**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**FORM10-Q**

**ý****QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

**For thequarterly period ended September 30, 2006**

**OR**

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

**For thetransition period from           to          **

**Commission File Number: 1-6862**

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

(Exact name of registrant asspecified in its charter)

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

 

**(212) 325-2000**

(Registrant’s telephone number,including area code)

**TheRegistrant meets the conditions set forth in GeneralInstruction H (1) (a) and (b) of Form 10-Q and istherefore filing this Form 10-Q with the reduced disclosure format.**

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days: Yes ý  No o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer.  Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2 ofthe Exchange Act.  (Check one):Large accelerated filer o  Accelerated filer o  Non-accelerated filer ý

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

Yes o  No ý

Because theregistrant is an indirect wholly owned subsidiary of Credit Suisse Group, noneof the registrant’s outstanding voting stock is held by nonaffiliates of theregistrant.  As of the date hereof,1,100.103543 shares of the registrant’s Common Stock, $.10 par value, wereissued and outstanding and held by Credit Suisse Holdings (USA), Inc.

 

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

**QuarterlyReport on Form 10-Q for the Quarter Ended September 30, 2006**
| **PART I**  | **FINANCIAL INFORMATION**                                                                                                                     |   |                                                                |
|-------------|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------|
|        | ITEM  1: Financial Statements                                                                                                            |   |                                                                |
|        | Condensed Consolidated  Statements of Financial Condition (Unaudited) as of September 30, 2006 and  December 31, 2005                         |   | 2                                                                   |
|        |                                                                                                                                          |   |                                                                |
|        | Condensed Consolidated  Statements of Income (Unaudited) for the three and nine months ended  September 30, 2006 and 2005                     |   | 4                                                                   |
|        |                                                                                                                                          |   |                                                                |
|        | Condensed Consolidated Statements  of Changes in Stockholder’s Equity (Unaudited) for the nine months ended  September 30, 2006 and 2005 |   | 5                                                                   |
|        | Condensed Consolidated  Statements of Cash Flows (Unaudited) for the nine months ended September 30,  2006 and 2005                           |   | 6                                                                   |
|        |                                                                                                                                          |   |                                                                |
|        | Notes to Condensed  Consolidated Financial Statements (Unaudited)                                                                             |   |                                                                |
|        | 1.                                                                                                                                            |   | Summary  of Significant Accounting Policies                         |   | 7 |
|        | 2.                                                                                                                                            |   | Related  Party Transactions                                         |   | 12 |
|        | 3.                                                                                                                                            |   | Transfers  and Servicing of Financial Assets                        |   | 14 |
|        | 4.                                                                                                                                            |   | Private  Equity and Other Long-Term Investments                     |   | 18 |
|        | 5.                                                                                                                                            |   | Derivatives  Contracts                                              |   | 18 |
|        | 6.                                                                                                                                            |   | Borrowings                                                          |   | 19 |
|        | 7.                                                                                                                                            |   | Leases and  Commitments                                             |   | 21 |
|        | 8.                                                                                                                                            |   | Guarantees                                                          |   | 22 |
|        | 9.                                                                                                                                            |   | Net  Capital Requirements                                           |   | 23 |
|        | 10.                                                                                                                                           |   | Cash  and Securities Segregated Under Federal and Other Regulations |   | 23 |
|        | 11.                                                                                                                                           |   | Employee  Benefit Plans                                             |   | 23 |
|        | 12.                                                                                                                                           |   | Legal  Proceedings                                                  |   | 24 |
|        | 13.                                                                                                                                           |   | 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                                                                      |   | 60                                                                  |
|        | ITEM  4: Controls and Procedures                                                                                                         |   | 62                                                                  |
|        |                                                                                                                                          |   |                                                                |
| **PART II** | **OTHER INFORMATION**                                                                                                                         |   |                                                                |
|        | ITEM  1: Legal Proceedings                                                                                                               |   | 63                                                                  |
|        | ITEM 1A: Risk Factors                                                                                                                         |   | 64                                                                  |
|        | ITEM  6: Exhibits                                                                                                                        |   | 64                                                                  |
|        | Signature                                                                                                                                     |   | 65                                                                  |

 

**AVAILABLEINFORMATION**

We file annual,quarterly and current reports and other information with the Securities andExchange Commission, or SEC. Our SEC filings are available to the public overthe 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/about_csfb/company_information/sec/index.shtml*as soon as is reasonably practicable after the report is electronically filedwith, or furnished to, the SEC.  Theinformation on our website is not incorporated by reference into this QuarterlyReport.

 

1

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# **PART I**

**FINANCIALINFORMATION**

***Item 1: FinancialStatements***

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

**Condensed Consolidated Statements of Financial Condition**

**(Unaudited)**

**(Inmillions)**
| ** **                                                                                                       | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                       | ** ** | **2006**               | ** ** | **2005**              | ** ** |
| **ASSETS**                                                                                                       | ** ** | ** **             | ** ** | ** **            | ** ** |
| Cash and cash  equivalents                                                                                       |       | $                      | 1,739      |                  | $          | 884 |   |
| Collateralized short-term  financings:                                                                           |       |                   |       |                  |       |
| Securities  purchased under agreements to resell                                                                 |       | 59,133                 |       | 54,454                |       |
| Securities  borrowed                                                                                             |       | 91,814                 |       | 82,802                |       |
| Receivables:                                                                                                     |       |                   |       |                  |       |
| Customers                                                                                                        |       | 4,220                  |       | 3,299                 |       |
| Brokers, dealers  and other                                                                                      |       | 10,871                 |       | 8,128                 |       |
| Financial instruments  owned (includes securities pledged as collateral of $102,074 and $73,043,  respectively): |       |                   |       |                  |       |
| U.S. government  and agencies                                                                                    |       | 35,572                 |       | 31,366                |       |
| Corporate debt                                                                                                   |       | 23,216                 |       | 20,561                |       |
| Mortgage whole  loans                                                                                            |       | 19,833                 |       | 17,817                |       |
| Equities                                                                                                         |       | 49,347                 |       | 35,244                |       |
| Commercial paper                                                                                                 |       | 2,621                  |       | 1,523                 |       |
| Private equity  and other long-term investments                                                                  |       | 10,946                 |       | 3,641                 |       |
| Derivatives  contracts                                                                                           |       | 7,839                  |       | 5,085                 |       |
| Other                                                                                                            |       | 7,111                  |       | 3,929                 |       |
| Net deferred tax asset                                                                                           |       | 1,253                  |       | 1,202                 |       |
| Office facilities at  cost (net of accumulated depreciation and amortization of $969 and $852,  respectively)    |       | 549                    |       | 453                   |       |
| Goodwill                                                                                                         |       | 593                    |       | 562                   |       |
| Loans receivable from  parent and affiliates                                                                     |       | 28,393                 |       | 25,225                |       |
| Other assets and  deferred amounts (includes encumbered loans of $995 as of September 30, 2006)                  |       | 7,849                  |       | 1,579                 |       |
| Total assets                                                                                                     |       | $                      | 362,899    |                  | $          | 297,754 |   |

 

See accompanyingnotes to condensed consolidated financial statements (unaudited).

2

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

**CondensedConsolidated Statements of Financial Condition (Continued)(Unaudited)**

**(In millions, except share data)**
| ** **                                                                                     | ** ** | **September 30,  2006** | ** ** | **December 31,   2005** | ** ** |
|------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------------|------------|
| **LIABILITIES AND STOCKHOLDER’S EQUITY**                                   |       |                         |       |                              |       |
| Commercial paper and  short-term borrowings                                                    |       | $                            | 22,357     |                              | $          | 13,654 |   |
| Collateralized  short-term financings:                                                         |       |                         |       |                              |       |
| Securities sold  under agreements to repurchase                                                |       | 136,731                      |       | 126,323                           |       |
| Securities  loaned                                                                             |       | 54,667                       |       | 45,956                            |       |
| Payables:                                                                                      |       |                         |       |                              |       |
| Customers                                                                                      |       | 9,664                        |       | 6,728                             |       |
| Brokers, dealers  and other                                                                    |       | 9,206                        |       | 6,573                             |       |
| Financial instruments  sold not yet purchased:                                                 |       |                         |       |                              |       |
| U.S. government  and agencies                                                                  |       | 23,658                       |       | 20,078                            |       |
| Corporate debt                                                                                 |       | 4,364                        |       | 3,696                             |       |
| Equities                                                                                       |       | 7,617                        |       | 12,402                            |       |
| Derivatives  contracts                                                                         |       | 5,829                        |       | 2,262                             |       |
| Other                                                                                          |       | 1,487                        |       | 155                               |       |
| Obligation to return  securities received as collateral                                        |       | 9,812                        |       | 3,077                             |       |
| Accounts payable and  accrued expenses                                                         |       | 3,321                        |       | 3,152                             |       |
| Other liabilities                                                                              |       | 20,240                       |       | 7,761                             |       |
| Long-term borrowings                                                                           |       | 40,398                       |       | 33,926                            |       |
| Total  liabilities                                                                             |       | 349,351                      |       | 285,743                           |       |
|                                                                                           |       |                         |       |                              |       |
| Stockholder’s Equity:                                                                     |       |                         |       |                              |       |
| Common stock ($0.10 par  value; 50,000 shares authorized; 1,100 shares issued and outstanding) |       | —                       |       | —                            |       |
| Paid-in capital                                                                                |       | 10,089                       |       | 9,530                             |       |
| Retained earnings                                                                              |       | 3,641                        |       | 2,661                             |       |
| Accumulated other  comprehensive loss                                                          |       | (182                         | )          | (180                              | )          |
| Total  stockholder’s equity                                                               |       | 13,548                       |       | 12,011                            |       |
| Total liabilities and  stockholder’s equity                                               |       | $                            | 362,899    |                              | $          | 297,754 |   |

 

See accompanying notes to condensedconsolidated financial statements (unaudited).

