**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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FORM 10-Q

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Forthe quarterly period ended June 30, 2005**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Forthe transition period from           to**

**CommissionFile Number: 1-6862**

**Credit Suisse First Boston (USA), Inc.**

(Exact name of registrantas specified in its charter)

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| **Delaware**                                                     | **13-1898818**                        |
|------------------------------------------------------------------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) | (I.R.S. Employer  Identification No.) |
| **Eleven Madison Avenue  New York, New York**                    | **10010**                             |
| (Address of  principal executive offices)                        | (Zip Code)                            |

 

**(212) 325-2000**

(Registrant’s telephonenumber, including area code)

**The Registrant meets the conditions set forth inGeneral Instruction H (1) (a) and (b) of Form 10-Qand is therefore filing this Form 10-Q with the reduced disclosureformat.**

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days: Yes x  No o

Indicated by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act). Yes o  No x

Allof the outstanding shares of common stock of the registrant, $0.10 par value,are held by Credit Suisse First Boston, Inc.

 

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**CREDIT SUISSE FIRST BOSTON (USA), INC.Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2005**
| **PART I** | ** ** | **FINANCIAL INFORMATION** |   |                                                                                                                                         |
|-----------------|------------|---------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------|
|            |       | ITEM 1:                   |   | Financial  Statements                                                                                                                        |   |   |
|            |       |                      |   | Condensed  Consolidated Statements of Financial Condition (Unaudited) as of June 30,  2005 and December 31, 2004                   |   | 2 |
|            |       |                      |   | Condensed  Consolidated Statements of Operations (Unaudited) for the three and six  months ended June 30, 2005 and 2004                 |   | 4 |
|            |       |                      |   | Condensed  Consolidated Statements of Changes in Stockholder’s Equity (Unaudited) for  the six months ended June 30, 2005 and 2004 |   | 5 |
|            |       |                      |   | Condensed  Consolidated Statements of Cash Flows (Unaudited) for the six months ended  June 30, 2005 and 2004                           |   | 6 |
|            |       |                      |   | Notes to Condensed Consolidated  Financial Statements (Unaudited)                                                                            |   |   |
|            |       |                      |   |     1. Summary of Significant Accounting Policies                                                                        |   | 7 |
|            |       |                      |   |     2. Related Party Transactions                                                                                        |   | 9 |
|            |       |                      |   |     3. Transfers and Servicing of Financial Assets                                                                       |   | 12 |
|            |       |                      |   |     4. Private Equity and Other Long-Term  Investments                                                                   |   | 16 |
|            |       |                      |   |     5. Derivatives Contracts                                                                                             |   | 17 |
|            |       |                      |   |     6. Borrowings                                                                                                        |   | 18 |
|            |       |                      |   |     7. Leases and Commitments                                                                                            |   | 20 |
|            |       |                      |   |     8. Guarantees                                                                                                        |   | 21 |
|            |       |                      |   |     9. Net Capital Requirements                                                                                          |   | 22 |
|            |       |                      |   |   10. Cash and Securities  Segregated Under Federal and Other Regulations                                                          |   | 23 |
|            |       |                      |   |   11. Share-Based Compensation                                                                                                     |   | 23 |
|            |       |                      |   |   12. Employee Benefit Plans                                                                                                       |   | 24 |
|            |       |                      |   |   13. Legal Proceedings                                                                                                            |   | 25 |
|            |       |                      |   |   14. Industry Segment and  Geographic Data                                                                                        |   | 25 |
|            |       |                      |   | Report  of Independent Registered Public Accounting Firm                                                                                     |   | 28 |
|            |       | ITEM  2:                  |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                    |   | 29 |
|            |       | ITEM 3:                   |   | Quantitative and Qualitative Disclosures About Market  Risk                                                                                  |   | 59 |
|            |       | ITEM 4:                   |   | Controls  and Procedures                                                                                                                     |   | 62 |
| **PART II**     | ** ** | **OTHER  INFORMATION**    |   |                                                                                                                                         |
|            |       | ITEM 1:                   |   | Legal  Proceedings                                                                                                                           |   | 63 |
|            |       | ITEM 6:                   |   | Exhibits                                                                                                                                     |   | 65 |
|            |       | Signature                 |   | 66                                                                                                                                           |

 

**AVAILABLE INFORMATION**

We file annual, quarterly and current reports andother information with the Securities and Exchange Commission, or SEC. Our SECfilings are available to the public over the internet on the SEC’s website at *www.sec.gov*. You may also view our annual, quarterly andcurrent reports on our website at *www.csfb.com*(under “Company Information”) as soon as is reasonably practicable after thereport is electronically filed with, or furnished to, the SEC. The informationon our website is not incorporated by reference into this Quarterly Report.

1

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**PART IFINANCIAL INFORMATIONItem 1: Financial Statements**

**CREDITSUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES**

**CondensedConsolidated Statements of Financial Condition(Unaudited)(In millions)**
| ** **                                                                                                      | ** ** | **June 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                      |       |                    |       |                        |       |   |   |
| Cash and cash  equivalents                                                                                      |       | $                       | 719        |                        |       | $ | 727 |   |   |
| Collateralized  short-term financings:                                                                          |       |                    |       |                        |       |   |   |
| Securities purchased under agreements to resell                                                                 |       | 51,474                  |       |                        | 48,887     |   |   |
| Securities borrowed                                                                                             |       | 87,959                  |       |                        | 82,912     |   |   |
| Receivables:                                                                                                    |       |                    |       |                        |       |   |   |
| Customers                                                                                                       |       | 1,724                   |       |                        | 3,307      |   |   |
| Brokers, dealers and other                                                                                      |       | 20,307                  |       |                        | 11,094     |   |   |
| Financial instruments  owned (includes securities pledged as collateral of $74,938 and $54,663,  respectively): |       |                    |       |                        |       |   |   |
| U.S. government and agencies                                                                                    |       | 34,194                  |       |                        | 32,841     |   |   |
| Corporate debt                                                                                                  |       | 19,585                  |       |                        | 14,721     |   |   |
| Mortgage whole loans                                                                                            |       | 21,130                  |       |                        | 14,987     |   |   |
| Equities                                                                                                        |       | 27,763                  |       |                        | 28,712     |   |   |
| Commercial paper                                                                                                |       | 2,676                   |       |                        | 1,171      |   |   |
| Private equity and other long-term investments                                                                  |       | 3,345                   |       |                        | 3,127      |   |   |
| Derivatives contracts                                                                                           |       | 4,572                   |       |                        | 3,663      |   |   |
| Other                                                                                                           |       | 3,421                   |       |                        | 3,665      |   |   |
| Net deferred tax  asset                                                                                         |       | 1,167                   |       |                        | 1,103      |   |   |
| Office facilities  at cost (net of accumulated depreciation and amortization of $748 and $913,  respectively)   |       | 432                     |       |                        | 420        |   |   |
| Goodwill                                                                                                        |       | 530                     |       |                        | 527        |   |   |
| Loans receivable  from parent and affiliates                                                                    |       | 22,838                  |       |                        | 22,692     |   |   |
| Other assets and  deferred amounts                                                                              |       | 1,617                   |       |                        | 1,257      |   |   |
| Total assets                                                                                                    |       | $                       | 305,453    |                        |       | $ | 275,813 |   |   |

 

See accompanying notes to condensed consolidatedfinancial statements (unaudited).

2

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**CREDIT SUISSE FIRST BOSTON (USA), INC. ANDSUBSIDIARIESCondensed Consolidated Statements of Financial Condition (Continued)(Unaudited)**(In millions, exceptshare data)
|                                                                                                | ** ** | **June 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| LIABILITIES AND STOCKHOLDER’S EQUITY                                       |       |                    |       |                        |       |   |   |
| Commercial paper  and short-term borrowings                                                    |       | $                       | 17,146     |                        |       | $ | 21,684 |   |   |
| Collateralized short-term  financings:                                                         |       |                    |       |                        |       |   |   |
| Securities sold under agreements to repurchase                                                 |       | 121,931                 |       |                        | 108,407    |   |   |
| Securities loaned                                                                              |       | 48,819                  |       |                        | 45,148     |   |   |
| Payables:                                                                                      |       |                    |       |                        |       |   |   |
| Customers                                                                                      |       | 9,230                   |       |                        | 6,767      |   |   |
| Brokers, dealers and other                                                                     |       | 8,469                   |       |                        | 10,277     |   |   |
| Financial instruments sold  not yet purchased:                                                 |       |                    |       |                        |       |   |   |
| U.S. government and agencies                                                                   |       | 25,410                  |       |                        | 20,154     |   |   |
| Corporate debt                                                                                 |       | 3,487                   |       |                        | 2,842      |   |   |
| Equities                                                                                       |       | 17,198                  |       |                        | 5,245      |   |   |
| Derivatives contracts                                                                          |       | 2,714                   |       |                        | 2,295      |   |   |
| Other                                                                                          |       | 177                     |       |                        | 161        |   |   |
| Obligation to return  securities received as collateral                                        |       | 3,255                   |       |                        | 4,980      |   |   |
| Accounts payable  and accrued expenses                                                         |       | 2,296                   |       |                        | 3,327      |   |   |
| Other liabilities                                                                              |       | 5,574                   |       |                        | 4,521      |   |   |
| Long-term  borrowings                                                                          |       | 28,753                  |       |                        | 28,941     |   |   |
| Total liabilities                                                                              |       | 294,459                 |       |                        | 264,749    |   |   |
| Stockholder’s Equity:                                                                     |       |                    |       |                        |       |   |   |
| Common stock ($0.10 par  value; 50,000 shares authorized; 1,100 shares issued and outstanding) |       | —                  |       |                        | —     |   |   |
| Paid-in capital                                                                                |       | 8,731                   |       |                        | 8,538      |   |   |
| Retained earnings                                                                              |       | 2,271                   |       |                        | 2,534      |   |   |
| Accumulated other  comprehensive loss                                                          |       | (8                      | )          |                        | (8         | ) |   |
| Total stockholder’s equity                                                                |       | 10,994                  |       |                        | 11,064     |   |   |
| Total liabilities  and stockholder’s equity                                               |       | $                       | 305,453    |                        |       | $ | 275,813 |   |   |

 

See accompanying notes to condensed consolidated financial statements(unaudited).

3

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**CREDIT SUISSE FIRST BOSTON (USA), INC. ANDSUBSIDIARIESCondensed ConsolidatedStatements of Operations(Unaudited)(In millions)**
| ** **                                                                                                                                | ** ** | **Three Months Ended  June 30,**                      | ** ** | **Six Months EndedJune 30,**                          | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                                                                                                                                | ** ** | **     2005     ** | ** ** | ** **    2004      | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues:                                                                                                                                 |       |                                                                 |       |                                                                 |       |   |   |   |   |   |   |   |   |
| Principal transactions-net                                                                                                                |       |                                                                 | $          | 194                                                                  |       |   |   | $ | 612 |   |   | $ | 561 |   | $ | 674 |   |
| Investment banking and advisory                                                                                                           |       |                                                                 | 407        |                                                                 |       |   | 392 |   |   | 728 |   | 864 |   |
| Commissions and fees                                                                                                                      |       |                                                                 | 309        |                                                                 |       |   | 330 |   |   | 660 |   | 707 |   |
| Interest and dividends, net of interest expense of  $2,475, $1,273, $4,622 and $2,471, respectively                                       |       |                                                                 | 509        |                                                                 |       |   | 624 |   |   | 1,086 |   | 1,271 |   |
| Other                                                                                                                                     |       |                                                                 | 8          |                                                                 |       |   | 9 |   |   | 25 |   | 31 |   |
| Total net revenues                                                                                                                        |       |                                                                 | 1,427      |                                                                 |       |   | 1,967 |   |   | 3,060 |   | 3,547 |   |
| Expenses:                                                                                                                                 |       |                                                                 |       |                                                                 |       |   |   |   |   |   |   |   |   |
| Employee compensation and benefits                                                                                                        |       |                                                                 | 738        |                                                                 |       |   | 825 |   |   | 1,685 |   | 1,788 |   |
| Occupancy and equipment rental                                                                                                            |       |                                                                 | 124        |                                                                 |       |   | 117 |   |   | 244 |   | 231 |   |
| Brokerage, clearing and exchange fees                                                                                                     |       |                                                                 | 86         |                                                                 |       |   | 81 |   |   | 163 |   | 153 |   |
| Communications                                                                                                                            |       |                                                                 | 37         |                                                                 |       |   | 32 |   |   | 73 |   | 64 |   |
| Professional fees                                                                                                                         |       |                                                                 | 73         |                                                                 |       |   | 66 |   |   | 140 |   | 121 |   |
| Merger-related costs                                                                                                                      |       |                                                                 | —     |                                                                 |       |   | 4 |   |   | — |   | 8 |   |
| Other operating expenses                                                                                                                  |       |                                                                 | 749        |                                                                 |       |   | 37 |   |   | 744 |   | 50 |   |
| Total expenses                                                                                                                            |       |                                                                 | 1,807      |                                                                 |       |   | 1,162 |   |   | 3,049 |   | 2,415 |   |
| (Loss) income  before (benefit) provision for income taxes, minority interests and  cumulative effect of a change in accounting principle |       |                                                                 | (380       | )                                                                    |       |   | 805 |   |   | 11 |   | 1,132 |   |
| (Benefit)  provision for income taxes                                                                                                     |       |                                                                 | (244       | )                                                                    |       |   | 148 |   |   | (178 | ) | 227 |   |
| Minority  interests                                                                                                                       |       |                                                                 | 303        |                                                                 |       |   | 365 |   |   | 458 |   | 446 |   |
| (Loss) income  before cumulative effect of a change in accounting principle                                                               |       |                                                                 | (439       | )                                                                    |       |   | 292 |   |   | (269 | ) | 459 |   |
| Cumulative effect  of a change in accounting principle, net of income tax expense of $3                                                   |       |                                                                 | —     |                                                                 |       |   | — |   |   | 6 |   | — |   |
| Net (loss) income                                                                                                                         |       |                                                                 | $          | (439                                                                 | )          |   |   | $ | 292 |   |   | $ | (263 | ) | $ | 459 |   |

 

See accompanying notes to condensed consolidated financial statements(unaudited).

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**CREDIT SUISSE FIRST BOSTON (USA), INC. ANDSUBSIDIARIESCondensed ConsolidatedStatements of Changes in Stockholder’s EquityFor the Six Months Ended June 30, 2005 and 2004(Unaudited)(In millions)**
| ** **                                                 | ** ** | **Common  Stock** | ** ** | **Paid-in  Capital** | ** ** | ** Retained   Earnings** | ** ** | **Accumulated  Other  Comprehensive  (Loss)** | ** ** | **Total** | ** ** |
|------------------------------------------------------------|------------|-------------------|------------|----------------------|------------|------------------------------------|------------|-----------------------------------------------|------------|-----------|------------|
| Balances as of  December 31, 2003                     |       |              | $          | —               |       |                               | $          | 8,012                                         |       |      | $          | 1,787 |   |   |   | $ | (158 | ) |   | $ | 9,641 |   |
| Net income                                                 |       |              | —     |                 |       | —                             |       |                                          | 459        |      |       |   | — |   |   | 459 |   |
| Decrease in pension liability                              |       |              | —     |                 |       | —                             |       |                                          | —     |      |       |   | 1 |   |   | 1 |   |
| Total comprehensive income                                 |       |              |       |                 |       |                               |       |                                          |       |      |       |   |   |   |   | 460 |   |
| CSG share plan  activity, including tax charge of $12 |       |              | —     |                 |       | 174                                |       |                                          | —     |      |       |   | — |   |   | 174 |   |
| Balances as of  June 30, 2004                         |       |              | $          | —               |       |                               | $          | 8,186                                         |       |      | $          | 2,246 |   |   |   | $ | (157 | ) |   | $ | 10,275 |   |
| Balances as of December 31, 2004                      |       |              | $          | —               |       |                               | $          | 8,538                                         |       |      | $          | 2,534 |   |   |   | $ | (8 | ) |   | $ | 11,064 |   |
| Net loss                                                   |       |              | —     |                 |       | —                             |       |                                          | (263       | )         |       |   | — |   |   | (263 | ) |
| Total comprehensive loss                                   |       |              |       |                 |       |                               |       |                                          |       |      |       |   |   |   |   | (263 | ) |
| CSG share plan activity(1)                                 |       |              | —     |                 |       | 193                                |       |                                          |       |      |       |   |   |   |   | 193 |   |
| Balances as of  June 30, 2005                         |       |              | $          | —               |       |                               | $          | 8,731                                         |       |      | $          | 2,271 |   |   |   | $ | (8 | ) |   | $ | 10,994 |   |

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(1)          For the six months endedJune 30, 2005, no net tax charge or credit related to CSG share planactivity was recorded.

See accompanying notes to condensed consolidated financial statements(unaudited).

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**CREDIT SUISSE FIRST BOSTON (USA), INC. ANDSUBSIDIARIESCondensed ConsolidatedStatements of Cash Flows(Unaudited)**(In millions)
| ** **                                                                                                    | ** ** | **For the Six Months  Ended June 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                                                                                    | ** ** | **2005**                                                        | ** ** | **2004** | ** ** |
| Cash flows from operating activities:                                                                         |       |                                                            |       |   |   |
| Net (loss) income                                                                                             |       | $                                                               | (263       | ) | $ | 459 |   |
| Adjustments to reconcile net (loss) income to net  cash (used in) provided by operating activities:      |       |                                                            |       |   |   |
| Depreciation and  amortization                                                                                |       | 64                                                              |       | 84 |   |
| Non-cash CSG share plan  activity                                                                             |       | 251                                                             |       | 186 |   |
| Deferred taxes                                                                                                |       | (78                                                             | )          | 132 |   |
| Other, net                                                                                                    |       | —                                                          |       | (11 | ) |
| Change in operating assets and operating  liabilities:                                                        |       |                                                            |       |   |   |
| Securities borrowed                                                                                           |       | (5,047                                                          | )          | (7,785 | ) |
| Receivables from  customers                                                                                   |       | 1,583                                                           |       | 648 |   |
| Receivables from  brokers, dealers and other                                                                  |       | (9,213                                                          | )          | (4,514 | ) |
| Financial instruments  owned                                                                                  |       | (11,616                                                         | )          | (18,534 | ) |
| Other assets and  deferred amounts and Other liabilities, net                                                 |       | (1,410                                                          | )          | 255 |   |
| Securities loaned                                                                                             |       | 3,671                                                           |       | 7,436 |   |
| Payables to customers                                                                                         |       | 2,463                                                           |       | 695 |   |
| Payables to brokers,  dealers and other                                                                       |       | (1,808                                                          | )          | 6,083 |   |
| Financial instruments  sold not yet purchased                                                                 |       | 18,289                                                          |       | 14,495 |   |
| Obligation to return  securities received as collateral                                                       |       | (1,725                                                          | )          | 2,708 |   |
| Accounts payable and  accrued expenses                                                                        |       | (1,031                                                          | )          | (331 | ) |
| Net cash (used in)  provided by operating activities                                                          |       | (5,870                                                          | )          | 2,006 |   |
| Cash flows from investing activities:                                                                         |       |                                                            |       |   |   |
| Net payments for:                                                                                             |       |                                                            |       |   |   |
| Loans receivable from  parent and affiliates                                                                  |       | (146                                                            | )          | (2,173 | ) |
| Office facilities, net                                                                                        |       | (88                                                             | )          | (129 | ) |
| Net cash used in  investing activities                                                                        |       | (234                                                            | )          | (2,302 | ) |
| Cash flows from financing activities:                                                                         |       |                                                            |       |   |   |
| Net proceeds from (payments for):                                                                             |       |                                                            |       |   |   |
| Commercial paper and  short-term borrowings                                                                   |       | (4,538                                                          | )          | 7,239 |   |
| Securities sold under  agreements to repurchase, net of securities purchased under agreements  to resell |       | 10,937                                                          |       | (8,748 | ) |
| Issuances of long-term  borrowings                                                                            |       | 2,276                                                           |       | 3,483 |   |
| Redemptions and  maturities of long-term borrowings                                                           |       | (2,521                                                          | )          | (1,151 | ) |
| Dividend equivalents on  CSG share plan activity                                                              |       | (58                                                             | )          | — |   |
| Net cash provided by  financing activities                                                                    |       | 6,096                                                           |       | 823 |   |
| (Decrease) increase in  cash and cash equivalents                                                             |       | (8                                                              | )          | 527 |   |
| Cash and cash  equivalents as of the beginning of period                                                      |       | 727                                                             |       | 334 |   |
| Cash and cash  equivalents as of the end of period                                                            |       | $                                                               | 719        |   | $ | 861 |   |
| SUPPLEMENTAL DISCLOSURES                                                                                      |       |                                                            |       |   |   |
| Cash payments for interest                                                                                    |       | $                                                               | 4,381      |   | $ | 2,446 |   |
| Cash payments for income taxes, net of refunds                                                                |       | $                                                               | 14         |   | $ | 58 |   |

 

See accompanying notes to condensed consolidated financial statements(unaudited).

6

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) June 30, 2005**

**1.**   Summaryof Significant Accounting Policies

**The Company**

Credit Suisse First Boston(USA), Inc. and its subsidiaries (the “Company”) is a leading integratedinvestment bank serving institutional, corporate, government and high-net-worthindividual clients. The Company’s products and services include securitiesunderwriting, sales and trading, financial advisory services, private equityinvestments, full service brokerage services, derivatives and risk managementproducts, asset management and investment research.

**Basis of Presentation**

The condensed consolidated financial statementsinclude Credit Suisse First Boston (USA), Inc. and its subsidiaries. Allsignificant intercompany balances and transactions have been eliminated. TheCompany is a wholly owned subsidiary of Credit Suisse First Boston, Inc.(“CSFBI”).

Certain financial information that is normallyincluded in annual financial statements prepared in accordance with accountingprinciples generally accepted in the United States of America but not requiredfor interim reporting purposes has been condensed or omitted. These condensedconsolidated financial statements reflect, in the opinion of management, alladjustments (consisting of normal, recurring accruals) that are necessary for afair presentation of the condensed consolidated statements of financialcondition and operations for the interim periods presented.

The results of operations for interim periods are notnecessarily indicative of results for the entire year. These condensedconsolidated financial statements should be read in conjunction with theconsolidated financial statements and notes thereto included in the Company’sAnnual Report on Form 10-K for the year ended December 31, 2004.

To prepare condensed consolidated financial statementsin accordance with accounting principles generally accepted in the UnitedStates of America, management must make estimates and assumptions. The reportedamounts of assets and liabilities and revenues and expenses are affected bythese estimates and assumptions, the most significant of which are discussed inthe notes to the condensed consolidated financial statements. Estimates, bytheir nature, are based on judgment and available information. Therefore,actual results could differ materially from these estimates. For a descriptionof the Company’s significant accounting policies, see Note 1 of theconsolidated financial statements in Part II, Item 8 in the Company’s AnnualReport on Form 10-K for the year ended December 31, 2004.

Certain reclassifications havebeen made to prior year condensed consolidated financial statements to conformto the 2005 presentation.

**New Accounting Pronouncements**

In August 2003, theCompany adopted the fair value recognition provisions of Statement of FinancialAccounting Standards (“SFAS”) No. 123, “Accounting for Stock-BasedCompensation,” as amended by SFAS No. 148, “Accounting for Stock-BasedCompensation—Transitionand Disclosure,” (“SFAS 123”) using the prospective method. Under theprospective method, the Company recognizes compensation expense over thevesting period for all share option and share awards granted under the Plan forservices provided after January 1, 2003. Effective January 1, 2005, the Companyearly adopted the fair value 

7

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) June 30, 2005**

**1.**   Summary of Significant Accounting Policies(Continued)

recognition provisions of SFAS No. 123 (Revised 2004)“Share-Based Payment” (“SFAS 123R”) using the modified prospective method andrecorded an after-tax gain of $6 million in the condensed consolidatedstatement of operations as a cumulative effect of a change in accountingprinciple to reverse the expense previously recognized on all outstandingunvested awards that are expected to be forfeited.

In May 2005, theFinancial Accounting Standards Board (“FASB”) issued SFAS No. 154, “AccountingChanges and Error Corrections, a replacement of APB Opinion No. 20 and FASBStatement No. 3” (“SFAS 154”). SFAS 154 requires, among other things,retrospective application, unless impracticable, to prior period financialstatements for voluntary changes in accounting principles and changes requiredby an accounting pronouncement in the unusual circumstances in which thepronouncement does not include specific transition provisions. SFAS 154 alsorequires that a change in depreciation, amortization, or depletion method forlong-lived, nonfinancial assets should be accounted for as a change inaccounting estimate effected by a change in accounting principle. The guidancefor reporting the correction of an error in previously issued financialstatements and the change of an accounting estimate will not change from Accounting Principles Board (“APB”) Opinion No.20. SFAS 154 is effective for accounting changes and corrections of errors madein fiscal years beginning after December 15, 2005. There will be no impacton the Company’s financial condition, results of operations or cash flows as aresult of the adoption of SFAS 154.

In June 2005, theFASB ratified Emerging Issues Task Force (“EITF”) 04-5, “Determining Whether aGeneral Partner, or the General Partners as a Group, Controls a LimitedPartnership or Similar Entity When the Limited Partners Have Certain Rights”(“EITF 04-5”). EITF 04-5 provides that the general partner (or generalpartners, for partnerships with more than one general partner) is generallypresumed to maintain control over a limited partnership and should thereforeconsolidate such a partnership regardless of the level of its ownershipinterest, unless the presumption of control can be overcome. EITF 04-5states that the presumption of general partner control would be overcome onlywhen the limited partners have either substantive kick-out rights orsubstantive participating rights. Substantive kick-out rights comprise rightsallowing the limited partners to dissolve or liquidate the partnership orotherwise remove the general partner “without cause”. Substantive participatingrights include those rights which would allow the limited partners toeffectively participate in significant decisions made in the ordinary course ofthe partnership business.

