take advantage of the lower purchase price available to members of such a group. The Fund will engage in this practice, however, only when CSAM and BIMC, in their sole discretion, believe such practice to be otherwise in the Fund's interest. Each Fund does not intend to seek profits through short-term trading. A Fund's annual portfolio turnover will be relatively high but the Fund's portfolio turnover is not expected 13 53 to have a material effect on its net income. Each Fund's portfolio turnover is expected to be zero for regulatory reporting purposes. SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL SECURITIES Some of the significant financial considerations relating to the Tax Exempt Fund's investments in New York Municipal Securities are summarized below. This summary information is not intended to be a complete description and is principally derived from the Annual Information Statement of the State of New York as supplemented and contained in official statements relating to issues of New York Municipal Securities that were available prior to the date of this Statement of Additional Information. The accuracy and completeness of the information contained in those official statements have not been independently verified. State Economy New York State (sometimes referred to in this Statement of Additional Information as the "State") is one of the most populous states in the nation and has a relatively high level of personal wealth. The State's economy is diverse with a comparatively large share of the nation's finance, insurance, transportation, communications and services employment, and a very small share of the nation's farming and mining activity. The State's location and its excellent air transport facilities and natural harbors have made it an important link in international commerce. Travel and tourism constitute an important part of the economy. Like the rest of the nation, New York has a declining proportion of its workforce engaged in manufacturing, and an increasing proportion engaged in service industries. Relative to the nation, the State has a smaller share of manufacturing and construction and a larger share of service-related industries. The State's finance, insurance and real estate share, as measured by wages, is particularly large relative to the nation. The State is likely to be less affected than the nation as a whole during an economic recession that is concentrated in manufacturing and construction, but likely to be more affected by any economic downturn that is concentrated in the services sector. The forecast of the State's economy showed continued expansion throughout 2000. Most major sectors recorded significant employment gains for the first quarter of 2000, with the services sector accounting for most of the increase. Much of this increase occurred in business services. The employment growth rate in 2000 was expected to be 2.1 percent, which, although lower than 1999's 2.6 percent, represented another strong year relative to recent historical performance. The unemployment rate was expected to be 4.9 percent in 2000, down from 5.1 percent in 1999. Personal income was expected to rise 6.1 percent in 2000, with a 7.5 percent increase in wages. Two major factors were working to produce this impressive growth in wages. One was the overall tightness in the labor market, and the other was strong growth in financial sector bonus payments. 14 54 Given the importance of the securities industry in the New York State economy, a significant change in stock market performance during the forecast horizon could result in financial sector profits and bonuses that are significantly different from those embodied in the forecast. Any actions by the Federal Reserve Board to moderate inflation by increasing interest rates more than anticipated may have an adverse impact in New York given the sensitivity of financial markets to interest rate shifts and the prominence of these markets in the New York economy. In addition, there is a possibility that greater-than-anticipated mergers, downsizing, and relocation of firms caused by deregulation and global competition may have a significant adverse effect on employment growth. There can be no assurance that the State economy will not experience worse-than-predicted results, with corresponding material and adverse effects on the State's projections of receipts and disbursements. State Budget The State Constitution requires the governor (the "Governor") to submit to the State legislature (the "Legislature") a balanced executive budget which contains a complete plan of expenditures for the ensuing fiscal year and all moneys and revenues estimated to be available therefor, accompanied by bills containing all proposed appropriations or reappropriations and any new or modified revenue measures to be enacted in connection with the executive budget. The entire plan constitutes the proposed State financial plan (the "State Financial Plan") for that fiscal year. The Governor is required to submit to the Legislature quarterly budget updates which include a revised cash-basis State Financial Plan, and an explanation of any changes from the previous State Financial Plan. State law requires the Governor to propose a balanced budget each year. In recent years, the State has closed projected budget gaps of $5.0 billion (1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than $1 billion (1998-99). The State's 2000-2001 fiscal year began on April 1, 2000 and ended on March 31, 2001. On March 30, 2000, the State adopted the debt service portion of the State budget for the 2000-01 fiscal year; the remainder of the budget was enacted by the State Legislature on May 5, 2000, 35 days after the statutory deadline of April 1. The Governor approved the budget as passed by the Legislature. Prior to passing the budget in its entirety for the 2000-2001 fiscal year, the State enacted interim appropriations that permitted the State to continue its operations. In 2000-01, General Fund disbursements, including transfers to support capital projects, debt service and other funds, were estimated at $38.92 billion, an increase of $1.75 billion or 4.72 percent over 1999-2000. Spending under the 2000-01 enacted budget was projected at $992 million above the Governor's Executive Budget recommendations, including 30-day amendments submitted January 31, 2000. 15 55 The 2000-01 State Financial Plan projected closing balances in the General Fund and other reserves of $3.2 billion, including $1.71 billion in the General Fund. This closing balance was comprised of $675 million in reserves for potential labor costs resulting from new collective bargaining agreements and other spending commitments, $547 million in the Tax Stabilization Reserve Fund ("TSRF") (for use in case of unanticipated deficits), $150 million in the Contingency Reserve Fund ("CRF") (which helps offset litigation risks), and $338 million in the Community Projects Fund ("CPF") (which finances legislative initiatives). In addition to the $1.71 billion balance in the General Fund, $1.2 billion was projected for reserve in the STAR Special Revenue Fund and $250 million in the Debt Reduction Reserve Fund ("DRRF"). Several developments arising from negotiations on the budget will affect State finances in subsequent years. First, a portion of Legislative additions to the 2000-01 Executive Budget will recur at higher spending levels in 2001-02 and beyond, including increased funding for school aid, tuition assistance, and prescription drug coverage for the elderly. Second, the Legislature enacted the Debt Reform Act of 2000 ("Debt Reform Act"). The Debt Reform Act, which applies to new State-supported debt issued on or after April 1, 2000, imposes caps on new debt outstanding and new debt service costs, restricts the use of debt to capital purposes only, and restricts the maximum term of State debt issuances to no more than 30 years. Finally, the State adopted an additional tax relief package that will reduce tax receipts by $1.2 billion when fully effective; this package includes the elimination or reduction of gross receipts tax on energy ($330 million), the expansion of the "Power for Jobs" energy tax credit program ($125 million), a college tuition deduction or credit taken against personal income taxes ($200 million), and reduction of the marriage penalty for taxpayers who file jointly ($200 million). The General Fund is the principal operating fund of the State and is used to account for all financial transactions except those required to be accounted for in another fund. It is the State's largest fund and receives almost all State taxes and other resources not dedicated to particular purposes. In the State's 2000-01 fiscal year, the General Fund (exclusive of transfers) was expected to account for approximately 46.6 percent of all Governmental funds disbursements and 67.8 percent of total State funds disbursements. General Fund moneys are also transferred to other funds, primarily to support certain capital projects and debt service payments in other fund types. Total General Fund receipts and transfers from other funds were projected to be $39.72 billion in 2000-01, an increase of $2.32 billion over 1999-2000. Total General Fund disbursements and transfers to other funds were projected to be $38.92 billion, an increase of $1.75 billion over 1999-2000. Total General Fund receipts and transfers from other funds in 2000-01 were projected to be $39.72 billion, an increase of $2.32 billion from the $37.40 billion recorded in 1999-2000. This total includes $36.35 billion in tax receipts, 16 56 $1.34 billion in miscellaneous receipts, and $2.03 billion in transfers from other funds. The transfer of $3.4 billion in net resources through the tax refund reserve account from 1999-2000 to the 2000-01 fiscal period has the effect of exaggerating the growth in State receipts from year to year by depressing reported 1999-2000 figures and inflating 2000-01 projections. General Fund disbursements, including transfers to support capital projects, debt service and other funds, were estimated at $38.92 billion in 2000-01, an increase of $1.75 billion or 4.7 percent over 1999-2000. Following the pattern of the last three fiscal years, education programs received the largest share of increased funding in the 2000-01 State Financial Plan. School aid was projected to grow by $850 million or 8.0 percent over 1999-2000 (on a State fiscal year basis). Spending on other local education and higher education programs also increased significantly from the prior year, growing by $376 million or 13.3 percent. Outside of education, the largest growth in spending was for State operations ($507 million) and general State charges ($104 million). Projected spending in the 2000-01 State Financial Plan was $992 million above the Executive Budget projections. The increase in General Fund spending was comprised of legislative additions to the Executive Budget (primarily in education), offset by various spending reestimates, including lower projected spending for Medicaid, welfare, debt service and general State charges. The State Financial Plan also reflected the use of resources from the Health Care Reform Act of 2000 ("HCRA 2000") that would help finance several health and mental hygiene programs in Special Revenue Funds, including prescription drug assistance for the elderly, supplemental Medicare insurance, and other public health services. Despite recent budgetary surpluses recorded by the State, actions affecting the level of receipts and disbursements, the relative strength of the State and regional economy, and actions by the federal government could impact projected budget gaps for the State. These gaps would result from a disparity between recurring revenues and the costs of increasing the level of support for State programs. To address a potential imbalance in any given fiscal year, the State would be required to take actions to increase receipts and/or reduce disbursements as it enacts the budget for that year, and, under the State Constitution, the Governor is required to propose a balanced budget each year. There can be no assurance, however, that the Legislature will enact the Governor's proposals or that the State's actions will be sufficient to preserve budgetary balance in a given fiscal year or to align recurring receipts and disbursements in future fiscal years. There can also be no assurance that the Legislature will enact into law the Governor's Executive Budget, as amended, or that the State's adopted budget projections will not differ materially and adversely from the projections set forth therein. 