3

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

**Condensed Consolidated Statements of Income**

**(Unaudited)**

**(In millions)**

 
| ** **                                                                                                               | ** ** | **For the Three Months Ended   September 30,** | ** ** | **For the Nine Months Ended   September 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|
| ** **                                                                                                               | ** ** | **2006**                                                                     | ** ** | **2005**                                                                    | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                                                               | ** ** | ** **                                                                   | ** ** | ** **                                                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues:                                                                                                                |       |                                                                         |       |                                                                        |       |   |   |   |   |
| Principal  transactions-net                                                                                              |       | $                                                                            | 887        |                                                                        | $          | 818 |   | $ | 3,596 |   | $ | 1,379 |   |
| Investment  banking and advisory                                                                                         |       | 583                                                                          |       | 503                                                                         |       | 1,921 |   | 1,231 |   |
| Commissions and  fees                                                                                                    |       | 373                                                                          |       | 322                                                                         |       | 1,123 |   | 982 |   |
| Other                                                                                                                    |       | 44                                                                           |       | 19                                                                          |       | 95 |   | 44 |   |
|                                                                                                                     |       | 1,887                                                                        |       | 1,662                                                                       |       | 6,735 |   | 3,636 |   |
|                                                                                                                     |       |                                                                         |       |                                                                        |       |   |   |   |   |
| Interest and  dividends                                                                                                  |       | 4,802                                                                        |       | 3,374                                                                       |       | 13,552 |   | 9,082 |   |
| Interest expense                                                                                                         |       | 4,584                                                                        |       | 2,956                                                                       |       | 12,792 |   | 7,578 |   |
| Net interest and  dividends                                                                                              |       | 218                                                                          |       | 418                                                                         |       | 760 |   | 1,504 |   |
| Total net  revenues                                                                                                      |       | 2,105                                                                        |       | 2,080                                                                       |       | 7,495 |   | 5,140 |   |
| Expenses:                                                                                                                |       |                                                                         |       |                                                                        |       |   |   |   |   |
| Employee  compensation and benefits                                                                                      |       | 969                                                                          |       | 959                                                                         |       | 3,198 |   | 2,644 |   |
| Occupancy and  equipment rental                                                                                          |       | 146                                                                          |       | 125                                                                         |       | 403 |   | 369 |   |
| Brokerage,  clearing and exchange fees                                                                                   |       | 105                                                                          |       | 88                                                                          |       | 287 |   | 251 |   |
| Communications                                                                                                           |       | 40                                                                           |       | 37                                                                          |       | 118 |   | 110 |   |
| Professional  fees                                                                                                       |       | 85                                                                           |       | 85                                                                          |       | 262 |   | 225 |   |
| Other operating  expenses                                                                                                |       | 57                                                                           |       | (8                                                                          | )          | (237 | ) | 736 |   |
| Total expenses                                                                                                           |       | 1,402                                                                        |       | 1,286                                                                       |       | 4,031 |   | 4,335 |   |
| Income before provision  for income taxes, minority interests and cumulative effect of a change in  accounting principle |       | 703                                                                          |       | 794                                                                         |       | 3,464 |   | 805 |   |
| Provision for income  taxes                                                                                              |       | 111                                                                          |       | 196                                                                         |       | 495 |   | 18 |   |
| Minority interests                                                                                                       |       | 413                                                                          |       | 212                                                                         |       | 1,989 |   | 670 |   |
| Income before  cumulative effect of a change in accounting principle                                                     |       | 179                                                                          |       | 386                                                                         |       | 980 |   | 117 |   |
| Cumulative effect of a  change in accounting principle, net of income tax expense of $3 in 2005                          |       | —                                                                       |       | —                                                                      |       | — |   | 6 |   |
| Net income                                                                                                               |       | $                                                                            | 179        |                                                                        | $          | 386 |   | $ | 980 |   | $ | 123 |   |

 

See accompanying notes to condensedconsolidated financial statements (unaudited).

4

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

**Condensed Consolidated Statements of Changes in Stockholder’sEquity**

**For the Nine Months Ended September 30, 2006 and 2005**

**(Unaudited)**

**(In millions)**

 
| ** **                                                  | ** ** | ** ** | ** ** | ** **  | ** ** | ** **   | ** ** | **Accumulated**   | ** ** | ** ** | ** ** |
|-------------------------------------------------------------|------------|------------|------------|-------------|------------|--------------|------------|-------------------|------------|------------|------------|
| ** **                                                  | ** ** | ** ** | ** ** | ** **  | ** ** | ** **   | ** ** | **Other**         | ** ** | ** ** | ** ** |
| ** **                                                  | ** ** | **Common** | ** ** | **Paid-in** | ** ** | **Retained** | ** ** | **Comprehensive** | ** ** | ** ** | ** ** |
| ** **                                                  | ** ** | **Stock**  | ** ** | **Capital** | ** ** | **Earnings** | ** ** | **Loss**          | ** ** | **Total**  | ** ** |
| Balances as of December  31, 2004                           |       | $          | —     |        | $          | 8,538        |       | $                 | 2,534      |       | $          | (8 | ) | $ | 11,064 |   |
| Net income                                                  |       | —     |       | —      |       | 123          |       | —            |       | 123        |       |
| Total comprehensive  income                                 |       |       |       |        |       |         |       |              |       | 123        |       |
| CSG share plan  activity, including tax benefit of $101     |       | —     |       | 429         |       | —       |       | —            |       | 429        |       |
| Balances as of  September 30, 2005                          |       | $          | —     |        | $          | 8,967        |       | $                 | 2,657      |       | $          | (8 | ) | $ | 11,616 |   |
|                                                        |       |       |       |        |       |         |       |              |       |       |       |
| Balances as of December  31, 2005                           |       | $          | —     |        | $          | 9,530        |       | $                 | 2,661      |       | $          | (180 | ) | $ | 12,011 |   |
| Net income                                                  |       | —     |       | —      |       | 980          |       | —            |       | 980        |       |
| Net change in cash flow  hedge, including tax benefit of $1 |       | —     |       | —      |       | —       |       | (2                | )          | (2         | )          |
| Total  comprehensive income                                 |       |       |       |        |       |         |       |              |       | 978        |       |
| CSG share plan  activity, including tax benefit of $168     |       | —     |       | 559         |       | —       |       | —            |       | 559        |       |
| Balances as of September 30, 2006                           |       | $          | —     |        | $          | 10,089       |       | $                 | 3,641      |       | $          | (182 | ) | $ | 13,548 |   |

 

See accompanying notes to condensedconsolidated financial statements (unaudited).

5

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

**Condensed ConsolidatedStatements of Cash Flows**

**For the Nine Months EndedSeptember 30, 2006 and 2005**

**(Unaudited)**

**(Inmillions)**
| ** **                                                                                               | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Cash flows from  operating activities:                                                                   |       |     |       |     |       |
| Net income                                                                                               |       | $        | 980        |     | $          | 123 |   |
| Adjustments to  reconcile net income to net cash used in operating activities:                           |       |     |       |     |       |
| Depreciation and  amortization                                                                           |       | 166      |       | 130      |       |
| Non-cash CSG  share plan activity                                                                        |       | 461      |       | 386      |       |
| Other                                                                                                    |       | (2       | )          | —   |       |
| Tax benefit on  CSG share plan activity                                                                  |       | 168      |       | 101      |       |
| Deferred taxes                                                                                           |       | (59      | )          | 158      |       |
| Change in  operating assets and operating liabilities:                                                   |       |     |       |     |       |
| Securities  borrowed                                                                                     |       | (9,012   | )          | (12,910  | )          |
| Receivables from  customers                                                                              |       | (921     | )          | 414      |       |
| Receivables from  brokers, dealers and other                                                             |       | (2,743   | )          | (1,272   | )          |
| Financial  instruments owned                                                                             |       | (27,620  | )          | (18,782  | )          |
| Other assets and  deferred amounts and Other liabilities, net                                            |       | (3,525   | )          | (1,533   | )          |
| Securities  loaned                                                                                       |       | 8,711    |       | 4,587    |       |
| Payables to  customers                                                                                   |       | 2,936    |       | 2,606    |       |
| Payables to  brokers, dealers and other                                                                  |       | 2,633    |       | (3,104   | )          |
| Financial  instruments sold not yet purchased                                                            |       | 4,362    |       | 17,768   |       |
| Obligation to  return securities received as collateral                                                  |       | 6,735    |       | 15       |       |
| Accounts payable  and accrued expenses                                                                   |       | 182      |       | (563     | )          |
| Net cash used in  operating activities                                                                   |       | (16,548  | )          | (11,876  | )          |
|                                                                                                     |       |     |       |     |       |
| Cash flows from  investing activities:                                                                   |       |     |       |     |       |
| Net payments  for:                                                                                       |       |     |       |     |       |
| Loans receivable  from parent and affiliates                                                             |       | (3,168   | )          | (987     | )          |
| Office facilities,  net                                                                                  |       | (292     | )          | (130     | )          |
| Purchase of  Guilford Holding Corporation, net of cash                                                   |       | (17      | )          | —   |       |
| Net cash used in  investing activities                                                                   |       | (3,477   | )          | (1,117   | )          |
|                                                                                                     |       |     |       |     |       |
| Cash flows from  financing activities:                                                                   |       |     |       |     |       |
| Net proceeds  from (payments for):                                                                       |       |     |       |     |       |
| Commercial paper  and short-term borrowings                                                              |       | 8,703    |       | (4,013   | )          |
| Securities sold  under agreements to repurchase, net of securities purchased under agreements  to resell |       | 5,729    |       | 13,358   |       |
| Issuances of  long-term borrowings                                                                       |       | 10,235   |       | 6,274    |       |
| Redemptions and  maturities of long-term borrowings                                                      |       | (3,717   | )          | (2,672   | )          |
| Dividend  equivalents on CSG share plan activity                                                         |       | (70      | )          | (58      | )          |
| Net cash provided by  financing activities                                                               |       | 20,880   |       | 12,889   |       |
|                                                                                                     |       |     |       |     |       |
| Increase (decrease) in  cash and cash equivalents                                                        |       | 855      |       | (104     | )          |
| Cash and cash  equivalents as of the beginning of period                                                 |       | 884      |       | 727      |       |
| Cash and cash  equivalents as of the end of period                                                       |       | $        | 1,739      |     | $          | 623 |   |
|                                                                                                     |       |     |       |     |       |
| SUPPLEMENTAL  DISCLOSURES                                                                                |       |     |       |     |       |
| Cash payments for  interest                                                                              |       | $        | 12,586     |     | $          | 7,371 |   |
| Cash payments for income taxes, net of refunds                                                           |       | $        | 27         |     | $          | 26 |   |

 

See accompanying notes tocondensed consolidated financial statements (unaudited).