Further, as aresult of the ratification of EITF 04-5, EITF Issue No. 96-16, “Investor’sAccounting for an Investee When the Investor Has a Majority of the VotingInterest but the Minority Shareholder or Shareholders Have Certain Approval orVeto Rights,” (“EITF 96-16”) was updated to conform to the guidance of EITF04-5 and FASB Staff Position (“FSP”) No. SOP 78-9-1, “Interaction of AICPAStatement of Position 78-9, Accounting for Investments in Real Estate Ventures*,*and EITF Issue No. 04-5, Investor’sAccounting for an Investment in a Limited Partnership When the Investor Is theSole General Partner and the Limited Partners Have Certain Rights” (“FSP SOP78-9-1”) was issued to amend guidance regarding the consolidation of limitedpartnerships previously dictated under AICPA Statement of Position No. SOP78-9. The guidance of EITF 04-5 and FSP SOP 78-9-1 and the changes to EITF96-16 are effective immediately for all newly-formed limited partnerships andfor any existing limited partnerships agreements that are modified. Theguidance of these pronouncements will be effective for 

8

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) June 30, 2005**

**1.**   Summary of Significant Accounting Policies(Continued)

existing limited partnership agreements that are notmodified no later than January 1, 2006. The Company is currently evaluating theimpact of EITF 04-5, FSP SOP 78-9-1 and the changes to EITF 96-16.

In June 2005, the FASB issued guidance on SFAS 133,“Accounting for Derivative Instruments and Hedging Activities” as amended(“SFAS 133”) in Derivatives Implementation Group (“DIG”) Issue B38, “EmbeddedDerivatives: Evaluation of Net Settlement with Respect to the Settlement of aDebt Instrument through Exercise of an Embedded Put Option or Call Option”(“DIG B38”), and DIG Issue B39, “Embedded Derivatives: Application ofParagraph 13(b) to Call Options That Are Exercisable Only by the Debtor” (“DIGB39”). The implementation guidance in DIG B38 clarifies that the potential settlementof an obligation upon exercise of a put option or call option meets the netsettlement criterion of a derivative. Further, the guidance in DIG B39clarifies that a right to accelerate the settlement of an obligation in and ofitself is considered clearly and closely related to the debt host contract ifthe respective embedded call option can be exercised only by the borrower. BothDIG issues will be effective for the fiscal quarter beginning after December15, 2005. The Company is currently evaluating the impact of adopting DIG B38and DIG B39.

**2.**   RelatedParty Transactions

Credit Suisse Group (“CSG”), through CSFBI, owns allof the Company’s outstanding voting common stock. The Company is involved insignificant financing and other transactions, and has significant related partybalances with CSG affiliates, primarily Credit Suisse, a Swiss bank subsidiaryof CSG and an indirect parent of the Company, and certain of its subsidiariesand affiliates. The Company generally enters into these transactions in theordinary course of business and believes that these transactions are generallyon market terms that could be obtained from unrelated third parties.

9

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) June 30, 2005**

**2.**   Related PartyTransactions (Continued)

The following table setsforth the Company’s related party assets and liabilities as of June 30, 2005and December 31, 2004:
| ** **                                              | ** ** | **June 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|---------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                              | ** ** | **(In millions)**  | ** ** |
| **ASSETS**                                              |       |                    |       |                        |       |   |   |
| Securities  purchased under agreements to resell        |       | $                       | 5,832      |                        |       | $ | 6,685 |   |   |
| Securities  borrowed                                    |       | 3,695                   |       |                        | 1,861      |   |   |
| Receivables from  customers                             |       | —                  |       |                        | 379        |   |   |
| Receivables from  brokers, dealers and other            |       | 3,476                   |       |                        | 1,893      |   |   |
| Derivatives  contracts                                  |       | 1,824                   |       |                        | 1,400      |   |   |
| Net deferred tax  asset                                 |       | 1,167                   |       |                        | 1,103      |   |   |
| Loans receivable  from parent and affiliates            |       | 22,838                  |       |                        | 22,692     |   |   |
| Total assets                                            |       | $                       | 38,832     |                        |       | $ | 36,013 |   |   |
| **LIABILITIES**                                         |       |                    |       |                        |       |   |   |
| Short-term  borrowings                                  |       | $                       | 15,564     |                        |       | $ | 20,085 |   |   |
| Securities sold  under agreements to repurchase         |       | 29,956                  |       |                        | 22,317     |   |   |
| Securities loaned                                       |       | 34,225                  |       |                        | 34,056     |   |   |
| Payables to  customers                                  |       | 1,807                   |       |                        | 1,054      |   |   |
| Payables to  brokers, dealers and other                 |       | 3,710                   |       |                        | 1,300      |   |   |
| Derivatives  contracts                                  |       | 970                     |       |                        | 695        |   |   |
| Obligation to  return securities received as collateral |       | 1,216                   |       |                        | 1,252      |   |   |
| Taxes payable  (included in Other liabilities)          |       | 358                     |       |                        | 484        |   |   |
| Intercompany  payables (included in Other liabilities)  |       | 245                     |       |                        | 191        |   |   |
| Total liabilities                                       |       | $                       | 88,051     |                        |       | $ | 81,434 |   |   |

 

Included in the condensed consolidated statements ofoperations are revenues and expenses resulting from various securities tradingand financing activities with certain affiliates, as well as fees foradministrative services performed by the Company under the terms of variousagreements. The Company incurs commission expenses during the normal course ofbusiness for securities transactions conducted with affiliates. Other operatingexpenses include affiliate service fees that are treated as a reduction inother operating expenses in the condensed consolidated statements ofoperations. These fees include compensation and benefits expense relating tobusiness activities conducted by Company employees on behalf of CSG affiliatesoutside the Company.

10

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) June 30, 2005**

**2.**   Related Party Transactions (Continued)

The following table setsforth the Company’s related party revenues and expenses for the three and sixmonths ended June 30, 2005 and 2004:
| ** **                                          | ** ** | **For the Three  Months Ended  June 30,** | ** ** | **For the Six  Months Ended  June 30,** | ** ** |
|-----------------------------------------------------|------------|---------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                          | ** ** | **2005**                                                      | ** ** | **2004**                                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                          | ** ** | **(In millions)**                                        | ** ** |
| Principal  transactions-net (derivatives contracts) |       | $                                                             | 38         |                                                        | $          | 470 |   | $ | 512 |   | $ | 530 |   |
| Commissions and  fees                               |       | (13                                                           | )          | (3                                                          | )          | (20 | ) | (8 | ) |
| Net interest  expense                               |       | (263                                                          | )          | (84                                                         | )          | (459 | ) | (143 | ) |
| Total net revenues                                  |       | $                                                             | (238       | )                                                           | $          | 383 |   | $ | 33 |   | $ | 379 |   |
| Other operating expenses                            |       | $                                                             | (69        | )                                                           | $          | (65 | ) | (153 | ) | (123 | ) |
| Total expenses                                      |       | $                                                             | (69        | )                                                           | $          | (65 | ) | $ | (153 | ) | $ | (123 | ) |

 

From time to time the Company sells at cost to CSFBIthe right, title and interest in certain assets. For the three and six monthsended June 30, 2005, the value of the assets sold was not significant.

As of June 30, 2005, certain private equity funds offunds, with approximately $4.1 billion of committed capital, and certainhedge funds of funds and variable interest entities (“VIEs”) that issuecollateralized debt obligations (“CDOs”), with aggregate assets undermanagement of approximately $15.5 billion, of CSFB Alternative Capital,Inc., an indirect wholly owned subsidiary of CSFBI, are managed by theCompany’s Alternative Capital division. CSFB Alternative Capital, Inc. reimbursesthe Alternative Capital division for all expenses incurred by the Company inconnection with managing these assets which the Company treats as a reductionin other operating expenses in the condensed consolidated statements ofoperations.

Beginning in April 2004, the Company entered intoeconomic hedging arrangements with respect to deferred compensation obligationspayable to its employees and to employees of affiliates, whose deferredcompensation is not recorded in the Company’s condensed consolidated financialstatements. These hedging arrangements will result in the Company recognizinggains or losses with respect to the hedge of the deferred compensationobligation of such affiliates. For the three months ended June 30, 2005 and2004, the impact from the economic hedging arrangements with respect to theseaffiliate obligations was a loss of $1 million and a gain of$1 million, respectively, and for the six months ended June 30, 2005 and2004, the impact was a gain of $1 million.

The Credit Suisse Group International Share Planprovides for the grant of equity-based awards to Company employees based on CSGshares pursuant to which employees of the Company may be granted, ascompensation, shares or other equity-based awards as compensation for servicesperformed. CSFBI purchases shares from CSG to satisfy these awards, but CSFBIdoes not require reimbursement from the Company; therefore, amounts associatedwith these awards are considered a capital contribution to the Company andcredited to paid-in-capital. Amounts contributed by CSFBI relating tocompensation expense for the three months ended June 30, 2005 and 2004 were$122 million and $74 million, respectively, and for the six months endedJune 30, 2005 and 2004 were $251 million and $174 million, respectively.See Note 11 for further information on the Company’s share-based compensation.

11

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) June 30, 2005**

**2.**   Related Party Transactions (Continued)

Certain of the Company’s directors, officers andemployees and those of its affiliates and their subsidiaries maintain marginaccounts with Credit Suisse First Boston LLC (“CSFB LLC”) and other affiliatedbroker-dealers in the ordinary course of business. In addition, certainof such directors, officers and employees have investments or commitments toinvest in various private equity funds. The Company makes loans to directorsand executive officers on the same terms as are generally available to thirdparties or otherwise pursuant to widely available employee benefit plans. CSFBLLC and other affiliated broker-dealers, from time to time and in theordinary course of business, enter into, as principal, transactions involvingthe purchase or sale of securities from or to such directors, officers andemployees and members of their immediate families.

In connection with its derivatives activities, theCompany enters into over-the-counter (“OTC”) derivatives contracts with relatedparties that contingently require the Company, as guarantor, to make paymentsbased on changes in an underlying financial instrument. See Note 8 for moreinformation.

The Company is included inthe consolidated federal income tax return filed by CSFBI and certain state andlocal income tax returns filed by CSFBI.

**3.**   Transfersand Servicing of Financial Assets

As part of the Company’s financing and securitiessettlement activities, the Company uses securities as collateral to supportvarious secured financing sources. If the counterparty does not meet itscontractual obligation to return securities used as collateral, the Company maybe exposed to the risk of reacquiring the securities at prevailing marketprices to satisfy its obligations. The Company controls this risk by monitoringthe market value of financial instruments pledged each day and by requiring collaterallevels to be adjusted in the event of excess market exposure.

As of June 30, 2005 and December 31, 2004, the fairvalue of assets that the Company pledged to counterparties was$215.8 billion and $199.3 billion, respectively, of which$74.9 billion and $54.7 billion, respectively, was included infinancial instruments owned in the condensed consolidated statements offinancial condition.

The Company has alsoreceived similar assets as collateral that the Company has the right to re-pledgeor sell. The Company routinely re-pledges or lends these assets to thirdparties. As of June 30, 2005 and December 31, 2004, the fair value of theassets pledged to the Company was $200.0 billion and $182.3 billion,respectively, of which $188.4 billion and $180.6 billion, respectively,was sold or repledged.

**Securitization Activities**

The Company originates and purchases residentialmortgages and originates commercial loans for the purpose of securitization.The Company sells these mortgage loans to qualified special purpose entities(“QSPEs”) or VIEs. The QSPEs issue securities that are backed by the assetstransferred to the QSPEs and pay a return based on the returns on those assets.Investors in these mortgage-backed securities typically have recourse to theassets in the QSPE. The investors and the QSPEs have no recourse to theCompany’s assets. CSFB LLC is an underwriter of, and makes a market in, thesesecurities.

12

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) June 30, 2005**

**3.**   Transfers and Servicingof Financial Assets (Continued)

The Company purchases loans and other debt obligationsfrom and on behalf of clients for the purpose of securitization. The loans andother debt obligations are sold by the Company directly, or indirectly throughaffiliates, to QSPEs or VIEs that issue CDOs. CSFB LLC structures, underwritesand makes a market in these CDOs. CDOs are securities backed by the assetstransferred to the CDO VIEs and pay a return based on the returns on thoseassets. Investors typically have recourse to the assets in the CDO VIEs. Theinvestors and the CDO VIEs have no recourse to the Company’s assets.

The following tablepresents the proceeds and gains (losses) related to the securitization ofcommercial mortgage loans, residential mortgage loans, CDOs and otherasset-backed loans for the six months ended June 30, 2005 and 2004:
| ** **                                     | ** ** | **Commercial  mortgage  loans** | ** ** | **Residential  mortgage  loans** | ** ** | **Collateralized  debt  obligations** | ** ** | **Other  asset-backed loans**(1) | ** ** |
|------------------------------------------------|------------|---------------------------------|------------|----------------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|
| ** **                                     | ** ** | **(In millions)**          | ** ** |
| **For the Six Months Ended****June 30,  2005** |       |                            |       |                             |       |                                  |       |                                  |       |   |   |   |   |   |   |   |   |
| Proceeds from new  securitizations             |       |                            | $          | 5,907                            |       |                                  |       | $                                     | 23,000     |   |   |   | $ | 2,670 |   |   |   | $ | 4,770 |   |   |
| Gain on  securitizations(2)                    |       |                            | $          | 120                              |       |                                  |       | $                                     | 20         |   |   |   | $ | 28 |   |   |   | $ | 27 |   |   |
| **For the  Six Months Ended****June 30, 2004** |       |                            |       |                             |       |                                  |       |                                  |       |   |   |   |   |   |   |   |   |
| Proceeds from new  securitizations             |       |                            | $          | 3,195                            |       |                                  |       | $                                     | 18,694     |   |   |   | $ | 2,184 |   |   |   | $ | 2,646 |   |   |
| Gain on securitizations(2)                     |       |                            | $          | 118                              |       |                                  |       | $                                     | 34         |   |   |   | $ | 25 |   |   |   | $ | (2 | ) |   |

----

(1)          Primarily home equityloans.

(2)          Includesunderwriting fees and retained interest gains and losses but excludes all gainsor losses, including net interest revenues, on assets prior to securitizationand deferred origination fees.

The Company may retain interests in these securitizedassets in connection with its underwriting and market-making activities. TheCompany’s exposure in its securitization activities is limited to its retainedinterests. Retained interests in securitized financial assets are included atfair value in financial instruments owned in the condensed consolidatedstatements of financial condition. Any changes in the fair value of theseretained interests are recognized in the condensed consolidated statements ofoperations. The fair values of retained interests are determined using presentvalue of estimated future cash flows valuation techniques that incorporateassumptions that market participants customarily use in their estimates ofvalues. As of June 30, 2005 and December 31, 2004, the fair value of theinterests retained by the Company was $3.7 billion and $2.0 billion,respectively.

13

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) June 30, 2005**

**3.**   Transfers and Servicing of Financial Assets (Continued)

Key economic assumptionsused in measuring, at the date of securitization, the fair value of theretained interests resulting from securitizations completed during the sixmonths ended June 30, 2005 were as follows:
| ** **                                            | ** ** | **For the Six Months Ended June 30, 2005** | ** ** |
|-------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                                            | ** ** | **Commercial  mortgage  loans**(1)                                            | ** ** | **Residential  mortgage  loans** | ** ** | **Collateralized  debt  obligations**(2) | ** ** | **Other  asset-backed loans** | ** ** |
| Weighted-average  life (in years)                     |       |                                                                          | 0.7        |   |   | 5.2 |   |   | 10.4 |   |   |   | 4.2 |   |   |
| Prepayment rate  (in rate per annum)(3)               |       |                                                                          | N/A        |   |   | 0%-30 | % |   | N/A |   |   |   | 25 | % |   |
| Cash flow  discount rate (in rate per annum)(4)  |       |                                                                          | (5)        |   |   | 0.3%-39.5 | % |   | 9.2%-14.1 | % |   |   | 3.6%-12.7 | % |   |
| Expected credit losses  (in rate per annum)           |       |                                                                          | (5)        |   |   | 0.0%-34.9 | % |   | 5.1%-10.2 | % |   |   | 0.7%-8.8 | % |   |

 

The following table setsforth the fair value of retained interests from securitizations as of June 30,2005, key economic assumptions used to determine the fair value and thesensitivity of the fair value to immediate adverse changes in thoseassumptions:
| ** **                                          | ** ** | **As of June 30, 2005** | ** ** |
|-----------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                          | ** ** | **Commercial  mortgage  loans**(1)          | ** ** | **Residential  mortgage  loans** | ** ** | **Collateralized  debt  obligations**(2) | ** ** | **Other  asset-backed loans** | ** ** |
| ** **                                          | ** ** | **(Dollars in millions)**         | ** ** |
| Carrying  amount/fair value of retained   interests |       |                                        | $          | 8 |   |   | $ | 3,532 |   |   | $ | 134 |   |   |   | $ | 71 |   |   |
| Weighted-average  life (in years)                   |       |                                        | 0.4        |   |   | 3.5 |   |   | 9.4 |   |   |   | 4.8 |   |   |
| Prepayment rate  (in rate per annum)(3)             |       |                                        | N/A        |   |   | 0.3%-65.3 | % |   | N/A |   |   |   | 13.3-48.8 | % |   |
| Impact on fair value of 10% adverse change          |       |                                        | N/A        |   |   | $ | (9 | ) |   | N/A |   |   |   | $ | — |   |   |
| Impact on fair value of 20% adverse change          |       |                                        | N/A        |   |   | $ | (16 | ) |   | N/A |   |   |   | $ | — |   |   |
| Cash flow  discount rate (in rate per annum)(4)     |       |                                        | (5)        |   |   | 5.4 | % |   | 13.1 | % |   |   | 9.7 | % |   |
| Impact on fair value of 10% adverse change          |       |                                        | (5)        |   |   | $ | (50 | ) |   | $ | (8 | ) |   |   | $ | (1 | ) |   |
| Impact on fair value of 20% adverse change          |       |                                        | (5)        |   |   | $ | (100 | ) |   | $ | (15 | ) |   |   | $ | (2 | ) |   |
| Expected credit  losses (in rate per annum)         |       |                                        | (5)        |   |   | 1.7 | % |   | 9.6 | % |   |   | 12.0 | % |   |
| Impact on fair value of 10% adverse change          |       |                                        | (5)        |   |   | $ | (15 | ) |   | $ | (5 | ) |   |   | $ | — |   |   |
| Impact on fair value of 20% adverse change          |       |                                        | (5)        |   |   | $ | (30 | ) |   | $ | (10 | ) |   |   | $ | (1 | ) |   |

----

(1)          To deter prepayment,commercial mortgage loans typically have prepayment protection in the form ofprepayment lockouts and yield maintenances.

(2)          CDO deals are generallystructured to be protected from prepayment risk.

(3)          The Company utilizes theConstant Prepayment Rate assumptions.

(4)          The rate is based on theweighted average yield on the retained interest.

(5)          Due to the shortestimated life and the nature of the asset, the cash flow discount rate and theexpected credit losses are not meaningful.

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) June 30, 2005**

**3.**   Transfers and Servicing of Financial Assets (Continued)

Thesesensitivities are hypothetical and do not reflect the benefits of hedgingactivities and therefore should be used with caution. Changes in fair valuebased on a 10% or 20% variation in assumptions generally cannot be extrapolatedbecause the relationship of the change in assumption to the change in fairvalue may not be linear. Also, the effect of a variation in a particularassumption on the fair value of the retained interests is calculated withoutchanging any other assumption. In practice, changes in one assumption mayresult in changes in other assumptions (for example, increases in marketinterest rates may result in lower prepayments and increased credit losses),which may magnify or counteract the sensitivities.

**Variable Interest Entities**

The Company has variable interests in several CDOVIEs. As described under “—Securitization Activities,” in the normal course ofits business, the Company purchases loans and other debt obligations from andon behalf of clients primarily for the purpose of securitization. These assetsare sold to and warehoused by affiliates and, at the end of a warehousingperiod, the assets are sold to CDO VIEs or QSPEs for securitization. TheCompany engages in these transactions to meet the needs of clients, to earnfees and to sell financial assets. The purpose of these CDO VIEs and QSPEs isto provide investors a return based on the underlying debt instruments of theCDO VIEs and QSPEs. In connection with its underwriting and market-makingactivities, the Company may retain interests in the CDO VIEs and QSPEs. The CDOentities may have actively managed (“open”) portfolios or static or unmanaged(“closed”) portfolios. The closed CDO transactions are typically structured touse QSPEs, which are not consolidated in the Company’s financial statements.

The Company has consolidated all CDO VIEs for which itis the primary beneficiary. As of June 30, 2005 and December 31, 2004, theCompany recorded $627 million and $291 million, respectively,representing the carrying amount of the consolidated assets of these CDO VIEsthat are collateral for the VIE obligations. The beneficial interests of theseconsolidated CDO VIEs are payable solely from the cash flows of the relatedcollateral, and the creditors of these CDO VIEs do not have recourse to theCompany in the event of default.

The Company retains significant debt and equityinterests in CDO VIEs that are not consolidated because the Company is not theprimary beneficiary. The total assets in these CDO VIEs as of June 30, 2005 andDecember 31, 2004 were $4.8 billion and $4.5 billion, respectively.The Company’s maximum exposure to loss as of June 30, 2005 and December 31,2004 was $108 million and $62 million, respectively, which was theamount of its retained interests, carried at fair value, in financialinstruments owned.

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) June 30, 2005**

**3.**   Transfers and Servicing of Financial Assets (Continued)

Certain of the Company’sprivate equity funds are subject to FASB Interpretation (“FIN”) No. 46,“Consolidation of Variable Interest Entities” (“FIN 46”) and the subsequentmodifications of FIN 46 (“FIN 46R”). In the normal course of its private equityactivities, the Company is typically the general partner and investment adviserto private equity funds. Limited partners of these funds typically haverecourse to the fund’s assets but have no recourse to the Company’s assets.Beginning in 2004, the Company consolidated certain private equity funds thatare managed by the Company. The following table presents the impact on thecondensed consolidated statements of financial condition of the Company’sconsolidation of private equity funds and other long-term investments primarilyunder FIN 46R as of June 30, 2005 and December 31, 2004:
| ** **                                                 | ** ** | **June 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                 | ** ** | **(In millions)**  | ** ** |
| Private equity  and other long-term investments            |       | $                       | 2,113      |                        |       | $ | 1,947 |   |   |
| All other assets,  net                                     |       | (15                     | )          |                        | 2          |   |   |
| Total assets                                               |       | $                       | 2,098      |                        |       | $ | 1,949 |   |   |
| Minority interests (included in other liabilities)         |       | $                       | 2,231      |                        |       | $ | 1,978 |   |   |
| All other  liabilities, net (excluding minority interests) |       | (133                    | )          |                        | (29        | ) |   |
| Total liabilities                                          |       | $                       | 2,098      |                        |       | $ | 1,949 |   |   |

 

The following table presentsthe impact on the condensed consolidated statements of operations of theCompany’s consolidation of private equity funds and other long-terminvestments under FIN 46R, for the three and six months ended June 30,2005 and 2004:
| ** **         | ** ** | **For the Three  Months Ended  June 30,** | ** ** | **For the Six  Months Ended  June 30,** | ** ** |
|--------------------|------------|---------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **         | ** ** | **2005**                                                      | ** ** | **2004**                                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **         | ** ** | **(In millions)**                                        | ** ** | **(In millions)**                                      | ** ** |
| Net revenues       |       | $                                                             | 304        |                                                        | $          | 365 |   | $ | 461 |   | $ | 446 |   |
| Expenses           |       | 1                                                             |       | —                                                      |       | 3 |   | — |   |
| Minority interests |       | $                                                             | 303        |                                                        | $          | 365 |   | $ | 458 |   | $ | 446 |   |

 

**4.   Private Equity and Other Long-TermInvestments**

Private equity and other long-term investments includedirect investments and investments in partnerships that make private equity andrelated investments in various portfolio companies and funds. The Companycategorizes its private equity and other long-term investments into threecategories: CSFB-managed funds, which include funds consolidatedprimarily under FIN 46R, funds managed by third parties and direct investments.These investments generally have no readily available market or may beotherwise restricted as to resale under the Securities Act of 1933; therefore,these investments are carried at amounts which approximate fair value.

As of June 30, 2005 and December 31, 2004, the Companyhad investments in private equity and other long-term investments of$3.3 billion and $3.1 billion, respectively, including$2.1 billion and $1.9 billion, respectively, in private equityinvestments consolidated primarily under FIN 46R. Changes in net 

16

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) June 30, 2005**

**4.**   Private Equity and Other Long-Term Investments(Continued)

unrealizedappreciation/depreciation arising from changes in fair value and the gain orloss realized upon sale are reflected in principal transactions-net in thecondensed consolidated statements of operations. See Note 3 for moreinformation. The cost of these investments, excluding the private equityinvestments consolidated primarily under FIN 46R, was $1.4 billion as ofJune 30, 2005 and $1.5 billion as of December 31, 2004. As of June 30,2005 the Company had commitments to invest up to an additional$770 million.

The Company’s subsidiaries managemany private equity partnerships (the “Funds”). When the investment performanceon CSFB-managed Funds exceeds specific thresholds, the Company and certainother partners (the “GPs”) may be entitled to receive a carried interestdistribution under the governing documents of the Funds. Carried interestdistributions are based on the cumulative investment performance of each Fundat the time the distribution is made. As a result, the Company may be obligatedto return to investors in the Funds all or a portion of the carried interestdistributions the Company has received if the Company has received excess carriedinterest distributions over the life of the Funds. The Company also guaranteesthe obligation of the other partners to return excess carried interestpayments. The amount of such contingent obligations is based upon theperformance of the Funds but cannot exceed the amount of carried interestreceived by the GPs. As of June 30, 2005 and December 31, 2004, the maximumamount of such contingent obligations was $586 million and$439 million, respectively, assuming the Funds’ remaining investments wereworthless. Assuming the Funds’ remaining investments were sold at their currentcarrying values as of June 30, 2005 and December 31, 2004, the contingentobligations would have been $2 million and $9 million, respectively.As of June 30, 2005 and December 31, 2004, the Company withheld cash fromdistributions on prior realizations to the partners, and recorded correspondingliabilities of $97 million and $75 million, respectively, inconnection with the Company’s guarantee to return prior carried interestdistributions to third party investors in the Funds.