17 57 Over the long term, uncertainties with regard to the economy present the largest potential risk to future budget balance in New York State. For example, a downturn in the financial markets or the wider economy is possible, a risk that is heightened by the lengthy expansion experienced until recently. The securities industry is more important to the New York economy than the national economy as a whole, potentially amplifying the impact of an economic downturn. A large change in stock market performance or uncertainty with regard to the economy during the forecast horizon could result in wage, bonus, and unemployment levels that are significantly different from those embodied in the 2000-01 State Financial Plan forecast. Merging and downsizing by firms, as a consequence of deregulation or continued foreign competition, may also have more significant adverse effects on employment than expected. An ongoing risk to the 2000-01 State Financial Plan arises from the potential impact of certain litigation and federal disallowances now pending against the State, which could produce adverse effects on the State's projections of receipts and disbursements. The 2000-01 State Financial Plan contains projected reserves of $150 million in 2000-01 for such events, but assumes no significant federal disallowances or other federal actions that could affect State finances. The 2000-01 State Financial Plan assumes the availability of certain resources to finance portions of General Fund spending for fringe benefits, health and welfare programs. These resources could become unavailable or decrease, placing additional pressures on budget balance. The State ended its 1999-2000 fiscal year in balance on a cash basis, with a General Fund cash-basis surplus of $1.51 billion as reported by DOB. As in recent years, strong growth in receipts above forecasted amounts produced most of the year-end surplus. Spending was also modestly below projections, further adding to the surplus. The State reported a closing balance of $1.17 billion in the General Fund, an increase of $275 million over the closing balance from the prior year. The balance was held in four accounts within the General Fund: the TSRF, the CRF, the DRRF and the CPF which is used to finance legislative initiatives. The balance is comprised of $547 million in the TSRF after a deposit of $74 million in 1999-2000; $107 million in the CRF; $250 million in the DRRF; and $263 million in the CPF. The closing fund balance excludes $3.97 billion that the State deposited into the tax refund reserve account at the close of 1999-2000 to pay for tax refunds in 2000-01 of which $521 million was made available as a result of the Local Government Assistance Corporation ("LGAC") financing program and was required to be on deposit as of March 31, 2000. The tax refund reserve account transaction has the effect of decreasing reported personal income tax receipts in 1999-2000, while increasing reported receipts in 2000-01. General Fund receipts and transfers from other funds (net of tax refund reserve account activity) for the 1999-2000 fiscal year totaled $37.40 billion, an increase of 1.6 percent over 1998-99. General Fund disbursements and transfers to other funds totaled $37.17 billion, an increase of 1.6 percent from the prior fiscal year. 18 58 Many complex political, social and economic forces influence the State's economy and finances, which may in turn affect the State's Financial Plan. These forces may affect the State unpredictably from fiscal year to fiscal year and are influenced by governments, institutions, and organizations that are not subject to the State's control. The State Financial Plan is also necessarily based upon forecasts of national and State economic activity. Economic forecasts have frequently failed to predict accurately the timing and magnitude of changes in the national and the State economies. The DOB believes that its projections of receipts and disbursements relating to the current State Financial Plan, and the assumptions on which they are based, are reasonable. The projections assume no changes in federal tax law, which could substantially alter the current receipts forecast. In addition, these projections do not include funding for new collective bargaining agreements after the current contracts expire. Actual results, however, could differ materially and adversely from their projections, and those projections may be changed materially and adversely from time to time. Debt Limits and Outstanding Debt There are a number of methods by which the State of New York may incur debt. Under the State Constitution, the State may not, with limited exceptions for emergencies, undertake long-term general obligation borrowing (i.e., borrowing for more than one year) unless the borrowing is authorized in a specific amount for a single work or purpose by the Legislature and approved by the voters. There is no limitation on the amount of long-term general obligation debt that may be so authorized and subsequently incurred by the State. The State may undertake short-term borrowings without voter approval (i) in anticipation of the receipt of taxes and revenues, by issuing tax and revenue anticipation notes, and (ii) in anticipation of the receipt of proceeds from the sale of duly authorized but unissued general obligation bonds, by issuing bond anticipation notes. The State may also, pursuant to specific constitutional authorization, directly guarantee certain obligations of the State of New York's authorities and public benefit corporations ("Authorities"). Payments of debt service on New York State general obligation and New York State-guaranteed bonds and notes are legally enforceable obligations of the State of New York. The State employs additional long-term financing mechanisms, lease-purchase and contractual-obligation financings, which involve obligations of public authorities or municipalities that are State-supported but are not general obligations of the State. Under these financing arrangements, certain public authorities and municipalities have issued obligations to finance the construction and rehabilitation of facilities or the acquisition and rehabilitation of equipment, and expect to meet their debt service requirements through the receipt of rental or other contractual payments made by the State. Although these financing arrangements involve a contractual agreement by the State to make payments to a public authority, municipality or other entity, the State's obligation to make such payments is generally expressly made subject to appropriation by the Legislature and the actual availability of money to the State for making the payments. The State has also entered into a contractual-obligation financing arrangement with the LGAC to restructure the way the State makes certain local aid payments. 19 59 Sustained growth in the State's economy could contribute to closing projected budget gaps over the next several years, both in terms of higher-than-projected tax receipts and in lower-than-expected entitlement spending. In the past, the State has taken management actions to address potential State Financial Plan shortfalls, and DOB believes it could take similar actions should adverse variances occur in its projections for the current fiscal year. In addition, the State has projected year-end fund balances of up to $3.2 billion in 2000-01. On January 13, 1992, S&P reduced its ratings on the State's general obligation bonds from A to A- and, in addition, reduced its ratings on the State's moral obligation, lease purchase, guaranteed and contractual obligation debt. On August 28, 1997, S&P revised its ratings on the State's general obligation bonds from A- to A and revised its ratings on the State's moral obligation, lease purchase, guaranteed and contractual obligation debt. On March 5, 1999, S&P affirmed its A rating on the State's outstanding bonds. On March 10, 2000, S&P assigned its A+ rating on New York State's long-term general obligations. On December 19, 2000, S&P assigned its AA rating on New York State's long-term general obligations. On January 6, 1992, Moody's reduced its ratings on outstanding limited-liability State lease purchase and contractual obligations from A to Baa1. On February 28, 1994, Moody's reconfirmed its A rating on the State's general obligation long-term indebtedness. On March 20, 1998, Moody's assigned the highest commercial paper rating of P-1 to the short-term notes of the State. On March 5, 1999, Moody's affirmed its A2 rating with a stable outlook to the State's general obligations. In June 2000, Moody's revised its outlook on the State's general obligations from stable to positive. New York State has never defaulted on any of its general obligation indebtedness or its obligations under lease-purchase or contractual-obligation financing arrangements and has never been called upon to make any direct payments pursuant to its guarantees. Litigation The legal proceedings listed below involve State finances and programs and miscellaneous civil rights, real property, contract and other tort claims in which the State is a defendant and the potential monetary claims against the State are substantial, generally in excess of $100 million. These proceedings could adversely affect the financial condition of the State in the 2000-01 fiscal year or thereafter. The State will describe newly initiated proceedings which the State believes to be material, as well as any material and adverse developments in the listed proceedings, in updates or supplements to its Annual Information Statement. Certain litigation pending against New York State or its officers or employees could have a substantial or long-term adverse effect on New York State finances. Among the more significant of these cases are those that involve (1) the validity of agreements and treaties by which various Indian tribes transferred title to New York State of certain land in central and upstate New York; (2) certain aspects of New York State's Medicaid policies, including its rates, regulations and procedures; (3) action seeking enforcement of certain sales and excise taxes and 20 60 tobacco products and motor fuel sold to non-Indian consumers on Indian reservations; (4) a challenge to the Governor's application of his constitutional line item veto authority; (5) a civil rights action alleging that Yonkers and its public schools were intentionally segregated; (6) a challenge to the funding for New York City public schools; and (7) a challenge as to the adequacy of the shelter allowance granted to recipients of public assistance. Adverse developments in the proceedings described above, other proceedings for which there are unanticipated, unfavorable and material judgments, or the initiation of new proceedings could affect the ability of the State to maintain a balanced 2000-01 State Financial Plan. The State believes that the proposed 2000-01 State Financial Plan includes sufficient reserves to offset the costs associated with the payment of judgments that may be required during the 2000-01 fiscal year. These reserves include (but are not limited to) amounts appropriated for Court of Claims payments and projected fund balances in the General Fund. In addition, any amounts ultimately required to be paid by the State may be subject to settlement or may be paid over a multi-year period. There can be no assurance, however, that adverse decisions in legal proceedings against the State would not exceed the amount of all potential 2000-01 State Financial Plan resources available for the payment of judgments, and could therefore affect the ability of the State to maintain a balanced 2000-01 State Financial Plan. Although other litigation is pending against New York State, except as described herein, no current litigation involves New York State's authority, as a matter of law, to contract indebtedness, issue its obligations, or pay such indebtedness when it matures, or affects New York State's power or