N-30D 1 a2077360zn-30d.txt N-30D [CREDIT SUISSE ASSET MANAGEMENT LOGO] CREDIT SUISSE FUNDS SEMIANNUAL REPORT February 28, 2002 (Unaudited) - CREDIT SUISSE MUNICIPAL BOND FUND More complete information about the Fund, including charges and expenses, is provided in the Prospectus, which must precede or accompany this document and which should be read carefully before investing. You may obtain additional copies by calling 800-927-2874 or by writing to Credit Suisse Funds, P.O. Box 9030, Boston, MA 02205-9030. Credit Suisse Asset Management Securities, Inc., Distributor, is located at 466 Lexington Ave., New York, NY 10017-3147. Credit Suisse Funds are advised by Credit Suisse Asset Management, LLC. THE FUND'S INVESTMENT ADVISER AND CO-ADMINISTRATORS MAY WAIVE SOME FEES AND/OR REIMBURSE SOME EXPENSES, WITHOUT WHICH PERFORMANCE WOULD BE LOWER. WAIVERS AND/OR REIMBURSEMENTS ARE SUBJECT TO CHANGE. RETURNS INCLUDE CHANGE IN SHARE PRICE AND REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. RETURNS AND SHARE PRICE WILL FLUCTUATE, AND REDEMPTION VALUE MAY BE MORE OR LESS THAN ORIGINAL COST. THE VIEWS OF THE FUND'S MANAGEMENT ARE AS OF THE DATE OF THE LETTER AND THE PORTFOLIO HOLDINGS DESCRIBED IN THIS DOCUMENT ARE AS OF FEBRUARY 28, 2002; THESE VIEWS AND PORTFOLIO HOLDINGS MAY HAVE CHANGED SUBSEQUENT TO THESE DATES. NOTHING IN THIS DOCUMENT IS A RECOMMENDATION TO PURCHASE OR SELL SECURITIES. FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF CREDIT SUISSE ASSET MANAGEMENT, LLC ("CSAM") OR ANY AFFILIATE, ARE NOT FDIC-INSURED AND ARE NOT GUARANTEED BY CSAM OR ANY AFFILIATE. CREDIT SUISSE MUNICIPAL BOND FUND PORTFOLIO MANAGERS' LETTER February 28, 2002 March 28, 2002 Dear Shareholder: For the six months ended February 28, 2002, the Common Class Shares and Institutional Shares of Credit Suisse Municipal Bond Fund(1) (the "Fund") had gains of 1.63% and 1.76%, respectively, vs. a return of 1.99% for the Lehman Brothers Municipal Bond Index.(2) The period was ultimately a positive one for fixed-income securities, at least for the higher-quality issues targeted by the Fund. These bonds rallied into early November, with investors seeking relatively stable, liquid investments amid much economic uncertainty and in the wake of the terrorist attacks. Investment-grade bonds declined through the end of 2001, however, as risk concerns eased and as investors rotated into equities. The group then ended the period on a positive note; investors took profits in stocks early in 2002 and directed some of the proceeds back into bonds. We attribute the Fund's underperformance of its benchmark weakness in certain holdings in the fourth quarter of 2001. Most specifically, we were overweighted in hospital-related bonds, which generally underperformed in the aftermath of September 11th. We also had relatively little exposure to short-maturity bonds (i.e., bonds with maturities of less than four years) at a time when such bonds performed well, benefiting the most from the Federal Reserve's interest-rate cuts in the quarter. On the positive side, the Fund was aided by its underweighting in long-maturity bonds and its avoidance of zero-coupon issues. We made no changes to the Fund in the period in terms of basic strategy, remaining focused on intermediate-term, investment-grade issues. And while monitoring the market for new investment opportunities, we also continued to add to existing holdings on price weakness, in cases where our confidence in the underlying issuer remained high. With respect to noteworthy portfolio activity, we sold some California bonds in January, based on our assessment of supply/demand trends for the state's municipal market; and we sold certain New York bonds, originally purchased after September 11, that had become more richly valued. In more general terms, late in the period we made some adjustments to the portfolio that we consider to be relatively conservative (e.g., selectively adding a few shorter-term bonds). We believe such moves could offer some downside protection should municipal bonds falter in April. Investors have in the past sold bonds at tax time for payment purposes. If municipal-bond prices indeed decline over the near term, we will seek to lock in the higher yields that would, by definition, become available. 