In addition, pursuant tocertain contractual arrangements, the Company is obligated to make cashpayments to certain investors in certain Funds if specified performance thresholdsare not met. As of June 30, 2005 and December 31, 2004, the maximum amountof such contingent obligations was $62 million and $65 million,respectively, assuming the Funds’ remaining investments were worthless.Assuming the Funds’ remaining investments were sold at their current carryingvalues as of June 30, 2005 and December 31, 2004, there would have been nocontingent obligation.

**5.   DerivativesContracts**

The Company uses derivatives contracts for trading andhedging purposes and to provide products for clients. These derivatives includeoptions, forwards, futures and swaps. For more information on the Company’sderivatives, see Note 6 of the consolidated financial statements in Part II,Item 8 in the Annual Report on Form 10-K for the year ended December 31, 2004.

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) June 30, 2005**

**5.**   DerivativesContracts (Continued)

The fair values of allderivatives contracts outstanding as of June 30, 2005 and December 31, 2004were as follows:
| ** **        | ** ** | **June 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|-------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **        | ** ** | **Assets**                  | ** ** | **Liabilities**                 | ** ** | **Assets** | ** ** | **Liabilities** | ** ** |
| ** **        | ** ** | **(In millions)**      | ** ** |
| Options           |       | $                           | 975        |                            |       | $ | 778 |   |   | $ | 1,001 |   |   | $ | 879 |   |   |
| Forward contracts |       | 1,724                       |       |                            | 650        |   |   | 1,206 |   |   | 355 |   |   |
| Swaps             |       | 1,873                       |       |                            | 1,286      |   |   | 1,456 |   |   | 1,061 |   |   |
| Total             |       | $                           | 4,572      |                            |       | $ | 2,714 |   |   | $ | 3,663 |   |   | $ | 2,295 |   |   |

 

These assets andliabilities are included as derivatives contracts in financial instrumentsowned/sold not yet purchased, respectively, in the condensed consolidatedstatements of financial condition.

**6.**   Borrowings

Short-term borrowings aregenerally demand obligations with interest approximating the federal fundsrate, the London Interbank Offered Rate (“LIBOR”) or other money marketindices. Such borrowings are generally used to facilitate the securitiessettlement process, finance financial instruments owned and finance securitiespurchased by customers on margin. As of June 30, 2005 and December 31,2004, there were no short-term borrowings secured by Company-owned securities.

Thefollowing table sets forth the Company’s short-term borrowings and theirweighted average interest rates:
| ** **                                      | ** ** | **Short-term borrowings**      | ** ** | **Weighted average interest rates** | ** ** |
|-------------------------------------------------|------------|-------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                      | ** ** | **As of  June 30,  2005** | ** ** | **As of  December 31,  2004**            | ** ** | **As of  June 30,          2005        ** | ** ** | **As of  December 31,         2004       ** | ** ** |
| ** **                                      | ** ** | **(In millions)**              | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| Bank loans, including  loans from affiliates(1) |       | $                                   | 15,905     |                                               |       | $ | 20,435 |   |   |   | 3.68 | % |   |   | 2.65 | % |   |
| Commercial paper                                |       | 1,241                               |       |                                               | 1,249      |   |   |   | 3.18 | % |   |   | 2.11 | % |   |
| Total short-term borrowings                     |       | $                                   | 17,146     |                                               |       | $ | 21,684 |   |   |   |   |   |   |   |   |   |   |

----

(1)          Includes$15.6 billion and $20.1 billion in loans from affiliates as of June 30,2005 and December 31, 2004, respectively.

The Company has twocommercial paper programs exempt from registration under the Securities Act of1933 that allow the Company to issue up to $7.0 billion in commercialpaper. As of June 30, 2005 and December 31, 2004, $1.2 billionof commercial paper was outstanding under these programs.

In June 2004, theCompany filed with the Securities and Exchange Commission (“SEC”) a shelfregistration statement that allows the Company to issue from time to time up to$15.0 billion of senior and subordinated debt securities, and warrants topurchase such securities. Under that shelf registration statement, the Companyhad, as of August 8, 2005, approximately $9.2 billion available forissuance.

In July 2001, the Company established a EuroMedium-Term Note program that allows the Company to issue up to$5.0 billion of notes. Under this program, the Company had, as of August 8,2005, approximately $1.2 billion available for issuance.

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) June 30, 2005**

**6.**   Borrowings(Continued)

The following table setsforth the Company’s long-term borrowings as of June 30, 2005 and December 31,2004:
| ** **                                                                      | ** ** | **June 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **                                                                      | ** ** | **(In millions)**      | ** ** |
| Senior notes 3.14-6.88%,  due various dates through 2032                   |       |                        | $          | 22,064                          |       |   |   | $ | 22,485 |   |   |
| Medium-term notes  2.12-7.53%, due various dates through 2032              |       |                        | 6,666      |                            |       |   | 6,387 |   |   |
| Structured borrowings  5.7-16.06%, (1) due various dates through 2009 |       |                        | 23         |                            |       |   | 69 |   |   |
| Total long-term  borrowings                                                     |       |                        | $          | 28,753                          |       |   |   | $ | 28,941 |   |   |
| Current maturities of long-term borrowings                                      |       |                        | $          | 2,110                           |       |   |   | $ | 3,137 |   |   |

----

(1)          Excludedfrom the range of interest rates on structured borrowings are notes that do nothave a stated interest rate but instead pay a return based on the performance ofcertain equity securities.

As of June 30, 2005and December 31, 2004, long-term borrowings included upward fair valueadjustments of approximately $694 million and $624 million,respectively, associated with fair value hedges under SFAS No. 133. As of June 30,2005 and December 31, 2004, the Company had entered into interest rateswaps, with a notional amount of $21.3 billion and $21.8 billion,respectively, on the Company’s long-term borrowings for hedging purposes.Substantially all of these swaps qualified as fair value hedges underSFAS 133. See Note 5 for more information.

Thefollowing table sets forth scheduled maturities of all long-term borrowings asof June 30, 2005:
| ** ** | ** ** | **Twelve Months Ended  June 30,** | ** ** |
|------------|------------|--------------------------------------------------|------------|
| ** ** | ** ** | **(In millions)**                           | ** ** |
| 2006       |       |                                             | $          | 2,110 |   |   |
| 2007       |       |                                             | 5,028      |   |   |
| 2008       |       |                                             | 5,295      |   |   |
| 2009       |       |                                             | 2,883      |   |   |
| 2010       |       |                                             | 1,489      |   |   |
| 2011-2032  |       |                                             | 11,948     |   |   |
| Total      |       |                                             | $          | 28,753 |   |   |

 

Thefollowing table sets forth scheduled maturities of the current portion oflong-term borrowings as of June 30, 2005:
| ** **              | ** ** | **Three Months Ended,** | ** ** |
|-------------------------|------------|-----------------------------------|------------|
| ** **              | ** ** | **(In millions)**            | ** ** |
| September 30, 2005 |       |                              | $          | 149 |   |   |
| December 31, 2005  |       |                              | 499        |   |   |
| March 31, 2006     |       |                              | 99         |   |   |
| June 30, 2006      |       |                              | 1,363      |   |   |
| Total                   |       |                              | $          | 2,110 |   |   |

 

As of June 30, 2005, CSFB LLC maintained withthird parties four 364-day committed secured revolving credit facilitiestotaling $2.0 billion, with one facility for $500 million maturing in July 2005(which was subsequently renewed through July 2006), one facility for$500 million maturing in 

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) June 30, 2005**

**6.**   Borrowings (Continued)

November 2005,one facility for $500 million maturing in February 2006 and one facilityfor $500 million maturing in March 2006. These facilities require CSFB LLCto pledge unencumbered marketable securities to secure any borrowings. Borrowingsunder each facility would bear interest at short-term rates related to eitherthe federal funds rate or LIBOR and can be used for general corporate purposes.The facilities contain customary covenants that the Company believes will notimpair its ability to obtain funding. As of June 30, 2005, no borrowingswere outstanding under any of the facilities.

**2005 Financings:**

During the six monthsended June 30, 2005, the Company issued $2.3 billion in medium-termnotes and $11 million in structured notes and repaid $2.0 billion ofmedium-term notes, $500 million of senior notes and $55 million ofstructured notes.

**7.**   Leases and Commitments

Thefollowing table sets forth the Company’s minimum operating lease commitments asof June 30, 2005:
| ** ** | ** ** | **Twelve Months Ended  June 30,** | ** ** |
|------------|------------|--------------------------------------------------|------------|
| ** ** | ** ** | **(In millions)**                           | ** ** |
| 2006       |       |                                             | $          | 151 |   |   |
| 2007       |       |                                             | 151        |   |   |
| 2008       |       |                                             | 147        |   |   |
| 2009       |       |                                             | 141        |   |   |
| 2010       |       |                                             | 138        |   |   |
| 2011-2025  |       |                                             | 1,074      |   |   |
| Total(1)   |       |                                             | $          | 1,802 |   |   |

----

(1)          Excludessublease revenue of $333 million and executory costs such as insurance,maintenance and taxes of $575 million.

The following table setsforth the Company’s long-term commitments, including the current portion as of June 30,2005:
| ** **                       | ** ** | **Commitment Expiration Per Period** | ** ** |
|----------------------------------|------------|-----------------------------------------------------|------------|
| ** **                       | ** ** | ** Less than 1   year**         | ** ** | **1-3  years** | ** ** | **4-5   years ** | ** ** | **Over   5 years ** | ** ** | **Total  commitments** | ** ** |
| ** **                       | ** ** | **(In millions)**                              | ** ** |
| Standby resale  agreements(1)    |       |                                                | $          | — |   |   | $ | 50 |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | 50 |   |   |
| Private equity(2)                |       |                                                | 165        |   |   | 95 |   |   | 61 |   |   |   | 449 |   |   |   | 770 |   |   |
| Forward agreements(3)            |       |                                                | 4,444      |   |   | — |   |   | — |   |   |   | — |   |   |   | 4,444 |   |   |
| Unfunded lending  commitments(4) |       |                                                | 328        |   |   | 564 |   |   | — |   |   |   | 10 |   |   |   | 902 |   |   |
| Total commitments                |       |                                                | $          | 4,937 |   |   | $ | 709 |   |   | $ | 61 |   |   |   | $ | 459 |   |   |   | $ | 6,166 |   |   |

----

(1)          Inthe ordinary course of business, the Company maintains certain standby resaleagreement facilities that commit the Company to enter into securities purchasedunder agreements to resell with customers at current market rates.

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) June 30, 2005**

**7.**   Leases and Commitments(Continued)

(2)          Represents commitmentsto invest in various partnerships that make private equity and relatedinvestments in various portfolio companies or other private equity funds.

(3)          Represents commitmentsto enter into securities purchased under agreements to resell and agreements toborrow securities.

(4)          The Company enters intocommitments to extend credit in connection with certain commercial mortgage andpremium finance activities.

Excluded from the table above are certain commitmentsto originate, purchase and sell mortgage whole loans that qualify asderivatives. These commitments are reflected in derivatives contracts in thecondensed consolidated statements of financial condition. For more informationon the Company’s derivatives contracts see Note 5.

As of June 30, 2005, the Company used $30 millionin outstanding standby letters of credit to satisfy counterparty collateralrequirements.

The Company had no capitallease obligations as of June 30, 2005. For information about certain ofthe Company’s additional commitments, see Notes 4 and 8.

**8.**   Guarantees

In the ordinary course of business, the Company entersinto guarantee contracts as guarantor. FIN No. 45, “Guarantor’sAccounting and Disclosure Requirements for Guarantees, Including IndirectGuarantees of Indebtedness of Others” (“FIN 45”), requires disclosure by aguarantor of its maximum potential payment obligations under certain of itsguarantees to the extent that it is possible to estimate them. FIN 45 alsorequires a guarantor to recognize, at the inception of a guarantee, a liabilityfor the fair value of the obligations undertaken in issuing such guarantee,including its ongoing obligation to stand ready to perform over the term of theguarantee in the event that certain events or conditions occur. With certainexceptions, these liability recognition requirements apply to any guaranteesentered into or modified after December 31, 2002.

The guarantees covered by FIN 45 may require theCompany to make payments to the guaranteed party based on changes related to anasset, a liability or an equity security of the guaranteed party. The Companymay also be contingently required to make payments to the guaranteed partybased on another entity’s failure to perform under an agreement, or the Companymay have an indirect guarantee of the indebtedness of others, even though thepayment to the guaranteed party may not be based on changes related to anasset, liability or equity security of the guaranteed party.

In addition, FIN 45 covers certain indemnificationagreements that contingently require the Company to make payments to theindemnified party based on changes related to an asset, liability or equitysecurity of the indemnified party, such as an adverse judgment in a lawsuit orthe imposition of additional taxes due to either a change in the tax law or anadverse interpretation of the tax law.

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) June 30, 2005**

**8.**   Guarantees(Continued)

The following table setsforth the maximum quantifiable contingent liabilities and carrying amountsassociated with guarantees covered by FIN 45 as of June 30, 2005, bymaturity.
| ** **               | ** ** | **Amount of Guarantee Expiration Per Period** | ** ** |
|--------------------------|------------|------------------------------------------------------------------------|------------|
| ** **               | ** ** | **Less than 1  year**                                        | ** ** | **1-3  years** | ** ** | **4-5  years** | ** ** | **Over   5 years ** | ** ** | **Total  guarantees** | ** ** | **Carrying  amounts** | ** ** |
| ** **               | ** ** | **(In millions)**                                                 | ** ** |
| Credit guarantees        |       |                                                                   | $          | — |   |   | $ | 13 |   | $ | 45 |   |   | $ | 389 |   |   |   | $ | 447 |   |   |   | $ | 9 |   |   |
| Performance  guarantees  |       |                                                                   | 55         |   |   | 359 |   | — |   |   | — |   |   |   | 414 |   |   |   | 7 |   |   |
| Derivatives              |       |                                                                   | 2,317      |   |   | 2,126 |   | 502 |   |   | 200 |   |   |   | 5,145 |   |   |   | 98 |   |   |
| Related party guarantees |       |                                                                   | —     |   |   | — |   | — |   |   | 1 |   |   |   | 1 |   |   |   | — |   |   |
| Indemnifications         |       |                                                                   | —     |   |   | — |   | — |   |   | 6 |   |   |   | 6 |   |   |   | — |   |   |
| Total guarantees         |       |                                                                   | $          | 2,372 |   |   | $ | 2,498 |   | $ | 547 |   |   | $ | 596 |   |   |   | $ | 6,013 |   |   |   | $ | 114 |   |   |

 

For more information onthe Company’s guarantees, including guarantees for which the maximum contingentliability cannot be quantified, see Note 10 of the consolidated financialstatements in Part II, Item 8 in the Annual Report on Form 10-K forthe year ended December 31, 2004.

**9.**   NetCapital Requirements

The Company’s principalwholly owned subsidiary, CSFB LLC, is a registered broker-dealer,registered futures commission merchant and member firm of the New York StockExchange Inc. (“NYSE”). Accordingly, the Company is subject to the minimum netcapital requirements of the SEC and the Commodities Futures Trading Commission(“CFTC”).   Under the alternative methodpermitted by SEC rule 15c3-1, the required net capital may not be lessthan the greater of 2% of aggregate debit balances arising from customer transactionsor 4% of the funds required to be segregated pursuant to the Commodity ExchangeAct less the market value of certain commodity options, all as defined. UnderCFTC Regulation 1.17, the required minimum net capital requirement is 8% of thetotal risk margin requirement (as defined) for all positions carried incustomer accounts plus 4% of the total risk margin requirement (as defined) forall positions carried in non-customer accounts. As of June 30, 2005, theCFTC’s minimum net capital requirement was greater than the SEC’s minimum netcapital requirement. As of June 30, 2005, CSFB LLC’s net capital ofapproximately $2.1 billion was 37.3% of aggregate debit balances and inexcess of the CFTC’s minimum requirement by approximately $2.0 billion. OnJuly 27, 2005, the Company made a $1.0 billion regulatory capitalcontribution to CSFB LLC in the form of subordinated debt.

The Company’s OTC derivatives dealer subsidiary,Credit Suisse First Boston Capital LLC (“CSFB Capital LLC”), is also subject tothe uniform net capital rule, but computes its net capital based on value atrisk under Appendix F of rule 15c3-1 under the Securities ExchangeAct of 1934 (the “Exchange Act”). As of June 30, 2005, CSFB Capital LLC’snet capital of $279 million, allowing for market and credit risk exposureof $55 million and $75 million, respectively, was in excess of theminimum net capital requirement by $259 million. CSFB Capital LLC is incompliance with the exemptive provisions of Rule 15c3-3 because theCompany does not carry securities accounts for customers or perform custodialfunctions relating to customer securities. On July 20, 2005, the Companymade a $400 million capital contribution to CSFB Capital LLC.

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) June 30, 2005**

**9.**   Net Capital Requirements(Continued)

As of June 30, 2005,the Company and its subsidiaries complied with all applicable regulatorycapital adequacy requirements.

**10.**   Cashand Securities Segregated Under Federal and Other Regulations

In compliance with the Commodity Exchange Act, CSFBLLC segregates funds deposited by customers and funds accruing to customers asa result of trades or contracts. As of June 30, 2005 and December 31,2004, cash and securities aggregating $3.2 billion and $3.1 billion,respectively, were segregated or secured by CSFB LLC in separate accountsexclusively for the benefit of customers.

In accordance with the SEC’s no-action letter dated November 3,1998, CSFB LLC computed a reserve requirement for the proprietary accounts ofintroducing broker-dealers. As of June 30, 2005 and December 31,2004, CSFB LLC segregated securities aggregating $2.0 billion and$1.5 billion, respectively, on behalf of introducing broker-dealers.

In addition, CSFB LLCsegregated U.S. Treasury securities with a market value of $5.8 billionand $4.4 billion as of June 30, 2005 and December 31, 2004,respectively, in a special reserve bank account exclusively for the benefit ofcustomers as required by Rule 15c3-3 of the Exchange Act.

**11.**   Share-BasedCompensation

The Company participates in the Credit Suisse GroupInternational Share Plan (the “Plan”). The Plan provides for share option andshare awards to be granted to certain employees based on the fair market valueof CSG shares at the time of grant. In August 2003, the Company adoptedthe fair value recognition provisions of SFAS No. 123, “Accounting forStock-Based Compensation,” as amended by SFAS No. 148, “Accounting forStock-Based Compensation—Transition and Disclosure,” (“SFAS 123”) usingthe prospective method. Under the prospective method, the Company recognizescompensation expense over the vesting period for all share option and shareawards granted under the Plan for services provided after January 1, 2003.Effective January 1, 2005, the Company early adopted the fair valuerecognition provisions of SFAS No. 123 (Revised 2004) “Share-Based Payment”(“SFAS 123R”) using the modified prospective method and recorded an after-taxgain of $6 million in the condensed consolidated statement of operationsas a cumulative effect of a change in accounting principle to reverse theexpense previously recognized on all outstanding unvested awards that areexpected to be forfeited. For more on the Company’s adoption of SFAS 123R, see Part I,Item 1 in the Company’s Quarterly Report on Form 10-Q for the three monthsended March 31, 2005.

Share option awards granted in or before January 2003for services provided before January 1, 2003, if not subsequentlymodified, were previously accounted for under the recognition and measurementprovisions of APB Opinion No. 25, “Accounting for Stock Issued toEmployees”. Upon adoption of SFAS 123R, compensation expense for theseoptions that have future vesting requirements was recognized in the condensedconsolidated statements of operations.

If the Company had applied the fair-value based methodunder SFAS 123 to recognize expense over the relevant serviceperiod for share options that had future vesting requirements granted in orbefore January 2003, net income would have decreased for the three and sixmonths ended June 30, 2004. For the 

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) June 30, 2005**

**11.**   Share-Based Compensation(Continued)

three and six months ended June 30, 2005, there wasno *pro forma* impact ascompensation expense includes the fair value as of the grant date of alloutstanding unvested share option awards granted. The following tablereflects the *pro forma* effect forthe three and six months ended June 30, 2004:
| ** **                                                                                                                                   | ** ** | **For the  Three Months Ended  June 30, 2004** | ** ** | **For the  Six Months Ended  June 30, 2004** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                                                                                                   | ** ** | **(In millions)**                                                  | ** ** |
| Net income, as  reported                                                                                                                     |       |                                                                    | $          | 292                                                                   |       |   |   | $ | 459 |   |   |
| Add: Share-based  employee compensation expense, net of related tax effects, included in  reported net income                           |       |                                                                    | 54         |                                                                  |       |   | 118 |   |   |
| Deduct: Share-based  employee compensation expense, net of related tax effects, determined under  the fair-value based method for all awards |       |                                                                    | 56         |                                                                  |       |   | 122 |   |   |
| Pro forma net income                                                                                                                         |       |                                                                    | $          | 290                                                                   |       |   |   | $ | 455 |   |   |

 

**12.**   EmployeeBenefit Plans

The Company provides retirement and postretirementbenefits to its U.S. and certain non-U.S. employees through participation indefined benefit pension plans (which include a qualified plan and asupplemental plan), a defined contribution plan and other post-retirement plans.The Company’s measurement date is September 30 for its pension and otherplans. For more information on the Company’s employee benefit plans, see Note16 of the consolidated financial statements in Part II, Item 8 in theAnnual Report on Form 10-K for the year ended December 31, 2004.

Thefollowing table presents the pension expense by component for the Company’s defined benefit pensionplans and other post-retirement plans for the three and six months endedJune 30, 2005 and 2004:
| ** **                                    | ** ** | **For the Three  Months Ended  June 30,** | ** ** | **For the Six  Months Ended  June 30,** | ** ** |
|-----------------------------------------------|------------|---------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                    | ** ** | **2005**                                                      | ** ** | **2004**                                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                    | ** ** | **(In millions)**                                        | ** ** |
| **Components of Net Periodic  Benefit Cost:** |       |                                                          |       |                                                        |       |   |   |   |   |
| Service cost                                  |       | $                                                             | 7          |                                                        | $          | 7 |   | $ | 13 |   | $ | 14 |   |
| Interest cost                                 |       | 11                                                            |       | 10                                                          |       | 22 |   | 21 |   |
| Expected return  on plan assets               |       | (14                                                           | )          | (12                                                         | )          | (28 | ) | (25 | ) |
| Amortization of  loss                         |       | 5                                                             |       | 5                                                           |       | 10 |   | 11 |   |
| Amortization of  prior service cost           |       | —                                                        |       | 1                                                           |       | — |   | — |   |
| Recognized net  actuarial loss                |       | —                                                        |       | (1                                                          | )          | — |   | (1 | ) |
| Net periodic  benefit cost                    |       | $                                                             | 9          |                                                        | $          | 10 |   | $ | 17 |   | $ | 20 |   |

 

The Company made paymentsto participants in the supplemental plan and the other post-retirement plansduring the six months ended June 30, 2005 totaling $3 million andexpects to pay a total of $3 million during the remainder of the year ending December 31,2005.

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) June 30, 2005**

**13.**   LegalProceedings

The Company is involved in a number of judicial,regulatory and arbitration proceedings concerning matters arising in connectionwith the conduct of its businesses. The Company believes, based on currentlyavailable information and advice of counsel, that the results of suchproceedings, in the aggregate, will not have a material adverse effect on itsfinancial condition but might be material to operating results for anyparticular period, depending, in part, upon the operating results for suchperiod. The Company intends to defend itself vigorously in these matters,litigating or settling when determined by management to be in the bestinterests of the Company.

In accordance with SFAS No. 5,“Accounting for Contingencies,” the Company recorded in the second quarter of2005 a $750 million litigation charge to increase the reserve for privatelitigation involving Enron, certain IPO allocation practices, research analystindependence and other related litigation. This charge, coupled with the chargerecorded in 2002, brings the Company’s reserves for these private litigationmatters to $1.1 billion after the application of settlements. It is inherentlydifficult to predict the outcome of many of these matters. In presenting theconsolidated financial statements, management makes estimates regarding theoutcome of these matters and records a reserve and takes a charge to incomewhen losses with respect to such matters are probable and can be reasonablyestimated. Estimates, by their nature, are based on judgment and currentlyavailable information and involve a variety of factors, including, but notlimited to, the type and nature of the litigation, claim or proceeding, theprogress of the matter, the advice of legal counsel, the Company’s defenses andits experience in similar cases or proceedings as well as its assessment ofmatters, including settlements, involving other defendants in similar orrelated cases or proceedings. Further litigation charges or releases oflitigation reserves may be necessary in the future as developments in suchcases or proceedings warrant.

**14.**   IndustrySegment and Geographic Data

The Company operates and manages its businessesthrough two operating segments: the Institutional Securities segment,consisting primarily of Investment Banking, Trading and certain separatelymanaged private equity and distressed assets; and the Wealth & AssetManagement segment, consisting of Alternative Capital, which includes theresults of the private equity and private funds businesses, and Private ClientServices. For further information on thesegments, see Note 19 of the consolidated financial statements in Part II,Item 8 in our Annual Report on Form 10-K for the year ended December 31,2004.