ability, as a matter of law, to impose or collect significant amounts of taxes and revenues. On November 23, 1998, the attorneys general for forty-six states (including New York) entered into a master settlement agreement ("MSA") with the nation's largest tobacco manufacturers. Under the terms of the MSA, the states agreed to release the manufacturers from all smoking-related claims in exchange for specified payments and the imposition of restrictions on tobacco advertising and marketing. New York is projected to receive $25 billion over 25 years under the MSA, with payments apportioned among the State (51 percent), counties (22 percent), and New York City (27 percent). The projected payments are an estimate and subject to adjustments for, among other things, the annual change in the volume of cigarette shipments and the rate of inflation. From 1999-2000 through 2002-03, the State expects to receive $1.54 billion under the nationwide settlement with cigarette manufacturers. Counties, including New York City, will receive settlement payments of $1.47 billion over the same period. The State plans to use $1.29 billion in tobacco settlement money over the next three years to finance health programs under HCRA 2000 ($1.01 billion) and projected 21 61 increased costs in Medicaid ($274 million). The remaining $250 million in one-time tobacco payments from 1999-2000 will be deposited to DRRF. Authorities The fiscal stability of New York State is related, in part, to the fiscal stability of its Authorities, which generally have responsibility for financing, constructing and operating revenue-producing public benefit facilities. Authorities are not subject to the constitutional restrictions on the incurrence of debt which apply to the State itself, and may issue bonds and notes within the amounts of, and as otherwise restricted by, their legislative authorization. The State's access to the public credit markets could be impaired, and the market price of its outstanding debt may be materially and adversely affected, if any of the Authorities were to default on their respective obligations, particularly with respect to debt that is State-supported or State-related. Authorities are generally supported by revenues generated by the projects financed or operated, such as fares, user fees on bridges, highway tolls and rentals for dormitory rooms and housing. In recent years, however, New York State has provided financial assistance through appropriations, in some cases of a recurring nature, to certain of the Authorities for operating and other expenses and, in fulfillment of its commitments on moral obligation indebtedness or otherwise, for debt service. This operating assistance is expected to continue to be required in future years. In addition, certain statutory arrangements provide for State local assistance payments otherwise payable to localities to be made under certain circumstances to certain Authorities. The State has no obligation to provide additional assistance to localities whose local assistance payments have been paid to Authorities under these arrangements. However, in the event that such local assistance payments are so diverted, the affected localities could seek additional State funds. For purposes of analyzing the financial condition of the State, debt of the State and of certain public authorities may be classified as State-supported debt, which includes general obligation debt of the State and lease-purchase and contractual obligations of public authorities (and municipalities) where debt service is paid from State appropriations (including dedicated tax sources, and other revenues such as patient charges and dormitory facilities rentals). In addition, a broader classification, referred to as State-related debt, includes State-supported debt, as well as certain types of contingent obligations, including moral obligation financings, certain contingent contractual-obligation financing arrangements, and State-guaranteed debt described above, where debt service is expected to be paid from other sources and State appropriations are contingent in that they may be made and used only under certain circumstances. New York City and Other Localities The fiscal health of the State may also be impacted by the fiscal health of its localities, particularly New York City (sometimes referred to in this Statement of Additional Information as the "City"), which has required and 22 62 continues to require significant financial assistance from the State. The City depends on State aid both to enable the City to balance its budget and to meet its cash requirements. There can be no assurance that there will not be reductions in State aid to the City from amounts currently projected or that State budgets will be adopted by the April 1 statutory deadline or that any such reductions or delays will not have adverse effects on the City's cash flow or expenditures. In addition, the Federal budget negotiation process could result in a reduction in or a delay in the receipt of Federal grants which could have additional adverse effects on the City's cash flow or revenues. In 1975, New York City suffered a fiscal crisis that impaired the borrowing ability of both the City and New York State. In that year the City lost access to the public credit markets. The City was not able to sell short-term notes to the public again until 1979. In 1975, S&P suspended its A rating of City bonds. This suspension remained in effect until March 1981, at which time the City received an investment grade rating of BBB from S&P. On July 2, 1985, S&P revised its rating of City bonds upward to BBB+ and on November 19, 1987, to A-. On February 3, 1998 and again on May 27, 1998, S&P assigned a BBB+ rating to the City's general obligation debt and placed the ratings on CreditWatch with positive implications. On March 9, 1999, S&P assigned its A- rating to Series 1999H of New York City general obligation bonds and affirmed the A- rating on various previously issued New York City bonds. Moody's ratings of City bonds were revised in November 1981 from B (in effect since 1977) to Ba1, in November 1983 to Baa, in December 1985 to Baa1, in May 1988 to A and again in February 1991 to Baa1. On February 25, 1998, Moody's upgraded approximately $28 billion of the City's general obligations from Baa1 to A3. On June 9, 1998, Moody's affirmed its A3 rating to the City's general obligations and stated that its outlook was stable. In August 2000, Moody's upgraded approximately $26 billion of the City's general obligations from A3 to A2. On March 8, 1999, Fitch IBCA upgraded New York City's $26 billion outstanding general obligation bonds from A- to A. Subsequent to that time, the City's general obligation bonds have not been downgraded by Fitch IBCA. In response to the City's fiscal crisis in 1975, the State took action to assist the City in returning to fiscal stability. Among those actions, the State established the Municipal Assistance Corporation for the City of New York ("NYC MAC") to provide financing assistance to the City; the New York State Financial Control Board (the "Control Board") to oversee the City's financial affairs; and the Office of the State Deputy Comptroller for the City of New York ("OSDC") to assist the Control Board in exercising its powers and responsibilities. A "control period" existed from 1975 to 1986, during which the City was subject to certain statutorily-prescribed fiscal controls. The Control Board terminated the control period in 1986 when certain statutory conditions were met. State law requires the Control Board to reimpose a control period upon the occurrence, or "substantial likelihood and imminence" of the occurrence, of certain events, including (but not limited to) a City operating budget deficit of more than $100 million or impaired access to the public credit markets. 23 63 Currently, the City and its Covered Organizations (i.e., those organizations which receive or may receive moneys from the City directly, indirectly or contingently) operate under the City's Financial Plan. The City's Financial Plan summarizes its capital, revenue and expense projections and outlines proposed gap-closing programs for years with projected budget gaps. The City's projections set forth in its Financial Plan are based on various assumptions and contingencies, some of which are uncertain and may not materialize. Unforeseen developments and changes in major assumptions could significantly affect the City's ability to balance its budget as required by State law and to meet its annual cash flow and financing requirements. New York City is heavily dependent on New York State and federal assistance to cover insufficiencies in its revenues. There can be no assurance that in the future federal and State assistance will enable the City to make up its budget deficits. Although the City has consistently maintained balanced budgets and is projected to achieve balanced operating results for the current fiscal year, there can be no assurance that the gap-closing actions proposed in its Financial Plan can be successfully implemented or that the City will maintain a balanced budget in future years without additional State aid, revenue increases or expenditure reductions. Additional tax increases and reductions in essential City services could adversely affect the City's economic base. The projections set forth in the City's Financial Plan were based on various assumptions and contingencies which are uncertain and which may not materialize. Changes in major assumptions could significantly affect the City's ability to balance its budget as required by State law and to meet its annual cash flow and financing requirements. Such assumptions and contingencies include the condition of the regional and local economies, the impact on real estate tax revenues of the real estate market, wage increases for City employees consistent with those assumed in the City Financial Plan, employment growth, the ability to implement proposed reductions in City personnel and other cost reduction initiatives, the ability of the Health and Hospitals Corporation and the BOE to take actions to offset reduced revenues, the ability to complete revenue generating transactions, provision of State and Federal aid and mandate relief and the impact on City revenues and expenditures of Federal and State welfare reform and any future legislation affecting Medicare or other entitlements. To successfully implement its Financial Plan, the City and certain entities issuing debt for the benefit of the City must market their securities successfully. This debt is issued to finance the rehabilitation of the City's infrastructure and other capital needs and to refinance existing debt, as well as to finance seasonal needs. In City fiscal years 1997-98, 1998-99 and 1999-2000, the State Constitutional debt limit would have prevented the City from entering into new capital contracts. To prevent disruptions in the capital program, two actions were taken to increase the City's capital financing capacity: (i) the State Legislature created the New York City Transitional Finance Authority ("TFA") in 1997, and (ii) in 1999, the City created TSASC, Inc., a not-for-profit corporation empowered to issue tax-exempt 24 64 debt backed by tobacco settlement revenues. Despite these actions, the City, in order to continue its capital program, will need additional financing capacity beginning in City fiscal year 2000-01, which could be provided through increasing the borrowing authority of the TFA or amending the State constitutional debt limit for City fiscal year 2001-02 and thereafter. The City Comptroller and other agencies and public officials have issued reports and made public statements which, among other things, state that projected revenues and expenditures may be different from those forecast in the City's Financial Plans. It is reasonable to expect that such reports and statements will continue to be issued and to engender public comment. Certain localities, in addition to the City, have experienced financial problems and have requested and received additional New York State assistance during the last several State fiscal years. The potential impact on the State of any future requests by localities for additional assistance is not included in the State's projections of its receipts and disbursements for the fiscal year. Municipalities and school districts have engaged in substantial short-term and long-term borrowings. State law requires the Comptroller to review and make recommendations concerning the budgets of those local government units other than New York City that are authorized by State law to issue debt to finance deficits during the period that such deficit financing is outstanding. From time to time, federal expenditure reductions could reduce, or in some cases eliminate, federal funding of some local programs and accordingly might impose substantial increased expenditure requirements on affected localities. If the State, the City or any of the Authorities were to suffer serious financial difficulties jeopardizing their respective access to the public credit markets, the marketability of notes and bonds issued by localities within the State could be adversely affected. Localities also face anticipated and potential problems resulting from certain pending litigation, judicial decisions and long-range economic trends. Long-range potential problems of declining urban population, increasing expenditures and other economic trends could adversely affect localities and require increasing the State assistance in the future. 