1 Looking ahead, we remain guardedly optimistic regarding the fundamentals for issuers of municipal bonds. While a weak economy has hampered municipalities, the number of recent credit downgrades and projected downgrades is not alarming nor unusual at this point in the credit cycle, in our opinion, and downgrades should become less frequent as the economy begins to recover. We also have a favorable view on the longer-term supply/demand backdrop for the municipal market. On the supply front, certain fundings merit close scrutiny, e.g., an expected $4.5 billion issuance by New York's Metropolitan Transit Authority this year (New York MTA and Triborough Bridge/Tunnel bonds accounted for about 6.8% of the Fund as of February 28), and the California power bailout bonds; on the other hand, any rise in interest rates would limit refundings. All told, we are comfortable with the overall projected issuance going forward. Meanwhile, we believe that demand for securities offering tax-free income should prove supportive over time, barring any unforeseen slashing of income-tax rates. Sincerely yours, CREDIT SUISSE ASSET MANAGEMENT, LLC Gregg M. Diliberto Patrick A. Bittner Co-Portfolio Manager Co-Portfolio Manager SUMMARY OF ANNUALIZED TOTAL RETURNS (2/28/2002)
SINCE INCEPTION CLASS ONE YEAR FIVE YEAR INCEPTION DATE ----- -------- --------- --------- --------- Common 6.41% N/A 5.15% 10/30/1998 Institutional 6.68% 6.17% 6.14% 06/17/1994
A PORTION OF INCOME MAY BE SUBJECT TO STATE, LOCAL AND CITY TAXES OR THE FEDERAL ALTERNATIVE MINIMUM TAX. ---------- (1) Name changed from Credit Suisse Warburg Pincus Municipal Bond Fund effective December 12, 2001. (2) The Lehman Brothers Municipal Bond Index is an unmanaged index (with no defined investment objective) of municipal bonds and is calculated by Lehman Brothers, Inc. Investors cannot invest directly in an index. 2 CREDIT SUISSE MUNICIPAL BOND FUND SCHEDULE OF INVESTMENTS February 28, 2002 (Unaudited)
PAR RATINGS(1) (000) (S&P/MOODY'S) MATURITY RATE% VALUE ----- ------------- -------- ----- ----- MUNICIPAL BONDS (99.3%) ALASKA (6.0%) $ 1,170 Anchorage, AK, General Obligation, Series B (AAA , Aaa) 07/01/13 5.500 $ 1,275,885 ----------- ARIZONA (4.9%) 1,000 Arizona Health Facilities, Authority Hospital Systems, Revenue Bonds, Series A (Phoenix Childrens Hospital) (NR , A3) 02/15/13 6.000 1,049,940 ----------- COLORADO (6.7%) 700 Colorado Health Facilities Authority Revenue, Catholic Health Initiatives, Series A (AA- , Aa3) 12/01/07 5.500 757,421 595 Colorado Springs, CO, Utility Revenue Bonds (AAA , Aaa) 11/15/17 5.875 668,881 ----------- TOTAL COLORADO (Cost $1,305,222) 1,426,302 ----------- FLORIDA (2.3%) 460 Tallahassee, FL, Electric Revenue Bonds (AAA , Aaa) 10/01/06 6.100 499,905 ----------- ILLINOIS (8.1%) 1,000 Chicago, IL, Metro Water Reclamation District Greater Chicago, Capital Improvement Bonds, General Obligation (AA+ , Aa1) 01/01/11 7.000 1,197,720 225 Cook County, IL, General Obligation, Series B (AAA , Aaa) 11/15/10 5.400 237,971 300 Illinois Development Finance Authority, Adventist Health Systems, Sunbelt Obligation, Revenue Bonds (A- , Baa1) 11/15/24 5.650 289,929 ----------- TOTAL ILLINOIS (Cost $1,644,888) 1,725,620 ----------- LOUISIANA (3.4%) 635 New Orleans, LA, Home Mortgage Authority, Special Obligation Bonds (NR , Aaa) 01/15/11 6.250 727,939 ----------- MARYLAND (8.6%) 750 Frederick County, MD, General Obligation (AA , Aa2) 07/01/07 5.000 809,452 850 Maryland State Transportation Authority, Transportation Facilities Project, Revenue Bonds (AAA , Aaa) 07/01/16 6.800 1,016,710 ----------- TOTAL MARYLAND (Cost $1,675,315) 1,826,162 ----------- MASSACHUSETTS (0.1%) 20 Massachusetts State, Water Resources Authority, Series A (AA , Aa3) 07/15/19 6.500 23,947 ----------- MINNESOTA (6.4%) 1,310 Minnesota Public Facilities Authority, Water Pollution, Series A (AAA , Aaa) 03/01/16 5.250 1,368,347 ----------- NEW JERSEY (2.1%) 440 New Jersey Health Care Facilities, Financing Authority, Trinitas Hospital Obligation Group, Revenue Bonds (BBB- , Baa3) 07/01/04 6.500 458,080 ----------- See Accompanying Notes to Financial Statements. 