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) June 30, 2005**

**14.**   Industry Segmentand Geographic Data (Continued)

The following table setsforth the net revenues excluding net interest, net interest and dividendrevenue, total net revenues, total expenses and (loss) income before (benefit)provision for income taxes and cumulative effect of a change in accountingprinciple and assets of the Company’s segments.
| ** **                                         | ** ** | **Institutional  Securities** | ** ** | **Wealth & Asset  Management** | ** ** | **Total  Segments** | ** ** |
|----------------------------------------------------|------------|-------------------------------|------------|----------------------------------------------|------------|---------------------|------------|
| ** **                                         | ** ** | **(In millions)**        | ** ** |
| **For the three months ended June 30, 2005:** | ** ** |                          |       |                                         |       |                |       |   |   |   | ** ** |
| Net revenues  excluding net interest               |       |                          | $          | 400                                          |       |                |       | $ | 518 |   |   | $ | 918 |   |
| Net interest and  dividends revenue                |       |                          | 508        |                                         |       |                | 1          |   |   | 509 |   |
| Total net revenues(1)                              |       |                          | 908        |                                         |       |                | 519        |   |   | 1,427 |   |
| Total expenses                                     |       |                          | 1,667      |                                         |       |                | 140        |   |   | 1,807 |   |
| (Loss) income(2)                                   |       |                          | (759       | )                                            |       |                | 379        |   |   | (380 | ) |
| Minority interests(3)                              |       |                          | 61         |                                         |       |                | 242        |   |   | 303 | ** ** |
| (Loss) income after  minority interests(4)         |       |                          | $          | (820                                         | )          |                |       | $ | 137 |   |   | $ | (683 | ) |
| **For the three months ended June 30, 2004:** |       |                          |       |                                         |       |                |       |   |   |   |   |
| Net revenues  excluding net interest               |       |                          | $          | 674                                          |       |                |       | $ | 669 |   |   | $ | 1,343 |   |
| Net interest and  dividends revenue                |       |                          | 593        |                                         |       |                | 31         |   |   | 624 |   |
| Total net revenues(1)                              |       |                          | 1,267      |                                         |       |                | 700        |   |   | 1,967 |   |
| Total expenses                                     |       |                          | 1,024      |                                         |       |                | 138        |   |   | 1,162 |   |
| Income(2)                                          |       |                          | 243        |                                         |       |                | 562        |   |   | 805 |   |
| Minority interests(3)                              |       |                          | 35         |                                         |       |                | 330        |   |   | 365 |   |
| Income after minority  interests(4)                |       |                          | $          | 208                                          |       |                |       | $ | 232 |   |   | $ | 440 |   |
| **For the six months ended June 30, 2005:**   | ** ** |                          |       |                                         |       |                |       |   |   |   | ** ** |
| Net revenues  excluding net interest               |       |                          | $          | 1,167                                        |       |                |       | $ | 807 |   |   | $ | 1,974 |   |
| Net interest and  dividends revenue                |       |                          | 1,075      |                                         |       |                | 11         |   |   | 1,086 |   |
| Total net revenues(1)                              |       |                          | 2,242      |                                         |       |                | 818        |   |   | 3,060 |   |
| Total expenses                                     |       |                          | 2,760      |                                         |       |                | 289        |   |   | 3,049 |   |
| (Loss) income(2)                                   |       |                          | (518       | )                                            |       |                | 529        |   |   | 11 |   |
| Minority interests(3)                              |       |                          | 115        |                                         |       |                | 343        |   |   | 458 | ** ** |
| (Loss) income after  minority interests(4)         | ** ** |                          | $          | (633                                         | )          |                |       | $ | 186 |   |   | $ | (447 | ) |
| **Segment  assets as of June 30, 2005**(5)    | ** ** |                          | $          | 300,456                                      |       |                |       | $ | 4,997 |   |   | $ | 305,453 |   |
| **For the six months ended June 30, 2004:**   |       |                          |       |                                         |       |                |       |   |   |   |   |
| Net revenues  excluding net interest               |       |                          | $          | 1,377                                        |       |                |       | $ | 899 |   |   | $ | 2,276 |   |
| Net interest and  dividends revenue                |       |                          | 1,230      |                                         |       |                | 41         |   |   | 1,271 |   |
| Total net revenues(1)                              |       |                          | 2,607      |                                         |       |                | 940        |   |   | 3,547 |   |
| Total expenses                                     |       |                          | 2,119      |                                         |       |                | 296        |   |   | 2,415 |   |
| Income(2)                                          |       |                          | 488        |                                         |       |                | 644        |   |   | 1,132 |   |
| Minority interests(3)                              | ** ** |                          | 62         |                                         |       |                | 384        |   |   | 446 |   |
| Income after minority  interests(4)                | ** ** |                          | $          | 426                                          |       |                |       | $ | 260 |   |   | $ | 686 |   |
| **Segment assets as of December 31, 2004**(5) | ** ** |                          | $          | 271,203                                      |       |                |       | $ | 4,610 |   |   | $ | 275,813 |   |

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(1)    Interest income and expense is accrued at the statedcoupon rate for coupon-bearing financial instruments, and fornon-coupon-bearing financial instruments, interest income is recognized byaccreting the discount over the life of the instrument. For coupon-bearingfinancial instruments purchased at a discount or premium, the differencebetween interest income and expense accrued at the stated coupon rate andinterest income and 

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) June 30, 2005**

**14.**   Industry Segmentand Geographic Data (Continued)

expense determined on aneffective yield basis, which could be significant, is included in principaltransactions-net instead of interest and dividends, net, in the Company’scondensed consolidated statements of operations and in net revenues excludingnet interest above.

(2)    (Loss)income before (benefit) provision for income taxes, minority interests andcumulative effect of a change in accounting principle.

(3)    Relatedto the Company’s consolidation of certain private equity funds. See Note 3 formore information.

(4)    (Loss)income before (benefit) provision for income taxes and cumulative effect of achange in accounting principle.

(5)    The Institutional Securities and Wealth &Asset Management segment assets include $547 million and$1.6 billion, respectively, as of June 30, 2005 and $494 millionand $1.5 billion, respectively, as of December 31, 2004, related tothe Company’s consolidation of certain private equity funds.

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**Report of Independent Registered Public AccountingFirm**

The Board of Directors and StockholderCredit Suisse First Boston (USA), Inc.

We have reviewed the accompanying condensedconsolidated statement of financial condition of Credit Suisse First Boston (USA), Inc.and subsidiaries (the “Company”) as of June 30, 2005, the relatedcondensed consolidated statements of operations for the three and six-monthperiods ended June 30, 2005 and 2004, and the related condensedconsolidated statements of changes in stockholder’s equity and cash flows forthe six-month periods ended June 30, 2005 and 2004. These condensedconsolidated financial statements are the responsibility of the Company’smanagement.

We conducted our reviews in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Areview of interim financial information consists principally of applyinganalytical procedures and making inquiries of persons responsible for financialand accounting matters. It is substantially less in scope than an auditconducted in accordance with the standards of the Public Company AccountingOversight Board (United States), the objective of which is the expression of anopinion regarding the financial statements taken as a whole. Accordingly, we donot express such an opinion.

Based on our reviews, we are not aware of any materialmodifications that should be made to the condensed consolidated financialstatements referred to above for them to be in conformity with U.S. generallyaccepted accounting principles.

We have previously audited, in accordance with thestandards of the Public Company Accounting Oversight Board (United States), theconsolidated statement of financial condition of Credit Suisse First Boston(USA), Inc. and subsidiaries as of December 31, 2004, and the relatedconsolidated statements of operations, changes in stockholder’s equity, andcash flows for the year then ended (not presented herein); and in our reportdated March 17, 2005, we expressed an unqualified opinion on thoseconsolidated financial statements. In our opinion, the information set forth inthe accompanying condensed consolidated statement of financial condition as of December 31,2004 is fairly stated, in all material respects, in relation to the consolidatedstatement of financial condition from which it has been derived.

Asdiscussed in Note 1 to the condensed consolidated financial statements, in 2005the Company changed its method of accounting for share-based compensation.
| /s/ KPMG LLP        |   |
|---------------------|--------|
| New York, New York  |   |
| August 9, 2005 |   |

 

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**Item 2:**                       Management’sDiscussion and Analysis of Financial Condition and Results of Operations

We serve institutional, corporate, government andhigh-net-worth individual clients. Our businesses include securitiesunderwriting, sales and trading, financial advisory services, alternativeinvestments, full-service brokerage services, derivatives and risk managementproducts, asset management and investment research. We are part of the CreditSuisse First Boston business unit, which we call CSFB, of Credit Suisse Group,or CSG, and our results do not reflect the overall performance of CSFB or CSG.

When we use the terms “we,” “our,” “us” and the “Company,”we mean Credit Suisse First Boston (USA), Inc., a Delaware corporation,and its consolidated subsidiaries.

The Company’s principaloperations are located in the United States. The Company’s foreign revenues arenot significant.

**BUSINESS ENVIRONMENT**

Our principal business activities, investment banking,securities underwriting and sales, trading and wealth and asset management,are, by their nature, highly competitive and subject to general marketconditions that include volatile trading markets, fluctuations in the volume ofnew issues, mergers and acquisitions activities and the value of securities.Consequently, our results have been, and are likely to continue to be, subjectto wide fluctuations reflecting the impact of many factors beyond our control,including securities market conditions, the level and volatility of interestrates, competitive conditions, the size and timing of transactions and thegeopolitical environment.

The U.S. economy expanded at a moderate pace duringthe first six months of 2005 despite record high oil prices and tepid jobgrowth. The Federal Reserve Board continued to raise short-term interest ratesat a measured pace in an effort to contain inflationary pressures and indicatedthat further rate increases are likely.

The major U.S. stock market indices posted lossesduring the six months ended June 30, 2005 reflecting rising interest ratesand concerns over future economic growth and oil prices. For the three and sixmonths ended June 30, 2005, the Dow Jones Industrial Average decreased 2%and 5%, respectively. The Standard & Poor’s 500 stock index and theNASDAQ composite index declined 2% and 5%, respectively for the six monthsended June 30, 2005. For the three months ended June 30, 2005, theStandard & Poor’s 500 stock index and the NASDAQ composite index hadmodest gains of 1% and 3%, respectively.

Negative developments in the auto, airline andinsurance sectors led to risk aversion and the widening of credit spreads inthe first part of the second quarter. Credit spreads then narrowed beginning inmid-May, although not fully returning to former levels, resulting in a morepositive environment by the end of the quarter. The federal funds rate was3.25% as of June 30, 2005 compared to 2.25% as of December 31, 2004as the Federal Reserve Board increased the federal funds rate four times duringthe six months ended June 30, 2005. Despite increases in short-terminterest rates by the Federal Reserve Board, the yield curve flattened asprices on the benchmark 10-year Treasury note rose and yields declined from4.22% as of December 31, 2004 to 3.92% as of June 30, 2005.

The dollar value of U.S.equity and equity-related underwriting decreased significantly for the threeand six months ended June 30, 2005 compared to the three and six monthsended June 30, 2004, primarily reflecting a decrease in convertiblesecurities issuances and secondary common stock issuances. The dollar value ofU.S. debt underwriting increased modestly for the three and six months ended June 30,2005 compared to the three and six months ended June 30, 2004, primarilyas a result of an increase in asset-backed securities underwriting offset by adecline in high-yield corporate debt underwriting. The dollar value ofcompleted mergers and acquisitions in the United States for the three and sixmonths ended June 30, 2005 decreased compared to the three and six monthsended June 30, 2004 reflecting smaller deal 

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sizes. Thedollar value of announced mergers and acquisitions in the United States for thethree and six months ended June 30, 2005 increased compared to the threeand six months ended June 30, 2004.

**MANAGEMENT OVERVIEW**

Rising short-term interest rates, negativedevelopments in certain industry sectors and declines in the major U.S. stockmarket indices in the first half of 2005 adversely affected the Company’srevenues for the second quarter and first half of 2005. The Company’s netrevenues for the second quarter of 2005 decreased 27% compared to secondquarter of 2004. The decrease in revenues primarily reflected significantlylower revenues from fixed income trading, and lower revenues from our privateequity business, which had particularly significant gains in the second quarterof 2004. Total expenses for the second quarter of 2005 increased 56% comparedto the second quarter of 2004, reflecting significantly higher other operatingexpenses partially offset by lower employee compensation and benefits expenses.Other operating expenses increased due to a $750 million litigation charge toincrease the reserve for private litigation involving Enron, certain IPOallocation practices, research analyst independence and other relatedlitigation. The Company recorded a net loss of $439 million in the secondquarter of 2005 compared to net income of $292 million for the second quarterof 2004.

The Company’s net revenues for the first half of 2005decreased 14% compared to the first half of 2004. The decrease in revenuesprimarily reflected lower revenues from fixed income and equity trading, debtand equity underwriting and our private equity business, which had particularlysignificant gains in the first half of 2004. Total expenses for the first halfof 2005 increased 26% compared to the first half of 2004, reflectingsignificantly higher other operating expenses partially offset by loweremployee compensation and benefits expenses. Other operating expenses increaseddue to the $750 million litigation charge. The Company recorded a net loss of$263 million for the first half of 2005 compared to net income of $459 millionfor the first half of 2004.

In the second quarter of2005, CSG continued to take significant steps towards building an integratedbank offering private banking, corporate and investment banking and assetmanagement services on a global basis effective January 1, 2006. Duringthe second quarter, CSG’s two Swiss banks completed their previously announcedmerger and selected the members of the merged bank’s Executive Board. Inaddition, CSG announced that the integrated bank, of which we are a part, willoperate under the “Credit Suisse” brand as of January 1, 2006.

**CRITICALACCOUNTING POLICIES AND ESTIMATES**

In order to prepare the condensed consolidatedfinancial statements in accordance with accounting principles generallyaccepted in the United States of America, or U.S. GAAP, we must make estimatesand assumptions based on judgment and available information. The reportedamounts of assets and liabilities and revenues and expenses are affected bythese estimates and assumptions. Actual results could differ from theseestimates, and the differences could be material.

Our significant accountingpolicies and a discussion of new accounting pronouncements are disclosed inNote 1 of the consolidated financial statements in Part II, Item 8 inour Annual Report on Form 10-K for the year ended December 31, 2004and Note 1 of the condensed consolidated financial statements in Part I,Item 1 herein. We believe that the critical accounting policies discussed belowinvolve the most complex judgments and assessments. We believe that theestimates and assumptions used in the preparation of the condensed consolidatedfinancial statements are prudent, reasonable and consistently applied.

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**Fair Value**

As is the normal practice in our industry, the valueswe report in the condensed consolidated financial statements with respect tofinancial instruments owned and financial instruments sold not yet purchasedare in most cases based on fair value, with related unrealized and realizedgains or losses included in the condensed consolidated statements ofoperations. Commercial mortgage whole loans are carried at the lower ofaggregate cost or fair value and certain residential mortgage whole loans heldfor sale are carried at the lower of cost or fair value.

Fair value may beobjective, as is the case for exchange-traded instruments, for whichquoted prices in price-efficient and liquid markets generally exist, oras is the case where a financial instrument’s fair value is derived fromactively quoted prices or pricing parameters or alternative pricing sourceswith a reasonable level of price transparency. For financial instruments thattrade infrequently and have little price transparency, fair value may besubjective and require varying degrees of judgment depending on liquidity,concentration, uncertainty of market factors, pricing assumptions and otherrisks affecting the specific instrument. In such circumstances, valuation isbased on management’s best estimate of fair value. In addition, valuation offinancial instruments ordinarily based on quoted prices may be distorted intimes of market dislocation.

***Controls Over FairValuation Process***

Control processes areapplied to ensure that the fair value of the financial instruments reported inour condensed consolidated financial statements, including those derived frompricing models, are appropriate and measured on a reliable basis. The Company basesfair value on observable market prices or market-based parameters wheneverpossible. In the absence of observable market prices or market-based parametersin an active market or from comparable market transactions, or other observabledata supporting fair value based on a model at the inception of a contract,fair value is based on the transaction price. Control processes are designed toensure that the valuation approach is appropriate and the assumptions arereasonable.

Control processes includethe approval of new products, review of profit and loss, risk monitoring andreview, price verification procedures and reviews of models used to pricefinancial instruments by senior management and personnel with relevantexpertise who are independent of the trading and investment functions.

The Company also hasagreements with certain counterparties to exchange collateral based on the fairvalue of derivatives contracts. Through this process, one or both partiesprovide the other party with the fair value of these derivatives contracts inorder to determine the amount of collateral required. This exchange ofinformation provides additional support for the Company’s derivatives contractsvaluations. As part of the Company’s over-the-counter, or OTC, derivativesbusiness, the Company and other participants provide pricing information toaggregation services that compile this data and provide this information tosubscribers. This information is considered in the determination of fair valuefor certain OTC derivatives.

For further discussion ofour risk management policies and procedures, see “Quantitative and QualitativeDisclosures About Market Risk” in Part II, Item 7A of our Annual Report onForm 10-K for the year ended December 31, 2004.

***Valuation***

For purposes of valuation,we categorize our financial instruments as cash products, derivatives contractsand private equity and other long-term investments. The table below presentsthe carrying value of our cash products, derivatives contracts and privateequity and other long-term investments as of June 30, 2005 and December 31,2004. Included in cash products are commercial mortgage whole loans, 

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whichare carried at the lower of the aggregate cost or fair value, and certainresidential mortgage whole loans, which are carried at the lower of the cost orfair value.
| ** **                                      | ** ** | **As of June 30, 2005**               | ** ** | **As of December 31, 2004**               | ** ** |
|-------------------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                      | ** ** | **Financial    instruments    owned** | ** ** | **Financial  instruments  sold not yet  purchased** | ** ** | **Financial    instruments    owned** | ** ** | **Financial  instruments  sold not yet  purchased** | ** ** |
| ** **                                      | ** ** | **(In millions)**                                    | ** ** |
| Cash products                                   |       |                                                      | $          | 108,769                                                       |       |   |   | $ | 46,272 |   |   |   | $ | 96,097 |   |   |   | $ | 28,402 |   |   |
| Derivatives contracts                           |       |                                                      | 4,572      |                                                          |       |   | 2,714 |   |   |   | 3,663 |   |   |   | 2,295 |   |   |
| Private equity and other  long-term investments |       |                                                      | 3,345      |                                                          |       |   | — |   |   |   | 3,127 |   |   |   | — |   |   |
| Total                                           |       |                                                      | $          | 116,686                                                       |       |   |   | $ | 48,986 |   |   |   | $ | 102,887 |   |   |   | $ | 30,697 |   |   |

 

*Cash Products*

The vast majority of ourfinancial instruments owned and financial instruments sold not yet purchasedare considered cash trading instruments. The fair value of the vast majority ofthese financial instruments is based on quoted market prices in active marketsor observable market parameters or is derived from such prices or parameters. Theseinclude U.S. government and agency securities, commercial paper, mostinvestment-grade corporate debt, most high-yield debt securities, mostmortgage-backed securities and listed equities.

In addition, we holdpositions in cash products that are thinly traded or for which no market pricesare available, and which have little or no price transparency. These products include certain high-yielddebt securities, distressed debt securities, mortgage loans, certainmortgage-backed and asset-backed securities, certain collateralized debtobligations, or CDOs, and equity securities that are not publicly traded. Thetechniques used to estimate fair value for these instruments are based on thetype of product. Some of these valuation techniques require us to exercise asubstantial amount of judgment, for example, in determining the likely futurecash flows or default recovery on distressed debt instruments or asset-backedobligations or the likely impact of country or market risk on variousinvestments. Valuation techniques for certain of these products are describedmore fully below.

For certain high-yielddebt securities that are thinly traded or for which market prices are notavailable, valuation is based on recent market transactions, taking intoaccount changes in the creditworthiness of the issuer, and pricing models toderive yields reflecting the perceived risk of the issuer or country rating andthe maturity of the security. Such valuation may involve judgment.

Financial instruments heldin the distressed portfolio are typically issued by private companies undersignificant financial burden and/or near bankruptcy. Because of the less liquidnature of these financial instruments, valuation techniques often includeearnings-multiple analyses using comparable companies or discounted cashflow analysis. These factors contribute to significant subjectivity in thevaluation of these financial instruments.

The mortgage loanportfolio primarily includes residential mortgage loans that are eitherpurchased or originated and commercial mortgage loans that are originated withthe intent to securitize or sell. For residential mortgage loans, valuationsare based on pricing factors specific to loan level attributes, such asloan-to-value ratios, current balance and liens. The commercial real estateloans are valued using origination spreads, incorporating loan-to-value ratios,debt service coverage ratios, geographic location, prepayment protection andcurrent yield curves. In addition, current written offers or contract pricesare considered in the valuation process.

Values of residential andcommercial mortgage-backed securities and other asset-backed securities thatare not based on quoted market prices or prices at which similarly structuredand collateralized securities trade between dealers and to and from customersare valued using pricing models including for example employing prepayment scenariosand Monte Carlo simulations where applicable.

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CDOs are structured securities based on underlyingportfolios of asset-backed securities, certain residential and commercialmortgage securities, high-yield and investment grade corporate bonds, leveragedloans and other debt obligations. These instruments are split into variousstructured tranches, and each tranche is priced based upon its individualrating and the value or cash flow of the underlying collateral supporting thestructure. Values are derived using pricing models that involve projected cashflows, default recovery analysis and other assumptions, and such valuationsinvolve judgment.

For convertible securitiesthat are thinly traded or for which no market prices are available, internalmodels are used to derive fair value. The terms and conditions of the securityare factored into the model, along with market inputs such as underlying equityprice, equity price volatility and credit spread. Certain adjustments are madeto the derived theoretical values for high concentration levels and low tradingvolumes.

*Derivatives Contracts*

Ourderivatives contracts consist of exchange-traded and OTC derivatives, and thefair value of these as of June 30, 2005 and December 31, 2004 was asfollows:
| ** **      | ** ** | **As of June 30, 2005** | ** ** | **As of December 31, 2004** | ** ** |
|-----------------|------------|---------------------------------------------|------------|-------------------------------------------------|------------|
| ** **      | ** ** | **Assets**                                  | ** ** | **Liabilities**                                 | ** ** | **   Assets   ** | ** ** | ** Liabilities ** | ** ** |
| ** **      | ** ** | **(In millions)**                      | ** ** |
| Exchange-traded |       | $                                           | 594        |                                            |       | $ | 448 |   |   |   | $ | 695 |   |   |   | $ | 598 |   |   |   |
| OTC             |       | 3,978                                       |       |                                            | 2,266      |   |   |   | 2,968 |   |   |   | 1,697 |   |   |   |
| Total           |       | $                                           | 4,572      |                                            |       | $ | 2,714 |   |   |   | $ | 3,663 |   |   |   | $ | 2,295 |   |   |   |

 

The fair value of exchange-tradedderivatives is typically derived from the observable exchange price and/orobservable market parameters. Our primary exchange-traded derivativesinclude certain option agreements. OTC derivatives include forwards, swaps andoptions on foreign exchange, interest rates, equities and credit products. Fairvalues for OTC derivatives are determined using internally developedproprietary models using various input parameters. The input parameters includethose characteristics of the derivative that have a bearing on the economics ofthe instrument and market parameters. In well-established derivatives markets,the use of a particular model may be widely accepted. For example, the Black-Scholesmodel is widely used to calculate the fair value of many types of options.These models are used to calculate the fair value of OTC derivatives and tofacilitate the effective risk management of the portfolio. The determination ofthe fair value of many derivatives involves only limited subjectivity becausethe required input parameters are observable in the marketplace. For other morecomplex derivatives, subjectivity relating to the determination of inputparameters reduces price transparency. Specific areas of subjectivity includelong-dated volatilities on OTC option transactions and recovery rateassumptions for credit derivatives transactions. Uncertainty of pricingassumptions and liquidity are also considered as part of the valuation process.Because of these uncertainties, we do not recognize a dealer profit orunrealized gain at the inception of a derivatives transaction unless thevaluation underlying the unrealized gain is evidenced by quoted market pricesin an active market, observable prices of other current market transactions orother observable data supporting a valuation technique in accordance withEmerging Issues Task Force Issue No. 02-3, “Issues Involved in Accountingfor Derivative Contracts Held for Trading Purposes and Contracts Involved inEnergy Trading and Risk Management Activities.” As of June 30, 2005 and December 31,2004, most of the fair values reported in our condensed consolidated statementsof financial condition were derived using observable input parameters. Forfurther information on the fair value of derivatives as of June 30, 2005and December 31, 2004, see “—Derivatives—Sources and Maturities of OTCDerivatives” and Note 5 of the condensed consolidated financial statements in Part I,Item 1.

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*Private equity and other long-term investments*

Private equity and otherlong-term investments include direct investments and investments inpartnerships that make private equity and related investments in variousportfolio companies and funds. Private equity investments and other long-terminvestments consist of both publicly traded securities and private securities. Publiclytraded investments are valued based upon readily available market quotes withappropriate adjustments for liquidity as a result of holding large blocksand/or having trading restrictions. Private securities, which generally have noreadily available market or may be otherwise restricted as to resale, arevalued taking into account a number of factors, such as the most recent roundof financing involving unrelated new investors, earnings-multiple analysesusing comparable companies or discounted cash flow analysis, and have little orno price transparency.

TheCompany categorizes its private equity investments into three categories:CSFB-managed funds, funds managed by third parties and direct investments. Thefollowing table sets forth the fair value of our private equity investments bycategory as of June 30, 2005 and December 31, 2004:
| ** **                                                                                                                                                                                           | ** ** | **As of June 30, 2005** | ** ** | **As of December 31, 2004** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                                                                                                                                           | ** ** | **Fair value**                         | ** ** | **Percent  of total**                      | ** ** | **Fair value** | ** ** | **Percent  of total** | ** ** |
| ** **                                                                                                                                                                                           | ** ** | **(In millions)**                      | ** ** | ** **                                      | ** ** | **(In millions)** | ** ** | ** ** | ** ** |
| CSFB-managed funds  (which includes $2,113 and $1,947 related to funds consolidated  primarily under   FIN 46R(1) as of June 30, 2005 and  December 31, 2004, respectively) |       |                                        | $          | 2,910                                           |       |   |   | 87 | % |   |   | $ | 2,670 |   |   |   | 85 | % |   |
| Funds managed by third  parties                                                                                                                                                                      |       |                                        | 417        |                                            |       |   | 12 |   |   |   | 442 |   |   |   | 14 |   |   |
| Direct investments                                                                                                                                                                                   |       |                                        | 18         |                                            |       |   | 1 |   |   |   | 15 |   |   |   | 1 |   |   |
| Total                                                                                                                                                                                                |       |                                        | $          | 3,345                                           |       |   |   | 100 | % |   |   | $ | 3,127 |   |   |   | 100 | % |   |

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(1)          Formore information on the consolidated funds as of June 30, 2005 and December 31,2004, see Note 3 of the condensed consolidated financial statements in Part I,Item 1.