25 65 MANAGEMENT OF THE FUNDS Officers and Board of Directors 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. Richard H. Francis (69) Director 40 Grosvenor Road Currently retired; Executive Vice Short Hills, New Jersey 07078 President and Chief Financial Officer of Pan Am Corporation and Pan American World Airways, Inc. from 1988 to 1991; Director/Trustee of other CSAM-advised investment companies. Jack W. Fritz (74) Director 2425 North Fish Creek Road Private investor; Consultant and P.O. Box 1287 Director of Fritz Broadcasting, Inc. Wilson, Wyoming 83014 and Fritz Communications (developers and operators of radio stations); Director/Trustee of other CSAM-advised investment companies. Jeffrey E. Garten (54) Director Box 208200 Dean of Yale School of Management and New Haven, Connecticut 06520-8200 William S. Beinecke Professor in the Practice of International Trade and Finance; Undersecretary of Commerce for International Trade from November 1993 to October 1995; Professor at Columbia University from September 1992 to November 1993; Director of Aetna, Inc.; Director/Trustee of other CSAM-advised investment companies. Peter F. Krogh (64) Director 301 ICC Dean Emeritus and Distinguished Georgetown University Professor of International Affairs at Washington, DC 20057 the Edmund A. Walsh School of Foreign Service, Georgetown University; Moderator of PBS foreign affairs television series; Member of Board of The Carlisle Companies Inc. Member of Selection Committee for Truman Scholars and Henry Luce Scholars. Senior Associate of Center for Strategic and International Studies; Trustee of numerous world affairs organizations; 26 66 Director/Trustee of other CSAM-advised investment companies. James S. Pasman, Jr. (70) Director 29 The Trillium Currently retired; President and Chief Pittsburgh, Pennsylvania 15238 Operating Officer of National InterGroup, Inc. from April 1989 to March 1991; Chairman of Permian Oil Co. from April 1989 to March 1991; Director of Education Management Corporation, Tyco International Ltd.; Trustee, Deutsche VIT Funds; Director/Trustee of other CSAM-advised investment companies. William W. Priest* (59) Director 466 Lexington Avenue Senior Partner and Portfolio Manager, New York, New York 10017-3147 Steinberg Priest Capital Management since March 2001; Chairman and Managing Director of CSAM from 2000 to February 2001; Chief Executive Officer and Managing Director of CSAM from 1990 to 2000; Director/Trustee of other CSAM-advised investment companies. Steven N. Rappaport (52) Director 40 East 52nd Street President of Loanet, Inc. since 1997; New York, New York 10022 Executive Vice President of Loanet, Inc. from 1994 to 1997; Director, President, North American Operations, and former Executive Vice President from 1992 to 1993 of Worldwide Operations of Metallurg Inc.; Executive Vice President, Telerate, Inc. from 1987 to 1992; Partner in the law firm of Hartman & Craven until 1987; Director/Trustee of other CSAM-advised investment companies. James P. McCaughan (47) Chairman 466 Lexington Avenue Chief Executive Officer and Managing New York, New York 10017-3147 Director of CSAM; Associated with CSAM since 2000; President and Chief Operating Officer of Oppenheimer Capital from 1998 to 1999; President and Chief Executive Officer of UBS Asset Management (New York) Inc. from 1996 to 1998; Functional Advisor (Institutional Asset Management) ---------- * Indicates a Director who is an "interested person" of the Funds as defined in the 1940 Act. 27 67 of Union Bank of Switzerland from 1994 to 1996; Officer of other CSAM-advised investment companies. Hal Liebes, Esq. (36) Vice President and Secretary 466 Lexington Avenue Managing Director and General Counsel New York, New York 10017-3147 of CSAM; Associated with Lehman Brothers, Inc. from 1996 to 1997; Associated with CSAM from 1995 to 1996; Associated with CS First Boston Investment Management from 1994 to 1995; Associated with Division of Enforcement, U.S. Securities and Exchange Commission from 1991 to 1994; Officer of CSAMSI and other CSAM-advised investment companies. Michael A. Pignataro (41) Treasurer and Chief Financial Officer 466 Lexington Avenue Vice President and Director of Fund New York, New York 10017-3147 Administration of CSAM; Associated with CSAM since 1984; Officer of other CSAM-advised investment companies. Rocco A. DelGuercio (37) Assistant Treasurer 466 Lexington Avenue Vice President and Administrative New York, New York 10017-3147 Officer of CSAM; Associated with CSAM since June 1996; Assistant Treasurer, Bankers Trust Corp. -- Fund Administration from March 1994 to June 1996; Mutual Fund Accounting Supervisor, Dreyfus Corporation from April 1987 to March 1994; Officer of other CSAM- advised investment companies. Stuart J. Cohen, Esq. (32) Assistant Secretary 466 Lexington Avenue Vice President and Legal Counsel of New York, New York 10017-3147 CSAM; Associated with CSAM since CSAM acquired the Funds' predecessor adviser in July 1999; with the predecessor adviser since 1997; Associated with the law firm of Gordon Altman Butowsky Weitzen Shalov & Wein from 1995 to 1997; Officer of other CSAM-advised investment companies. Gregory N. Bressler, Esq. (34) Assistant Secretary 466 Lexington Avenue Vice President and Legal Counsel of CSAM 28 68 New York, New York 10017-3147 since January 2000; Associated with the law firm of Swidler Berlin Shereff Friedman LLP from 1996 to 2000; Officer of other CSAM- advised investment companies. Joseph Parascondola (37) Assistant Treasurer 466 Lexington Avenue Assistant Vice President - Fund New York, New York 10017-3147 Administration of CSAM since April 2000; Assistant Vice President, Deutsche Asset Management from January 1999 to April 2000; Assistant Vice President, Weiss, Peck & Greer LLC from November 1995 to December 1998; Officer of other CSAM-advised investment companies. No employee of CSAM, BIMC, CSAMSI, PFPC Inc., the Cash Reserve Fund's administrator ("PFPC"), or any of their affiliates receives any compensation from the Funds for acting as an officer or director/trustee of a Fund. Each Director who is not a director, trustee, officer or employee of CSAM, CSAMSI, BIMC, PFPC or any of their affiliates receives the following annual and per-meeting fees:
FEE FOR ANNUAL FEE ANNUAL EACH MEETING AS AUDIT FUND FEE ATTENDED COMMITTEE MEMBER -------------------------------------------------------------------------------- Cash Reserve Fund $750 $250 $250* -------------------------------------------------------------------------------- Tax Exempt Fund $750 $250 $250* -------------------------------------------------------------------------------- * Steven N. Rappaport receives $325 for serving as Chairman of the Audit Committee. Each Director is reimbursed for expenses incurred in connection with his attendance at Board meetings.
Directors' Compensation (for the fiscal year ended December 31, 2000)
Total Compensation from all Investment Companies Compensation in Credit Suisse Warburg Name of Director from each Fund Pincus Fund Complex(1) ---------------- -------------- ---------------------- William W. Priest(2) None None
29 69
Total Compensation from all Investment Companies Compensation in Credit Suisse Warburg Name of Director from each Fund Pincus Fund Complex(1) ---------------- -------------- ---------------------- Richard H. Francis $ 2,500 $81,750 Jack W. Fritz $ 2,500 $82,250 Jeffrey E. Garten $ 2,500 $42,500 Peter F. Krogh(3) $ 0 $ 0 James S. Pasman, Jr. $ 2,500 $82,250 Steven N. Rappaport $ 2,500 $81,750 Alexander B. Trowbridge(4) $ 1,900 $57,000
-------------------- (1) Each Director also serves as a Director or Trustee of 45 investment companies and portfolios for which CSAM serves as investment adviser. (2) Mr. Priest has been an employee of CSAM, and, accordingly, receives no compensation from any Fund or any other investment company advised by CSAM. (3) Mr. Garten became a Director of each Fund effective December 21, 2000. (4) Mr. Krogh became a Director of each Fund effective February 6, 2001. (5) Mr. Trowbridge resigned as a Director of each Fund effective February 6, 2001. As of April 1, 2001, Directors and officers of a Fund as a group owned of record less than 1% of the relevant Fund's outstanding common stock. Investment Adviser, Sub-Investment Adviser and Administrator and Co-Administrators. CSAM, located at 466 Lexington Avenue, New York, New York 10017-3147, serves as investment adviser to each Fund pursuant to a written agreement (the "Advisory Agreement"). CSAM is an indirect wholly-owned U.S. subsidiary of Credit Suisse ("Credit Suisse"). Credit Suisse is a global financial services company, providing a comprehensive range of banking and insurance products. Active on every continent and in all major financial centers, Credit Suisse comprises five business units - Credit Suisse Asset Management (asset management); Credit Suisse First Boston (investment banking); Credit Suisse Private Banking (private banking); Credit Suisse (retail banking); and Winterthur (insurance). Credit Suisse has approximately $680 billion of global assets under management and employs approximately 62,000 people worldwide. The principal business address of Credit Suisse is Paradeplatz 8, CH 8070, Zurich, Switzerland. 30 70 Prior to July 6, 1999, Warburg Pincus Asset Management, Inc. ("WPAM") served as investment adviser to each Fund. On that date, Credit Suisse acquired WPAM and combined WPAM with Credit Suisse's existing U.S.