3 PAR RATINGS(1) (000) (S&P/MOODY'S) MATURITY RATE% VALUE ----- ------------- -------- ----- ----- NEW YORK (32.1%) $ 210 Housing New York Corporation, Revenue Bonds (AAA, Aa3) 11/01/10 5.500 $ 216,493 205 Metropolitan Transportation Authority, NY, Commuter Facilities, Revenue Bonds, Series A (BBB+, Baa1) 07/01/06 5.000 221,064 110 Metropolitan Transportation Authority, NY, Commuter Facilities, Revenue Bonds, Series C-1 (AAA , Aaa) 07/01/06 6.000 123,516 200 Metropolitan Transportation Authority, NY, Service Contract Transportation Facilities, Revenue Bonds, Series O (AA- , A3) 07/01/08 5.750 223,486 500 Nassau County, NY, General Obligation Unlimited, Series F (BBB- , Baa3) 03/01/04 7.000 534,230 55 New York City, General Obligation, Series C (A , A2) 10/01/15 5.500 56,576 1,000 New York City, General Obligation, Series G (A , A2) 02/01/08 5.750 1,078,900 100 New York City, General Obligation Unlimited, Series A (A , A2) 08/01/04 6.000 108,217 200 New York City, Transitional Finance Authority, Revenue Bonds, Series A Future Tax Secured (AA+ , Aa2) 08/15/11 5.250 216,836 225 New York State Dormitory Authority, City University, Revenue Bond, Series F (Callable 07/01/03 @ $102.00) (AA- , A3) 07/01/12 5.500 238,774 40 New York State Dormitory Authority, Revenue Bonds (Judicial Facilities Lease) (AAA , Aaa) 07/01/16 7.375 49,394 100 New York State Housing Finance Agency, New York City Health Facilities, Revenue Bond, Series A (A , A3) 11/01/06 6.000 111,971 360 New York State Power Authority, General Purpose Revenue Bonds (AAA , Aaa) 01/01/18 7.000 441,400 100 New York State Thruway Authority, Service Contract Revenue Bonds, Series A (AAA , Aaa) 01/01/07 5.250 107,145 175 New York, General Obligation Unlimited, Series G (A , A2) 08/01/05 4.500 183,433 955 New York, General Obligation, Series A (A , A2) 08/01/08 6.250 1,064,071 75 Port Authority New York & New Jersey, Revenue Bonds, Series 86 (AA- , A1) 07/01/05 4.900 79,642 225 Port Authority New York & New Jersey, Revenue Bonds, Series 114 (AA- , A1) 08/01/13 5.500 233,955 580 Suffolk County, NY, Water Authority Waterworks, Revenue Bonds, Series V (AAA , NR) 06/01/12 6.750 691,609 730 Triborough Bridge & Tunnel Authority, New York, General Purpose Bonds, Series A (AA- , Aa3) 01/01/20 5.200 737,242 120 Triborough Bridge & Tunnel Authority, New York, Revenue Bonds, Series A (AA- , Aa3) 01/01/08 5.500 131,573 ------------ TOTAL NEW YORK (Cost $6,554,867) 6,849,527 ------------ See Accompanying Notes to Financial Statements. 4 PAR RATINGS(1) (000) (S&P/MOODY'S) MATURITY RATE% VALUE ----- ------------- -------- ----- ----- PUERTO RICO (6.6%) $ 300 Puerto Rico Commonwealth Highway & Transportation Authority, Revenue Bonds, Series E (AAA , Aaa) 07/01/11 5.500 $ 335,703 1,000 Puerto Rico Commonwealth Highway & Transportation Authority, Revenue Bonds, Series F (A , Baa1) 07/01/11 5.250 1,076,250 ------------ TOTAL PUERTO RICO (Cost $1,386,928) 1,411,953 ------------ SOUTH DAKOTA (0.9%) 160 Heartland Consumers Power District, SD, Electric Revenue Bonds (AAA , Aaa) 01/01/16 6.375 182,150 ------------ TEXAS (0.9%) 165 Houston, TX, Sewer Systems, Revenue Bonds (NR , Aaa) 10/01/08 6.375 184,777 5 San Antonio, TX, Electric & Gas, Revenue Bonds, Prerefunded (AA , Aa1) 02/01/12 5.000 5,363 ------------ TOTAL TEXAS (Cost $181,774) 190,140 ------------ UTAH (4.7%) 1,000 Utah State Building Ownership Authority Lease, Revenue Bond, Series A (AAA , Aa1) 05/15/21 5.000 1,001,450 ------------ VIRGINIA (5.0%) 630 Fairfax County, VA, Redevelopment & Housing Authority, Revenue Bonds (Island Walk Project) (AAA , NR) 04/01/19 7.100 790,732 150 Loudon County, VA, Public Improvement, General Obligation, Series B (AA+ , Aa1) 01/01/07 5.000 161,276 100 Virginia State Residential Authority, Clean Water, State Revolving Fund, Revenue Bonds (AAA , Aaa) 10/01/09 5.000 108,103 ------------ TOTAL VIRGINIA (Cost $948,110) 1,060,111 ------------ WEST VIRGINIA (0.5%) 100 Harrison County, WV, Building Community, Revenue Bonds, Series A (United Hospital Center, Inc.) (AAA , Aaa) 04/01/02 4.550 100,204 ------------ TOTAL MUNICIPAL BONDS (Cost $20,106,086) 21,177,662 ------------ SHORT-TERM INVESTMENT (8.3%) 1,778 State Street Bank & Trust Co. Euro Time Deposit (Cost $1,778,000) 03/01/02 1.625 1,778,000 ------------ TOTAL INVESTMENTS AT VALUE (107.6%) (Cost $21,884,086(2)) 22,955,662 LIABILITIES IN EXCESS OF OTHER ASSETS (-7.6%) (1,630,855) ------------ NET ASSETS (100.0%) $ 21,324,807 ============ ------------------------------------------------------------------------------------------------------------------------