*CSFB-ManagedFunds.  *CSFB-managed funds are partnerships and related “side-by-side”direct investments made by our subsidiaries for which CSFB acts as the fund’sadvisor and makes investment decisions. As of June 30, 2005 and December 31,2004, approximately 8% and 10%, respectively, of CSFB-managed fundinvestments, excluding private equity funds consolidated primarily under FIN46R, were public securities. The fair value of our investments in CSFB-managedfunds is based on our valuation or, in the case of funds of funds, valuationsreceived from the underlying fund manager and reviewed by us.

*FundsManaged by Third Parties.  *Funds managed by thirdparties are investments by CSFB as a limited partner in a fund managed by anexternal fund manager. The fair value of these funds is based on the valuationreceived from the general partner of the fund and reviewed by us.

*DirectInvestments.  *Direct investments are generally debt andequity securities that are not made through or “side-by-side” with CSFB-managedfunds and consist of public and private securities. These investments arepriced in accordance with the procedures for CSFB-managed funds. As of June 30,2005 and December 31, 2004, approximately 35% and 22%, respectively, ofdirect investments were public securities.

**Income Taxes**

***Deferred Tax Assets***

We recognize deferred taxassets and liabilities for the estimated future tax effects of operating losscarry-forwards and temporary differences between the carrying amounts ofexisting assets and liabilities and their respective tax bases as of the dateof the statement of financial condition.

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The realization ofdeferred tax assets on temporary differences is dependent upon the generationof taxable income during the periods in which those temporary differencesbecome deductible. The realization of deferred tax assets on net operatinglosses is dependent upon the generation of taxable income during the periodsprior to their expiration, if any. Periodically, management evaluates whetherdeferred tax assets can be realized. If management considers it more likelythan not that all or a portion of a deferred tax asset will not be realized, acorresponding valuation allowance is established. In evaluating whetherdeferred tax assets can be realized, management considers projected futuretaxable income, the scheduled reversal of deferred tax liabilities and taxplanning strategies.

This evaluation requiressignificant management judgment, primarily with respect to projected taxableincome. The estimate of future taxable income can never be predicted withcertainty. It is derived from budgets and strategic business plans but isdependent on numerous factors, some of which are beyond our control.Substantial variance of actual results from estimated future taxable profits,or changes in our estimate of future taxable profits, could lead to changes indeferred tax assets being realizable or considered realizable, and wouldrequire a corresponding adjustment to the valuation allowance.

As of June 30, 2005and December 31, 2004, we had deferred tax assets resulting from temporarydifferences that could reduce taxable income in future periods. The condensedconsolidated statements of financial condition as of June 30, 2005 and December 31,2004 include deferred tax assets of $1.7 billion and $1.6 billion,respectively, and deferred tax liabilities of $482 million and$438 million, respectively. Due to uncertainty concerning our ability togenerate the necessary amount and mix of state and local taxable income infuture periods, we maintained a valuation allowance against our deferred stateand local tax assets in the amount of $33 million and $32 million asof June 30, 2005 and December 31, 2004, respectively.

***Tax Contingencies***

Significant judgment isrequired in determining the effective tax rate and in evaluating certain of ourtax positions. We accrue for tax contingencies when, despite our belief thatour tax return positions are fully supportable, certain positions could bechallenged and our positions may not be fully sustained. Once established, taxcontingency accruals are adjusted due to changing facts and circumstances, suchas case law, progress of audits or when an event occurs requiring a change tothe tax contingency accruals. We regularly assess the likelihood of adverseoutcomes to determine the appropriateness of our provision (benefit) for incometaxes. Although the outcome of any dispute is uncertain, management believesthat it has appropriately accrued for any unfavorable outcome.

**LitigationContingencies**

From time to time, we areinvolved in a variety of legal, regulatory and arbitration matters inconnection with the conduct of our business. It is inherently difficult topredict the outcome of many of these matters, particularly those cases in whichthe matters are brought on behalf of various classes of claimants, seek damagesof unspecified or indeterminate amounts or involve novel legal claims. Inpresenting our consolidated financial statements, management makes estimatesregarding the outcome of these matters and records a reserve and takes a chargeto income when losses with respect to such matters are probable and can bereasonably estimated. Charges, other than those taken periodically for cost ofdefense, are not established for matters when losses cannot be reasonablyestimated. Estimates, by their nature, are based on judgment and currentlyavailable information and involve a variety of factors, including, but notlimited to, the type and nature of the litigation, claim or proceeding, theprogress of the matter, the advice of legal counsel, our defenses and ourexperience in similar cases or proceedings as well as our assessment ofmatters, including settlements, involving other defendants in similar orrelated cases or proceedings. For a discussion of legal proceedings, see “LegalProceedings” in Part II, Item 1.

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**RECENT DEVELOPMENTS**

We are negotiating a potential agreement to acquirethe outstanding stock of SPS Holding Corp. and its subsidiary Select PortfolioServicing, Inc., or SPS, from PMI Group, Inc., FSA PortfolioManagement Inc. and Greenrange Partners LLC. SPS is a leadingnonprime residential mortgage loan servicer, headquartered in Salt Lake City,Utah, with facilities in Jacksonville, Florida. SPS currently services asignificant portion of mortgage collateral underwritten by CSFB.

**RESULTS OF OPERATIONS**

Thefollowing table sets forth a summary of our financial results:
| ** **                                                                                                                                | ** ** | **For the Three  Months Ended  June 30,** | ** ** | **For the Six  Months Ended  June 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                                                                                                | ** ** | **2005**                                                      | ** ** | **2004**                                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                                                                | ** ** | **(In millions)**                                        | ** ** |
| Total net  revenues                                                                                                                       |       | $                                                             | 1,427      |                                                        | $          | 1,967 |   | $ | 3,060 |   | $ | 3,547 |   |
| Total expenses                                                                                                                            |       | 1,807                                                         |       | 1,162                                                       |       | 3,049 |   | 2,415 |   |
| (Loss) income  before (benefit) provision for income taxes, minority interests and  cumulative effect of a change in accounting principle |       | (380                                                          | )          | 805                                                         |       | 11 |   | 1,132 |   |
| (Benefit)  provision for income taxes                                                                                                     |       | (244                                                          | )          | 148                                                         |       | (178 | ) | 227 |   |
| Minority  interests                                                                                                                       |       | 303                                                           |       | 365                                                         |       | 458 |   | 446 |   |
| (Loss) income  before cumulative effect of a change in accounting principle                                                               |       | (439                                                          | )          | 292                                                         |       | (269 | ) | 459 |   |
| Cumulative effect  of a change in accounting principle, net of income tax expense of $3                                                   |       | —                                                        |       | —                                                      |       | 6 |   | — |   |
| Net (loss) income                                                                                                                         |       | $                                                             | (439       | )                                                           | $          | 292 |   | $ | (263 | ) | $ | 459 |   |

 

Substantially all of our financial instruments aremarked to market daily and, therefore, the value of such financial instrumentsand our net revenues are subject to fluctuations based on market movements. Inaddition, net revenues derived from our less liquid assets may fluctuatesignificantly depending on the revaluation or sale of these investments in anygiven period. We also regularly enter into large transactions as part of ourproprietary and other trading businesses, and the number and size of suchtransactions may subject our net revenues to volatility from period to period.

Interest income and expense is accrued at the statedcoupon rate for coupon-bearing financial instruments, and for non-coupon-bearingfinancial instruments, interest income is recognized by accreting the discountover the life of the instrument. For coupon-bearing financial instrumentspurchased at a discount or premium, the difference between interest income andexpense accrued at the stated coupon rate and interest income and expensedetermined on an effective yield basis, which could be significant, is includedin principal transactions-net instead of interest and dividends, net, in thecondensed consolidated statements of operations.

We use derivatives and cash instruments to mitigatethe interest rate exposure associated with commercial mortgage whole loans andresale and repurchase agreements. These derivatives and cash instruments arecarried at fair value, while the commercial mortgage whole loans are carried atthe lower of aggregate cost or fair value and the resale and repurchaseagreements are carried at contract amounts. As a result, decreases in the valueof the derivatives and cash instruments, if any, are not offset by increases inthe value of the commercial mortgage whole loans until the loans are sold andincreases and decreases in the value of the derivatives and cash instruments,if any, are not offset by decreases and increases in the value of the resaleand repurchase agreements until the securities are sold or repurchased. Commercial

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whole loans and resale andrepurchase agreements can be a significant part of our statement of financialcondition. Therefore, our net revenues are subject to volatility from period toperiod.

Our businesses arematerially affected by conditions in the financial markets and economicconditions generally, including geopolitical events. Unpredictable or adversemarket and economic conditions have adversely affected and may in the futureadversely affect our results of operations. See “Business—Certain Factors That May AffectOur Results of Operations” in Part I, Item 1 of our Annual Report on Form 10-Kfor the year ended December 31, 2004.

**ThreeMonths Ended June 30, 2005 Compared to ThreeMonths Ended June 30, 2004**

The Company recorded a net loss of $439 million forthe three months ended June 30, 2005 compared to net income of $292million for the three months ended June 30, 2004, reflecting significantlylower net revenues and significantly higher expenses. The Company consolidatescertain private equity funds, resulting in an increase in net revenues of $304million and $365 million, respectively, for the three months ended June 30,2005 and 2004. Net (loss) income was unaffected by the consolidation of theseprivate equity funds as offsetting minority interests and related operatingexpenses were recorded in the condensed consolidated statements of operations. SeeNote 3 of the condensed consolidated financial statements in Part I, Item1 for more information. Excluding the increases attributable to theconsolidation of certain private equity funds, net revenues decreased 30%.

Total net revenues decreased $540 million, or 27%, to$1.4 billion for the three months endedJune 30, 2005, compared to thethree months ended June 30, 2004, primarily reflecting decreases inprincipal transactions-net and net interest and dividends revenues. Thedecrease in principal transactions-net was primarily due to lower revenues infixed income trading and lower revenues from our private equity business, whichhad particularly significant gains in the three months ended June 30, 2004.Net interest and dividend revenues decreased primarily due to lower interestrevenues from structured products and higher net interest expense from equityproprietary trading. Investment banking and advisory revenues were marginallyhigher reflecting higher advisory fees and debt underwriting revenues partiallyoffset by a decrease in equity underwriting revenues.

Total expenses increased$645 million, or 56%, to $1.8 billion forthe three months ended June 30, 2005 compared to the three months ended June 30, 2004,primarily due to increases in other operating expenses resulting from alitigation charge of $750 million to increase the reserve for privatelitigation involving Enron, certain IPO allocation practices, research analystindependence and other related litigation. Employee compensation and benefitsexpenses decreased. See “—Expenses.”

**SixMonths Ended June 30, 2005 Compared to SixMonths Ended June 30, 2004**

The Company recorded a net loss of $263 million forthe six months ended June 30, 2005 compared to net income of $459 millionfor the six months ended June 30, 2004, reflecting lower net revenues andsignificantly higher expenses. The Company consolidates certain private equityfunds, resulting in an increase in net revenues of $461 million and $446million, respectively, for the six months ended June 30, 2005 and 2004. Net(loss) income was unaffected by the consolidation of private equity funds asoffsetting minority interests and related operating expenses were recorded inthe condensed consolidated statements of operations. See Note 3 of thecondensed consolidated financial statements in Part I, Item 1 for moreinformation. Excluding the increases attributable to the consolidation ofcertain private equity funds, net revenues decreased 16%.

Total net revenues decreased $487 million, or 14%, to$3.1 billion for the six months ended June 30,2005, compared to the six months ended June 30,2004, reflecting decreases across all revenue categories. Net interestand dividend revenues decreased primarily due to lower net interest revenuesfrom structured products and higher net interest expense from equityproprietary trading. Investment banking and advisory 

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fees decreased due tolower debt and equity underwriting fees. The decrease in principaltransactions-net was primarily due to lower revenues from our private equitybusiness, which had particularly significant gains in the six months ended June 30,2004. Commissions were lower primarily as a result of decreased tradingactivity from listed equity securities and fixed income listed derivatives andlower commission revenues from our private equity business.

Total expenses increased$634 million, or 26%, to $3.0 billion forthe six months ended June 30, 2005 compared to the six months ended June 30, 2004,primarily due to increases in other operating expenses resulting from thelitigation charge of $750 million to increase the reserve for certain privatelitigation. Employee compensation and benefits expenses decreased. See “—Expenses.”

**Results by Segment**

The operations of the Institutional Securities segmentinclude: Investment Banking, which includes debt and equity underwriting andfinancial advisory services; and Trading, which includes our debt and equitysales and trading and other related activities. The Institutional Securitiessegment also includes the results from certain separately managed privateequity and distressed assets. The operations of the Wealth & AssetManagement segment include: Alternative Capital, which includes the results ofthe private equity and private funds businesses, and Private Client Services.

Our segments are managed based on types of productsand services offered and their related client bases. We evaluate theperformance of our segments based primarily on (loss) income before the (benefit)provision for income taxes, minority interests and cumulative effect of achange in accounting principle.

Revenues are evaluated in the aggregate, including anassessment of trading gains and losses and the related interest income andexpense attributable to financing and hedging positions. Therefore, individualrevenue categories may not be indicative of the performance of the segmentresults.

The cost structure of each of our segments is broadlysimilar to that of the Company as a whole, and, consequently, the discussion ofexpenses is presented on a company-wide basis. The Company allocates to itssegments a *pro rata* share ofcertain centrally managed costs. Leased facilities and equipment costs,employee benefits and certain general overhead expenses are allocated basedupon specified amounts, usage criteria or agreed rates. Interest expense isallocated based upon the particular type of asset. The allocation of somecosts, such as incentive bonuses, has been estimated. The timing and magnitudeof changes in our incentive bonus accrual can have a significant effect on ouroperating results for a given period.

Beginning in 2004, theGlobal Treasury department allocated to the Company’s segments certain interestexpense primarily relating to the goodwill and intangible assets from theacquisition of Donaldson, Lufkin & Jenrette, Inc., or DLJ, whichis recorded in the financial statements of Credit Suisse First Boston, Inc.,the Company’s direct parent, or CSFBI. In addition, the Global Treasury departmentallocated to the Company’s segments gains and losses related to certaincorporate treasury funding transactions, which allocation is based upon theexpected funding requirements of the segments. There is an offsetting creditfor this allocated interest expense and offsetting contra-revenues/revenues forthe allocated gains and losses in Other Institutional Securities and OtherWealth & Asset Management.

***Institutional Securities***

The Institutional Securities segment includes theTrading and Investment Banking businesses and the results from certainseparately managed private equity and distressed assets. Trading consists ofsales and trading in equity securities, equity-related derivatives, fixedincome financial instruments, fixed income-related derivatives, and otherrelated activities. Investment Banking raises capital and provides financialadvice to companies throughout the United States and abroad. Through InvestmentBanking, we 

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manage and underwriteofferings of securities, arrange private placements and provide financialadvisory and other services.

Thefollowing table sets forth certain financial information of the Company’sInstitutional Securities segment:
| ** **                                      | ** ** | **For the Three  Months Ended  June 30,** | ** ** | **For the Six  Months Ended  June 30,** | ** ** |
|-------------------------------------------------|------------|---------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                      | ** ** | **2005**                                                      | ** ** | **2004**                                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                      | ** ** | **(In millions)**                                        | ** ** |
| Revenues:                                       |       |                                                          |       |                                                        |       |   |   |   |   |
| Principal transactions-net                      |       | $                                                             | (213       | )                                                           | $          | 52 |   | $ | (11 | ) | $ | (7 | ) |
| Investment banking and advisory                 |       | 358                                                           |       | 365                                                         |       | 648 |   | 818 |   |
| Commissions                                     |       | 245                                                           |       | 251                                                         |       | 509 |   | 540 |   |
| Interest and dividends, net of interest expense |       | 508                                                           |       | 593                                                         |       | 1,075 |   | 1,230 |   |
| Other                                           |       | 10                                                            |       | 6                                                           |       | 21 |   | 26 |   |
| Total net revenues                              |       | 908                                                           |       | 1,267                                                       |       | 2,242 |   | 2,607 |   |
| Total expenses                                  |       | 1,667                                                         |       | 1,024                                                       |       | 2,760 |   | 2,119 |   |
| (Loss) Income(1)                                |       | (759                                                          | )          | 243                                                         |       | (518 | ) | 488 |   |
| Minority interests(2)                           |       | 61                                                            |       | 35                                                          |       | 115 |   | 62 |   |
| (Loss) Income  after minority interests(3)      |       | $                                                             | (820       | )                                                           | $          | 208 |   | $ | (633 | ) | $ | 426 |   |

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(1)          (Loss) Income before(benefit) provision for income taxes, minority interests and cumulative effectof a change in accounting principle.

(2)          Represents minorityinterest revenues related to the Company’s consolidation of certain privateequity funds, net of related operating expenses.

(3)          (Loss)Income before (benefit) provision for income taxes and cumulative effect of achange in accounting principle.

*Three Months Ended June 30,2005 Compared to Three Months Ended June 30,2004*

The InstitutionalSecurities segment recorded a loss after minority interests of$820 million for the three months endedJune 30, 2005 compared to income after minority interests of$208 million for the three months endedJune 30, 2004. Total net revenues decreased $359 million, or28%*,*to**$908 million for thethree months ended June 30, 2005, primarily reflecting decreases inTrading revenues partially offset by higher revenues from Other InstitutionalSecurities, which includes treasury allocations, the Company’s consolidation ofcertain private equity funds and the results for certain separately managedprivate equity and distressed assets. The consolidation of these private equityfunds resulted in an increase in net revenues of $63 million and $35 millionfor the three months ended June 30, 2005 and 2004, respectively. See Note3 of the condensed consolidated financial statements in Part I, Item 1 formore information. Excluding the increases attributable to the consolidation ofcertain private equity funds, net revenues decreased $387 million, or 31%,for the three months ended June 30, 2005 compared to the three monthsended June 30, 2004. Included in the results for the InstitutionalSecurities segment for the three months ended June 30, 2005 was alitigation charge of $750 million to increase the reserve for certain privatelitigation.

*Six Months Ended June 30,2005 Compared to Six Months Ended June 30,2004*

The InstitutionalSecurities segment recorded a loss after minority interests of$633 million for the six months ended June 30,2005 compared to income after minority interests of $426 million for the six months ended June 30, 2004. Totalnet revenues decreased $365 million, or 14%, to $2.2 billion for the six months 

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ended June 30, 2005, reflecting decreases inTrading and Investment Banking revenues partially offset by higher revenuesfrom Other Institutional Securities, which includes treasury allocations, theCompany’s consolidation of certain private equity funds and the results forcertain separately managed private equity and distressed assets. Theconsolidation of these private equity funds resulted in an increase in netrevenues of $118 million and $62 million for the six months ended June 30,2005 and 2004, respectively. See Note 3 of the condensed consolidated financialstatements in Part I, Item 1 for more information. Excluding the increasesattributable to the consolidation of certain private equity funds, net revenuesdecreased $421 million, or 17%, for the six months ended June 30,2005 compared to the six months ended June 30, 2004. Included in theresults for the Institutional Securities segment for the six months ended June 30,2005 was a litigation charge of $750 million to increase the reserve forcertain private litigation.

***Investment Banking***

Thefollowing table sets forth the Investment Banking revenues for theInstitutional Securities segment:
| ** **                | ** ** | **For the Three  Months Ended  June 30,** | ** ** | **For the Six  Months Ended  June 30,** | ** ** |
|---------------------------|------------|---------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                | ** ** | **2005**                                                      | ** ** | **2004**                                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                | ** ** | **(In millions)**                                        | ** ** |
| Debt underwriting         |       | $                                                             | 131        |                                                        | $          | 123 |   | $ | 264 |   | $ | 351 |   |
| Equity  underwriting      |       | 72                                                            |       | 98                                                          |       | 149 |   | 237 |   |
| Total underwriting        |       | 203                                                           |       | 221                                                         |       | 413 |   | 588 |   |
| Advisory and  other fees  |       | 155                                                           |       | 144                                                         |       | 235 |   | 230 |   |
| Total Investment  Banking |       | $                                                             | 358        |                                                        | $          | 365 |   | $ | 648 |   | $ | 818 |   |

 

*Three Months Ended June 30,2005 Compared to Three Months Ended June 30,2004*

Investment Bankingrevenues decreased 2% to $358 million, reflecting a decline in equityunderwriting partially offset by increases in debt underwriting and advisoryand other fees. For the three months ended June 30, 2005, equityunderwriting revenues decreased 27% to $72 million reflecting anindustry-wide decrease in common stock and convertible securities new issuancevolumes. Debt underwriting revenues increased 7% compared to the three monthsended June 30, 2004 to $131 million, reflecting an industry-wideincrease in residential mortgage-backed and improved asset-backed and high-gradeunderwriting revenues. These increases were partially offset by lower underwritingrevenues primarily from high-yield securities reflecting an industry-widedecrease in new issuances. Advisory and other fees increased 8% to$155 million reflecting higher fees from private placements and mergersand acquisitions.

*Six Months Ended June 30,2005 Compared to Six Months Ended June 30,2004*

Investment Bankingrevenues decreased 21% to $648 million, reflecting declines in debt and equityunderwriting partially offset by a modest increase in advisory and other fees.For the six months ended June 30, 2005, debt underwriting revenuesdecreased 25% compared to the six months ended June 30, 2004 to$264 million, primarily due to lower underwriting revenues fromhigh-yield, commercial mortgage-backed and asset-backed securitiespartially offset by higher residential mortgage-backed and high-gradesecurities underwriting revenues. Equity underwriting revenues decreased 37% to$149 million reflecting an industry-wide decrease in common stock andconvertible securities new issuance volumes. Advisory and other fees increased2% to $235 million reflecting higher fees from mergers and acquisitionsand private placements.

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***Trading***

In evaluating the performance of its Tradingactivities, the Company aggregates principal transactions-net, commissions andnet interest as net trading revenues. Changes in the composition of tradinginventories and hedge positions can cause principal transactions and netinterest income to vary from period to period.

Thefollowing table sets forth net Trading revenues of the Institutional Securitiessegment:
| ** **       | ** ** | **For the Three  Months Ended  June 30,** | ** ** | **For the Six  Months Ended  June 30,** | ** ** |
|------------------|------------|---------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **       | ** ** | **2005**                                                      | ** ** | **2004**                                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **       | ** ** | **(In millions)**                                        | ** ** |
| Fixed Income     |       | $                                                             | 111        |                                                        | $          | 588 |   | $ | 734 |   | $ | 1,054 |   |
| Equity           |       | 215                                                           |       | 191                                                         |       | 455 |   | 538 |   |
| Total Trading(1) |       | $                                                             | 326        |                                                        | $          | 779 |   | $ | 1,189 |   | $ | 1,592 |   |

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(1)          Revenuesreflect the allocation of certain net revenues and interest expense from theGlobal Treasury department to Trading. For the three months ended June 30,2005 and 2004, the amount was $80 million and $100 million of contra-revenues,respectively. For the six months ended June 30, 2005 and 2004, the amountwas $160 million and $121 million of contra-revenues, respectively. See “—Resultsby Segment” above.

*Three Months Ended June 30,2005 Compared to Three Months Ended June 30,2004*

Total net trading revenues for the InstitutionalSecurities segment decreased $453 million, or 58%, to $326 million for the three monthsended June 30, 2005 compared to the three months ended June 30, 2004,due to decreases in fixed income net trading revenues partially offset byhigher equity net trading revenues.

Fixed income net trading revenues decreased 81% to$111 million as revenues from interest rate products, structured products andcredit products all declined. The decrease in revenues from interest rateproducts primarily reflected losses on derivatives that hedged certain resaleand repurchase agreements. The decrease in structured products net tradingrevenues was due to lower revenues from asset-backed, commercial mortgage andresidential mortgage products. Revenues from credit products were lowerprimarily from high-grade products.

Equity net tradingrevenues increased 13% to $215 million, primarily reflecting growth in ourprime services business and higher revenues from our cash businesses andproprietary trading. These increases were partially offset by higher lossesfrom convertible securities reflecting reduced liquidity and low volatilitywhich resulted in lower trading volumes.

*Six Months Ended June 30,2005 Compared to Six Months Ended June 30,2004*

Total net trading revenues for the InstitutionalSecurities segment decreased $403 million, or 25%, to $1.2 billion for the six months endedJune 30, 2005 compared to the six months ended June 30, 2004, due todecreases in fixed income and equity net trading revenues.

Fixed income net trading revenues decreased 30% to$734 million reflecting challenging market conditions as revenues from creditproducts, interest rate products and structured products all declined. Thedecrease in revenues from credit products reflected lower revenues primarilyfrom high-grade, high-yield and distressed products including U.S.Government bonds and listed derivatives. The decrease in revenues from interestrate products reflected lower revenues from nearly all interest rate productsincluding derivatives that hedged certain resale and repurchase agreements,U.S. Government bonds and listed derivatives. The decrease in structured productsnet trading revenues was due to lower revenues 

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from asset-backed productsand commercial mortgage products partially offset by higher revenues fromresidential mortgage products.