6

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# **CREDIT SUISSE (USA), INC.AND SUBSIDIARIES**

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited)**

**September 30, 2006**

**1. Summary of Significant Accounting Policies**

**TheCompany**

The condensed consolidatedfinancial statements include Credit Suisse (USA), Inc. and itssubsidiaries (the “Company”). The Company is an integrated investment bankserving institutional, corporate, government and high-net-worth individualclients. The Company’s products and services include securities underwriting,sales and trading, financial advisory services, private equity investments,full service brokerage services, derivatives and risk management products,asset management and investment research. The Company is a wholly ownedsubsidiary of Credit Suisse Holdings (USA), Inc. (“CS Holdings”). The Companyis an indirect wholly owned subsidiary of Credit Suisse, a Swiss bank, andCredit Suisse Group (“CSG”). Effective January 16, 2006, the Company changedits name from Credit Suisse First Boston (USA), Inc. to Credit Suisse (USA),Inc. 

**Basis of Presentation**

All significant intercompany balances andtransactions have been eliminated. 

Certain financial information that is normally included in annualfinancial statements prepared in accordance with accounting principles generallyaccepted in the United States but not required for interim reporting purposeshas been condensed or omitted. These condensed consolidated financialstatements reflect, in the opinion of management, all adjustments (consistingof normal, recurring accruals) that are necessary for a fair presentation ofthe condensed consolidated statements of financial condition and income for theinterim periods presented.

The results of operations for interim periods are not necessarilyindicative of results for the entire year. These condensed consolidatedfinancial statements should be read in conjunction with the consolidatedfinancial statements and notes thereto included in the Company’s Annual Reporton Form 10-K for the year ended December 31, 2005.

To prepare condensed consolidated financialstatements in accordance with accounting principles generally accepted in theUnited States, 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 description of the Company’s significantaccounting policies, see Note 1 of the consolidated financial statementsin Part II, Item 8 in the Company’s Annual Report on Form 10-K for the yearended December 31, 2005.

Effective January 1, 2006, CSG realigned its organizational structureto its new strategic orientation, which is to focus on its bankingbusinesses.  As a result of thisrealignment, CSG’s banking business consists of three reporting segments:  Investment Banking, Private Banking and AssetManagement.  The Company is managed as asubsidiary of Credit Suisse and CSG, and its businesses are a part of each ofthese banking segments.  Therefore,effective January 1, 2006, the Company began operating and managing itsbusinesses along these same three banking segments.

The Company’s InvestmentBanking segment consists principally of the businesses that comprised itsformer Institutional Securities segment, with the addition of the private fundsgroup that was formerly part of its Wealth & Asset Management segment.  The Company’s Asset Management segmentconsists of the private equity business and the Volaris business that wereformerly part of its Wealth & Asset Management segment. The Company’sPrivate Banking segment consists of the private client services business in theUnited States (other than Volaris) that was formerly part of the Company’sWealth & Asset Management segment.

The Company manages andreports its segments on a pre-tax basis and excludes revenues and expensesprimarily from the consolidation of certain private equity funds, which arereported in Elimination & Other.  Netincome is unaffected by the consolidation of these private equity funds becauseoffsetting minority interests are also recorded.  

7

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# **CREDIT SUISSE (USA), INC.AND SUBSIDIARIES**

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited) (Continued)**

**September 30, 2006**

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

Certainreclassifications have been made to prior year condensed consolidated financialstatements in this Quarterly Report to reflect the operational and managementstructure in place during 2006.  Netincome for the three months ended September 30, 2006 has been reduced by anafter-tax charge of $19 million to correct an immaterial error in theallocation of compensation expense between related parties.  

# **RECENTLY ADOPTED ACCOUNTINGSTANDARDS**

# **Consolidation**

In June 2005, theFinancial Accounting Standards Board (“FASB”) ratified Emerging Issues Task Force(“EITF”) Issue No. 04-5, “Determining Whether a General Partner, or theGeneral Partners as a Group, Controls a Limited Partnership or Similar EntityWhen the Limited Partners Have Certain Rights” (“EITF 04-5”). EITF 04-5provides a framework for evaluating whether a general partner or a group ofgeneral partners controls a limited partnership and therefore shouldconsolidate it. EITF 04-5 states that the presumption of general partnercontrol is overcome only when the limited partners have substantive “kick-outrights” or “participating rights.” These rights would allow a simple majorityof the limited partners to dissolve or liquidate the partnership or otherwiseremove the general partner “without cause” or effectively participate insignificant decisions made in the ordinary course of the partnership business.EITF 04-5 was effective upon ratification for all newly formed limitedpartnerships and for existing limited partnership agreements that have beenmodified. The guidance was effective for the Company with respect to existingunmodified partnerships as of January 1, 2006. 

As a result of theratification of EITF 04-5, EITF Issue No. 96-16, “Investor’s Accounting for anInvestee When the Investor Has a Majority of the Voting Interest but the MinorityShareholder or Shareholders Have Certain Approval or Veto Rights” (“EITF 96-16”)was updated and FASB Staff Position (“FSP”) No. SOP 78-9-1, “Interaction ofAICPA Statement of Position 78-9 and EITF Issue No. 04-5” (“FSP SOP 78-9-1”)was issued. The amendments to EITF 96-16 were effective on a prospective basisupon issuance, whereas, similar to EITF 04-5, FSP SOP 78-9-1 was effective uponissuance for all new partnerships formed and for existing partnershipagreements modified after June 29, 2005, and was effective for the Company withrespect to existing unmodified partnerships as of January 1, 2006. 

The changes toEITF 96-16 and the provisions of EITF 04-5 and FSP SOP 78-9-1 in effect during2005 did not have a material impact on the Company’s financial condition,results of operations or cash flows.  Asof January 1, 2006, the Company increased its assets and liabilities by $6.7billion due to the consolidation of certain unmodified private equitypartnerships that existed prior to June 29, 2005.

## **Share-basedCompensation**

In December 2004,the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 123(Revised 2004), “Share-Based Payment” (“SFAS 123R”). SFAS 123R was effectivefor annual reporting periods beginning after June 15, 2005. The Company earlyadopted SFAS 123R as of January 1, 2005, applying the modified prospectivemethod. The Company’s policy is to expense share-based awards over therequisite service period.

The mostsignificant accounting implications of the adoption of SFAS 123R for theCompany were as follows: (i) inclusion of forfeitures in the estimate ofcompensation expense determined at the grant date rather than as they occur.The Company recorded a cumulative adjustment of approximately $6 million,net of tax, during the first quarter of 2005 to reverse the expense previouslyrecognized on all outstanding unvested awards expected to be forfeited. For newgrants after January 1, 2005, forfeitures have been included in the initialestimation of the compensation expense at the grant date; (ii) recognition ofcompensation cost for all outstanding unvested awards as of January 1, 2005,that were previously accounted for under Accounting Principles Board (“APB”)Opinion No. 25 and for which no expense was previously recognized, based on theoriginal grant-date fair value of each award over the remaining requisiteservice 

8

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# **CREDIT SUISSE (USA), INC.AND SUBSIDIARIES**

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited) (Continued)**

**September 30, 2006**

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

period of the respectiveaward (the recognition of this expense was not material); and (iii) adoption ofchanges to the presentation of the statement of cash flows in accordance withthe revised standard.

In a December 2005speech, the Securities and Exchange Commission (“SEC”) staff provided furtherguidance on SFAS 123R, relating to accounting for share-based compensationawards subject to a non-competition provision that have scheduled vestingbeyond an employee’s eligibility for early retirement. The SEC staff noted thatsuch share-based awards should generally be expensed over the period from thegrant date to the date an employee becomes eligible for early retirement,rather than over the entire vesting, or stated service, period, unless thenon-competition provision and other factors establish an in-substance requisiteservice period that extends beyond the early retirement date. As a result ofthe December 2005 guidance, and based on subsequent discussions with the SECstaff, the Company recorded in the fourth quarter of 2005 an incrementalexpense to reflect the full-year cost of its 2005 share-based awards. Thisincremental expense reflected the attribution of the total cost of these awardsover the period from the grant date to the date the employee becomes eligiblefor early retirement rather than over the vesting period that ranged from threeto five years.

The impact of theCompany’s change in accounting was to increase fourth quarter and full year2005 compensation and benefits by $296 million ($12 million of which wascharged to CSG affiliates outside of the Company and reflected as a reductionin other operating expenses), and to decrease fourth quarter and full year 2005net income by $185 million. This non-cash charge, recorded in Elimination &Other for segment reporting purposes, represents the recognition ofcompensation expense for share-based awards granted in 2005 that otherwisewould have been recorded in the Company’s segments, principally InvestmentBanking, generally over vesting periods of three to five years.

The share-basedawards granted in March 2006 provide for early retirement eligibility noearlier than two years after the award grant date. These awards will berecorded as compensation expense in the Company’s operating segments over theperiod from the grant date of March 2006 to the date an employee becomeseligible for early retirement if earlier than the three to five year vestingperiod.

**AccountingChanges**

In May 2005, the FASB issuedSFAS No. 154, “Accounting Changes and Error Corrections, a replacement of APBOpinion No. 20, and FASB Statement No. 3” (“SFAS 154”). SFAS 154 requiresretrospective application, unless impracticable, to prior periods’ 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. The statementalso requires that a change in depreciation, amortization or depletion methodfor long-lived, non-financial assets should be accounted for as a change inaccounting estimate effected by a change in accounting principle (*i.e.*, as a retrospective application). The guidance forreporting the correction of an error in previously issued financial statementsand the change of an accounting estimate does not change from APB 20. SFAS 154was effective for the Company as of January 1, 2006. The adoption of SFAS 154did not have a material impact on the Company’s financial condition, results ofoperations or cash flows.