-based asset management business, Credit Suisse Asset Management. Consequently, the combined entity, CSAM, became the Funds' investment adviser. CSAM, formerly known as BEA Associates, together with its predecessor firms, has been engaged in the investment advisory business for over 60 years. BIMC serves as sub-investment adviser and administrator to the Tax Exempt Fund, CSAMSI serves as co-administrator to both Funds and PFPC serves as co-administrator to the Cash Reserve Fund pursuant to written agreements (the "Sub-Advisory Agreement" and the "Co-Administration Agreements," respectively, and collectively, the "Agreements"). BIMC is a wholly owned subsidiary of PNC Bank Corp. ("PNC"). PFPC is an indirect wholly owned subsidiary of PNC and an affiliate of BIMC. PFPC became co-administrator to the Cash Reserve Fund on February 14, 2001. Prior to that, BIMC provided administrative services to the Cash Reserve Fund. CSAMSI became co-administrator to each Fund on November 1, 1999. Prior to that, Counsellors Funds Service, Inc. ("CFSI") served as co-administrator to the Funds. For the services provided pursuant to the Advisory Agreement, CSAM is entitled to receive a fee, computed daily and payable monthly, at the annual rate of .25% and .35%, respectively, of the value of the Tax Exempt Fund's and the Cash Reserve Fund's average daily net assets. CSAM and each Fund's co-administrators may voluntarily waive a portion of their fees from time to time and temporarily limit the expenses to be paid by the Funds. As sub-investment adviser and administrator to the Tax Exempt Fund, BIMC has agreed to implement the Fund's investment program as determined by the Board and CSAM. BIMC will supervise the day-to-day operations of the Tax Exempt Fund and perform the following services: (i) providing investment research and credit analysis concerning the Fund's investments, (ii) placing orders for all purchases and sales of the Fund's portfolio investments and (iii) maintaining the books and records required to support the Fund's operations. BIMC also calculates the Tax Exempt Fund's net asset value, provides accounting services for the Fund and assists in related aspects of the Fund's operations. As compensation therefor, the Tax Exempt Fund has agreed to pay BIMC a fee computed daily and payable monthly at an annual rate of .25% of the value of the Tax Exempt Fund's average daily net assets. As co-administrator to the Funds, CSAMSI provides shareholder liaison services to the Funds including responding to shareholder inquiries and providing information on shareholder investments. CSAMSI also performs a variety of other services, including furnishing certain executive and administrative services, acting as liaison between a Fund and its various service providers, furnishing corporate secretarial services, which include preparing materials for meetings of the Board, preparing proxy statements and annual and semiannual reports, assisting in the preparation of tax returns and monitoring and developing compliance procedures for the Fund. As compensation therefor, each Fund pays to CSAMSI a fee calculated at an annual rate of .10% of the Fund's average daily net assets. 31 71 As co-administrator to the Cash Reserve Fund, PFPC calculates the Fund's net asset value, provides all accounting services for the Fund and assists in related aspects of the Fund's operations. As compensation therefor, the Fund pays to PFPC a fee calculated at an annual rate of .07% of the Fund's first $500 million in average daily net assets, .06% of the next $1 billion in average daily net assets, and .05% of average daily net assets over $1.5 billion, subject to a minimum annual fee and exclusive of out-of-pocket expenses. PFPC has its principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809. Advisory Fees paid to CSAM and CSAM's predecessor, WPAM For the fiscal years ended December 31, 1998, 1999 and 2000, the advisory fees paid to and voluntarily waived by CSAM and CSAM's predecessor, WPAM, were as follows:
Fiscal year ended December 31, 1998 ------------------------------------ Net Fee Waiver ---------- ---------- Cash Reserve Fund $1,059,673 $ (237,838) Tax Exempt Fund $ 307,690 $ (86,187)
Fiscal year ended December 31, 1999 ------------------------------------ Net Fee Waiver ---------- ---------- Cash Reserve Fund $1,051,927 $ (258,393) Tax Exempt Fund $ 386,660 $ (99,668)
Fiscal year ended December 31, 2000 ------------------------------------ Net Fee Waiver ---------- ---------- Cash Reserve Fund $ 863,548 $ (129,590) Tax Exempt Fund $ 383,949 $ (57,227)
Sub-Advisory and Administration Fees paid to BIMC For the fiscal years ended December 31, 1998, 1999 and 2000, the sub-advisory and administration fees paid to and voluntarily waived by BIMC were as follows: 32 72
Fiscal year ended December 31, 1998 ------------------------------------ Net Fee Waiver ---------- ---------- Cash Reserve Fund $ 943,839 $ (356,758) Tax Exempt Fund $ 265,190 $ (129,280)
Fiscal year ended December 31, 1999 ------------------------------------ Net Fee Waiver ---------- ---------- Cash Reserve Fund $ 923,257 $ (387,590) Tax Exempt Fund 340,568 $ (149,502)
Fiscal year ended December 31, 2000 ------------------------------------ Net Fee Waiver ---------- ---------- Cash Reserve Fund $ 704,147 $ (289,667) Tax Exempt Fund $ 309,690 $ (132,522)
Co-Administration Fees paid to CSAMSI and CSAMSI's predecessor, CFSI For the fiscal year ended December 31, 1998, for the ten-month period ended October 31, 1999, for the two-month period ended December 31, 1999 and for the fiscal year ended December 31, 2000, co-administration fees earned by CSAMSI and by CFSI were as follows:
Fiscal year ended December 31, 1998 ----------------------------------- Cash Reserve Fund $519,004 Tax Exempt Fund $157,551
Ten-month period ended October 31, 1999 --------------------------------------- Cash Reserve Fund $436,419 Tax Exempt Fund $158,034
Two-month period ended December 31, 1999 ---------------------------------------- Cash Reserve Fund $87,709 Tax Exempt Fund $36,497
Fiscal year ended December 31, 2000 ----------------------------------- Cash Reserve Fund $397,255 Tax Exempt Fund $176,471
33 73 Banking Laws. BIMC and PNC are subject to certain banking laws and regulations, including the Bank Holding Company Act of 1956, as amended, that restrict their activities. BIMC, PNC and each Fund have been advised by Messrs. Ballard, Spahr, Andrews & Ingersoll that BIMC and PNC may perform the services for each Fund contemplated by their respective agreements with the Fund and the Prospectus without violation of applicable banking laws or regulations. Such counsel have pointed out, however, that future changes in circumstances or in legal requirements relating to the permissible activities of banks and their affiliates, as well as future interpretations of present requirements, could have the effect of preventing one or more of them from continuing to perform services for the Fund. If BIMC or PNC were prohibited from providing services to the Fund, the Board would select another qualified firm. Any new sub-investment advisory agreement would be subject to shareholder approval. Custodian and Transfer Agent. State Street Bank and Trust Company ("State Street") serves as custodian of each Funds' U.S. and non-U.S. assets pursuant to a custodian agreement (the "Custodian Agreement"). Under the Custodian Agreement, State Street (i) maintains a separate account or accounts in the name of the Fund, (ii) holds and transfers portfolio securities on account of the Fund, (iii) makes receipts and disbursements of money on behalf of the Fund, (iv) collects and receives all income and other payments and distributions for the account of the Fund's portfolio securities held by it and (v) makes periodic reports to the Board concerning the Fund's custodial arrangements. With the approval of the Board, State Street is authorized to select one or more domestic and foreign banking institutions and securities depositories to serve as sub-custodian on behalf of the Funds. 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 Fund pursuant to a Transfer Agency and Service Agreement, under which BFDS (i) issues and redeems shares of the Fund, (ii) addresses and mails all communications by the Fund to record owners of Fund shares, including reports to shareholders, dividend and distribution notices and proxy material for its meetings of shareholders, (iii) maintains shareholder accounts and, if requested, sub-accounts and (iv) makes periodic reports to the Board concerning the transfer agent's operations with respect to the Fund. BFDS's principal business address is 2 Heritage Drive, Boston, Massachusetts 02171. Organization of the Funds Each Fund was incorporated on November 15, 1984 under the laws of the State of Maryland as "Counsellors Cash Reserve Fund, Inc." and as "Counsellors New York Tax Exempt Fund, Inc." On October 27, 1995, the Cash Reserve Fund and the Tax Exempt Fund each filed an amendment to its charter in order to change its name to "Warburg, Pincus Cash Reserve Fund, 34 74 Inc." and "Warburg, Pincus New York Tax Exempt Fund, Inc.", respectively. On March 26, 2001, the Cash Reserve Fund and the Tax Exempt Fund each filed an amendment to its charter in order to change its name to "Credit Suisse Warburg Pincus Cash Reserve Fund, Inc." and "Credit Suisse Warburg Pincus New York Tax Exempt Fund, Inc.," respectively. Each Fund's charter authorizes the 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 and two billion shares are designated Advisor 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. The Board may similarly classify or reclassify any class of shares into one or more series and, without shareholder approval, may increase the number of authorized shares of the Fund. All shareholders of a Fund, upon liquidation, will participate ratably in the Fund's net assets. Multi-Class Structure. Although neither Fund currently does so, each Fund is authorized to offer a separate class of shares, the Advisor Shares, pursuant to a separate prospectus. Individual investors could only purchase Advisor Shares through institutional shareholders of record, broker-dealers, financial institutions, depository institutions, retirement plans and other financial intermediaries. Shares of each class would represent equal pro rata interests in the Fund and accrue dividends and calculate net asset value and performance quotations in the same manner. Because of the higher fees paid by the Advisor Shares, the total return on such shares can be expected to be lower than the total return on common shares. Voting Rights. Investors in a Fund are entitled to one vote for each full share held and fractional votes for fractional shares held. Shareholders of a Fund will vote in the aggregate except where otherwise required by law and except that each class will vote separately on certain matters pertaining to its distribution and shareholder servicing arrangements. There will normally be no meetings of investors for the purpose of electing members of the 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. Shares do not have cumulative voting rights, which means that holders of more than 50% of the shares voting for the election of Directors can elect all Directors. Shares are transferable but have no preemptive, conversion or subscription rights. Distribution and Shareholder Servicing On August 1, 2000, CSAMSI replaced Provident Distributors, Inc. as distributor of the Funds' shares. CSAMSI's principal business address is 466 Lexington Avenue, New York, New York 10017. CSAMSI offers each Fund's shares on a continuous basis. 35 75 ADDITIONAL PURCHASE AND REDEMPTION INFORMATION Information on how to purchase and redeem Fund shares and how such shares are priced is included in the Shareholder Guide. Under the 1940 Act, each Fund may suspend the right of redemption or postpone the date of payment upon redemption for any period during which The New York Stock Exchange, Inc. (the "NYSE") is closed, other than customary weekend and holiday closings, or during which trading on the NYSE is restricted, or during which (as determined by the SEC by rule or regulation) an emergency exists as a result of which disposal or fair valuation of portfolio securities is not reasonably practicable, or for such other periods as the SEC may permit. (A Fund may also suspend or postpone the recordation of an exchange of its shares upon the occurrence of any of the foregoing conditions.) If the Board of a Fund determines that conditions exist which make payment of redemption proceeds wholly in cash unwise or undesirable, the Fund may make payment wholly or partly in securities or other investment instruments which may not constitute securities as such term is defined in the applicable securities laws. If a redemption is paid wholly or partly in securities or other property, a shareholder would incur transaction costs in disposing of the redemption proceeds. Each Fund intends to comply with Rule 18f-1 promulgated under the 1940 Act with respect to redemptions in kind. Automatic Cash Withdrawal Plan. An automatic cash withdrawal plan (the "Plan") is available to shareholders who wish to receive specific amounts of cash periodically. Withdrawals may be made under the Plan by redeeming as many shares of a Fund as may be necessary to cover the stipulated withdrawal payment. To the extent that withdrawals exceed dividends, distributions and appreciation of a shareholder's investment in a Fund, there will be a reduction in the value of the shareholder's investment and continued withdrawal payments may reduce the shareholder's investment and ultimately exhaust it. Withdrawal payments should not be considered as income from investment in a Fund. All dividends and distributions on shares in the Plan are automatically reinvested at net asset value in additional shares of the applicable Fund. EXCHANGE PRIVILEGE An exchange privilege with certain other funds advised by CSAM is available to investors in each Fund. A Common Shareholder may exchange Common Shares of a Fund for Common Shares of the other Fund or for Common Shares of another Credit Suisse Warburg Pincus Fund at their respective net asset values. An Advisor Shareholder may exchange Advisor Shares of a Fund for Advisor Shares of another Credit Suisse Warburg Pincus Fund at their respective net asset values. If an exchange request is received by Credit Suisse Warburg Pincus Funds or their agent prior to the close of regular trading on the NYSE, the exchange will be made at each Fund's net asset value determined at the end of that business day. Exchanges will be effected without a sales 36 76 charge but must satisfy the minimum dollar amount necessary for new purchases. Each Fund may refuse exchange purchases at any time without prior notice. The exchange privilege is available to shareholders residing in any state in which the shares being acquired may legally be sold. When an investor effects an exchange of shares, the exchange is treated for federal income tax purposes as a redemption. Therefore, the investor may realize a taxable gain or loss in connection with the exchange. Investors wishing to exchange shares of a Fund for shares in another Credit Suisse Warburg Pincus Fund should review the prospectus of the other fund prior to making an exchange. For further information regarding the exchange privilege or to obtain a current prospectus for another Credit Suisse Warburg Pincus Fund, an investor should contact Credit Suisse Warburg Pincus Funds at (800)-927-2874. 