Equity net tradingrevenues decreased 15% to $455 million primarily due to losses fromconvertible securities reflecting reduced liquidity and low volatility whichresulted in lower trading volumes and lower revenues from equity proprietarytrading. The decrease was partially offset by growth in our prime servicesbusiness and higher revenues from equity derivatives.

***Other Institutional Securities***

Other InstitutionalSecurities revenues primarily consist of revenues from certain separatelymanaged private equity and distressed assets, interest income on loans toaffiliates and treasury allocations to our Trading business.

*Three Months Ended June 30,2005 Compared to Three Months Ended June 30,2004*

Total revenues from OtherInstitutional Securities increased $101 million to $224 million during thethree months ended June 30, 2005 compared to the three months ended June 30,2004, reflecting the consolidation of certain private equity funds whichresulted in an increase in net revenues of $63 million and $35 million,respectively. Net (loss) income was unaffected by the consolidation of privateequity funds as offsetting minority interests and related operating expenseswere recorded in the condensed consolidated statements of operations. See Note3 of the condensed consolidated financial statements in Part I, Item 1 formore information. Excluding the revenues attributable to the consolidation ofcertain private equity funds, Other Institutional Securities revenues increased$73 million, primarily related to increases in interest income on loans toaffiliates and the Global Treasury department’s allocation of interest expenseas a contra-revenue to our Trading business primarily due to higher interestrates. Other Institutional Securities also reflected lower revenues fromdistressed assets.

*Six Months Ended June 30,2005 Compared to Six Months Ended June 30,2004*

Total revenues from OtherInstitutional Securities increased $208 million to $405 million during the sixmonths ended June 30, 2005 compared to the six months ended June 30,2004, reflecting the consolidation of certain private equity funds whichresulted in an increase in net revenues of $118 million and $62 million,respectively. Net (loss) income was unaffected by the consolidation of privateequity funds as offsetting minority interests and related operating expenseswere recorded in the condensed consolidated statements of operations. See Note3 of the condensed consolidated financial statements in Part I, Item 1 formore information. Excluding the revenues attributable to the consolidation ofcertain private equity funds, Other Institutional Securities revenues increased$152 million, primarily related to increases in interest income on loans toaffiliates and the Global Treasury department’s allocation of interest expenseas a contra-revenue to our Trading business primarily due to higher interestrates.

***Wealth & Asset Management***

The Wealth & Asset Management segmentconsists of Alternative Capital, which includes the private equity and privatefunds businesses, and Private Client Services. The private equity business makes privately negotiated investments and actsas an investment advisor for private equity funds. The private funds businessraises private capital, primarily from institutional investors, for directinvestment by venture capital, management buyout and other investment firms ina variety of fund types. Private Client Services is a financial advisorybusiness serving high-net-worth individuals and corporate investors with a widerange of CSFB and third-party investment management products and services.

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Thefollowing table sets forth certain financial information of the Wealth &Asset Management segment:
| ** **                                      | ** ** | **For the Three  Months Ended  June 30,** | ** ** | **For the Six  Months Ended  June 30,** | ** ** |
|-------------------------------------------------|------------|---------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                      | ** ** | **2005**                                                      | ** ** | **2004**                                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                      | ** ** | **(In millions)**                                        | ** ** |
| Revenues:                                       |       |                                                          |       |                                                        |       |   |   |   |   |
| Principal transactions-net                      |       | $                                                             | 407        |                                                        | $          | 560 |   | $ | 572 |   | $ | 681 |   |
| Investment banking and advisory                 |       | 49                                                            |       | 27                                                          |       | 80 |   | 46 |   |
| Asset management and other fees                 |       | 64                                                            |       | 79                                                          |       | 151 |   | 167 |   |
| Interest and dividends, net of interest expense |       | 1                                                             |       | 31                                                          |       | 11 |   | 41 |   |
| Other                                           |       | (2                                                            | )          | 3                                                           |       | 4 |   | 5 |   |
| Total net revenues                              |       | 519                                                           |       | 700                                                         |       | 818 |   | 940 |   |
| Total expenses                                  |       | 140                                                           |       | 138                                                         |       | 289 |   | 296 |   |
| Income(1)                                       |       | 379                                                           |       | 562                                                         |       | 529 |   | 644 |   |
| Minority  interests(2)                          |       | 242                                                           |       | 330                                                         |       | 343 |   | 384 |   |
| Income after minority  interests(3)             |       | $                                                             | 137        |                                                        | $          | 232 |   | $ | 186 |   | $ | 260 |   |

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(1)          Income before provisionfor income taxes, minority interests and cumulative effect of a change inaccounting principle.

(2)          Represents minorityinterest revenues net of related operating expenses related to the Company’sconsolidation of certain private equity funds.

(3)          Incomebefore provision for income taxes and cumulative effect of a change inaccounting principle.

*Three Months Ended June 30,2005 Compared to Three Months Ended June 30,2004*

The Wealth &Asset Management segment recorded income after minority interests of$137 million for the three months ended June 30, 2005 compared to$232 million for the three months ended June 30, 2004. Total net revenuesdecreased $181 million to $519 million for the three months ended June 30,2005, reflecting the decrease in net revenues from the consolidation of certainprivate equity funds to $242 million for the three months ended June 30,2005 from $330 million for the three months ended June 30, 2004. Netincome was unaffected by the consolidation of private equity funds asoffsetting minority interests and related operating expenses were recorded inthe condensed consolidated statements of operations. See Note 3 of thecondensed consolidated financial statements in Part I, Item 1 for moreinformation. Excluding the effects of the consolidation of certain privateequity funds, total net revenues decreased $93 million, or 25%, primarilyreflecting lower revenues from our private equity business, which hadparticularly significant gains during the three months ended June 30,2004, partially offset by increases in placement fees from the private fundsbusiness.

*Six Months Ended June 30,2005 Compared to Six Months Ended June 30,2004*

The Wealth &Asset Management segment recorded income after minority interests of$186 million for the six months ended June 30, 2005 compared to $260million for the six months ended June 30, 2004. Total net revenuesdecreased $122 million to $818 million for the six months ended June 30,2005, reflecting the decrease in net revenues from the consolidation of certainprivate equity funds to $343 million for the six months ended June 30,2005 from $384 million for the six months ended June 30, 2004. Net incomewas unaffected by the consolidation of private equity funds as offsettingminority interests and related operating expenses were recorded in thecondensed consolidated statements of operations. See Note 3 of the condensedconsolidated financial statements in Part I, Item 1 for more 

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information.Excluding the effects of the consolidation of certain private equity funds,total net revenues decreased $81 million, or 15%, primarily reflecting lowerrevenues from our private equity business, which had particularly significantgains during the six months ended June 30, 2004, partially offset by increasesin placement fees from the private funds business.

***Alternative Capital, Private Client Services and Other***

Thefollowing table sets forth the Alternative Capital, Private Client Services andOther revenues for the Wealth & Asset Management segment:
| ** **                                  | ** ** | **For the Three  Months Ended  June 30,** | ** ** | **For the Six  Months Ended  June 30,** | ** ** |
|---------------------------------------------|------------|---------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                  | ** ** | **2005**                                                      | ** ** | **2004**                                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                  | ** ** | **(In millions)**                                        | ** ** |
| Alternative  Capital                        |       | $                                                             | 458        |                                                        | $          | 645 |   | $ | 694 |   | $ | 824 |   |
| Private Client  Services                    |       | 52                                                            |       | 54                                                          |       | 107 |   | 115 |   |
| Other                                       |       | 9                                                             |       | 1                                                           |       | 17 |   | 1 |   |
| Total Wealth & Asset Management(1) |       | $                                                             | 519        |                                                        | $          | 700 |   | $ | 818 |   | $ | 940 |   |

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(1)          Revenuesreflect the allocation of certain net revenues and interest expense from theGlobal Treasury department to Alternative Capital and Private Client Services.For the three and six months ended June 30, 2005, the amount was $9million and $17 million of contra-revenues, respectively. For the three and sixmonths ended June 30, 2004, no contra-revenues were allocated. See “—Results by Segment” above.

*Three Months Ended June 30,2005 Compared to Three Months Ended June 30,2004*

Revenues fromAlternative Capital consist of management and placement fees, netinvestment gains and losses, which include realized and unrealized gains andlosses, including carried interest, net interest and other revenues fromprivate equity and private funds. Revenues from Alternative Capital decreased $187 millionto $458 million for the three months ended June 30, 2005, reflecting thedecrease in net revenues from the consolidation of certain private equity fundsto $242 million for the three months ended June 30, 2005 from $330 millionfor the three months ended June 30, 2004. Net income was unaffected by theconsolidation of private equity funds as offsetting minority interests andrelated operating expenses were recorded in the condensed consolidatedstatements of operations. See Note 3 of the condensed consolidated financialstatements in Part I, Item 1 for more information. Excluding the effect ofthe consolidation of certain private equity funds, total net revenues decreased$99 million, or 31%, primarily reflecting lower revenues from our privateequity business, which had particularly significant gains during the threemonths ended June 30, 2004, partially offset by increases in placementfees from the private funds business.

Revenues for Private Client Services decreased 4% to$52 million, primarily due to lower equity capital markets revenues.

Other revenues increased$8 million compared to the three months ended June 30, 2004, reflectinga credit that offsets allocations by theGlobal Treasury department to our alternative capital and private clientservices businesses of certain interestexpense and revenues.

*Six Months Ended June 30,2005 Compared to Six Months Ended June 30,2004*

Revenues from Alternative Capital decreased $130 millionto $694 million for the six months ended June 30, 2005, reflectingthe decrease in net revenues from the consolidation of certain private equityfunds to $343 million for the six months ended June 30, 2005 from $384million for the six months ended 

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June 30, 2004. Netincome was unaffected by the consolidation of private equity funds asoffsetting minority interests and related operating expenses were recorded inthe condensed consolidated statements of operations. See Note 3 of thecondensed consolidated financial statements in Part I, Item 1 for moreinformation. Excluding the effect of the consolidation of certain privateequity funds, total net revenues decreased $89 million, or 20%, primarilyreflecting lower revenues from our private equity business, which hadparticularly significant gains during the six months ended June 30, 2004,partially offset by increases in placement fees from the private fundsbusiness.

Revenues for Private Client Services decreased 7% to$107 million, primarily due to lower equity capital markets revenues andnet interest revenues partially offset by higher commissions.

Other revenues increased$16 million compared to the six months ended June 30, 2004,reflecting a credit that offsets allocationsby the Global Treasury department to our alternative capital and privateclient services businesses of certaininterest expense and revenues.

**Expenses**

The normal operating cost structure of each of oursegments is broadly similar to that of the Company as a whole. For this reason,the discussion of expenses is presented on a company-wide basis.

Thefollowing table sets forth employee compensation and benefits expenses, otherexpenses and total expenses of the Company:
| ** **                          | ** ** | **For the Three  Months Ended  June 30,** | ** ** | **For the Six  Months Ended  June 30,** | ** ** |
|-------------------------------------|------------|---------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                          | ** ** | **2005**                                                      | ** ** | **2004**                                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                          | ** ** | **(In millions)**                                        | ** ** |
| Employee  compensation and benefits |       | $                                                             | 738        |                                                        | $          | 825 |   | $ | 1,685 |   | $ | 1,788 |   |
| Other expenses                      |       | 1,069                                                         |       | 337                                                         |       | 1,364 |   | 627 |   |
| Total expenses                      |       | $                                                             | 1,807      |                                                        | $          | 1,162 |   | $ | 3,049 |   | $ | 2,415 |   |

 

*Three Months Ended June 30,2005 Compared to Three Months Ended June 30,2004*

Total expenses increased $645 million, or 56%, to $1.8billion for the three months ended June 30,2005 compared to the three months ended June 30,2004, as increases in other operating expenses; occupancy and equipment rental;professional fees; brokerage, clearing and exchange fees and communicationsexpenses were partially offset by decreases in employee compensation andbenefits expenses and merger-related costs. The decrease in employeecompensation and benefits expenses reflects lower accruals forperformance-related compensation and severance. These decreases were partiallyoffset by increases in share-based compensation, base salaries and head count. Included in employee compensation and benefitsexpense was $45 million and $32 million for the three months ended June 30,2005 and 2004, respectively, related to business activities conducted byCompany employees on behalf of CSG affiliates outside of the Company. Theseexpenses were charged to these affiliates and are reflected as a reduction inour other operating expenses. See Notes 1 and 11 of the condensedconsolidated financial statements in Part I, Item 1 for more information.

Other expenses consistprincipally of occupancy and equipment rental; brokerage, clearing and exchangefees; communications; professional fees and all other operating expenses. Otherexpenses increased $732 million for the three months ended June 30, 2005compared to the three months ended June 30, 2004, primarily as a result ofa litigation charge of $750 million to increase the reserve for privatelitigation involving Enron, certain IPO allocation practices, research analystindependence and other related litigation. Other expenses also reflectedincreases in professional fees; occupancy and equipment rental; brokerage,clearing and exchange fees and communications expenses due to increasedbusiness 

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activity.These increases were partially offset by higher affiliate service fees (includingthe charge to affiliates of compensation expense) that are treated as areduction in other operating expenses. Merger-related expenses decreasedreflecting the completion of retention awards in 2004. Excluding the litigationcharge to increase the reserve for certain private litigation and the chargesto affiliates for compensation expense, other operating expenses decreased 1%.

*Six Months Ended June 30,2005 Compared to Six Months Ended June 30,2004*

Total expenses increased $634 million, or 26%, to $3.0billion for the six months ended June 30,2005 compared to the six months ended June 30,2004, as increases in other operating expenses; professional fees; occupancyand equipment rental; brokerage, clearing and exchange fees and communicationsexpenses were partially offset by decreases in employee compensation andbenefits expenses and merger-related costs. The decrease in employeecompensation and benefits expenses reflects lower accruals forperformance-related compensation, certain deferred compensation plans andseverance. These decreases were partially offset by increases in share-basedcompensation and base salaries. Included inemployee compensation and benefits expense was $105 million and$60 million for the six months ended June 30, 2005 and 2004,respectively, related to business activities conducted by Company employees onbehalf of CSG affiliates outside of the Company. See Notes 1 and 11 ofthe condensed consolidated financial statements in Part I, Item 1 for moreinformation.

Other expenses increased$737 million for the six months ended June 30, 2005 compared to the sixmonths ended June 30, 2004, primarily as a result of a litigation chargeof $750 million to increase the reserve for private litigation involving Enron,certain IPO allocation practices, research analyst independence and otherrelated litigation. This increase was partially offset by higher affiliateservice fees (including the charge to affiliates of compensation expense) thatare treated as a reduction in other operating expenses and lower merger-relatedexpenses reflecting the completion of retention awards in 2004. Excluding thelitigation charge to increase the reserve for certain private litigation andthe charges to affiliates for compensation expense, other operating expensesincreased 5% due to increases in professional fees, reflecting expansion of ourmortgage business, and increased occupancy and equipment rental; brokerage,clearing and exchange fees and communications expenses due to increasedbusiness activity.

**Provision (Benefit) for Taxes**

*Six Months Ended June 30,2005 Compared to Six Months Ended June 30,2004*

The benefit for income taxes for the six months ended June 30,2005 was $178 million compared to a provision for income taxes for the sixmonths ended June 30, 2004 of $227 million. Excluded from the benefitfor income taxes for the six months ended June 30, 2005 was an income taxexpense of $3 million related to the Company’s adoption of Statement ofFinancial Accounting Standards, or SFAS, No. 123, “Accounting forStock-Based Compensation,” as amended by SFAS No. 148, “Accounting forStock-Based Compensation—Transition and Disclosure,”****and****SFASNo. 123 (Revised 2004), “Share-Based Payment,” or SFAS 123R.

The effective tax rate forthe six months ended June 30, 2004 was 20.0%. The effective tax rate forthe six months ended June 30, 2005 is not meaningful because of the lossfrom operations and the non-taxable revenues from certain consolidated privateequity funds.

**Share-based Compensation**

We have early adopted SFAS 123R as of January 1,2005, using the modified prospective method. We had previously adopted therecognition provisions of SFAS 123 effective January 1, 2003. See Note 11of the condensed consolidated financial statements in Part I, Item 1 formore information.

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In connection with ouradoption of SFAS 123R, we recorded an after-tax gain of $6 million in thecondensed consolidated statement of operations as a cumulative effect of achange in accounting principle to reverse the expense for awards previouslyrecognized on all outstanding unvested awards that are expected to be forfeited.For new grants after January 1, 2005, forfeitures will be included in theinitial estimate of compensation expense at the grant date.

**LIQUIDITY AND CAPITAL RESOURCES**

**Liquidity Management Oversight**

We believe thatmaintaining access to liquidity is fundamental for firms operating in thefinancial services industry. We have therefore established a comprehensiveprocess for the management and oversight of our capital, liquidity and fundingstrategies. Credit Suisse’s Capital Allocation and Risk Management Committee,or CARMC, has primary oversight responsibility for these functionaldisciplines. CARMC periodically reviews and approves our liquidity managementpolicies and targets and reviews our liquidity position and other key riskindicators. The Global Treasury department is responsible for the day-to-daymanagement of capital, liquidity and funding, as well as relationships withcreditor banks and fixed income investors. It also maintains regular contactwith rating agencies and regulators on these and other issues. See “LiquidityRisk” in “Business—Certain Factors That May Affect Our Results ofOperations” in Part I, Item I of our Annual Report on Form 10-K forthe year ended December 31, 2004 for more information.

**Liquidity Management Organization**

We are an indirect subsidiary of Credit Suisse, aSwiss bank. Consequently, our liquidity management structure operates at twolevels, the “Non-Bank Franchise” and the “Bank Franchise.”

First, at the holding company level, the “Non-bankFranchise,” where access to parent bank funding is limited, we aim to maintainsufficient liquidity so that in the event that we are unable to access theunsecured capital markets, we have cash and liquid assets sufficient to repaymaturing liabilities for a minimum period of one year. When assessing theamount of cash and liquid assets, we take account of the regulatoryrestrictions that limit the amount of cash that could be distributed upstreamby our principal broker-dealer subsidiaries, Credit Suisse First Boston LLC, orCSFB LLC, and Credit Suisse First Boston Capital LLC, or CSFB Capital LLC,which hold over 85% of our consolidated assets.

Second, our regulatedsubsidiaries have access to unsecured funding from Credit Suisse, the “BankFranchise,” as well as secured funding via the repurchase and securitieslending markets. Historically, Credit Suisse’s bank deposit base has provenextremely stable and is comprised of a diversified customer base, includingretail deposits as well as wholesale and institutional deposits. In a stressedliquidity environment, our broker-dealers would directly access the securedfunding markets to replace unsecured borrowings from Credit Suisse.

**Balance Sheet and Funding**

The majority of our assets are held in ourbroker-dealer subsidiaries and comprise a substantial portion of the BankFranchise. These assets—principally trading inventories in our InstitutionalSecurities business—are funded by a combination of collateralized short-termborrowings, which include securities sold under agreements to repurchase andsecurities loaned, as well as unsecured loans from Credit Suisse, the centralfunding entity of the Bank Franchise. Significant portions of our assets heldin the Bank Franchise are highly liquid, with the majority consisting ofsecurities inventories and collateralized receivables, which fluctuatedepending on the levels of proprietary trading and customer business.Collateralized receivables consist primarily of securities purchased underagreements to resell and securities borrowed, both of which are primarilysecured by U.S. government and agency securities and 

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marketable corporate debtand equity securities. In addition, we have significant receivables fromcustomers, brokers, dealers and others, which turn over frequently. To meetclient needs as a securities dealer, we carry significant levels of tradinginventories.

Unsecured funding for the Bank Franchise originateslargely from Credit Suisse’s borrowings in the wholesale and institutionaldeposit markets as well as access to retail deposits.

Assets not funded by the Bank Franchise include lessliquid assets such as certain mortgage whole loans, distressed securities,high-yield debt securities, asset-backed securities and private equityinvestments. These less liquid assets are principally held in the Non-BankFranchise. These assets may be relatively illiquid at times, especially duringperiods of market stress. Mortgage whole loans, distressed securities,high-yield debt and asset-backed securities are generally financed with acombination of short-term unsecured financing or repurchase agreements,long-term borrowings and stockholder’s equity. We typically fund a significantportion of less liquid assets, such as private equity investments, withlong-term borrowings that we issue directly to the market, and stockholder’sequity.

Short-term funding is generally obtained at ratesrelated to the Federal Funds rate, the London Interbank Offered Rate, or LIBOR,or other money market indices, while long-term funding is generally obtained atfixed and floating rates related to U.S. Treasury securities or LIBOR,depending upon prevailing market conditions. We continually aim to broaden ourfunding base by geography, investor and funding instrument.

We lend funds as needed to our operating subsidiariesand affiliates on both a senior and subordinated basis, the latter typically tomeet capital requirements of regulated subsidiaries. We generally try to ensurethat loans to our operating subsidiaries and affiliates have maturities equalto or shorter than the maturities of our market borrowings. As such, seniorfunding to operating subsidiaries and affiliates is typically extended on ademand basis. Alternatively, subordinated financing to regulated subsidiariesis extended on a term basis and we structure our long-term market borrowingswith maturities that extend beyond those of our subordinated advances tosubsidiaries and affiliates.

Because of changes relating to customer needs,economic and market conditions and proprietary trading and other strategies,our total assets, or the individual components of total assets, may varysignificantly from period to period. As of June 30, 2005 and December 31,2004, our total assets were $305.5 billion and $275.8 billion,respectively.

Included below is adiscussion of our long-term contractual obligations, off-balance sheetarrangements and less liquid assets.

**Liquidity Measurement and Planning**

The principal measure we use to monitor our liquidityposition at each funding franchise is the “liquidity barometer,” whichestimates the time period over which the adjusted market value of unencumberedassets (including cash) exceeds the aggregate value of our maturing unsecured liabilitiesplus a conservative forecast of anticipated contingent commitments. Ourobjective, as mandated by CARMC, is to ensure that the liquidity barometer foreach of the funding franchises is maintained at a sufficient level so as toensure that, in the event we are unable to access unsecured funding, we willhave sufficient liquidity for an extended period. We believe this will enableus to carry out our business plans during extended periods of market stress,while minimizing, to the extent possible, disruptions to our business.

For the Non-Bank Franchise, our objective is to ensurethat the liquidity barometer equals or exceeds a time horizon of one-year. Forthe Bank Franchise, our objective is to ensure the liquidity barometer equalsor exceeds 120 days. The different time horizons reflect the relative stabilityof the unsecured funding base of each Franchise. In the Non-Bank Franchise,liabilities are measured at their contractual 

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maturities becausehistorically, investors in publicly issued debt securities and commercial paperare highly liquidity event sensitive such that we believe access to thesemarkets could be quickly diminished. Conversely, the Bank Franchise’s retailand institutional deposit base is measured using contractual maturities thathave been adjusted to reflect behavioral stability. Historically, this coredeposit base has proven extremely stable, even in stressed markets. Theconservative parameters we use in establishing the time horizons in the fundingfranchises assume that assets will not be sold to generate cash, that no newunsecured debt can be issued, and that funds that are assumed to be trappedbecause of regulatory restrictions are not available to be distributed upstreamin a stressed liquidity environment. The adjusted market value of unencumberedassets includes a conservative reduction from market value, or “haircut,”reflecting the amount that could be realized by pledging an asset as collateralto a third-party lender in a secured funding transaction.

In the case of theNon-Bank Franchise, contingent commitments include such items as commitments toinvest in private equity funds. Certain contingent obligations do notmaterially impact the liquidity planning at the Company or Non-Bank Franchise,as these are incurred by other affiliated operating entities that are notconsolidated by the Company. These items, which are taken into account in ourliquidity planning for the Bank Franchise, include:

·       creditrating-related collateralization requirements (CSFB’s derivatives business isprimarily conducted in Credit Suisse First Boston International, a wholly-ownedsubsidiary of CSG);

·       back-up liquidity linesprovided to asset-backed commercial paper conduits (back-up liquidity lines areprovided by Credit Suisse);

·       committedcredit facilities to clients that are currently undrawn (CSFB’s corporatelending business is conducted in Credit Suisse).

The Bank Franchise maintains a large secondary sourceof liquidity, principally through Credit Suisse’s principal broker-dealersand other regulated operating entities. The Bank Franchise has historicallybeen able to access significant liquidity through the secured funding markets(securities sold under agreements to repurchase, securities loaned and othercollateralized financing arrangements), even in periods of market stress. Wecontinually monitor overall liquidity by tracking the extent to whichunencumbered marketable assets and alternative unsecured funding sources exceedboth contractual obligations and anticipated contingent commitments.

As of June 30, 2005, we estimate that theNon-Bank Franchise held cash, other liquidity reserves and marginable assets,net of haircuts, of approximately $6.9 billion versus estimated maturingobligations and commitments out to one year of $3.8 billion. Also, as of June 30,2005, we estimate that the Bank Franchise held cash, other liquidity reservesand marginable assets, net of haircuts, of approximately $117.7 billion versusestimated maturing obligations, commitments and contingent funding requirementsout to 120 days of $101.3 billion.

Our liquidityplanning and management focuses on maintaining a liquidity cushion so that wemay continue to conduct business for an extended period in the event of acrisis. Our liquidity contingency plan focuses on the specific actions that wewould take in the event of a crisis, including a detailed communication planfor creditors, investors and customers. The plan, which is regularly updated,sets out a three-stage process of the specific actions we would take:

·       StageI—Market disruption

·       StageII—Unsecured markets partially inaccessible

·       StageIII—Unsecured markets fully inaccessible

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In the event of aliquidity crisis, a meeting of the Liquidity Crisis Committee would be convenedby Global Treasury to activate the contingency plan. The Liquidity CrisisCommittee’s membership includes senior business line, Global Treasury andfinance department management, and this committee would meet frequentlythroughout the crisis to ensure our plans are executed.