**HybridFinancial Instruments**

In February 2006,the FASB issued SFAS No. 155, “Accounting for Certain Hybrid FinancialInstruments” (“SFAS 155”), which amends SFASNo. 133, “Accounting for Derivative Instruments and Hedging Activities” asamended (“SFAS 133”) and SFAS No. 140, “Accounting for Transfersand Servicing of Financial Assets and Extinguishments of Liabilities” (“SFAS140”). Under SFAS 155, hybrid financial instruments that contain embedded derivativesthat would otherwise require bifurcation may be accounted for at fair value,with changes in fair value recognized in the income statement. The fair valuedesignation may be applied on an instrument-by-instrument basis; however, theelection to apply fair value accounting is irrevocable. SFAS 155 is effectivefor those instruments acquired or issued on or after an entity’s fiscal yearbeginning after September 15, 2006, but early adoption is permitted as of thebeginning of a fiscal 

9

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# **CREDIT SUISSE (USA), INC.AND SUBSIDIARIES**

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited) (Continued)**

**September 30, 2006**

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

year for which an entityhas not previously issued interim financial statements. SFAS 155 allows limitedretrospective application for existing bifurcated hybrid financial instruments.The Company elected to early adopt SFAS 155 as of January 1, 2006. The adoptionof SFAS 155 did not have a material impact on the Company’s financialcondition, results of operations or cash flows.

**Servicing**

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicingof Financial Assets – an Amendment of FASB Statement No. 140” (“SFAS 156”),which amended SFAS 140. SFAS 156 requires that all separately recognizedservicing rights after the effective date be initially measured at fair value,and permits separately recognized servicing rights to be accounted for at fairvalue in subsequent periods, with changes in fair value recognized in theincome statement. SFAS 156 permits an irrevocable election to apply fair valueaccounting for classes of servicing rights based on the different valuation andrisk characteristics of the underlying assets and the way the economic risksare managed. SFAS 156 is effective on a prospective basis for fiscal yearsbeginning after September 15, 2006; however, early adoption is permitted as ofthe beginning of a fiscal year for which an entity has not previously issuedinterim financial statements. SFAS 156 allows limited retrospective applicationfor existing separately recognized servicing rights. The Company elected toearly adopt SFAS 156 as of January 1, 2006. The adoption of SFAS 156 did nothave an impact on the Company’s financial condition, results of operations orcash flows.  

## **Insurance**

In March 2006, theFASB issued FASB Staff Position (“FSP”) No. FTB 85-4-1, “Accounting for LifeSettlement Contracts by Third Party Investors” (“FSP FTB 85-4-1”).  FSP FTB 85-4-1 provides acontract-by-contract election to account for life settlement contracts oneither a fair value basis, with changes in fair value recognized in the incomestatement, or through use of the investment method.  Under the investment method, the initialinvestment and continuing costs are capitalized; however, no income isrecognized until death of the insured party. The guidance of FSP FTB 85-4-1 is effective for fiscal years beginningafter June 15, 2006 and permits early adoption; however, upon adoption, limitedretrospective application of the measurement guidance is required.  The Company elected to early adopt FSP FTB85-4-1 as of January 1, 2006.  Theadoption of FSP FTB 85-4-1 did not have an impact on the Company’s financialcondition, results of operations or cash flows. 

## **FSPFIN 46(R)-6**

In April 2006, theFASB issued FSP No. FIN 46(R)-6, “Determining the Variability to Be Consideredin Applying FASB Interpretation No. 46(R)” (“FSP FIN 46(R)-6”).  FSP FIN 46(R)-6 provides guidance regardinghow contracts or arrangements that create or reduce variability should beassessed when determining if they are variable interest entities (“VIEs”).  FSP FIN 46(R)-6 requires that evaluations ofthe variability created or absorbed in an entity from its contracts orarrangements be based on an analysis of the entity’s design.  In evaluating the design of an entity, ananalysis must be performed as to the potential risks to which the entity isexposed as well as the risks that the entity was designed to create and passalong to its interest holders based on the purpose for which the entity wasformed. The guidance of FSP FIN 46(R)-6 was adopted by the Company and appliedeffective July 1, 2006 to all new entities as well as entities previouslyanalyzed under FASB Interpretation (“FIN”) No. 46(R), “Consolidation ofVariable Interest Entities”, (“FIN 46(R)”) when a reconsideration eventoccurs.  Given the prospective nature ofthe guidance, FSP FIN 46(R)-6 did not have a material impact on the Company’sfinancial condition, results of operations and cash flows as of the date ofadoption, however the future impact of FSP FIN 46(R)-6 will depend on thedesign of the particular VIEs with which the Company is and may become involvedas well as the nature and extent of the Company’s involvement, and thereforethe impact from this guidance in future periods cannot be reasonably estimated.

10

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# **CREDIT SUISSE (USA), INC.AND SUBSIDIARIES**

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited) (Continued)**

**September 30, 2006**

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

# **STANDARDS TO BE ADOPTED IN FUTURE PERIODS**

**FIN48**

In July2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertaintyin Income Taxes – An Interpretation of FASB Statement No. 109” (“FIN 48”). FIN48 addresses the accounting for uncertainty in income taxes by prescribing aconsistent recognition threshold and measurement attribute for tax positionstaken or expected to be taken in a tax return. FIN 48 also provides guidance onthe derecognition, classification, interest and penalties, accounting ininterim periods, disclosure and transition. 

Theprovisions of FIN 48 are effective for fiscal years beginning after December15, 2006. The Company is currently evaluating the impact of adopting FIN 48.FIN 48 requires a two-step process in evaluating tax positions. In the firststep an enterprise determines whether it is more likely than not that a taxposition will be sustained upon examination, including resolution of anyrelated appeals or litigation processes, based on the technical merits of theposition. Tax positions meeting the more likely than not recognition thresholdare then measured to determine the amount of benefit eligible for recognitionin the financial statements. Each tax position is measured at the largestamount of benefit that has a greater than 50% likelihood of being realized uponultimate settlement.

**SFAS 157**

InSeptember 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS157”). SFAS 157 establishes a single authoritative definition of fair value,sets out a framework for measuring fair value, and requires additionaldisclosures for instruments carried at fair value. The statement applies onlyto fair value measurements which are already required or permitted by otheraccounting standards. It will affect current practice by eliminating theguidance in Emerging Issues Task Force (“EITF”) Issue No. 02-3, “IssuesInvolved in Accounting for Derivatives Contracts Held for Trading Purposes andContracts Involved in Energy Trading and Risk Management Activities,” guidancewhich prohibits the recognition of gains or losses at the inception ofderivative transactions whose fair value is primarily estimated based uponunobservable market data. SFAS 157 will also eliminate the use of blockage factors(block discounts) by brokers, dealers and investment companies that have beenapplying the applicable American Institute of Certified Public AccountantsAudit and Accounting Guides. SFAS 157 is effective for financial statementsissued for fiscal years beginning after November 15, 2007, with early adoptionpermitted. The Company is currently evaluating the impact of adopting SFAS 157.

**SFAS 158**

InSeptember 2006, the FASB issued SFAS No. 158, “Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans – an amendment of FASBStatements No. 87, 88, 106 and 132(R)” (“SFAS 158”). SFAS 158 requires anemployer to 1) recognize in the statement of financial condition the fundedstatus of a benefit plan on a prospective basis. 2) Recognize as a component ofother comprehensive income, net of tax, the actuarial gains or losses and priorservice costs or credits that arise during the period but are not recognized ascomponents of net periodic benefit cost and the transition asset or obligationpursuant to SFAS No.87, “Employers’ Accounting for Pensions” (“SFAS 87”) orSFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other thanPensions” (“SFAS 106”). Amounts recognized in accumulated other comprehensiveincome, including actuarial gains or losses, prior service costs or credits,and transition asset or obligation remaining from the initial application ofSFAS 87 and SFAS 106, are to be adjusted as they are subsequently recognized asa component of net periodic benefit cost. 3) Measure the defined benefit plan assets and obligation at the date ofthe employer’s fiscal year end statement of financial condition.  4) Disclose in the notes to the financialstatements additional information about certain effects on net periodic benefitcost for the next fiscal year that arise from delayed recognition of the gainsor losses, prior service costs or credits, and transition assets orobligations. SFAS 158 recognition provisions associated with the funded statusof a benefit plan are effective as of the end of the fiscal year ending afterDecember 15, 2006. The 

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# **CREDIT SUISSE (USA), INC.AND SUBSIDIARIES**

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited) (Continued)**

**September 30, 2006**

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

provision to measure plan assets andbenefit obligations as of the date of the employer’s fiscal year end statementof financial condition is effective for fiscal years ending after December 15,2008 with early adoption permitted. The Company is currently evaluating theimpact of adopting SFAS 158.

**SAB 108**

InSeptember 2006, the SEC issued Staff Accounting Bulletin No. 108 on QuantifyingMisstatements (“SAB 108”). SAB 108 requires registrants to use both a balancesheet approach and an income statement approach when quantifying and evaluatingthe materiality of a misstatement. In addition, SAB 108 provides guidance oncorrecting errors under this approach as well as providing transition guidanceon correcting errors that existed prior to the application of SAB 108. Theguidance in SAB 108 is effective for the first fiscal year ending afterNovember 15, 2006. Early adoption is permitted for any interim period of thefirst fiscal year ending after November 15, 2006 with early adoption permitted.The Company will adopt SAB 108 on December 31, 2006.

**2. Related Party Transactions**

CSG, through CS Holdings, owns all of the Company’s outstanding votingcommon stock. The Company is involved in significant financing and othertransactions, and has significant related party balances with CSG affiliates,primarily Credit Suisse, and certain of its subsidiaries and affiliates. TheCompany generally enters into these transactions in the ordinary course ofbusiness and believes that these transactions are generally on market termsthat could be obtained from unrelated third parties.