(1) Credit ratings given by Moody's Investors Service, Inc. and Standard & Poor's Ratings Group are unaudited. (2) Also cost for federal income tax purposes. See Accompanying Notes to Financial Statements. 5 CREDIT SUISSE MUNICIPAL BOND FUND STATEMENT OF ASSETS AND LIABILITIES February 28, 2002 (Unaudited) ASSETS Investments at value (Cost $21,884,086) $ 22,955,662 Cash 3,905 Dividend and interest receivable 233,378 Receivable from investment advisor 8,895 Prepaid expenses and other assets 42,393 ------------ Total Assets 23,244,233 ------------ LIABILITIES Administrative services fee payable 1,445 Payable for investments purchased 1,848,686 Dividend payable 59,676 Distribution fee payable 4,413 Other accrued expenses payable 5,206 ------------ Total Liabilities 1,919,426 ------------ NET ASSETS Capital stock, $0.001 par value 1,451 Paid-in capital 20,090,166 Accumulated undistributed net investment income 50 Accumulated net realized gain from investments 145,558 Net unrealized appreciation from investments 1,087,582 ------------ Net Assets $ 21,324,807 ============ COMMON SHARES Net assets $ 16,451,500 Shares outstanding 1,119,158 ------------ Net asset value, offering price and redemption price per share $ 14.70 ============ INSTITUTIONAL SHARES Net assets $ 4,872,192 Shares outstanding 331,343 ------------ Net asset value, offering price and redemption price per share $ 14.70 ============ A SHARES Net assets $ 1,115 Shares outstanding 76 ------------ Net asset value and redemption price per share $ 14.69 ============ Maximum offering price per share (net asset value/(1-3.00%)) $ 15.14 ============
See Accompanying Notes to Financial Statements. 6 CREDIT SUISSE MUNICIPAL BOND FUND STATEMENT OF OPERATIONS For the Six Months Ended February 28, 2002 (Unaudited) INTEREST INCOME $ 528,910 ------------ EXPENSES Investment advisory fees 79,511 Administrative services fees 12,921 Shareholder servicing/Distribution fees 22,366 Printing fees 32,082 Registration fees 19,387 Legal fees 13,283 Transfer agent fees 13,162 Audit fees 7,259 Directors fees 6,815 Custodian fees 1,670 Insurance expense 1,431 Interest expense 438 Miscellaneous expense 3,592 ------------ Total expenses 213,917 Less: fees waived, expenses reimbursed and transfer agent offsets (112,040) ------------ Net expenses 101,877 ------------ Net investment income 427,033 ------------ NET REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS Net realized gain from investments 253,764 Net change in unrealized appreciation (depreciation) from investments (315,521) ------------ Net realized and unrealized loss from investments (61,757) ------------ Net increase in net assets resulting from operations $ 365,276 ============
See Accompanying Notes to Financial Statements. 7 CREDIT SUISSE MUNICIPAL BOND FUND STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED FOR THE YEAR FEBRUARY 28, 2002 ENDED (UNAUDITED) AUGUST 31, 2001 ------------------ -------------- FROM OPERATIONS Net investment income $ 427,033 $ 805,923 Net realized gain on investments 253,764 1,173,465 Net change in unrealized appreciation (depreciation) from investments (315,521) (237,555) ------------ ------------- Net increase in net assets resulting from operations 365,276 1,741,833 ------------ ------------- FROM DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income Common Class shares (331,676) (357,429) Institutional Class shares (95,273) (491,593) Class A shares (10) -- Distributions from net realized gains Common Class shares (675,184) -- Institutional Class shares (176,272) -- Class A shares (37) -- ------------ ------------- Net decrease in net assets from dividends and distributions (1,278,452) (849,022) ------------ ------------- FROM CAPITAL SHARE TRANSACTIONS Proceeds from sale of shares 2,185,563 14,576,020 Exchange value of shares due to merger -- 22,307,654 Reinvestment of dividends and distributions 974,416 740,279 Net asset value of shares redeemed (4,540,578) (30,050,286) ------------ ------------- Net increase (decrease) in net assets from capital share transactions (1,380,599) 7,573,667 ------------ ------------- Net increase (decrease) in net assets (2,293,775) 8,466,478 NET ASSETS Beginning of period 23,618,582 15,152,104 End of period $ 21,324,807 $ 23,618,582 ============ ============= UNDISTRIBUTED NET INVESTMENT INCOME (LOSS) $ 50 $ (24) ============ =============