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 Funds reserve the right to terminate or modify the exchange privilege at any time upon 30 days' notice to shareholders. ADDITIONAL INFORMATION CONCERNING TAXES The discussion set out below of tax considerations generally affecting a Fund and its shareholders is intended to be only a summary and is not intended as a substitute for careful tax planning by prospective shareholders. Shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in a Fund. As described above and in the Funds' Prospectus, the Tax Exempt Fund is designed to provide investors with current income which is excluded from gross income for federal income tax purposes and exempt from New York State and New York City personal income taxes. The Tax Exempt Fund is not intended to constitute a balanced investment program and is not designed for investors seeking capital gains or maximum tax-exempt income irrespective of fluctuations in principal. Investment in the Tax Exempt Fund would not be suitable for tax-exempt institutions, individual retirement plans, employee benefit plans and individual retirement accounts since such investors would not gain any additional tax benefit from the receipt of tax-exempt income. Each Fund intends to continue to qualify as a "regulated investment company" under Subchapter M of the Code. If it qualifies as a regulated investment company, a Fund will pay no federal income taxes on its investment company taxable income (that is, taxable income other than any excess of its net realized long-term capital gains over its net realized short-term capital losses ("net realized capital gains")) or on its net realized capital gains that are distributed to shareholders. To qualify under Subchapter M, each Fund must, among other things: (i) distribute to its shareholders at least 90% of the sum of its investment company taxable income (plus or minus certain adjustments as specified in the Code) and its net tax-exempt 37 77 interest income; (ii) derive at least 90% of its gross income from dividends, interest, payments with respect to loans of securities, gains from the sale or other disposition of securities, or other income (including, but not limited to, gains from options, futures, and forward contracts) derived with respect to the Fund's business of investing in securities; and (iii) diversify its holdings so that, at the end of each quarter of the Fund's taxable year (a) at least 50% of the market value of the Fund's assets is represented by cash, securities of other regulated investment companies, U.S. Government Securities and other securities, with those other securities limited, with respect to any one issuer, to an amount no greater in value than 5% of the Fund's total assets and to not more than 10% of the outstanding voting securities of the issuer, and (b) not more than 25% of the market value of the Fund's assets is invested in the securities (other than U.S. Government Securities or securities of other regulated investment companies) of any one issuer or of two or more issuers that the Fund controls and which are determined to be in the same or similar trades or businesses or related trades or businesses. As a regulated investment company, each Fund will be subject to a 4% non-deductible excise tax measured with respect to certain undistributed amounts of taxable ordinary income and capital gain required to be but not distributed under a prescribed formula. The formula requires payment to shareholders during a calendar year of distributions representing at least 98% of the Fund's taxable ordinary income for the calendar year and at least 98% of the excess of its capital gains over capital losses realized during the one-year period ending October 31 during such year, together with any undistributed, untaxed amounts of taxable ordinary income and capital gains from the previous calendar year. Each Fund expects to pay the dividends and make the distributions necessary to avoid the application of this excise tax. Although each Fund expects to be relieved of all or substantially all federal income tax liability, depending upon the extent of its activities in states and localities in which its offices are maintained, in which its agents or independent contractors are located or in which it is otherwise deemed to be conducting business, that portion of a Fund's income which is treated as earned in any such state or locality could be subject to state and local tax. Any taxes paid by a Fund would reduce the amount of income and gains available for distribution to its shareholders. If for any taxable year a Fund does not qualify for the special federal income tax treatment afforded regulated investment companies, all of its taxable income will be subject to federal income tax at regular corporate rates (without any deduction for distributions to its shareholders). In such event, dividend distributions, including amounts derived from interest on tax-exempt obligations, would be taxable to shareholders to the extent of the Fund's current and accumulated earnings and profits, and would be eligible for the dividends received deduction for corporations in the case of corporate shareholders. 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 38 78 or tax-exempt interest income. If a Fund fails to qualify as a regulated investment company in any year, it must pay out its earnings and profits accumulated in that year in order to qualify again as a regulated investment company. In addition, if the Fund failed to qualify as a regulated investment company for a period greater than one taxable year, the Fund may be required to recognize any net built-in gains with respect to certain of its assets (the excess of the aggregate gains, including items of income, over aggregate losses that would have been realized if it had been liquidated) in order to qualify as a regulated investment company in a subsequent year. Investors in the Cash Reserve Fund should be aware that it is possible that some portion of the Fund's income from investments in obligations of foreign banks could become subject to foreign taxes. Because the Tax Exempt Fund will distribute exempt interest dividends, interest on indebtedness incurred by a shareholder to purchase or carry Fund shares is not deductible for federal income tax purposes and New York State and New York City personal income tax purposes. In addition, if a shareholder of the Tax Exempt Fund holds shares for six months or less, any loss on the sale or exchange of those shares will be disallowed to the extent of the amount of exempt-interest dividends received with respect to the shares. The Code may require a shareholder, if he or she receives exempt interest dividends, to treat as taxable income a portion of certain otherwise non-taxable social security and railroad retirement benefit payments. Furthermore, that portion of any dividend paid by the Tax Exempt Fund which represents income derived from so-called "private activity bonds" held by the Fund may not retain its tax-exempt status in the hands of a shareholder who is a "substantial user" of a facility financed by such bonds, or a "related person" thereof. Moreover, as noted in the Prospectus, some of the Tax Exempt Fund's dividends may be a tax preference item, or a component of an adjustment item, for purposes of the federal individual and corporate alternative minimum taxes. In addition, the receipt of Fund dividends and distributions may affect a foreign corporate shareholder's federal "branch profits" tax liability and a Subchapter S corporation shareholder's federal "excess net passive income" tax liability. Shareholders should consult their own tax advisers as to whether they (i) may be "substantial users" with respect to a facility or "related" to such users within the meaning of the Code and (ii) are subject to a federal alternative minimum tax, the federal "branch profits" tax, or the federal "excess net passive income" tax. While each Fund does not expect to realize net long-term capital gains, any such realized gains will be distributed as described in the Prospectus. Such distributions ("capital gain dividends") will be taxable to shareholders as long-term capital gains, regardless of how long a shareholder has held Fund shares, and will be designated as capital gain dividends in a written notice mailed by the Fund to shareholders after the close of the Fund's taxable year. Gain or loss, if any, recognized on the sale or other disposition of shares of a Fund will be taxed as capital gain or loss if the shares are capital assets in the shareholder's hands. Generally, a shareholder's gain or loss will be a long-term gain or loss if the shares have been held for more than one year. If a shareholder sells or otherwise disposes of a share of the Fund before holding it for more than six months, any loss on the sale or other disposition of such share shall be treated as a long-term capital loss to the extent of any capital gain dividends received by the shareholder with respect to such share. This rule will apply to a sale of shares of the Tax Exempt Fund only to the extent the loss is not disallowed under the provision described above. 