The following table sets forth the Company’s related party assets andliabilities as of September 30, 2006 and December 31, 2005:
| ** **                                              | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                              | ** ** | **2006**               | ** ** | **2005**              | ** ** |
| ** **                                              | ** ** | **(In millions)** | ** ** |
| **ASSETS**                                              | ** ** | ** **             | ** ** | ** **            | ** ** |
| Securities  purchased under agreements to resell        |       | $                      | 4,050      |                  | $          | 5,163 |   |
| Securities  borrowed                                    |       | 7,978                  |       | 4,323                 |       |
| Receivables from  brokers, dealers and other            |       | 2,768                  |       | 1,389                 |       |
| Derivatives  contracts                                  |       | 2,092                  |       | 842                   |       |
| Net deferred tax  asset                                 |       | 1,253                  |       | 1,202                 |       |
| Loans receivable  from parent and affiliates            |       | 28,393                 |       | 25,225                |       |
| Total assets                                            |       | $                      | 46,534     |                  | $          | 38,144 |   |
| **LIABILITIES**                                         |       |                   |       |                  |       |
| Short-term  borrowings                                  |       | $                      | 20,224     |                  | $          | 12,093 |   |
| Securities sold  under agreements to repurchase         |       | 30,892                 |       | 25,634                |       |
| Securities  loaned                                      |       | 46,131                 |       | 33,976                |       |
| Payables to  customers                                  |       | 187                    |       | 237                   |       |
| Payables to  brokers, dealers and other                 |       | 4,989                  |       | 3,794                 |       |
| Derivatives  contracts                                  |       | 1,994                  |       | 489                   |       |
| Obligation to  return securities received as collateral |       | 1,553                  |       | 1,242                 |       |
| Taxes payable  (included in Other liabilities)          |       | 461                    |       | 350                   |       |
| Intercompany  payables (included in Other liabilities)  |       | 642                    |       | 626                   |       |
| Total  liabilities                                      |       | $                      | 107,073    |                  | $          | 78,441 |   |

 

Included in the condensed consolidatedstatements of income are revenues and expenses resulting from varioussecurities trading and financing activities with certain affiliates, as well asfees for administrative services performed by the Company under the terms ofvarious agreements. The Company earns commission revenues and incurs commissionexpenses during the normal course of business for securities transactionsconducted with affiliates. Other operating 

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# **CREDIT SUISSE (USA), INC.AND SUBSIDIARIES**

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited) (Continued)**

**September 30, 2006**

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

expenses include affiliate service fees thatare treated as a reduction in other operating expenses in the condensedconsolidated statements of income.  Thesefees include compensation and benefits expense relating to business activitiesconducted by Company employees on behalf of CSG affiliates outside the Company.

The following table sets forth the Company’s related party revenues andexpenses for the three and nine months ended September 30, 2006 and 2005:
| ** **                                          | ** ** | **For the Three Months Ended   September 30,** | ** ** | **For the Nine Months Ended  September 30,** | ** ** |
|-----------------------------------------------------|------------|------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                          | ** ** | **2006**                                                                     | ** ** | **2005**                                                              | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                          | ** ** | **(In millions)**                                                       | ** ** |
| Principal  transactions-net (derivatives contracts) |       | $                                                                            | 1,362      |                                                                  | $          | 633 |   | $ | 2,414 |   | $ | 575 |   |
| Commissions and  fees                               |       | (17                                                                          | )          | (17                                                                   | )          | (60 | ) | (37 | ) |
| Interest and  dividend revenues                     |       | 589                                                                          |       | 355                                                                   |       | 1,626 |   | 853 |   |
| Interest expense                                    |       | (1,044                                                                       | )          | (655                                                                  | )          | (2,744 | ) | (1,612 | ) |
| Total net revenues                                  |       | $                                                                            | 890        |                                                                  | $          | 316 |   | $ | 1,236 |   | $ | (221 | ) |
|                                                |       |                                                                         |       |                                                                  |       |   |   |   |   |
| Other operating  expenses (credits)                 |       | $                                                                            | (61        | )                                                                     | $          | (82 | ) | $ | (169 | ) | $ | (235 | ) |
| Total expenses                                      |       | $                                                                            | (61        | )                                                                     | $          | (82 | ) | $ | (169 | ) | $ | (235 | ) |

 

From time to time, the Company sells at costto CS Holdings the right, title and interest in certain assets. Once the assetsare sold, the Company continues to service these assets on behalf of CSHoldings. For the three and nine months ended September 30, 2006, the value ofthe assets sold, net of collections applied, was not material.

The Companymanages certain private equity funds of funds, hedge funds of funds and VIEsthat issue collateralized debt obligations (“CDOs”) of CS Alternative Capital,Inc., an indirect wholly owned subsidiary of CS Holdings.  As of September 30, 2006, the aggregateassets under management in these funds and VIEs were approximately $24.6billion. CS Alternative Capital, Inc. reimburses the Company for all expensesincurred by the Company in connection with managing these assets. The Companytreats these reimbursements as a reduction in other operating expenses in thecondensed consolidated statements of income.

The Credit Suisse Group International Share Plan provides for the grantof equity-based awards to Company employees based on CSG shares pursuant towhich employees of the Company may be granted, as compensation, shares or otherequity-based awards as compensation for services performed. CS Holdingspurchases shares from CSG to satisfy these awards, but CS Holdings does notrequire reimbursement from the Company; therefore, amounts associated withthese awards are considered a capital contribution to the Company and creditedto paid-in-capital. Net contributions by CS Holdings relating to compensationexpense for the three months ended September 30, 2006 and 2005 were $(57)million and $236 million, including tax effects, respectively, and for the ninemonths ended September 30, 2006 and 2005 were $559 million and $429 million,including tax effects, respectively. See Note 1 for further information on theCompany’s share-based compensation.

Certain of the Company’s directors, officersand employees and those of its affiliates and their subsidiaries maintainmargin accounts with the Company’s principal broker-dealer subsidiary, CreditSuisse Securities (USA) LLC (“CS Securities”) 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. The Company makes loans to directors and executiveofficers on the same terms as are generally available to third parties orotherwise pursuant to widely available employee benefit plans. CS Securitiesand 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. 

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# **CREDIT SUISSE (USA), INC.AND SUBSIDIARIES**

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited) (Continued)**

**September 30, 2006**

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

The Company issues guarantees to customers with respect to certainobligations of its affiliates in the ordinary course of business, including,but not limited to, certain derivatives transactions. Failure to perform by anaffiliate would require the Company to perform under the guarantee. See Note 8for more information.

The Company is included in the consolidated federal income tax returnand certain state and local income tax returns filed by CS Holdings.  

**3.Transfers and Servicing of Financial Assets**

As part of the Company’sfinancing and securities settlement activities, the Company uses securities ascollateral to support various secured financing sources. If the counterpartydoes not meet its contractual obligation to return securities used ascollateral, the Company may be exposed to the risk of reacquiring thesecurities at prevailing market prices to satisfy its obligations. The Companycontrols this risk by monitoring the market value of financial instrumentspledged each day and by requiring collateral levels to be adjusted in the eventof excess market exposure. 

As of September 30, 2006 and December 31, 2005, the fair value ofassets that the Company pledged to counterparties was $233.2 billion and$212.5 billion, respectively, of which $102.1 billion and$73.0 billion, respectively, was included in financial instruments ownedin the condensed consolidated statements of financial condition.

The Company has also received similar assets as collateral that theCompany has the right to re-pledge or sell. The Company routinely re-pledges or sells these assets to thirdparties.  As of September 30, 2006 andDecember 31, 2005, the fair value of the assets pledged to the Company was$195.4 billion and $184.6 billion, respectively, of which$185.3 billion and $178.1 billion, respectively, was re-pledged or sold.

**SecuritizationActivities**

The Company originates and purchases residential mortgages andoriginates commercial loans for the purpose of securitization. The Companysells these mortgage loans to securitization trusts, which are generallyqualified special purpose entities (“QSPEs”). The QSPEs issue securities thatare backed by the assets transferred to the QSPEs and pay a return based on thereturns on those assets.  Investors inthese mortgage-backed securities typically have recourse to the assets in theQSPE. The investors and the QSPEs have no recourse to the Company’sassets.  CS Securities is an underwriterof, and makes a market in, these securities.

As of September 30, 2006, the Company held encumbered mortgage loanstotaling $995 million related to securitization transactions that did notqualify for sale accounting treatment under paragraph 40b of SFAS 140.  Prior to securitization, such encumberedloans were accounted for in financial instruments owned; however, due to thetransfer of legal title in the form of a pledge in the securitization, theseloans have been reclassified to Other assets and deferred amounts in thecondensed consolidated statement of financial condition.  Cash amounts received in payment upontransfer for such loans are accounted for as secured borrowings and arerecorded in Other liabilities in the condensed consolidated statement offinancial condition.  Also included inOther assets and deferred amounts and Other liabilities as of September 30,2006 was $4.6 billion in VIEs that were consolidated under FSP FIN 46(R)-6related to securitization transactions that did not qualify for sale accountingtreatment under SFAS 140, and were similarly encumbered.

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# **CREDIT SUISSE (USA), INC.AND SUBSIDIARIES**

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited) (Continued)**

**September 30, 2006**

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

The following table presents the proceeds and gains related to thesecuritization of commercial mortgage loans, residential mortgage loans andother asset-backed loans for the nine months ended September 30, 2006 and 2005.The gain on securitizations includes underwriting revenues, deferredorigination fees and expenses, gains or losses on the sale of the collateral tothe QSPE or VIE and gains or losses on the sale of the newly issued securitiesto third parties but excludes net interest revenues earned on assets prior tosecuritization.  
| ** **                                           | ** ** | **Commercial**    | ** ** | **Residential** | ** ** | **Other**             | ** ** |
|------------------------------------------------------|------------|-------------------|------------|-----------------|------------|-----------------------|------------|
| ** **                                           | ** ** | **mortgage**      | ** ** | **mortgage**    | ** ** | **asset-backed**      | ** ** |
| ** **                                           | ** ** | **loans**(1)      | ** ** | **loans**(2)    | ** ** | **loans**(2) (3) | ** ** |
| ** **                                           | ** ** | **(In millions)** | ** ** |
| **For the Nine Months Ended****September  30, 2006** |       |              |       |            |       |                  |       |
| Proceeds from  securitizations                       |       | $                 | 9,762      |            | $          | 22,531                |       | $ | 1,220 |   |
| Gain on  securitizations                             |       | $                 | 310        |            | $          | 20                    |       | $ | 16 |   |
|                                                 |       |              |       |            |       |                  |       |
| **For the Nine Months Ended****September  30, 2005** |       |              |       |            |       |                  |       |
| Proceeds from  securitizations                       |       | $                 | 7,659      |            | $          | 40,693                |       | $ | 6,590 |   |
| Gain on securitizations                              |       | $                 | 239        |            | $          | 28                    |       | $ | 17 |   |

 

----

(1)                                  The gains or losses on the sale of thecollateral to the QSPE is the difference between the carrying value on the dayprior to the securitization date (the lower of amortized cost or fair value)and the selling price of the mortgage whole loans to the QSPE on thesecuritization pricing date.

(2)                                  The gains or losses on the sale of thecollateral to the QSPE is the difference between the fair value on the dayprior to the securitization pricing date and the selling price of the mortgagewhole loans to the QSPE on the securitization pricing date.

(3)                                  Includes home equity loans and othersecurities collateralized by residential mortgage loans.