**Cash Capital**

We measure cash capital (long-term funding sources)against long-term unsecured funding requirements on an ongoing basis, and seekto maintain a surplus at all times. Sources of cash capital include thenon-current component of the Company’s long-term borrowings and stockholder’sequity. Uses of cash capital include illiquid assets such as related partyreceivables (except where the receivable is the short-term investment of ourexcess cash with Credit Suisse), property, goodwill and intangibles, deferredtax assets, private equity and other long-term investments.

Our cash capital as of June 30,2005 totaled $37.6 billion compared with $36.9 billion as of December 31,2004. The increase in cash capital of $700 million was primarily due to changesin the current portion of long-term borrowings. As of June 30, 2005, cashcapital was substantially in excess of our cash capital requirements.

**ContractualObligations and Commitments**

Thefollowing table sets forth future cash payments on our contractual obligationspursuant to long-term borrowings, operating leases and purchase obligations asof June 30, 2005:
| ** **                     | ** ** | **Contractual Obligations  Expiration Per Period** | ** ** |
|--------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                     | ** ** | **Less than  1 year**                                   | ** ** | **1-3  years** | ** ** | **4-5  years** | ** ** | **Over  5 years** | ** ** | **Total** | ** ** |
| ** **                     | ** ** | **(In millions)**                                            | ** ** |
| Long-term borrowings           |       |                                                              | $          | 2,110 |   |   | $ | 10,323 |   | $ | 4,372 |   | $ | 11,948 |   | $ | 28,753 |   |
| Operating leases               |       |                                                              | 151        |   |   | 298 |   | 279 |   | 1,074 |   | 1,802 |   |
| Purchase  obligations(1)       |       |                                                              | 18         |   |   | 2 |   | — |   | — |   | 20 |   |
| Total contractual  obligations |       |                                                              | $          | 2,279 |   |   | $ | 10,623 |   | $ | 4,651 |   | $ | 13,022 |   | $ | 30,575 |   |

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(1)          Purchase obligations forgoods and services include payments for, among other things, benefitsconsulting, corporate services outsourcing and computer and telecommunicationsmaintenance agreements. Purchase obligations reflect the minimum contractualobligation under legally enforceable contracts through the termination datesspecified in the respective agreements, even if the contract is renewable.Purchase obligations do not reflect termination fees payable upon Company’stermination of the respective contracts.

Our long-term borrowings are unsecured. As of June 30,2005, the weighted average maturity of our long-term borrowings wasapproximately 5.2 years. Our lease obligations are primarily for our principaloffices in New York City and other locations. The operating lease obligationsin the table above do not reflect $333 million in sublease revenue andexecutory costs such as insurance, maintenance and taxes of $575 million.We had no capital lease obligations as of June 30, 2005.

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Wehave commitments under a variety of arrangements that are not recorded asliabilities in our condensed consolidated statements of financial condition.These commitments are in addition to guarantees and other arrangementsdiscussed in “—Off-BalanceSheet Arrangements.” Thefollowing table sets forth certain of our long-term commitments, including thecurrent portion, as of June 30, 2005:
| ** **                      | ** ** | **Commitment Expiration Per Period** | ** ** |
|---------------------------------|------------|-----------------------------------------------------|------------|
| ** **                      | ** ** | **Less than  1 year**                     | ** ** | **1-3  years** | ** ** | **4-5   years ** | ** ** | **Over   5 years ** | ** ** | **Total  commitments** | ** ** |
| ** **                      | ** ** | **(In millions)**                              | ** ** |
| Standby resale  agreements(1)   |       |                                                | $          | — |   |   | $ | 50 |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | 50 |   |   |
| Private equity(2)               |       |                                                | 165        |   |   | 95 |   |   | 61 |   |   |   | 449 |   |   |   | 770 |   |   |
| Forward  agreements(3)          |       |                                                | 4,444      |   |   | — |   |   | — |   |   |   | — |   |   |   | 4,444 |   |   |
| Unfunded lending commitments(4) |       |                                                | 328        |   |   | 564 |   |   | — |   |   |   | 10 |   |   |   | 902 |   |   |
| Total commitments               |       |                                                | $          | 4,937 |   |   | $ | 709 |   |   | $ | 61 |   |   |   | $ | 459 |   |   |   | $ | 6,166 |   |   |

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(1)          In the ordinary courseof business, we maintain certain standby resale agreement facilities thatcommit us to enter into resale agreements with customers at current marketrates.

(2)          Represents commitmentsto invest in various partnerships that make private equity and relatedinvestments in various portfolio companies or other private equity funds.

(3)          Represents commitmentsto enter into forward resale agreements for securities purchased underagreements to resell and forward agreements to borrow securities.

(4)          We enter intocommitments to extend credit in connection with certain commercial mortgage andpremium finance activities.

For information on these and other materialcommitments, see Notes 4, 6, 7 and 8 of the condensed consolidated financialstatements in Part I, Item 1. For information on commitments under ourpension arrangements, see Note 12 of the condensed consolidated financialstatements in Part I, Item 1.

Thefollowing table sets forth our commercial paper and other short-term unsecuredborrowings:
| ** **                | ** ** | **June 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|---------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                | ** ** | **(In millions)**  | ** ** |
| Bank loans                |       | $                       | 341        |                        |       | $ | 350 |   |   |
| Commercial paper          |       | 1,241                   |       |                        | 1,249      |   |   |
| Loans from  affiliates(1) |       | 15,564                  |       |                        | 20,085     |   |   |
| Total                     |       | $                       | 17,146     |                        |       | $ | 21,684 |   |   |

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(1)          Wehave significant financing transactions with Credit Suisse and certain of itssubsidiaries and affiliates. See “—RelatedParty Transactions” and Note 2 of the condensed consolidated financialstatements in Part I, Item 1.

**Credit Facilities**

As of June 30, 2005,CSFB LLC maintained with third parties four 364-day committed secured revolvingcredit facilities totaling $2.0 billion, with one facility for$500 million maturing in July 2005 (which was subsequently renewedthrough July 2006), one facility for $500 million maturing in November 2005,one facility for $500 million maturing in February 2006 and onefacility for $500 million maturing in March 2006. We expect to renew thesefacilities as they mature. These facilities require CSFB LLC to pledgeunencumbered marketable securities to secure any borrowings. Borrowings undereach facility would bear interest at short-term rates related to either the FederalFunds rate or LIBOR and can be used for general corporate purposes. Thefacilities contain customary covenants that we believe will not 

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impairour ability to obtain funding. As of June 30, 2005, no borrowings wereoutstanding under any of the facilities. We may from time to time enter intoadditional secured revolving credit facilities as part of our liquiditymanagement.

**Long-term Funding**

We issue long-term debt through U.S. and Euromarketmedium-term note programs, as well as syndicated and privately placed offeringsaround the world.

Under our currently effective $15.0 billion shelfregistration statement on file with the SEC, which was established in June 2004and allows us to issue from time to time senior and subordinated debtsecurities and warrants to purchase such securities, we had as of August 8,2005 $9.2 billion available for issuance.

Under our $5.0 billion Euro Medium-term Noteprogram, which was established in July 2001 and allows us to issue notesfrom time to time, we had as of August 8, 2005 $1.2 billion availablefor issuance.

For the six months ended June 30,2005, we issued $2.3 billion in medium-term notes and $11 million instructured notes and we repaid approximately$2.0 billion of medium-term notes, $500 million of senior notes and$55 million of structured notes.

**Credit Ratings**

Our access to the debt capital markets and ourborrowing costs depend significantly on our credit ratings. These ratings areassigned by credit rating agencies, which may raise, lower or withdraw theirratings or place us on “credit watch” with positive or negative implications atany time. Credit ratings are important to us when competing in certain marketsand when seeking to engage in longer-term transactions, including OTCderivatives. We believe agencies consider several factors in determining ourcredit ratings, including earnings performance, business mix, market position,financial strategy, level of capital, risk management policies and practicesand management team, and our affiliation with Credit Suisse and CSG, inaddition to the broader outlook for the financial services industry.

A reduction in our credit ratings could limit ouraccess to capital markets, increase our borrowing costs, require us to provideadditional collateral in connection with OTC derivatives contracts, and allowcounterparties to terminate transactions under certain of our trading andcollateralized financing contracts. This, in turn, could reduce our liquidityand negatively impact our operating results and financial position. Ourliquidity planning takes into consideration those contingent events associatedwith a reduction in our credit ratings.

Because a significant portion of our OTC derivativesarrangements are with affiliates, the amount of collateral that we would havebeen required to post pursuant to such contracts in the event of a one-notchdowngrade of our senior long-term debt credit rating was not material as of June 30,2005.

As of August 8,2005, our ratings and ratings outlooks were as follows:
| ** **                       | ** ** | **Long-Term Debt** | ** ** | **Commercial Paper** | ** ** | **Outlook** | ** ** |
|----------------------------------|------------|-------------------------|------------|---------------------------|------------|-------------|------------|
| Fitch Ratings                    |       |                    | AA-        |                      |       | F-1+        |       | Stable |   |
| Moody’s Investors  Service  |       |                    | Aa3        |                      |       | P-1         |       | Stable |   |
| Standard &  Poor’s |       |                    | A+         |                      |       | A-1         |       | Stable |   |

 

**Capital Resources**

Certain of our businessesare capital intensive. In addition to normal operating requirements, capital isrequired to cover financing and regulatory capital charges on various assetclasses, including but not limited to, securities inventories, private equityinvestments and investments in fixed assets. Our overall capital needs areregularly reviewed to ensure that our capital base can appropriately supportthe 

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anticipatedneeds of our business and the regulatory and other capital requirements of oursubsidiaries. Based upon these analyses, we believe that our capitalization isadequate for current operating levels.

***Regulated Subsidiaries***

Our principal wholly ownedsubsidiary, CSFB LLC, is a registered broker-dealer, registered futurescommission merchant and member firm of the New York Stock Exchange Inc. Accordingly,CSFB LLC is subject to the minimum net capital requirements of the Securitiesand Exchange Commission, or SEC, and the Commodities Futures TradingCommission, or CFTC. Under the alternative method permitted by SEC Rule 15c3-1,the required net capital may not be less than the greater of 2% of aggregatedebit balances arising from customer transactions or 4% of the funds requiredto be segregated pursuant to the Commodity Exchange Act less the market valueof certain commodity options, all as defined. Under CFTC Regulation 1.17, therequired minimum net capital requirement is 8% of the total risk marginrequirement (as defined) for all positions carried in customer accounts plus 4%of the total risk margin requirement (as defined) for all positions carried innon-customer accounts. As of June 30, 2005, the CFTC’s minimum net capitalrequirement was greater than the SEC’s minimum net capital requirement. As of June 30,2005, CSFB LLC’s net capital of approximately $2.1 billion was 37.3% ofaggregate debit balances and in excess of the CFTC’s minimum requirement byapproximately $2.0 billion. On July 27, 2005, we made a $1.0 billionregulatory capital contribution to CSFB LLC in the form of subordinated debt.

Our OTC derivatives dealer subsidiary, CSFB Capital LLC,is also subject to the uniform net capital rule, but computes its net capitalrequirements based on value at risk pursuant to Appendix F of Rule 15c3-1.As of June 30, 2005, CSFB Capital LLC’s net capital of $279 million,allowing for market and credit risk exposure of $55 million and$75 million, respectively, was in excess of the minimum net capitalrequirement by $259 million. CSFB Capital LLC operates pursuant to the(k)(2)(ii) exemptive provisions of Rule 15c3-3 of theSecurities Exchange Act of 1934, or Exchange Act, and, accordingly, allcustomer transactions are cleared through CSFB LLC on a fully disclosed basis.On July 20, 2005, the Company made a $400 million capitalcontribution to CSFB Capital LLC.

As of June 30, 2005,our subsidiaries complied with all applicable regulatory capital adequacyrequirements.

**Cash Flows**

Our condensed consolidated statements of cash flowsclassify cash flows into three broad categories: cash flows from operatingactivities, investing activities and financing activities. These statementsshould be read in conjunction with “—Related Party Transactions” as well as Note 2 of thecondensed consolidated financial statements in Part I, Item 1.

Our cash flows are complexand frequently bear little relation to our net (loss) income and net assets,particularly because the Company is an indirect wholly owned subsidiary of CSG,a global financial institution that may choose to allocate cash among itssubsidiaries for reasons independent of the Company’s activities. As a result,we believe that traditional cash flow analysis is not a particularly usefulmethod to evaluate our liquidity position as discussed above. Cash flowanalysis may, however, assist in highlighting certain macro trends andstrategic initiatives in our business.

***For the Six Months Ended June 30, 2005***

Cash and cash equivalents decreased $8 million to$719 million as of June 30, 2005. Cash used in operating activitieswas $5.9 billion and reflected a net increase in operating assets andoperating liabilities of $5.8 billion, which occurred in the normal courseof operations as a result of changes in customer needs, market conditions andproprietary trading and other strategies.

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Cash of $234 million was used in investing activitiesprimarily reflecting an increase in funding to affiliates.

Cash provided by financingactivities was $6.1 billion. This was due to increases in net collateralizedfinancing arrangements of $10.9 billion, decreases of $4.5 billion incommercial paper and short-term borrowings and increases of $2.3 billionin long-term borrowings used primarily to fund normal operating activities,provide funding to affiliates as part of the Company’s investing activities andrepay $2.5 billion in long-term borrowings.

***For the Six Months Ended June 30, 2004***

Cash and cash equivalents increased $527 millionto $861 million as of June 30, 2004. Cash provided by operatingactivities was $2.0 billion and reflected a net increase in operatingassets and operating liabilities of $1.2 billion, which occurred in thenormal course of operations as a result of changes in customer needs, marketconditions and proprietary trading and other strategies.

Cash of $2.3 billion was used in investingactivities. The Company provided funding to affiliates, resulting in increasesin receivables from affiliates of $2.2 billion.

Cash provided by financingactivities was $823 million. This was due to decreases in net collateralizedfinancing arrangements of $8.7 billion, increases of $7.2 billion in commercialpaper and short-term borrowings and increases of $3.5 billion in long-termborrowings used primarily to fund normal operating activities, provide fundingto affiliates as part of the Company’s investing activities and repay $1.2billion in long-term borrowings.

**OFF-BALANCE SHEET ARRANGEMENTS**

We enter into off-balance sheet arrangements in theordinary course of business. Off-balance sheet arrangements are transactions,agreements or other contractual arrangements with, or for the benefit of, anentity that is not consolidated with an issuer, and which include guaranteesand similar arrangements, retained or contingent interests in assetstransferred to an unconsolidated entity, and obligations and liabilities(including contingent obligations and liabilities) under material variableinterests in unconsolidated entities for the purpose of providing financing,liquidity, market risk or credit risk support.

We have not entered intoany derivatives contracts indexed or linked to the stock of CSG.

**Guarantees**

In the ordinary course of our business, we provideguarantees and indemnifications that contingently obligate us to make paymentsto the guaranteed or indemnified party based on changes in an asset, liabilityor equity security of the guaranteed or indemnified party. We may also becontingently obligated to make payments to a guaranteed party based on anotherentity’s failure to perform, or we may have an indirect guarantee of theindebtedness of others. Guarantees we provide include customaryindemnifications to purchasers in conjunction with the sale of assets orbusinesses; to investors in private equity funds sponsored by the firmregarding potential obligations of employees to return amounts previously paidas carried interest; and to investors in our securities and other arrangementsto provide “gross up” payments if there is a withholding or deduction becauseof a tax assessment or other governmental charge. From time to time, we alsoguarantee the obligations of subsidiaries of CSG that are not our consolidatedsubsidiaries, and these guarantees are included in the scope of the disclosurerequirements of FIN No. 45, “Guarantor’s Accounting and DisclosureRequirements for Guarantees, Including Indirect Guarantees of Indebtedness ofOthers,” or FIN 45.

FIN 45 requires disclosureof our maximum potential payment obligations under certain guarantees to theextent that it is possible to estimate them and requires recognition of aliability at inception for the fair 

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value ofguaranteed obligations for guarantees issued or amended after December 31,2002. The recognition of these liabilities did not have a material effect onour financial position or results of operations. For disclosure of ourestimable maximum payment obligations under certain guarantees and relatedinformation, see Note 8 of the condensed consolidated financial statementsin Part I, Item 1.

**Retainedor Contingent Interests in Assets Transferred to Unconsolidated Entities**

We originate and purchase commercial and residentialmortgages and purchase other debt obligations such as automobile loans andstudent loans and sell these assets directly or through affiliates to specialpurpose entities that are, in most cases, qualified special purpose entities,or QSPEs. These QSPEs issue securities that are backed by the assetstransferred to the QSPEs and pay a return based on the returns on those assets.Investors in these mortgage-backed and asset-backed securities typically haverecourse to the assets in the QSPE. The investors and the QSPEs have norecourse to our assets.

These QSPEs are generally sponsored by oursubsidiaries. Our principal broker-dealer subsidiary, CSFB LLC,underwrites and makes markets in these mortgage-backed and asset-backedsecurities. Under SFAS No. 140, “Accounting for Transfers and Servicing ofFinancial Assets and Extinguishments of Liabilities, a replacement of FASBStatement No. 125,” a QSPE is not required to be consolidated with thetransferor. Our mortgage-backed and asset-backed securitization activities aregenerally structured to use QSPEs, and the assets and liabilities transferredto QSPEs are not included in our financial statements.

We may retain interests inthese securitized assets if CSFB LLC holds the assets in connection with itsunderwriting or market-making activities. Retained interests insecuritized financial assets are included at fair value in the condensedconsolidated statements of financial condition. Any changes in the fair valueof these retained interests are recognized in the condensed consolidatedstatements of operations. We engage in these securitization activities to meetthe needs of clients as part of our fixed income activities, to earn fees andto sell financial assets. These securitization activities do not provide amaterial source of our liquidity, capital resources or credit risk or marketrisk support. See Note 3 of the condensed consolidated financial statements in Part I,Item 1, which includes quantitative information on our securitizationactivities and retained interests.

**Variable Interest Entities**

We are involved with various entities in the normalcourse of business that may be deemed to be variable interest entities, orVIEs, including VIEs that issue CDOs.

We purchase loans and other debt obligations from andon behalf of clients primarily for the purpose of securitization. The loans andother debt obligations are transferred by us directly, or indirectly throughaffiliates, to QSPEs or to VIEs that issue CDOs. CDOs are securities backed bythe assets transferred to the VIE and pay a return based on the returns onthose assets. Investors typically have recourse to the assets in the CDO VIE. Theinvestors and the CDO VIE have no recourse to the Company’s assets. CSFB LLCstructures, underwrites and makes a market in these CDOs, and we may haveretained interests in these CDOs in connection with CSFB LLC’s underwriting andmarket-making activities. We engage in these CDO transactions to meet theneeds of clients, to earn fees and to sell financial assets. These CDOtransactions do not provide a material source of our liquidity, capitalresources or credit risk or market risk support.

Financial Accounting Standards Board, or FASB,Interpretation No. 46, “Consolidation of Variable Interest Entities”, orFIN 46, requires us to consolidate all VIEs for which we are the primarybeneficiary, which is defined as the entity that will absorb a majority ofexpected losses, receive a majority of the expected residual returns, or both. InDecember 2003, the FASB modified FIN 46, through the issuance of FIN 46R,to address various implementation issues that had arisen since the issuance ofFIN 46 and to provide companies the option to defer the adoption of FIN 46 forcertain VIEs to periods ending after 

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March 15, 2004. As ofJune 30, 2005 and December 31, 2004, we consolidated CDO VIEs forwhich we are the primary beneficiary. We also have interests in CDO VIEs thatare not required to be consolidated because we are not the primary beneficiary.

As of January 1,2004, the Company consolidated primarily under FIN 46R certain private equityfunds that are managed by the Company. SeeNotes 1 and 3 of the condensed consolidated financial statements in Part I,Item 1.

**RELATED PARTY TRANSACTIONS**

CSG, through CSFBI, owns all of our outstanding votingcommon stock. We are involved in significant financing and other transactions,and have significant related party balances, with Credit Suisse and certainaffiliates. We generally enter into these transactions in the ordinary courseof business and believe that these transactions are on market terms that couldbe obtained from unrelated third parties. See “—Derivatives” and Notes 2 and 5of the condensed consolidated financial statements in Part I, Item 1 formore information.

Certain of our directors,officers and employees and those of our affiliates and their subsidiariesmaintain margin accounts with CSFB LLC and other affiliated broker-dealersin the ordinary course of business. In addition, certain of such directors,officers and employees have investments or commitments to invest in variousprivate equity funds. We make loans to directors and executive officers on thesame terms as are generally available to third parties or otherwise pursuant towidely available employee benefit plans. CSFB LLC and other affiliated broker-dealers,from time to time and in the ordinary course of business, enter into, asprincipal, transactions involving the purchase or sale of securities from or tosuch directors, officers and employees and members of their immediate families.

**LESS LIQUID ASSETS**

Certain of our assets,including private equity and other long-term investments, distressedsecurities, high-yield debt, mortgage whole loans and other non-investment-gradedebt, are not highly liquid or trade in markets that have periods of volatilityand illiquidity. The values of most of the more illiquid assets are reported atfair value, and the determination of fair value is based on management’s bestestimate and depends on varying factors. See “—Critical Accounting Policies andEstimates—Fair Value” for further information on the determination of fairvalue of these less liquid assets.

**Private Equity Activities**

Our private equity andother long-term investment activities include direct investments andinvestments in partnerships that make private equity and related investments invarious portfolio companies and funds. These investments are primarily inunlisted or illiquid equity or equity-related securities and are carriedat fair value based on a number of factors. As of June 30, 2005 and December 31,2004, we had investments in private equity and other long-term investments of$3.3 and $3.1 billion, respectively and we had commitments to invest up toan additional $770 million as of June 30, 2005. The increase inprivate equity and other long-term investments reflects our consolidation ofcertain private equity funds. See “—Critical Accounting Policies andEstimates—Fair Value” in Part I, Item 2 and Notes 1 and 4 of the condensedconsolidated financial statements in Part I, Item 1 for more information.

**High-YieldDebt, Mortgage Whole Loans and Other Non-Investment-Grade FinancialInstruments**

Weunderwrite, trade and hold high-yield debt, which includes distressed debt,mortgage whole loans, loan participations, certain separately manageddistressed financial instruments and other non-investment-grade financialinstruments. Due to credit considerations, liquidity of secondary tradingmarkets and vulnerability to general economic conditions, these financialinstruments and loans generally involve 

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greater risk than investment-grade financialinstruments. We record high-yield debt, residential mortgage whole loans andcertain separately managed distressed financial instruments at fair value, withthe exception of certain residential mortgage whole loans and loanparticipations that are held for sale and are carried at the lower of cost orfair value. We record commercial mortgage whole loans held for sale at thelower of aggregate cost or fair value. Timing of the securitization of ourmortgage whole loan inventory will affect the size of our positions at anygiven time. The following table sets forth our positions in these instrumentsas of June 30, 2005 and December 31, 2004:
| ** **                                                   | ** ** | **June 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|--------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **                                                   | ** ** | **Assets**                  | ** ** | **Liabilities**                 | ** ** | **Assets** | ** ** | **Liabilities** | ** ** |
| ** **                                                   | ** ** | **(In millions)**      | ** ** |
| High-yield and  distressed debt                              |       | $                           | 2,408      |                            |       | $ | 860 |   |   | $ | 2,152 |   |   | $ | 709 |   |   |
| Mortgage whole  loans                                        |       | 21,130                      |       |                            | —     |   |   | 14,987 |   |   | — |   |   |
| Loan  participations                                         |       | 17                          |       |                            | —     |   |   | 17 |   |   | — |   |   |
| Certain  separately managed distressed financial instruments |       | 125                         |       |                            | —     |   |   | 185 |   |   | — |   |   |
| Total                                                        |       | $                           | 23,680     |                            |       | $ | 860 |   |   | $ | 17,341 |   |   | $ | 709 |   |   |

 

**DERIVATIVES**

We enter into varioustransactions involving derivatives. We use derivatives contracts for bothtrading and hedging purposes and to provide products for our clients. Thesederivatives include options, forwards, futures and swaps. In general,derivatives are contractual agreements that derive their values from theperformance of underlying assets, interest or currency exchange rates or avariety of indices. Most of our derivatives transactions are considered tradingpositions. See Note 5 of the condensed consolidated financial statementsin Part I, Item 1 for more information.