See Accompanying Notes to Financial Statements. 8 CREDIT SUISSE MUNICIPAL BOND FUND FINANCIAL HIGHLIGHTS (For a Common Class Share of the Fund Outstanding Throughout Each Period)
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED AUGUST 31, FEBRUARY28, 2002 ----------------------------------------- (UNAUDITED) 2001 2000 1999(1) ---------------- ----------- ---------- ------------ PER SHARE DATA Net asset value, beginning of period $ 15.30 $ 14.47 $ 14.29 $ 15.14 -------- -------- -------- -------- INVESTMENT OPERATIONS Net investment income 0.28 0.62 0.63 0.54 Net gain (loss) on investments (both realized and unrealized) (0.05) 0.83 0.25 (0.66) -------- -------- -------- -------- Total from investment operations 0.23 1.45 0.88 (0.12) -------- -------- -------- -------- LESS DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (0.28) (0.62) (0.68) (0.52) Distributions from net realized gains (0.55) -- (0.02) (0.21) -------- -------- -------- -------- Total dividends and distributions (0.83) (0.62) (0.70) (0.73) -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $ 14.70 $ 15.30 $ 14.47 $ 14.29 ======== ======== ======== ======== Total return 1.63%(2) 10.24% 6.42% (0.85)%(2) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted) $ 16,452 $ 18,672 $ 524 $ 211 Ratio of expenses to average net assets 0.95%(3),(4) 0.96%(4) 1.27%(4) 1.26%(3) Ratio of net investment income to average net assets 3.71%(3) 4.06% 4.55% 4.44%(3) Decrease reflected in above operating expense ratios due to waivers/reimbursements 0.95%(3) 1.10% 0.82% 0.45%(3) Portfolio turnover rate 69% 139% 5% 26%
---------- (1) For the period October 30, 1998 (inception date) through August 31, 1999. (2) Non-annualized. (3) Annualized. (4) Interest earned on uninvested cash balances is used to offset portions of the transfer agent expense. These arrangements had no effect on the fund's expense ratio. See Accompanying Notes to Financial Statements. 9 CREDIT SUISSE MUNICIPAL BOND FUND FINANCIAL HIGHLIGHTS (For an Institutional Class Share of the Fund Outstanding Throughout Each Period)
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED AUGUST 31, FEBRUARY 28, 2002 ------------------------------------------------------------ (UNAUDITED) 2001 2000 1999 1998 1997 ----------------- --------- ---------- ---------- ---------- ----------- PER SHARE DATA Net asset value, beginning of period $ 15.30 $ 14.47 $ 14.30 $ 15.12 $ 14.84 $ 14.65 ------- ------- -------- -------- -------- -------- INVESTMENT OPERATIONS Net investment income 0.29 0.65 0.69 0.67 0.70 0.72 Net gain (loss) on investments (both realized and unrealized) (0.04) 0.84 0.21 (0.60) 0.40 0.65 ------- ------- -------- -------- -------- -------- Total from investment operations 0.25 1.49 0.90 0.07 1.10 1.37 ------- ------- -------- -------- -------- -------- LESS DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (0.30) (0.66) (0.71) (0.68) (0.71) (0.72) Distributions from net realized gains (0.55) -- (0.02) (0.21) (0.11) (0.46) ------- ------- -------- -------- -------- -------- Total dividends and distributions (0.85) (0.66) (0.73) (0.89) (0.82) (1.18) ------- ------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $ 14.70 $ 15.30 $ 14.47 $ 14.30 $ 15.12 $ 14.84 ======= ======= ======== ======== ======== ======== Total return 1.76%(1) 10.53% 6.62% 0.36% 7.62% 9.74% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted) $ 4,872 $ 4,947 $ 14,628 $ 22,423 $ 22,229 $ 19,810 Ratio of expenses to average net assets 0.70%(2),(3) 0.93%(3) 1.00%(3) 0.99% 1.00% 1.00% Ratio of net investment income to average net assets 3.96%(2) 4.16% 4.79% 4.49% 4.72% 4.88% Decrease reflected in above operating expense ratios due to waivers/ reimbursements 0.95%(2) 0.74% 0.78% 0.44% 0.39% 0.37% Portfolio turnover rate 69% 139% 5% 26% 57% 43%