The Company may retain interests in these securitizedassets in connection with its underwriting and market-making activities.  The Company’s primary exposure in itssecuritization activities is limited to its retained interests. Retainedinterests in securitized financial assets are included at fair value incorporate debt 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 ofincome. The fair values of retained interests are determined using marketquotes where available or the present value of estimated future cash flowsvaluation techniques that incorporate assumptions that marketplace participantscustomarily use in their estimates of values. As of September 30, 2006 andDecember 31, 2005, the fair value of the interests retained by the Company was$4.8 billion and $5.1 billion, respectively.

Key economic assumptions used at the date of securitization in measuringthe fair value of the retained interests resulting from securitizationscompleted during the nine months ended September 30, 2006 were as follows:
| ** **                                      | ** ** | **For the Nine Months Ended September 30, 2006** | ** ** |
|-------------------------------------------------|------------|-------------------------------------------------------------------------------------|------------|
| ** **                                      | ** ** | **Commercial  mortgage  loans **(1)                                            | ** ** | **Residential  mortgage  loans** | ** ** | **Other  asset-backed  loans** | ** ** |
|                                            |       |                                                                                |       |   |   |   |   |
| Weighted-average  life (in years)               |       | N/A                                                                                 |       | 5.2 |   | 8.9 |   |
| Prepayment rate  (in rate per annum)(2)         |       | N/A                                                                                 |       | 0.0%-50.0% |   | 25.0 | % |
| Cash flow  discount rate (in rate per annum)(3) |       | N/A                                                                                 |       | 0.1%-50.0% |   | N/A |   |
| Expected credit losses  (in rate per annum)     |       | N/A                                                                                 |       | 0.0%-29.7% |   | N/A |   |

 

----

(1)                                  To deter prepayment, commercial mortgageloans typically have prepayment protection in the form of prepayment lockoutsand yield maintenances.

(2)                                  The Company utilizes the constantprepayment rate assumptions.

(3)                                  The rate is based on the weighted averageyield on the retained interest.

15

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# **CREDIT SUISSE (USA), INC.AND SUBSIDIARIES**

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited) (Continued)**

**September 30, 2006**

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

The following table setsforth the fair value of retained interests from securitizations as of September30, 2006, key economic assumptions used to determine the fair value and thesensitivity of the fair value to immediate adverse changes in thoseassumptions:
| ** **                                      | ** ** | **As of September 30, 2006** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                      | ** ** | **Commercial  mortgage  loans **(1)         | ** ** | **Residential  mortgage  loans** | ** ** | **Other  asset-backed** | ** ** |
| ** **                                      | ** ** | **(Dollars in millions)**              | ** ** |
| Fair value of  retained interests               |       | $                                                | 14         |   | $ | 4,677 |   | $ | 59 |   |
| Weighted-average  life (in years)               |       | N/A                                              |       | 4.9 |   | 4.6 |   |
| Prepayment rate  (in rate per annum)(2)         |       | N/A                                              |       | 0.0%-81.5 | % | 25.7%-41.9 | % |
| Impact on fair value of 10% adverse change      |       | $                                                | —     |   | $ | (28 | ) | $ | — |   |
| Impact on fair value of 20% adverse change      |       | $                                                | —     |   | $ | (53 | ) | $ | — |   |
| Cash flow  discount rate (in rate per annum)(3) |       | N/A                                              |       | 6.4 | % | N/A |   |
| Impact on fair value of 10% adverse change      |       | $                                                | —     |   | $ | (70 | ) | $ | — |   |
| Impact on fair value of 20% adverse change      |       | $                                                | —     |   | $ | (141 | ) | $ | — |   |
| Expected credit  losses (in rate per annum)(4)  |       | N/A                                              |       | 0.5 | % | N/A |   |
| Impact on fair value of 10% adverse change      |       | $                                                | —     |   | $ | (8 | ) | $ | — |   |
| Impact on fair  value of 20% adverse change     |       | $                                                | —     |   | $ | (16 | ) | $ | — |   |

 

----

(1)                                  To deter prepayment, commercial mortgageloans typically have prepayment protection in the form of prepayment lockoutsand yield maintenances.

(2)                                  The Company utilizes the constantprepayment rate assumptions.

(3)                                  The rate is based on the weighted averageyield on the retained interest.

(4)                                  As of September 30, 2006, a substantialportion of the residential mortgage loan retained interests were investmentgrade and are therefore not subject to significant adverse credit losses.

Thesesensitivities are hypothetical and do not reflect the benefits of hedgingactivities. Changes in fair value based on a 10% or 20% variation inassumptions generally cannot be extrapolated because the relationship of thechange in assumption to the change in fair value may not be linear. Also, theeffect of a variation in a particular assumption on the fair value of theretained interests is calculated without changing 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.

## **VariableInterest Entities**

The Company has variable interests in several CDOVIEs.  As described under “—SecuritizationActivities,” in the normal course of its business, the Company purchases loansand other debt obligations from and on behalf of clients primarily for thepurpose 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.  The Company engages in these transactions tomeet the needs of clients, to earn fees and to sell financial assets.  The purpose of these CDO VIEs and QSPEs is toprovide investors a return based on the underlying debt instruments of the CDOVIEs and QSPEs.  In connection with itsunderwriting and market-making activities, the Company may retain interests inthe CDO VIEs and QSPEs.  The CDO entitiesmay have actively managed (“open”) portfolios or static or unmanaged (“closed”)portfolios.  The closed CDO transactionsare typically structured to use QSPEs, which are not consolidated in theCompany’s financial statements.  

16

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# **CREDIT SUISSE (USA), INC.AND SUBSIDIARIES**

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited) (Continued)**

**September 30, 2006**

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

The Company has consolidated CDO VIEs and other VIEs for which it isthe primary beneficiary.  As of September30, 2006 and December 31, 2005, the Company recorded $5.4 billion and$673 million, respectively, representing the carrying amount of theconsolidated assets of these CDO VIEs and other VIEs that are collateral forthe VIE obligations.  The increase in thetotal assets consolidated was primarily related to securitization transactionsthat did not qualify for sale accounting treatment under SFAS 140 and wereconsolidated under FSP FIN 46(R)-6. The beneficial interests of theseconsolidated CDO VIEs and other VIEs are payable solely from the cash flows ofthe related collateral, and the creditors of these CDO VIEs and other VIEs donot have recourse to the Company in the event of default.

The Company holds significant debt and equity interests in CDO VIEsthat are not consolidated because the Company is not the primarybeneficiary.  The total assets in theseCDO VIEs as of September 30, 2006 and December 31, 2005 were $5.6 billionand $5.4 billion, respectively.  TheCompany’s maximum exposure to loss on significant debt and equity interests inCDO VIEs as of September 30, 2006 and December 31, 2005 was $129 millionand $127 million, respectively, which was the amount carried at fair valuein financial instruments owned. 

In the normal course of its private equity activities,the Company is typically the general partner and investment adviser to privateequity funds.  Limited partners of thesefunds typically have recourse to the fund’s assets but generally have norecourse to the Company’s assets. The Company consolidates certain privateequity funds that are managed by the Company. A portion of these private equityfunds are not VIEs but are consolidated based on the Company’s control of thevoting interest of the fund. See Note 1 for more information. The followingtable presents the impact on the condensed consolidated statements of financialcondition of the Company as of September 30, 2006 and December 31, 2005 as aresult of consolidating certain private equity funds:
| ** **                                                 | ** ** | **September 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                 | ** ** | **(In millions)**       | ** ** |
| Private equity  and other long-term investments            |       | $                            | 9,767      |                        | $          | 2,562 |   |
| All other  assets, net                                     |       | 711                          |       | 177                         |       |
| Total assets                                               |       | $                            | 10,478     |                        | $          | 2,739 |   |
|                                                       |       |                         |       |                        |       |
| Minority  interests (included in other liabilities)        |       | $                            | 10,024     |                        | $          | 2,549 |   |
| All other  liabilities, net (excluding minority interests) |       | 454                          |       | 190                         |       |
| Total  liabilities                                         |       | $                            | 10,478     |                        | $          | 2,739 |   |

 

The following table presents the impact onthe condensed consolidated statements of income of the Company for the threeand nine months ended September 30, 2006 and 2005 as a result of consolidatingcertain private equity funds:
| ** **         | ** ** | **For the Three Months  Ended September 30,** | ** ** | **For the Nine Months  Ended September 30,** | ** ** |
|--------------------|------------|------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **         | ** ** | **2006**                                                               | ** ** | **2005**                                                              | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **         | ** ** | **(In millions)**                                                 | ** ** |
| Net revenues       |       | $                                                                      | 420        |                                                                  | $          | 214 |   | $ | 2,009 |   | $ | 675 |   |
| Expenses           |       | 5                                                                      |       | 2                                                                     |       | 18 |   | 5 |   |
| Minority interests |       | $                                                                      | 415        |                                                                  | $          | 212 |   | $ | 1,991 |   | $ | 670 |   |

 

In May 2006,the Company completed its acquisition of Guilford Holding Corporation, a taxcredit syndication firm based in Montgomery, Alabama.  Guilford engages in the purchase, packagingand sale of tax credits to corporate investors. The Company has consolidated certain tax credit funds in which it is thegeneral partner resulting in an increase in assets and liabilities of $311million as of September 30, 2006.  Theconsolidation of these tax credit funds did not have an impact on the condensedconsolidated statement of income.

17

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# **CREDIT SUISSE (USA), INC.AND SUBSIDIARIES**

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited) (Continued)**

**September 30, 2006**

**4. Private Equity and Other Long-Term Investments**

Private equity and other long-term investments include direct investmentsand investments in partnerships that make private equity and relatedinvestments in various portfolio companies and funds. The Company categorizesits private equity and other long-term investments into three categories:Credit Suisse-managed funds, which include consolidated funds, funds managed bythird parties and direct investments. These investments generally have noreadily available market or may be otherwise restricted as to resale under theSecurities Act of 1933 (“Securities Act”); therefore, these investments arecarried at management’s best estimate of fair value.