39 79 A shareholder of a Fund receiving dividends or distributions in additional shares should be treated for federal income tax purposes as receiving a distribution in an amount equal to the amount of money that a shareholder receiving cash dividends or distributions receives, and should have a cost basis in the shares received equal to that amount. Each shareholder of the Cash Reserve Fund will receive an annual statement as to the federal income tax status of his dividends and distributions from the Fund for the prior calendar year. Furthermore, shareholders will also receive, if appropriate, various written notices after the close of the Fund's taxable year regarding the federal income tax status of certain dividends and distributions that were paid (or that are treated as having been paid) by the Fund to its shareholders during the preceding year. Each shareholder of the Tax Exempt Fund will receive an annual statement as to the federal income tax status and New York State and New York City personal income tax status of his dividends and distributions from the Fund for the prior calendar year. Furthermore, shareholders will also receive, if appropriate, various written notices after the close of the Fund's taxable year regarding the federal income tax status of certain dividends and distributions that were paid (or that are treated as having been paid) by the Fund to its shareholders during the preceding year. Shareholders should consult their tax advisers as to any other state and local taxes that may apply to the Fund's dividends and distributions. The dollar amount of dividends excluded from gross income for federal income tax purposes and exempt from New York State and New York City personal income taxation and the dollar amounts subject to federal income taxes and New York State and New York City personal income taxation, if any, will vary for each shareholder depending upon the size and duration of such shareholder's investment in the Fund. In the event that the Fund derives taxable net investment income, it intends to designate as taxable dividends the same percentage of each day's dividend as its actual taxable net investment income bears to its total net investment income earned on that day. Therefore, the percentage of each day's dividend designated as taxable, if any, may vary from day to day. If a shareholder fails to furnish a correct taxpayer identification number, fails to report fully dividend or interest income, or fails to certify that he has provided a correct taxpayer identification number and that he is not subject to withholding, then the shareholder may be subject to a 31% "backup withholding" tax with respect to taxable dividends and distributions. An individual's taxpayer identification number is his social security number. Corporate shareholders and other shareholders specified in the Code are or may be exempt from backup withholding. The backup withholding tax is not an additional tax and may be credited against a taxpayer's federal income tax liability. THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES AFFECTING A FUND AND ITS SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN THE FUNDS. DETERMINATION OF YIELD From time to time, each Fund may quote its yield, effective yield and tax equivalent yield, as applicable, in advertisements or in reports and other communications to shareholders. The Cash Reserve Fund's yield and effective yield for the seven-day period ended 40 80 on December 31, 2000 were 6.23% and 6.43%, respectively. In the absence of waivers, these yields would have been 6.19% and 6.38%, respectively. The Tax Exempt Fund's yield, effective yield and tax equivalent yield for the seven-day period ended on December 31, 2000, was 3.99%, 4.07% and 8.02% (based on a 50.23% total of 3 tax rates), respectively. In the absence of waivers these yields would have been 3.88%, 3.96% and 7.80%, respectively. Each Fund's seven-day yield is calculated by (i) determining the net change in the value of a hypothetical pre-existing account in the Fund having a balance of one share at the beginning of a seven calendar day period for which yield is to be quoted, (ii) dividing the net change by the value of the account at the beginning of the period to obtain the base period return and (iii) annualizing the results (i.e., multiplying the base period return by 365/7). The net change in the value of the account reflects the value of additional shares purchased with dividends declared on the original share and any such additional shares, but does not include realized gains and losses or unrealized appreciation and depreciation. Each Fund's seven-day compound effective annualized yield is calculated by adding 1 to the base period return (calculated as described above), raising the sum to a power equal to 365/7 and subtracting 1. The Tax Exempt Fund's tax equivalent yield is calculated by dividing that portion of the base period return which is exempt from federal, New York State and New York City personal income taxes by 1 minus the highest marginal federal, New York State and New York City individual income tax rates and adding the quotient to that portion, if any, of the yield which is not exempt from those taxes. Each Fund's yield will vary from time to time depending upon market conditions, the composition of a Fund's portfolio and operating expenses allocable to it. Yield information may be useful in reviewing the Fund's performance and for providing a basis for comparison with other investment alternatives. However, the Fund's yield will fluctuate, unlike certain bank deposits or other investments which pay a fixed yield for a stated period of time. In comparing the Fund's yield with that of other money market funds, investors should give consideration to the quality and maturity of the portfolio securities of the respective funds. INDEPENDENT ACCOUNTANTS AND COUNSEL PricewaterhouseCoopers LLP ("PwC"), with principal offices at Two Commerce Square, Philadelphia, Pennsylvania 19103, serves as independent accountants for each Fund. The Funds' financial statements for the fiscal year ended December 31, 2000, that is incorporated by reference in this Statement of Additional Information have been audited by PwC, and have been included herein by reference in reliance upon the report of such firm of independent accountants given upon their authority as experts in accounting and auditing. Willkie Farr & Gallagher serves as counsel for each Fund and provides legal services from time to time for CSAM and CSAMSI. MISCELLANEOUS The Funds are not sponsored, endorsed, sold or promoted by Warburg, Pincus & Co. Warburg, Pincus & Co. makes no representation or warranty, express or implied, to the owners of the Funds or any member of the public regarding the advisability of investing in securities generally or in the Funds particularly. Warburg, Pincus & Co. licenses certain trademarks and trade names of Warburg, Pincus & Co., and is not responsible for and has not 41 81 participated in the calculation of the Funds' net asset value, nor is Warburg, Pincus & Co. a distributor of the Funds. Warburg, Pincus & Co. has no obligation or liability in connection with the administration, marketing or trading of the Funds. As of April 20, 2001, the name, address and percentage of ownership of other persons that control a Fund (within the meaning of the rules and regulations under the 1940 Act) or own of record 5% or more of the Fund's outstanding shares were as follows:
CASH RESERVE FUND COMMON STOCK -------------------------------------------------------------------------------- Neuberger and Berman* 34.62% #114000 Attn.: Operations Control Dept. Ron Staib 55 Water Street, FL 27 New York, NY 10041-0001 -------------------------------------------------------------------------------- Fiduciary Trust Company International* 24.26% Cust A/C Attn Felyce Porr Securities Services Group Church Street Station P.O. Box 3199 New York, NY 10008-3199 --------------------------------------------------------------------------------
TAX EXEMPT FUND COMMON STOCK -------------------------------------------------------------------------------- Fiduciary Trust Company International* 46.44% Cust A/C Attn Felyce Porr Securities Services Group Church Street Station P.O. Box 3199 New York, NY 10008-3199 -------------------------------------------------------------------------------- Neuberger & Berman* 45.55% #114000 Attn.: Operations Control Dept. Steve Gallaro 55 Water Street, FL 27 New York, NY 10041-0001 --------------------------------------------------------------------------------
42 82 * To the knowledge of each Fund, these entities are not the beneficial owners of a majority of the shares held by them of record. FINANCIAL STATEMENTS Each Fund's audited annual report, dated December 31, 2000, 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. A Fund will furnish without charge a copy of its annual report upon request by calling Credit Suisse Warburg Pincus Funds at (800) 927-2874. 43 83 APPENDIX Description of Commercial Paper Ratings Commercial paper rated A-1 by Standard & Poor's Ratings Services ("S&P") indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign designation. Capacity for timely payment on commercial paper rated A-2 is satisfactory, but the relative degree of safety is not as high as for issues designated A-1. The rating Prime-1 is the highest commercial paper rating assigned by Moody's Investor Services, Inc. ("Moody's"). Issuers rated Prime-1 (or related supporting institutions) are considered to have a superior capacity for repayment of short-term promissory obligations. Issuers rated Prime-2 (or related supporting institutions) are considered to have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics of issuers rated Prime-1 but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternative liquidity is maintained. Short term obligations, including commercial paper, rated A1 + by IBCA are obligations supported by the highest capacity for timely repayment. Obligations rated A1 have a very strong capacity for timely repayment. Obligations rated A2 have a strong capacity for timely repayment, although such capacity may be susceptible to adverse changes in business, economic or financial conditions. Fitch Investors Services, Inc. employs the rating F-1+ to indicate issues regarded as having the strongest degree of assurance for timely payment. The rating F-1 reflects an assurance of timely payment only slightly less in degree than issues rated F-1+, while the rating F-2 indicates a satisfactory degree of assurance for timely payment, although the margin of safety is not as great as indicated by the F-1+ and F-1 categories. Duff & Phelps, Inc. employs the designation of Duff 1 with respect to top grade commercial paper and bank money instruments. Duff 1+ indicates the highest certainty of timely payment: short-term liquidity is clearly outstanding and safety is just below risk-free U.S. Treasury short-term obligations. Duff 1- indicates high certainty of timely payment. Duff 2 indicates good certainty of timely payment: liquidity factors and company fundamentals are sound. A-1 84 Description of Municipal Securities Ratings The following summarizes the highest two ratings used by S&P for Municipal Securities: 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. To provide more detailed indications of credit quality, the "AA" rating may be modified by the addition of a plus or minus sign to show relative standing within this major rating category. The following summarizes the highest two ratings used by Moody's for 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. Aa - Bonds that are rated As are judged to be of high quality by all standards. Together with the Aaa group 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. Moody's applies numerical modifiers (1, 2 and 3) with respect to the bonds rated Aa. 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. The following summarizes the two highest ratings used by S&P for short-term notes: SP-1 - Loans bearing this designation evidence a very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a (+) designation. SP-2 - Loans bearing this designation evidence a satisfactory capacity to pay principal and interest. The following summarizes the two highest ratings used by Moody's for short-term notes and variable rate demand obligations: A-2 85 MIG-1/VMIG-1 - Obligations bearing these designations are of the best quality, enjoying strong protection from established cash flows of funds for their servicing or from established and broad-based access to the market for refinancing, or both. MIG-2/VMIG-2 - Obligations bearing these designations are of high quality with margins of protection ample although not so large as in the preceding group. Commercial paper rated A-1 by S&P indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign designation. Capacity for timely payment on commercial paper rated A-2 is satisfactory, but the relative degree of safety is not as high as for issues designated A-1. The rating Prime-1 is the highest commercial paper rating assigned by Moody's Investors Services, Inc. Issuers rated Prime-1 (or related supporting institutions) are considered to have a superior capacity for repayment of short-term promissory obligations. Issuers rated Prime-2 (or related supporting institutions) are considered to have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics of issuers rated Prime-1 but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternative liquidity is maintained. Short term obligations, including commercial paper, rated A1 + by IBCA are obligations supported by the highest capacity for timely repayment. Obligations rated A1 have a very strong capacity for timely repayment. Obligations rated A2 have a strong capacity for timely repayment, although such capacity may be susceptible to adverse changes in business, economic or financial conditions. Fitch Investors Services, Inc. employs the rating F-1+ to indicate issues regarded as having the strongest degree of assurance for timely payment. The rating F-1 reflects an assurance of timely payment only slightly less in degree than issues rated F-1+, while the rating F-2 indicates a satisfactory degree of assurance for timely payment, although the margin of safety is not as great as indicated by the F-1+ and F-1 categories. Duff & Phelps, Inc. employs the designation of Duff 1 with respect to top grade commercial paper and bank money instruments. Duff 1+ indicates the highest certainty of timely payment: short-term liquidity is clearly outstanding and safety is just below risk-free U.S. Treasury short-term obligations. Duff 1- indicates high certainty of timely payment. Duff 2 indicates good certainty of timely payment: liquidity factors and company fundamentals are sound. A-3 86 PART C OTHER INFORMATION Item 23. Exhibits a(1) Articles of Incorporation.