---------- (1) Non-annualized. (2) Annualized. (3) Interest earned on uninvested cash balances is used to offset portions of the transfer agent expense. These arrangements had no effect on the fund's expense ratio. See Accompanying Notes to Financial Statements. 10 CREDIT SUISSE MUNICIPAL BOND FUND NOTES TO FINANCIAL STATEMENTS February 28, 2002 (Unaudited) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Credit Suisse Municipal Bond Fund, formerly Credit Suisse Warburg Pincus Municipal Bond Fund (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as a non-diversified open-end management investment company that seeks high total return. The Fund is authorized to offer four classes of shares: Common, Institutional, Advisor and Class A, although only Common, and Class A shares are being offered. Effective November 30, 2001 the Fund began offering Class A shares. Effective December 12, 2001 Common Class closed to new investors and Institutional Class closed to new investments. Common shares for the fund bear expenses paid pursuant to a shareholder servicing and distribution agreement at an annual rate not to exceed .25% of the average daily net asset value of the Fund's outstanding Common shares. Class A shares are sold with a front-end sales charge of up to 3.00% and bear expenses paid pursuant to a plan of distribution at an annual rate of .25% of the average daily net asset value of the Fund's Class A shares. For the period November 30, 2001 through February 26, 2002 the Class A shares were sold with a front-end sales charge of up to 4.75%. Effective February 27, 2002 the front-end sales charge was reduced from 4.75% to 3.00%. In addition, the Common and Class A shares bear co-administration fees. Results for the Class A shares are contained in a separate book. A) SECURITY VALUATION -- The net asset value of the Fund is determined daily as of the close of regular trading on The New York Stock Exchange, Inc. The Fund's investments are valued at market value, which is generally determined using the last reported sales price. If no sales are reported, investments are generally valued at the last reported bid price, and if there is no bid price available, at the most recent ask price. Debt securities are valued on the basis of broker quotations or valuations provided by a pricing service which may use a matrix, formula or other objective method that takes into consideration market indices, matrices, yield curves and other specific adjustments. If market quotations are not readily available, securities and other assets are valued by another method that the Board of Directors believes accurately reflects fair value. Debt obligations that will mature in 60 days or less are valued on the basis of amortized cost, unless the Board determines that using this method would not reflect an investment's value. 11 B) SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are accounted for on a trade date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Income, expenses (excluding class-specific expenses, principal distribution and shareholder servicing fees) and realized/unrealized gains/losses are allocated proportionately to each class of shares based upon the relative net asset value of the outstanding shares of that class. The cost of investments sold is determined by use of the specific identification method for both financial reporting and income tax purposes. C) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net investment income are declared and paid monthly. Distributions of net realized capital gains, if any, are declared and paid at least annually. However, to the extent that a net realized capital gain can be reduced by a capital loss carryover, such gain will not be distributed. Income and capital gain distributions are determined in accordance with federal income tax regulations which may differ from accounting principles generally accepted in the United States of America ("GAAP"). D) FEDERAL INCOME TAXES -- No provision