**Sourcesand Maturities of OTC Derivatives**

Thefollowing table sets forth the distributions, by maturity, of our exposure withrespect to OTC derivatives as of June 30, 2005. Fair values weredetermined on the basis of pricing models and other valuation methods. See “—CriticalAccounting Policies and Estimates—Fair Value” and Notes 5 and 8 of thecondensed consolidated financial statements in Part I, Item 1 for moreinformation.
| ** **                            | ** ** | **Assets  Maturity Distribution as of June 30, 2005** | ** ** |
|---------------------------------------|------------|-------------------------------------------------------------------------------------|------------|
| ** **                            | ** ** | **Less than 1 year**                                                 | ** ** | ** 1-3 years ** | ** ** | **4-5 years** | ** ** | **Over 5 years** | ** ** | **Total fair value** | ** ** |
| ** **                            | ** ** | **(In millions)**                                                              | ** ** |
| Interest rate and  credit spread risk |       |                                                                                | $          | 699 |   |   |   | $ | 458 |   |   |   | $ | 185 |   |   |   | $ | 1,325 |   |   |   | $ | 2,667 |   |   |
| Foreign exchange  risk                |       |                                                                                | 3          |   |   |   | 52 |   |   |   | — |   |   |   | — |   |   |   | 55 |   |   |
| Equity price risk                     |       |                                                                                | 203        |   |   |   | 713 |   |   |   | 58 |   |   |   | 282 |   |   |   | 1,256 |   |   |
| Total                                 |       |                                                                                | $          | 905 |   |   |   | $ | 1,223 |   |   |   | $ | 243 |   |   |   | $ | 1,607 |   |   |   | $ | 3,978 |   |   |

 
| ** **                            | ** ** | **Liabilities  Maturity Distribution as of June 30, 2005** | ** ** |
|---------------------------------------|------------|------------------------------------------------------------------------------------------|------------|
| ** **                            | ** ** | **Less than 1 year**                                                      | ** ** | **1-3 years** | ** ** | **4-5 years** | ** ** | **Over 5 years** | ** ** | **Total fair value** | ** ** |
| ** **                            | ** ** | **(In millions)**                                                                   | ** ** |
| Interest rate and  credit spread risk |       |                                                                                     | $          | 662 |   |   |   | $ | 350 |   |   |   | $ | 161 |   |   |   | $ | 508 |   |   |   | $ | 1,681 |   |   |
| Foreign exchange  risk                |       |                                                                                     | 4          |   |   |   | 14 |   |   |   | — |   |   |   | — |   |   |   | 18 |   |   |
| Equity price risk                     |       |                                                                                     | 137        |   |   |   | 135 |   |   |   | — |   |   |   | 295 |   |   |   | 567 |   |   |
| Total                                 |       |                                                                                     | $          | 803 |   |   |   | $ | 499 |   |   |   | $ | 161 |   |   |   | $ | 803 |   |   |   | $ | 2,266 |   |   |

 

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Thefollowing table sets forth as of June 30, 2005 substantially all of ourexposure with respect to OTC derivatives, by counterparty credit rating andwith affiliates.
| **Credit Rating**(1)    | ** ** | ** **             | ** ** | **June 30,  2005** | ** ** |
|------------------------------|------------|------------------------|------------|-------------------------|------------|
| ** **                   | ** ** | **(In millions)** | ** ** |
| AA+/AA                       |       |                   | $          | 1,885                   |       |   |
| AA-                          |       |                   | 6          |                    |       |
| A+/A/A-                      |       |                   | 113        |                    |       |
| BBB+/BBB/BBB-                |       |                   | 2          |                    |       |
| BB+ or lower                 |       |                   | 14         |                    |       |
| Unrated                      |       |                   | 134        |                    |       |
| Derivatives with  affiliates |       |                   | 1,824      |                    |       |
| Total                        |       |                   | $          | 3,978                   |       |   |

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(1)          Creditratings are determined by external rating agencies or by our credit riskmanagement department.

**Derivatives With Related Parties**

Weenter into a substantial number of derivatives transactions with relatedparties. The following table sets forth derivatives transactions with relatedparties consisting primarily of interest rate swaps, credit default swaps andforeign exchange forward contracts. The fair values of derivatives contractsoutstanding with related parties as of June 30, 2005 and December 31,2004 were as follows.
| ** **                            | ** ** | **June 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|---------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **                            | ** ** | **Assets**                  | ** ** | **Liabilities**                 | ** ** | **Assets** | ** ** | **Liabilities** | ** ** |
| ** **                            | ** ** | **(In millions)**      | ** ** |
| Interest rate and  credit spread risk |       | $                           | 1,782      |                            |       | $ | 960 |   |   | $ | 1,346 |   |   | $ | 616 |   |   |
| Foreign exchange  risk                |       | 28                          |       |                            | 2          |   |   | 45 |   |   | 18 |   |   |
| Equity price risk                     |       | 14                          |       |                            | 8          |   |   | 9 |   |   | 61 |   |   |
| Total                                 |       | $                           | 1,824      |                            |       | $ | 970 |   |   | $ | 1,400 |   |   | $ | 695 |   |   |

 

See Notes 2 and 5 of thecondensed consolidated financial statements in Part I, Item 1 for moreinformation.

**DIRECTORS AND EXECUTIVE OFFICERS**

Effective July 22, 2005, Eileen K. Murrayresigned as a member of the Board of Directors and as a Managing Director ofthe Company. Effective August 15, 2005, Lewis H. Wirshba will become a memberof the Board of Directors of the Company. Mr. Wirshba is a Managing Director ofCSFB and the Company, and Head of CSFB’s Financial Performance ManagementGroup. Mr. Wirshba also oversees the Regional Oversight and Management functionin the Americas and is Country Manager in the United States. Prior to that, Mr.Wirshba was CSFB’s Global Treasurer from 1997 to 2005. Mr. Wirshba joined CSFBin 1986. Prior to joining the financial services industry, he worked at GeneralMotors.

EffectiveAugust 15, 2005, Neil Radey will replace Gary G. Lynch as ManagingDirector and General Counsel of the Company. Mr. Radey is aManaging Director, and General Counsel for the Securities Division, of CSFB.Mr. Radey served as Chief Operating Officer of Finance, Administration &Operations, or FA&O, for CSFB from 2000 to 2001 and for the Finance &Risk Cluster of FA&O in 2002. Prior to that, Mr. Radey was CSFB’sDeputy General Counsel-Americas from 1999 to 2000 and CSFB’s General Counsel-AsiaPacific from 1997 to 1998. Mr. Radey joined CSFB in 1995 from Kidder,Peabody & Co., where he was Investment Banking Counsel.

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**FORWARD LOOKING STATEMENTS**

We have made in thisQuarterly Report on Form 10-Q, including, without limitation, in “LegalProceedings” in Part II, Item 1, and in “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” in Part I, Item2, and from time to time may otherwise make in our public filings and pressreleases, forward-looking statements concerning our operations, economicperformance and financial condition, as well as our future plans and strategicobjectives. Such forward-looking statements are subject to various risks anduncertainties, and we claim the protection afforded by the safe harbor forforward-looking statements contained in the Private Securities LitigationReform Act of 1995. Actual results could differ materially from thoseanticipated herein or in any such other filings, releases or statements becauseof a number of factors, including without limitation, those detailed in “Business—CertainFactors That May Affect Our Results of Operations” in Part I, Item 1of our Annual Report on Form 10-K for the year ended December 31,2004, those discussed elsewhere herein, and in other public filings and pressreleases. These forward-looking statements are not historical facts but insteadrepresent only our belief regarding future events, many of which, by theirnature, are inherently uncertain and beyond our control. Forward-looking statementsare typically identified by the use of future or conditional verbs such as “will,”“should,” “would” or “could,” and by words or phrases such as “believe,” “expect,”“intend,” “estimate” and similar expressions. By identifying these statementsfor you in this manner, we are alerting you to the possibility that our actualresults may differ, possibly materially, from the results indicated in theseforward-looking statements. We undertake no obligation to update or revise anyforward-looking statements except as otherwise required by applicable law.

**Item 3:        Quantitativeand Qualitative Disclosures About Market Risk**

**Risk Management and Value atRisk**

For a description of theCompany’s risk management policies and procedures and value-at-risk, or VAR,model, including such model’s assumptions and limitations, see “Quantitativeand Qualitative Disclosure About Market Risk” in Part II, Item 7A of theCompany’s Annual Report on Form 10-K for the year ended December 31,2004.

**Market Risk Exposure**

We measure market riskexposure by using complementary risk measurement techniques, including VAR andsensitivity analysis. VAR is used for our trading portfolio, which includesthose financial instruments treated as part of our “trading book” for Bank forInternational Settlements regulatory capital purposes. Sensitivity analysis isused for our non-trading portfolio, which primarily includes commercialmortgage loans, private equity investments, derivatives that hedge the Company’slong-term borrowings and certain commodity positions. This classification ofassets as trading and non-trading is done for purposes of analyzing our marketrisk exposure, not for financial statement purposes.

***TradingPortfolios***

The Company-wide trading portfolio VAR wasapproximately $32 million and $37 million as of June 30, 2005 and December 31,2004, respectively. Thereduction in VAR over the period was primarily due to a decrease in interestrate and credit spread VAR associated with mortgage products partially offsetby increases in equity and commodity VAR. The main cause of this decrease was areduction in the volatility of the market data associated with mortgageproducts in the rolling two-year underlying data that we use to calculate VAR,as data from 2003 was replaced by less volatile data from 2005.

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Due tothe benefit of diversification, the Company-wide VAR is less than the sum ofthe individual components. The four main components of market risk, expressedin terms of theoretical fair values, had the following VAR:
| ** **                            | ** ** | **Company’s Market Risk  Exposures in Trading Portfolios** | ** ** |
|---------------------------------------|------------|------------------------------------------------------------------------------------------|------------|
| ** **                            | ** ** | **As of June 30, 2005**                                              | ** ** | **As of December 31, 2004** | ** ** |
| 99%, one-day VAR,  in $ millions |       |                                                                                     |       |   |   |   |   |   |   |
| Interest rate and  credit spread      |       |                                                                                     | 20         |   |   |   | 34 |   |   |
| Equity                                |       |                                                                                     | 21         |   |   |   | 15 |   |   |
| Foreign exchange  rate                |       |                                                                                     | —     |   |   |   | 1 |   |   |
| Commodity                             |       |                                                                                     | 5          |   |   |   | — |   |   |
| Diversification  benefit              |       |                                                                                     | (14        | ) |   |   | (13 | ) |   |
| Total                                 |       |                                                                                     | 32         |   |   |   | 37 |   |   |

 

Thetable below presents minimum, maximum and average VAR by market risk component:
| ** **                           | ** ** | **Company’s Market Risk Exposures in Trading Portfolios** | ** ** |
|--------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| ** **                           | ** ** | **Three Months Ended  June 30, 2005**                                    | ** ** | **Three Months Ended  June 30, 2004** | ** ** |
| ** **                           | ** ** | **Minimum**                                                                                  | ** ** | **Maximum** | ** ** | **Average** | ** ** | **Minimum** | ** ** | **Maximum** | ** ** | **Average** | ** ** |
| 99%, one-day VAR, in $ millions |       |                                                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest rate and  credit spread     |       |                                                                                         | 20         |   |   |   | 41 |   |   |   | 33 |   |   |   | 39 |   |   |   | 55 |   |   |   | 46 |   |   |
| Equity                               |       |                                                                                         | 17         |   |   |   | 23 |   |   |   | 20 |   |   |   | 19 |   |   |   | 32 |   |   |   | 24 |   |   |
| Foreign exchange  rate               |       |                                                                                         | —     |   |   |   | 1 |   |   |   | — |   |   |   | — |   |   |   | 4 |   |   |   | — |   |   |
| Commodity                            |       |                                                                                         | 1          |   |   |   | 5 |   |   |   | 2 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Diversification  benefit             |       |                                                                                         | —     | (1) |   |   | — | (1) |   |   | (15 | ) |   |   | — | (1) |   |   | — | (1) |   |   | (16 | ) |   |
| Total                                |       |                                                                                         | 32         |   |   |   | 47 |   |   |   | 40 |   |   |   | 45 |   |   |   | 69 |   |   |   | 54 |   |   |

 
| ** **                           | ** ** | **Company’s Market Risk Exposures in Trading Portfolios** | ** ** |
|--------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| ** **                           | ** ** | **Six Months Ended  June 30, 2005**                                      | ** ** | **Six Months Ended  June 30, 2004** | ** ** |
| ** **                           | ** ** | **Minimum**                                                                                  | ** ** | **Maximum** | ** ** | **Average** | ** ** | **Minimum** | ** ** | **Maximum** | ** ** | **Average** | ** ** |
| 99%, one-day VAR, in $ millions |       |                                                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest rate and  credit spread     |       |                                                                                         | 20         |   |   |   | 52 |   |   |   | 37 |   |   |   | 32 |   |   |   | 55 |   |   |   | 43 |   |   |
| Equity                               |       |                                                                                         | 13         |   |   |   | 23 |   |   |   | 19 |   |   |   | 12 |   |   |   | 32 |   |   |   | 21 |   |   |
| Foreign exchange  rate               |       |                                                                                         | —     |   |   |   | 4 |   |   |   | 1 |   |   |   | — |   |   |   | 4 |   |   |   | — |   |   |
| Commodity                            |       |                                                                                         | —     |   |   |   | 5 |   |   |   | 1 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Diversification  benefit             |       |                                                                                         | —     | (1) |   |   | — | (1) |   |   | (16 | ) |   |   | — | (1) |   |   | — | (1) |   |   | (13 | ) |   |
| Total                                |       |                                                                                         | 32         |   |   |   | 55 |   |   |   | 42 |   |   |   | 34 |   |   |   | 69 |   |   |   | 51 |   |   |

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(1)          As the minimum andmaximum occur on different days for different risk types, it is not meaningfulto calculate a portfolio diversification benefit.

For detailsof the Company’s average, maximum and minimum VAR for 2004, see “Quantitativeand Qualitative Disclosure About Market Risk” in Part II, Item 7A of theCompany’s Annual Report on Form 10-K for the year ended December 31,2004.

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Theaverage, maximum and minimum daily trading revenue for the three and six monthsended June 30, 2005 and 2004 are shown below:
| ** **                                 | ** ** | **Three Months Ended  June 30, 2005** | ** ** | **Three Months Ended  June 30, 2004** | ** ** | **Six Months Ended  June 30, 2005** | ** ** | **Six Months Ended  June 30, 2004** | ** ** |
|--------------------------------------------|------------|-----------------------------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------|------------|---------------------------------------------------------|------------|
| Daily trading revenue,  in $ millions |       |                                                      |       |                                                      |       |                                                    |       |                                                    |       |   |   |   |   |   |   |   |   |
| Average                                    |       |                                                      | 11         |                                                      |       |                                                    | 14         |                                                    |       |   | 13 |   |   |   | 15 |   |   |
| Maximum                                    |       |                                                      | 48         |                                                      |       |                                                    | 63         |                                                    |       |   | 64 |   |   |   | 67 |   |   |
| Minimum                                    |       |                                                      | (15        | )                                                         |       |                                                    | (16        | )                                                       |       |   | (15 | ) |   |   | (17 | ) |   |

 

For details of the Company’s average, maximum and minimumdaily trading revenue for 2004, see “Quantitative and Qualitative Disclosure AboutMarket Risk” in Part II, Item 7A of the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2004.

***Non-tradingPortfolios***

The equity risk on non-trading positions, which isprimarily comprised of private equity investments, is measured usingsensitivity analysis that estimates the potential change in the recorded valueof the investments resulting from a 10% decline in the equity markets ofdeveloped nations and a 20% decline in the equity markets of emerging marketnations. The estimatedimpact of equity risk on our non-trading financial instruments portfolio wouldbe a decrease in the value of the non-trading portfolio of approximately $123million and a decrease of approximately $118 million as of June 30, 2005and December 31, 2004, respectively. The estimated impact of equity riskexcludes the minority interests in certain consolidated private equity funds.

The interest rate risk on non-trading positions, whichis primarily comprised of commercial mortgage loans and derivatives that hedgethe Company’s long-term borrowings, is measured using sensitivity analysis thatestimates the potential change in the value of the non-trading portfolioresulting from a 50 basis point decline in the interest rates of developednations and a 200 basis point decline in the interest rates of emerging marketnations. The estimated impact of interest rate risk on the value of thenon-trading portfolio would be a decrease of approximately $26 million and$12 million as of June 30, 2005 and December 31, 2004,respectively.

The foreign exchange risk on non-trading positions,which is primarily comprised of foreign currency positions in the Company’sdistressed debt portfolio, is measured using sensitivity analysis thatestimates the potential change in the value of the non-trading portfolioresulting from a 10% strengthening of the U.S. dollar against developedcurrencies and a 20% strengthening of the U.S. dollar against emerging marketcurrencies. The estimatedimpact of foreign exchange risk on the value of the non-tradingportfolio would be approximately zeroand a decrease of approximately$1 million as of June 30, 2005 and December 31, 2004, respectively.

The commodity price riskon non-trading positions, which is primarily comprised of an emission credit,is measured using sensitivity analysis that estimates the potential change inthe value of the non-trading portfolio resulting from a 20% weakening incommodity prices. The estimatedimpact of commodity price risk on the value of the non-trading portfoliowould be a decrease of $2 million as of June 30, 2005. As of December 31,2004, commodity price risk was immaterial in our non-trading portfolio.

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**Item 4:        Controlsand Procedures**

As of the end ofthe period covered by this report, an evaluation was carried out under thesupervision and with the participation of our management, including our ChiefExecutive Officer and Chief Financial and Accounting Officer, of theeffectiveness of the design and operation of our disclosure controls andprocedures. There are inherent limitations to the effectiveness of any systemof disclosure controls and procedures, including the possibility of human errorand the circumvention or overriding of the controls and procedures.Accordingly, even effective disclosure controls and procedures can only providereasonable assurance of achieving their control objectives. Based upon and asof the date of the evaluation, our Chief Executive Officer and Chief Financialand Accounting Officer concluded that the design and operation of thesedisclosure controls and procedures were effective in all material respects toprovide reasonable assurance that information required to be disclosed in thereports we file and submit under the Exchange Act is recorded, processed,summarized and reported as and when required. There were no changes in ourinternal control over financial reporting that occurred during the quarterended June 30, 2005 that materially affected, or are reasonably likely tomaterially affect, our internal control over financial reporting.

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**PART IIOTHER INFORMATION**

**Item 1:**                       LegalProceedings

Certain significant legalproceedings and matters have been previously disclosed in the Company’s AnnualReport on Form 10-K for the year ended December 31, 2004 andQuarterly Report on Form 10-Q for the quarterly period ended March 31,2005. The following is an update of such proceedings.

**LitigationRelating to IPO Allocation/Research-related Practices**

On June 30, 2005, the U.S. Court of Appeals forthe Second Circuit granted the underwriter defendants permission to appeal theclass certification order in *In re InitialPublic Offering Securities Litigation.*

In June 2005, the plaintiff in the action broughton behalf of a putative class of issuers in IPOs, for which Donaldson, Lufkin &Jenrette Securities Corporation, or DLJSC, acted as underwriter, moved forleave to file an amended complaint that would delete all class actionallegations and allege claims solely on behalf of the putative classrepresentative, Xpedior. That motion, and the Company’s summary judgment motionseeking to dismiss Xpedior’s remaining claims, are pending before the districtcourt.

The action relating to analyst research filed onbehalf of purchasers of Atmel Corporation has been voluntarily dismissed by theplaintiffs.

The plaintiff who previously filed, and thenvoluntarily dismissed, a Missouri state court action relating to analystresearch, and then filed a similar action in the U.S. District Court for theSouthern District of New York that was subsequently dismissed on CSFB LLC’smotion to dismiss, has now filed an amended complaint in the U.S. DistrictCourt for the Southern District of New York. CSFB LLC moved to dismiss theamended complaint on May 6, 2005.

On July 7, 2005, theWest Virginia Supreme Court of Appeals reversed the lower court’s denial ofCSFB LLC’s motion to dismiss the consumer fraud action brought by the WestVirginia Attorney General, and held that the West Virginia Attorney Generaldoes not have the authority to bring an action based upon conduct that is ancillaryto the general business of buying and selling securities.

**Enron-relatedlitigation and inquiries**

On April 11, 2005, the bank defendants in the *Newby* action, including CSFB LLC and itsaffiliates, filed a cross-claim against Arthur Andersen LLP, and cross-claimsor third-party claims against certain former Enron executives, for contributionin the event that the bank defendants are found liable on any of the plaintiffs’claims. Arthur Andersen has moved to dismiss the cross-claims asserted againstit by the banks, and that motion is pending. Arthur Andersen also filed acounterclaim against the bank defendants, including CSFB LLC and itsaffiliates, seeking contribution in the event it is found liable either to theplaintiffs or to any of the bank defendants. CSFB LLC and its affiliates andother banks have moved to dismiss the counterclaim.

In May 2005, CSFB LLC and its affiliates werenamed in a complaint filed by an Enron subsidiary, Enron International Korea,LLC, in the U.S. District Court for the Southern District of New York. Thecomplaint alleges that CSFB LLC and its affiliates violated federal antitrustlaws by interfering in the plaintiff’s attempt to sell its 50% interest in aKorean joint venture in late 2001 and early 2002. CSFB LLC and its affiliatesmoved to dismiss the complaint on July 25, 2005. That motion is pending.

On or about May 23, 2005, CSFB LLC and itsaffiliates and the other defendants entered into a settlement agreement withthe plaintiffs in all four of the following state court cases: (i) acomplaint by two investment funds that purchased certain Enron-relatedsecurities alleging insider trading and other 

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violations of Californialaw; (ii) a complaint by investment funds or fund owners that purchasedsenior secured notes issued by Osprey Trust and Osprey Trust I allegingviolations of California law and fraud, deceit and negligent misrepresentation;(iii) an action by AUSA Life Insurance Company, Inc. and eleven otherinsurance company plaintiffs alleging violations of state securities laws,common law fraud and civil conspiracy in connection with securities offeringsby certain Enron-related entities; and (iv) a complaint by purchasers ofEnron, Marlin, Osprey, and Montclare Trust securities alleging violations ofstate securities laws, fraud, deceit, and civil conspiracy. Pursuant to theterms of the settlement agreement, all four cases were dismissed with prejudicein June 2005.

On or about June 9, 2005, an affiliate of theCompany and the other investment bank defendants entered into an agreement withthe state retirement system for Alabama, or the RSA, to settle the actionbrought by the RSA in Alabama state court against an affiliate of the Company,certain other investment banks, Arthur Andersen and three former Enron officersfor alleged damages resulting from a decline in the share price of certainEnron securities purchased by the RSA. The court approved the settlement andentered an order on July 6, 2005, dismissing all claims against theCompany’s affiliate (and the other settling defendants) with prejudice.

On July 1, 2005, CSFBLLC and its affiliates moved to dismiss, as to certain allegations, Enron’sFourth Amended Complaint in the principal adversary proceeding in the U.S.Bankruptcy Court for the Southern District of New York. That motion is pending.

**AdelphiaCommunications Corporation Litigation**

On June 9, 2005, theU.S. District Court for the Southern District of New York court dismissed afederal securities fraud class action claim brought by Adelphia securityholdersagainst CSFB LLC and its affiliates on statute of limitations grounds withleave to replead. On July 18, 2005, the district court dismissedadditional non-class action federal securities claims brought by Adelphiasecurityholders against CSFB LLC and its affiliates on statute of limitationsgrounds, again with leave to replead.

**AmeriServeFood Distribution Inc. Litigation**

On May 24, 2005,following a formal mediation, the Company settled the matter filed by GSCRecovery, Inc. against DLJSC and others in the Superior Court of NewJersey, Law Division, Morris County.

**Parmalat-related Legal Proceedings**

Affiliates of the Company have been named asdefendants in a putative class action brought in the U.S. District Court forthe Southern District of New York alleging violations of federal securities lawin connection with a financing transaction involving certain Parmalat entities.Affiliates of the Company moved to dismiss the action, and in an opinion dated July 13,2005, the district court dismissed the claims brought against affiliates of theCompany by non-U.S. residents and allowed the claims by U.S. residents toproceed.

In accordance with SFAS No. 5, “Accounting forContingencies,” the Company recorded in the second quarter of 2005 a $750million litigation charge to increase the reserve for private litigationinvolving Enron, certain IPO allocation practices, research analystindependence and other related litigation. This charge, coupled with the chargerecorded in 2002, brings the Company’s reserves for these private litigationmatters to $1.1 billion after the application of settlements. It is inherentlydifficult to predict the outcome of many of these matters. In presenting theconsolidated financial statements, management makes estimates regarding theoutcome of these matters and records a reserve and takes a charge to incomewhen losses with respect to such matters are probable and can be reasonablyestimated. Estimates, by their nature, are based on judgment and currentlyavailable information and involve a variety 

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of factors, including, butnot limited to, the type and nature of the litigation, claim or proceeding, theprogress of the matter, the advice of legal counsel, the Company’s defenses andits experience in similar cases or proceedings as well as its assessment ofmatters, including settlements, involving other defendants in similar orrelated cases or proceedings. Further litigation charges or releases oflitigation reserves may be necessary in the future as developments in suchcases or proceedings warrant.

We are involved in anumber of judicial, regulatory and arbitration proceedings (including thosedescribed above) concerning matters arising in connection with the conduct ofour businesses. Some of these actions have been brought on behalf of variousclasses of claimants and seek damages of material and/or indeterminate amounts.We believe, based on currently available information and advice of counsel,that the results of such proceedings, in the aggregate, will not have amaterial adverse effect on our financial condition but might be material tooperating results for any particular period, depending, in part, upon theoperating results for such period. The Company intends to defend itselfvigorously in these matters, litigating or settling when determined bymanagement to be in the best interests of the Company.

***Items 2, 3 and 4:***

Pursuant to GeneralInstruction H of Form 10-Q, the information required by Items 2, 3 and 4is omitted.

**Item 6:       **Exhibits

(a)                        Exhibits
| 12   |   | Statement re computation of ratio of earnings to  fixed charges                   |
|------|--------|-----------------------------------------------------------------------------------|
| 15   |   | Letter re unaudited interim financial information                                 |
| 31.1 |   | Rule 13a-14(a) certification of Chief  Executive Officer                |
| 31.2 |   | Rule 13a-14(a) certification of Chief  Financial and Accounting Officer |
| 32   |   | Section 1350 certifications                                                  |

 

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**SIGNATURE**

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                |   | CREDIT SUISSE FIRST BOSTON (USA), INC. |
|---------------------|--------|---------------------------------------------|
| August 9, 2005 |   | By:                                         |   | /s/ DAVID C. FISHER |
|                |   |                                        |   | Chief Financial and Accounting Officer  (On behalf of the Registrant and as Principal Financial Officer) |

 

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**INDEX TO EXHIBITS**
| Exhibit Number | ** ** | **Description**                                                                   |
|---------------------|------------|-----------------------------------------------------------------------------------|
| 12                  |       | Computation of ratio of earnings to fixed charges                                 |
| 15                  |       | Letter re unaudited interim financial information                                 |
| 31.1                |       | Rule 13a-14(a) certification of Chief  Executive Officer                |
| 31.2                |       | Rule 13a-14(a) certification of Chief  Financial and Accounting Officer |
| 32                  |       | Section 1350 certifications                                                  |

 

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