(1) a(2) Articles of Amendment.(2) a(3) Articles Supplementary.(2) a(4) Articles of Amendment. b(1) Amended and Restated By-Laws.(1) b(2) Amendment to By-Laws.(3) b(3) Amendment to By-Laws.(4) b(4) Amended By-Laws dated February 5, 2001.(5) b(5) Amendment to By-Laws. c(1) Form of certificates for common stock.(1) d(1) Form of Investment Advisory Agreement.(6) ---------- (1) Incorporated by reference to Post-Effective Amendment No. 12 to the Registration Statement on Form N-1A for Credit Suisse Warburg Pincus Cash Reserve Fund, Inc. filed on June 28, 1995 (Securities Act File No. 2-94840). (2) Incorporated by reference to Post-Effective Amendment No. 14 to the Registration Statement on Form N-1A for Credit Suisse Warburg Pincus Cash Reserve Fund, Inc. filed on June 25, 1997 (Securities Act File No. 2-94840). (3) Incorporated by reference to Post-Effective Amendment No. 13 to the Registration Statement on Form N-1A for Credit Suisse Warburg Pincus Cash Reserve Fund, Inc. filed on July 1, 1996 (Securities Act File No. 2-94840). (4) Incorporated by reference to Post-Effective Amendment No. 2 to the Registration Statement on Form N-1A for Credit Suisse Warburg Pincus Health Sciences Fund, Inc. filed on February 23, 1998 (Securities Act File No. 333-15419). (5) Incorporated by reference to Post-Effective Amendment No. 5 to the Registration Statement on Form N-1A of Credit Suisse Warburg Pincus International Small Company Fund, Inc., filed on February 22, 2001 (Securities Act File No. 333-49537). (6) Incorporated by reference; material provisions of this exhibit are substantially similar to those of the corresponding exhibit in the Registration Statement on Form N-14 of Credit Suisse Warburg Pincus Global Post-Venture Capital Fund, Inc., filed November 4, 1999 (Securities Act File No. 333-90341). -1- 87 d(2) Form of Co-Administration Agreement with Credit Suisse Asset Management Securities, Inc. ("CSAM Securities).(7) d(3) Form of Co-Administration Agreement with PFPC, Inc.(8) e Distribution Agreement with CSAM Securities.(9) f Not applicable. g Custodian Agreement with State Street Bank and Trust Company.(10) h(1) Form of Transfer Agency and Service Agreement with Boston Data Financial Services, Inc.(5) h(2) Amended Fee Agreement with PFPC, Inc. dated February 5, 2001.(5) i Opinion and Consent of Willkie Farr & Gallagher.(11) j(1) Consent of PricewaterhouseCoopers LLP. j(2) Powers of Attorney.(12) k Not applicable. l Form of Purchase Agreement.(1) ---------- (7) Incorporated by reference to the Registration Statement on Form N-14 of Credit Suisse Warburg Pincus Global Post-Venture Capital Fund, Inc. filed November 4, 1999 (Securities Act File No. 333-90341). (8) Incorporated by reference; material provisions of this exhibit are substantially similar to those of the corresponding exhibit to Pre-Effective Amendment No. 1 to Registration Statement on Form N-1A of Credit Suisse Warburg Pincus WorldPerks Money Market Fund, Inc. filed on September 21, 1998 (Securities Act File No. 333-59801; Investment Company Act File No. 811-08899). (9) Incorporated by reference to the Registration Statement on Form N-14 of Credit Suisse Warburg Pincus Emerging Markets Fund, Inc., filed on December 27, 2000 (Securities Act File No. 333-52818). (10) Incorporated by reference to Post-Effective Amendment No. 14 to the Registration Statement on Form N-1A of Warburg, Pincus Trust, filed on November 22, 2000 (Securities Act File No. 33-58125). (11) Incorporated by reference to Post-Effective Amendment No. 18 to the Registration Statement on Form N-1A for Credit Suisse Warburg Pincus Cash Reserve Fund, Inc. filed on April 28, 2000 (Securities Act File No. 2-94840). (12) Incorporated by reference to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A of Credit Suisse Warburg Pincus Global New Technologies Fund, Inc., filed on December 14, 2000 (Securities Act File No. 333-38124). -2- 88 m(1) Form of Shareholder Servicing and Distribution Plan.(7) m(2) Form of Distribution Plan.(7) n Amended Form of Rule 18f-3 Plan dated February 5, 2001.(5) o Not applicable. p Not included as an exhibit because Registrant is a Money Market Fund. Item 24. Persons Controlled by or Under Common Control with Registrant From time to time, Credit Suisse Asset Management, LLC ("CSAM, LLC") may be deemed to control the Fund and other registered investment companies it advises through its beneficial ownership of more than 25% of the relevant fund's shares on behalf of discretionary advisory clients. CSAM, LLC has three wholly-owned subsidiaries: Warburg, Pincus Asset Management International, Inc., a Delaware corporation; Warburg Pincus Asset Management (Japan), Inc., a Japanese corporation; and Warburg Pincus Asset Management (Dublin) Limited, an Irish corporation. Item 25. Indemnification Registrant, and officers and directors of CSAM, LLC, Credit Suisse Asset Management Securities, Inc. and Registrant, are covered by insurance policies indemnifying them for liability incurred in connection with the operation of Registrant. Discussion of this coverage is incorporated by reference to Item 27 of Part C of the Registration Statement of Warburg, Pincus Trust (Securities Act File No. 33-58125), filed on March 17, 1995. Item 26. (a) Business and Other Connections of Investment Adviser CSAM, LLC acts as investment adviser to Registrant. CSAM, LLC renders investment advice to a wide variety of individual and institutional clients. The list required by this Item 26 of officers and directors of CSAM, LLC, together with information as to their other business, profession, vocation or employment of a substantial nature during the past two years, is incorporated by reference to the Form ADV filed by CSAM, LLC (SEC File No. 801-37170). Item 27. Principal Underwriter (a) CSAM Securities acts as distributor for Registrant, as well as for Credit Suisse Institutional High Yield Fund; Credit Suisse Institutional International Growth Fund; Credit Suisse Institutional U.S. Core Equity Fund; Credit Suisse Institutional U.S. Core Fixed Income Fund; Credit Suisse Warburg Pincus Capital Funds; Credit Suisse Warburg Pincus Opportunity Funds; Credit Suisse Warburg Pincus Select Funds; Credit Suisse Warburg Pincus Global Financial Services Fund; Credit Suisse Warburg Pincus Global New Technologies Fund; Credit Suisse Warburg Pincus/CSFB Technology Index Fund; Credit Suisse Warburg Pincus Aggressive Growth Fund; Credit Suisse Institutional -3- 89 Fund; Credit Suisse Warburg Pincus Balanced Fund; Credit Suisse Warburg Pincus Capital Appreciation Fund; Credit Suisse Warburg Pincus Cash Reserve Fund; Credit Suisse Warburg Pincus Central & Eastern Europe Fund; Credit Suisse Warburg Pincus Emerging Growth Fund; Credit Suisse Warburg Pincus Emerging Markets Fund; Credit Suisse Warburg Pincus European Equity Fund; Credit Suisse Warburg Pincus Fixed Income Fund; Credit Suisse Warburg Pincus Focus Fund; Credit Suisse Warburg Pincus Global Fixed Income Fund; Credit Suisse Warburg Pincus Global Health Sciences Fund; Credit Suisse Warburg Pincus Global Post-Venture Capital Fund; Credit Suisse Warburg Pincus Global Telecommunications Fund; Credit Suisse Warburg Pincus Intermediate Maturity Government Fund; Credit Suisse Warburg Pincus International Equity Fund; Credit Suisse Warburg Pincus International Small Company Fund; Credit Suisse Warburg Pincus Japan Growth Fund; Credit Suisse Warburg Pincus Japan Small Company Fund; Credit Suisse Warburg Pincus Long-Short Market Neutral Fund; Credit Suisse Warburg Pincus Major Foreign Markets Fund; Credit Suisse Warburg Pincus Municipal Bond Fund; Credit Suisse Warburg Pincus New York Intermediate Municipal Fund; Credit Suisse Warburg Pincus New York Tax Exempt Fund; Credit Suisse Warburg Pincus Small Company Growth Fund; Credit Suisse Warburg Pincus Small Company Value II Fund; Warburg Pincus Trust; Warburg Pincus Trust II; Credit Suisse Warburg Pincus Value II Fund; Credit Suisse Warburg Pincus WorldPerks Money Market Fund; and Credit Suisse Warburg Pincus WorldPerks Tax Free Money Market Fund. (b) For information relating to each director, officer or partner of CSAM Securities, reference is made to Form BD (SEC File No. 8-32482) filed by CSAM Securities under the Securities Exchange Act of 1934. (c) None. Item 28. Location of Accounts and Records (1) Credit Suisse Warburg Pincus Cash Reserve Fund, Inc. 466 Lexington Avenue New York, New York 10017-3147 (Fund's articles of incorporation, by-laws and minute books) (2) Credit Suisse Asset Management Securities, Inc. 466 Lexington Avenue New York, New York 10017-3147 (records relating to its functions as co-administrator and distributor) (3) Credit Suisse Asset Management, LLC 466 Lexington Avenue New York, New York 10017-3147 (records relating to its functions as investment adviser) (4) State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 (records relating to its functions as custodian) -4- 90 (5) Boston Financial Data Services, Inc. 2 Heritage Drive North Quincy, Massachusetts 02177 (records relating to its functions as transfer agent and dividend disbursing agent) (6) PFPC Inc. 400 Bellevue Parkway Wilmington, Delaware 19809 (records relating to its functions as co-administrator) Item 29. Management Services Not applicable. Item 30. Undertakings Not applicable. -5- 91 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant certifies that it meets all of the requirements for effectiveness of this Amendment to the Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933, as amended and has duly caused this Amendment to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York and the State of New York, on the 27th day of April, 2001. CREDIT SUISSE WARBURG PINCUS CASH RESERVE FUND, INC. By: /s/James P. McCaughan --------------------- James P. McCaughan Chairman (Chief Executive Officer) Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment has been signed below by the following persons in the capacities and on the date indicated:
Signature Title Date --------- ----- ---- /s/William W. Priest* Director April 27, 2001 ------------------------ William W. Priest /s/James P. McCaughan Chairman (Chief April 27, 2001 ------------------------ Executive Officer) James P. McCaughan /s/Michael A. Pignataro Treasurer and Chief April 27, 2001 ------------------------ Financial Officer Michael A. Pignataro /s/Richard H. Francis* Director April 27, 2001 ------------------------ Richard H. Francis /s/Jack W. Fritz* Director April 27, 2001 ------------------------ Jack W. Fritz /s/Jeffrey E. Garten Director April 27, 2001 ------------------------ Jeffrey E. Garten /s/James S. Pasman, Jr.* Director April 27, 2001 ------------------------ James S. Pasman, Jr. /s/Steven N. Rappaport* Director April 27, 2001 ------------------------ Steven N. Rappaport Director April 27, 2001 ------------------- Peter F. Krogh
92 *By:/s/Michael A. Pignataro ----------------------- Michael A. Pignataro as Attorney-in-Fact 93 INDEX TO EXHIBITS Exhibit No. Description of Exhibit ----------- ---------------------- a(3) Articles of Amendment. b(5) Amendment to By-Laws. j(1) Consent of PricewaterhouseCoopers LLP, Independent Accountants.