is made for federal taxes as it is the Fund's intention to continue to qualify for and elect the tax treatment applicable to regulated investment companies under the Internal Revenue Code of 1986, as amended, and make the requisite distributions to its shareholders which will be sufficient to relieve it from federal income and excise taxes. E) USE OF ESTIMATES -- The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. F) SHORT-TERM INVESTMENTS -- The Fund, together with other funds advised by Credit Suisse Asset Management, LLC ("CSAM"), an indirect, wholly-owned subsidiary of Credit Suisse Group, pool available cash into a short-term time deposit issued by State Street Bank & Trust, the Fund's custodian. The short-term time deposit is a variable rate account classified as a short-term investment. 12 NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES CSAM serves as investment adviser for the Fund. For its investment advisory services, CSAM is entitled to receive a fee from the Fund at an annual rate of ..70% of the Fund's average daily net assets. For the six months ended February 28, 2002, investment advisory fees earned and voluntarily waived, and expenses reimbursed were as follows:
GROSS NET EXPENSE ADVISORY FEE WAIVER ADVISORY FEE REIMBURSEMENTS ------------ ------ ------------ -------------- $ 79,511 $ (79,511) $ -- $ (28,039)
Credit Suisse Asset Management Securities, Inc. ("CSAMSI"), an affiliate of CSAM, and PFPC Inc. ("PFPC"), an indirect, wholly-owned subsidiary of PNC Financial Services Group, serve as co-administrators to the Fund. For its administrative services, CSAMSI currently receives a fee calculated at an annual rate of .10% of the Fund's average daily net assets of the Common and Class A shares. No compensation is payable by the Fund to CSAMSI for its administrative services for the Institutional shares. For the six months ended February 28, 2002, administrative services fees earned and voluntarily waived by CSAMSI were $4,473 and $4,473, respectively. For its administrative services, PFPC is entitled to receive a fee, exclusive of out-of-pocket, based on the following fee structure:
AVERAGE DAILY NET ASSETS ANNUAL RATE ------------------------ ----------- First $150 million .07% of average daily net assets Next $150 million .06% of average daily net assets Over $300 million .05% of average daily net assets
For the six months ended February 28, 2002, the administrative services fees earned by PFPC (including out-of-pocket expenses) were $8,448. At its meeting held on February 12, 2002 the Board of Directors adopted a resolution to approve a Co-Administrator Agreement between the Fund and State Street Bank and Trust Company ("SSB") replacing PFPC effective mid 2002. In addition to serving as the Fund's co-administrator, CSAMSI serves as distributor to the Fund's shares. Pursuant to a distribution plan adopted by the Fund pursuant to Rule 12b-1 under the 1940 Act, CSAMSI receives a fee for its distribution services. This fee is calculated at an annual rate of .25% of the average daily net assets of the Common and Class A shares. For the six months ended February 28, 2002, shareholder servicing and distribution fees earned by CSAMSI were $22,366. 13 Boston Financial Data Services, Inc. ("BFDS") serves as the Fund's transfer and dividend disbursement agent. The Fund has an arrangement with BFDS whereby interest earned on uninvested cash balances was used to offset a portion of the transfer agent expenses. For the six months ended February 28, 2002, the Fund received credits or reimbursements under this agreement in the amount of $17. Certain brokers, dealers and financial representatives provide transfer agent related services to the Fund, and receive compensation from CSAM. CSAM is then reimbursed by the Fund. For the six months ended February 28, 2002, the Fund reimbursed CSAM $10,479, which is included in the Fund's transfer agent expense. For the six months ended February 28, 2002 CSAMSI and its affiliates advised the Fund that it retained $6 from commissions earned on the sale of the Fund's shares. Merrill Corporation ("Merrill"), an affiliate of CSAM, has been engaged by the Fund to provide certain financial