As of September 30, 2006 and December 31, 2005, the Company hadinvestments in private equity and other long-term investments of$10.9 billion and $3.6 billion, respectively, including$9.8 billion and $2.6 billion, respectively, in private equity funds theCompany is required to consolidate. Changes in net unrealized appreciation/depreciation arising from changesin fair value and the gain or loss realized upon sale are reflected inprincipal transactions-net in the condensed consolidated statements of income. SeeNotes 1 and 3 for more information. The original cost of theseinvestments, excluding the consolidated private equity investments, was $1.5billion as of September 30, 2006 and $1.4 billion as of December 31, 2005. Asof September 30, 2006 the Company had commitments to invest up to an additional$1.6 billion in non-consolidated private equity funds and $1.3 billion inconsolidated private equity funds. See Note 7 for more information.

The Company’s subsidiaries manage manyprivate equity partnerships (the “Funds”). When the investment performance onCredit Suisse-managed Funds exceeds specific thresholds, the Company andcertain other partners, most of which are current and formeremployees of the Company (collectively the “GPs”),may be entitled to receive a carried interest distribution under the governingdocuments of the Funds. Carried interest distributions are based on thecumulative investment performance of each Fund at the time the distribution ismade. As a result, the Company may be obligated to return to investors in theFunds all or a portion of the carried interest distributed to the GPs. Theamount of such contingent obligations is based upon the performance of theFunds but cannot exceed the amount of carried interest received by the GPs. Asof September 30, 2006 and December 31, 2005, the maximum amount of suchcontingent obligations was $530 million and $620 million,respectively, assuming the Funds’ remaining investments were worthless.Assuming the Funds’ remaining investments were sold at their current carryingvalues as of September 30, 2006 and December 31, 2005, the contingentobligations would have been $11 million and $18 million,respectively. As of September 30, 2006 and December 31, 2005, the Companywithheld cash from prior distributions to the GPs and recorded correspondingliabilities of $134 million and $126 million, respectively, inconnection with the Company’s guarantee to return prior carried interestdistributions to third party investors in the Funds.

In addition, pursuant to certain contractual arrangements, the Companyis obligated to make cash payments to certain investors in certain Funds ifspecified performance thresholds are not met. As of both September 30, 2006 andDecember 31, 2005, the maximum amount of such contingent obligations was$45 million assuming the Funds’ remaining investments were worthless.Assuming the Funds’ remaining investments were sold at their current carryingvalues as of September 30, 2006, the contingent obligation would have been $1million and as of December 31, 2005, there would have been no contingentobligation. 

**5. DerivativesContracts**

The Company uses derivatives contracts for trading and hedging purposesand to provide products for clients. These derivatives include options,forwards, futures and swaps. For more information on the Company’s derivatives,see Note 6 of the consolidated financial statements in Part II, Item 8 in theAnnual Report on Form 10-K for the year ended December 31, 2005.

18

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# **CREDIT SUISSE (USA), INC.AND SUBSIDIARIES**

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited) (Continued)**

**September 30, 2006**

**5.Derivatives Contracts (Continued)**

## **QuantitativeDisclosures for All Derivatives**

The fair values ofall derivatives contracts outstanding as of September 30, 2006 and December 31,2005 were as follows: 
| ** **         | ** ** | **September 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|--------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **         | ** ** | **Assets**                       | ** ** | **Liabilities**                 | ** ** | **Assets** | ** ** | **Liabilities** | ** ** |
| ** **         | ** ** | **(In millions)**           | ** ** |
|               |       |                             |       |                            |       |   |   |   |   |
| Options            |       | $                                | 1,405      |                            | $          | 1,561 |   | $ | 1,167 |   | $ | 728 |   |
| Forward  contracts |       | 4,270                            |       | 1,679                           |       | 3,049 |   | 1,076 |   |
| Swaps              |       | 2,164                            |       | 2,589                           |       | 869 |   | 458 |   |
| Total  derivatives |       | $                                | 7,839      |                            | $          | 5,829 |   | $ | 5,085 |   | $ | 2,262 |   |

 

These assets and liabilities are included as derivatives contracts infinancial instruments owned and sold not yet purchased, respectively, in thecondensed consolidated statements of financial condition. Assets andliabilities related to futures contracts are included in receivables frombrokers, dealers and other and payables to brokers, dealers and other,respectively, in the condensed consolidated statements of financial condition.

**6. Borrowings**

Short-termborrowings are generally demand obligations with interest approximating theFederal Funds rate, the London Interbank Offered Rate (“LIBOR”) or other moneymarket indices. Such borrowings are generally used to facilitate the securitiessettlement process, finance financial instruments owned and finance securitiespurchased by customers on margin. As of September 30, 2006 and December 31,2005, there were no short-term borrowings secured by Company-owned securities.

The following table sets forththe Company’s commercial paper and short-term borrowings and their weightedaverage interest rates: 
| ** **                                        | ** ** | **Short-term borrowings**           | ** ** | **Weighted average interest rates** | ** ** |
|---------------------------------------------------|------------|------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                        | ** ** | **As of  September 30,  2006** | ** ** | **As of  December 31,  2005**            | ** ** | **As of  September 30,  2006** | ** ** | **As of  December 31,  2005** | ** ** |
| ** **                                        | ** ** | **(In millions)**                   | ** ** | ** **                                         | ** ** | ** ** | ** ** |
|                                              |       |                                     |       |                                               |       |   |   |   |   |
| Bank loans,  including loans from affiliates(1)   |       | $                                        | 21,082     |                                               | $          | 12,356 |   | 5.69 | % | 4.32 | % |
| Commercial paper                                  |       | 1,275                                    |       | 1,298                                              |       | 5.22 | % | 4.19 | % |
| Total commercial paper  and short-term borrowings |       | $                                        | 22,357     |                                               | $          | 13,654 |   |   |   |   |   |

 

----

(1)                                  Includes $20.2 billion and$12.1 billion in loans from affiliates as of September 30, 2006 andDecember 31, 2005, respectively.

The Company has a commercial paper program exempt from registrationunder the Securities Act that allows the Company to issue up to$5.0 billion in commercial paper. As of September 30, 2006 and December31, 2005, $1.3 billion of commercial paper was outstanding under thisprogram. 

In February 2006, the Company filed with theSEC an automatic shelf registration statement that allows the Company to issuefrom time to time senior and subordinated debt securities, and warrants topurchase such securities. 

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 November13, 2006 approximately $1.2 billion available for issuance.

19

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# **CREDIT SUISSE (USA), INC.AND SUBSIDIARIES**

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited) (Continued)**

**September 30, 2006**

**6.Borrowings (Continued)**

The following table sets forth the Company’slong-term borrowings as of September 30, 2006 and December 31, 2005:
| ** **                                                             | ** ** | **September 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                             | ** ** | **(In millions)**           | ** ** |
|                                                                   |       |                             |       |                            |       |
| Senior notes  3.9%-7.1%, due various dates through 2032           |       | $                                | 36,817     |                            | $          | 29,214 |   |
| Medium-term  notes 3.7%-8.8%, due various dates through 2032      |       | 2,877                            |       | 4,223                           |       |
| Structured  borrowings 5.4%-19.0%, due various dates through 2015 |       | 704                              |       | 489                             |       |
| Total long-term borrowings                                             |       | $                                | 40,398     |                            | $          | 33,926 |   |
| Current maturities of  long-term borrowings                            |       | $                                | 2,797      |                            | $          | 3,692 |   |

 

As of September 30, 2006 andDecember 31, 2005, long-term borrowings included downward fair value adjustmentsof approximately $19 million and upward fair value adjustments ofapproximately $52 million, respectively, associated with fair value hedgesunder SFAS 133.  As of September 30, 2006and December 31, 2005, the Company had entered into interest rate swaps, with anotional amount of $24.6 billion and $23.6 billion, respectively, onthe Company’s long-term borrowings for hedging purposes. Substantially all ofthese swaps were designated as qualifying fair value hedges underSFAS 133. See Note 5 for more information.

The following table sets forth scheduled maturities ofall long-term borrowings as of September 30, 2006:
| ** ** | ** ** | **Twelve Months Ended  September 30,** | ** ** |
|------------|------------|-------------------------------------------------------|------------|
| ** ** | ** ** | **(In millions)**                                | ** ** |
| 2007       |       | $                                                     | 2,797      |   |
| 2008       |       | 6,806                                                 |       |
| 2009       |       | 7,434                                                 |       |
| 2010       |       | 3,760                                                 |       |
| 2011       |       | 4,004                                                 |       |
| 2012-2032  |       | 15,597                                                |       |
| Total      |       | $                                                     | 40,398     |   |

 

The following table sets forth scheduled maturities ofthe current portion of long-term borrowings as of September 30, 2006:
| ** **          | ** ** | **Three Months Ended** | ** ** |
|---------------------|------------|----------------------------------|------------|
| ** **          | ** ** | **(In millions)**           | ** ** |
| December 31,  2006  |       | $                                | —     |   |
| March 31, 2007      |       | 368                              |       |
| June 30, 2007       |       | 2,402                            |       |
| September 30,  2007 |       | 27                               |       |
| Total               |       | $                                | 2,797      |   |

 

As of September30, 2006, CS Securities maintained with third parties five 364-day committedsecured revolving credit facilities totaling $2.2 billion, with onefacility for $500 million maturing in February 2007, one facility for $500million maturing in March 2007, one facility for $500 million maturing in July2007, one facility for $200 million maturing in August 2007 and one facilityfor $500 million maturing in November 2007. The Company expects to renew thesefacilities as they mature. These facilities require CS Securities to pledgeunencumbered marketable securities to secure any borrowings.  Borrowings under each facility would bearinterest at short-term rates related to either the Federal Funds rate or LIBORand can be used for general corporate purposes. The facilities containcustomary 

20

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# **CREDIT SUISSE (USA), INC.AND SUBSIDIARIES**

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited) (Continued)**

**September 30, 2006**

**6.Borrowings (Continued)**

covenants that theCompany believes will not impair its ability to obtain funding. As of September30, 2006, no borrowings were outstanding under any of the facilities.

**2006 Financings**

During the ninemonths ended September 30, 2006, the Company issued $10 billion of seniornotes, $82 million in medium-term notes and $153 million in structurednotes and repaid approximately $2.3 billion in senior notes, $1.5 billionof medium-term notes and $17 million of structured notes.