printing services. For the six months ended February 28, 2002, Merrill was paid $39,299 for its services to the Fund. NOTE 3. LINE OF CREDIT The Fund, together with other funds advised by CSAM (collectively, the "Participating Funds"), participated in a $200 million committed, unsecured line of credit facility ("Credit Facility") with Deutsche Bank, A.G. as administrative agent, State Street Bank and Trust Company as operations agent, BNP Paribas as syndication agent and certain other lenders, for temporary or emergency purposes primarily relating to unanticipated Participating Funds' share redemptions. Under the terms of the Credit Facility, the Participating Funds pay an aggregate commitment fee at a rate of .10% per annum on the average unused amount of the Credit Facility, which is allocated among the Participating Funds in such a manner as was determined by the governing Boards of the Participating Funds. In addition, the Participating Funds paid interest on borrowings at the Federal funds rate plus .50%. For the six months ended February 28, 2002, the fund had no borrowings under the Credit Facility. NOTE 4. PURCHASES AND SALES OF SECURITIES For the six months ended February 28, 2002, purchases and sales of investment securities (excluding short-term investments) were $13,209,964 and $15,070,667, respectively. 14 At February 28, 2002, the net unrealized appreciation from investments for those securities having an excess of value over cost and net unrealized depreciation from investments for those securities having an excess of cost over value (based on cost for federal income tax purposes) were $1,081,630 and $10,054, respectively. NOTE 5. CAPITAL SHARE TRANSACTIONS Each class of shares of the Fund is authorized to issue one billion full and fractional shares of capital stock, $.001 par value per share. Transactions in capital shares for each class were as follows:
COMMON CLASS -------------------------------------------------------------------- FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED FEBRUARY 28, 2002 (UNAUDITED) AUGUST 31, 2001 -------------------------------------------------------------------- SHARES VALUE SHARES VALUE ---------- ------------ ----------- ------------- Shares sold 147,790 $ 2,184,420 295,675 $ 4,427,093 Shares exchanged due to merger -- -- 1,490,041 22,307,654 Shares issued in reinvestment of dividends and distributions 50,626 735,023 18,292 273,283 Shares redeemed (299,749) (4,413,158) (619,744) (9,250,259) ---------- ------------ ----------- ------------- Net increase (decrease) (101,333) $ (1,493,715) 1,184,264 $ 17,757,771 ========== ============ =========== ============= INSTITUTIONAL CLASS -------------------------------------------------------------------- FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED FEBRUARY 28, 2002 (UNAUDITED) AUGUST 31, 2001 -------------------------------------------------------------------- SHARES VALUE SHARES VALUE ---------- ------------ ----------- ------------- Shares sold -- $ -- 670,970 $ 10,148,927 Shares issued in reinvestment of dividends and distributions 16,470 239,393 31,651 466,996 Shares redeemed (8,358) (127,420) (1,390,250) (20,800,027) ---------- ------------ ----------- ------------- Net increase (decrease) 8,112 $ 111,973 (687,629) $ (10,184,104) ========== ============ =========== ============= CLASS A ------------------------------- FOR THE SIX MONTHS ENDED FEBRUARY 28, 2002(1) (UNAUDITED) ------------------------------- SHARES VALUE ---------- ------------ Shares sold 76 $ 1,143 ---------- ------------ Net increase 76 $ 1,143 ========== ============
(1) For the period November 30, 2001 (inception date) through February 28, 2002. 15 On February 28, 2002, the number of shareholders that held 5% or more of the outstanding shares of each class of the Fund were as follows:
NUMBER OF APPROXIMATE PERCENTAGE SHAREHOLDERS OF OUTSTANDING SHARES ------------ ---------------------- Common Class 1 5.69% Institutional Class 6 97.93% Class A 1 87.09%
16 P.O. Box 9030, Boston, MA 02205-9030 CREDIT ASSET 800-927-2874 www.CreditSuisseFunds.com SUISSE MANAGEMENT CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC., DISTRIBUTOR. CSMBD-3-0202