**7.Leases and Commitments**

The following table sets forth the Company’s minimum operating leasecommitments as of September 30, 2006: 
| ** ** | ** ** | **Twelve Months Ending  September 30,** | ** ** |
|------------|------------|--------------------------------------------------------|------------|
| ** ** | ** ** | **(In millions)**                                 | ** ** |
| 2007       |       | $                                                      | 157        |   |
| 2008       |       | 151                                                    |       |
| 2009       |       | 145                                                    |       |
| 2010       |       | 141                                                    |       |
| 2011       |       | 137                                                    |       |
| 2012-2025  |       | 908                                                    |       |
| Total(1)   |       | $                                                      | 1,639      |   |

 

----

(1)                                  Excludes sublease revenue of$292 million and executory costs suchas insurance, maintenance and taxes of $533 million. 

The following table setsforth the Company’s commitments, including the current portion, as of September30, 2006:
| ** **                           | ** ** | **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)        |       | $                                                   | 100        |   | $ | 50 |   | $ | — |   | $ | — |   | $ | 150 |   |
| Private equity(2)                    |       | 4                                                   |       | 45 |   | 64 |   | 1,500 |   | 1,613 |   |
| Forward agreements(3)                |       | 2,141                                               |       | — |   | — |   | — |   | 2,141 |   |
| Unfunded lending  commitments(4)     |       | 432                                                 |       | 128 |   | 102 |   | 441 |   | 1,103 |   |
| Unfunded  warehousing commitments(5) |       | 920                                                 |       | — |   | — |   | — |   | 920 |   |
| Total  commitments                   |       | $                                                   | 3,597      |   | $ | 223 |   | $ | 166 |   | $ | 1,941 |   | $ | 5,927 |   |

 

----

(1)                                  In the ordinary course of business, theCompany maintains certain standby resale agreement facilities that commit theCompany to enter into securities purchased under agreements to resell withcustomers at current market rates.

(2)                                  As of September 30, 2006, the Company alsohad commitments to invest up to an additional $1.3 billion in consolidatedprivate equity funds.

(3)                                  Represents commitments to enter intosecurities purchased under agreements to resell and agreements to borrowsecurities. 

(4)                                  The Company enters into commitments to extendcredit in connection with certain premium finance, leveraged finance and otheractivities.

(5)                                  The Company enters into commitments towarehouse commercial mortgage whole loans.

21

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# **CREDIT SUISSE (USA), INC.AND SUBSIDIARIES**

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited) (Continued)**

**September 30, 2006**

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

Excluded from the table above are certain commitments to originate andpurchase mortgage whole loans and purchase certain other 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 September 30, 2006, the Company used $368 million inoutstanding standby letters of credit to satisfy counterparty collateralrequirements.

The Company had no material capital lease obligations as of September30, 2006. For information about certain of the Company’s additionalcommitments, see Notes 4 and 8.

**8. Guarantees**

In the ordinary course of business, the Company entersinto guarantee contracts as guarantor. FIN No. 45, “Guarantor’s Accounting and Disclosure Requirements forGuarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”),requires disclosure by a guarantor of its maximum potential payment obligationsunder certain of its guarantees to the extent that it is possible to estimatethem.  FIN 45 also requires a guarantorto recognize, at the inception of a guarantee, a liability for the fair valueof the obligations undertaken in issuing such guarantee, including its ongoingobligation to stand ready to perform over the term of the guarantee in theevent that certain events or conditions occur. With certain exceptions, theseliability recognition requirements apply to any guarantees entered into ormodified after December 31, 2002.

The guarantees covered by FIN 45 may require the Company to makepayments to the guaranteed party based on changes related to an asset, a liabilityor an equity security of the guaranteed party. The Company may also becontingently required to make payments to the guaranteed party based on anotherentity’s failure to perform under an agreement, or the Company may have anindirect guarantee of the indebtedness of others, even though the payment tothe guaranteed party may not be based on changes related to an asset, liabilityor equity security of the guaranteed party.

In addition, FIN 45 covers certainindemnification agreements that contingently require the Company to makepayments to the indemnified party based on changes related to an asset,liability or equity security of the indemnified party, such as an adversejudgment in a lawsuit or the imposition of additional taxes due to either a changein the tax law or an adverse interpretation of the tax law.

The following table sets forth the maximum quantifiable contingentliabilities and carrying amounts associated with guarantees covered by FIN 45as of September 30, 2006 by maturity.
| ** **                | ** ** | **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        |       | $                                                                      | 1          |           | $          | 30 |   | $ | 39 |   | $ | 460 |   | $ | 530 |   | $ | 6 |   |
| Performance  guarantees   |       | 44                                                                     |       | 468            |       | — |   | 2 |   | 514 |   | 10 |   |
| Derivatives               |       | 1,814                                                                  |       | 2,871          |       | 1,355 |   | 9,292 |   | 15,332 |   | 780 |   |
| Related party  guarantees |       | —                                                                 |       | —         |       | — |   | 164 |   | 164 |   | — |   |
| Total guarantees          |       | $                                                                      | 1,859      |           | $          | 3,369 |   | $ | 1,394 |   | $ | 9,918 |   | $ | 16,540 |   | $ | 796 |   |

 

For moreinformation on the Company’s guarantees, including guarantees for which themaximum contingent liability cannot be quantified, see Note 10 of theconsolidated financial statements in Part II, Item 8 in the Annual Report onForm 10-K for the year ended December 31, 2005.

22

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

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited) (Continued)**

**September 30, 2006**

**9.Net Capital Requirements**

The Company’s principalwholly owned subsidiary, CS Securities, is a registered broker-dealer,registered futures commission merchant and member firm of the New York StockExchange, Inc.  Accordingly, CSSecurities is subject to the minimum net capital requirements of the SEC andthe Commodities Futures Trading Commission (“CFTC”).  Under the alternative method permitted byRule 15c3-1 under the Securities Exchange Act of 1934 (the “Exchange Act”), therequired net capital may not be less than the greater of 2% of aggregate debitbalances arising from customer transactions or 4% of the funds required to besegregated pursuant to the Commodity Exchange Act less the market value ofcertain commodity options, all as defined. Under CFTC Regulation 1.17, the required minimum net capital requirementis 8% of the total risk margin requirement (as defined) for all positionscarried in customer accounts plus 4% of the total risk margin requirement (asdefined) for all positions carried in non-customer accounts.  As of September 30, 2006, CS Securities’ netcapital of approximately $4.4 billion was 60.1% of aggregate debitbalances and in excess of the CFTC’s minimum requirement by approximately$4.2 billion.

The Company’s over-the-counter (“OTC”) derivatives dealer subsidiary,Credit Suisse Capital LLC (“CS Capital”) is also subject to the uniform netcapital rule, but computes its net capital based on value at risk underAppendix F of Rule 15c3-1 under the Exchange Act. As of September 30,2006, CS Capital’s net capital of $352 million, after allowing for marketand credit risk exposure of $66 million and $388 million,respectively, was in excess of the minimum net capital requirement by$332 million. CS Capital is in compliance with the exemptive provisions ofRule 15c3-3 under the Exchange Act because the Company does not carrysecurities accounts for customers or perform custodial functions relating tocustomer securities. 

As of September30, 2006, the Company and its subsidiaries complied with all applicableregulatory capital adequacy requirements.

**10. Cash and Securities Segregated Under Federal andOther Regulations**

In compliance with the Commodity Exchange Act, CS Securities segregatesfunds deposited by customers and funds accruing to customers as a result oftrades or contracts. As of both September 30, 2006 and December 31, 2005, cashand securities aggregating $2.7 billion were segregated or secured by CSSecurities in separate accounts exclusively for the benefit of customers.

In accordance with the SEC’s no-action letter dated November 3,1998, CS Securities computed a reserve requirement for the proprietary accountsof introducing broker-dealers. As of September 30, 2006 and December 31, 2005,CS Securities segregated U.S. Treasury securities aggregating $2.5 billionand $1.9 billion, respectively, on behalf of introducing broker-dealers.

In addition, CS Securities segregated U.S. Treasury securities with amarket value of $7.0 billion and $3.3 billion as of September 30,2006 and December 31, 2005, respectively, in a special reserve bank accountexclusively for the benefit of customers as required by Rule 15c3-3 of theExchange Act.

**11. Employee BenefitPlans**

The Company provides retirementand postretirement benefits to its U.S. and certain non-U.S. employees throughparticipation in defined benefit pension plans, a defined contribution savingsand retirement plan and other post-retirement plans.  The Company’s measurement date is September 30 for its pension andother plans. For more information on the Company’s employee benefit plans, seeNote 16 of the consolidated financial statements in Part II, Item 8 in theAnnual Report on Form 10-K for the year ended December 31, 2005.

23

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# **CREDIT SUISSE (USA), INC.AND SUBSIDIARIES**

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited) (Continued)**

**September 30, 2006**

**11. Employee Benefit Plans (Continued)**

The following table presents the pension expense by component for theCompany’s defined benefit pension plans and other post-retirement plans for the three and nine months endedSeptember 30, 2006 and 2005:
| ** **                                    | ** ** | **For the Three Months  Ended September 30, 2006** | ** ** | **For the Nine Months  Ended September 30, 2006** | ** ** |
|-----------------------------------------------|------------|----------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                                    | ** ** | **2006**                                                                         | ** ** | **2005**                                                                        | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                    | ** ** | **(In millions)**                                                           | ** ** |
| **Components  of Net Periodic Benefit Cost:** |       |                                                                             |       |                                                                            |       |   |   |   |   |
| Service cost                                  |       | $                                                                                | 6          |                                                                            | $          | 6 |   | $ | 19 |   | $ | 19 |   |
| Interest cost                                 |       | 13                                                                               |       | 15                                                                              |       | 38 |   | 37 |   |
| Expected return  on plan assets               |       | (14                                                                              | )          | (14                                                                             | )          | (40 | ) | (42 | ) |
| Amortization of  loss                         |       | 10                                                                               |       | 6                                                                               |       | 31 |   | 16 |   |
| Net periodic  benefit cost                    |       | $                                                                                | 15         |                                                                            | $          | 13 |   | $ | 48 |   | $ | 30 |   |

 

The Company did not makepayments to the qualified pension plan during the three and nine months endedSeptember 30, 2006 and does not expect to make any payments during the remainderof the year ending December 31, 2006. The Company made payments of $8 millionto the supplemental plan and the other post-retirement plans during the threeand nine months ended September 30, 2006 and expects to pay a total of $2million during the remainder of the year ending December 31, 2006. 

**12.Legal Proceedings**

The Company has provided reserves for litigation,claims and proceedings involving the Company in accordance with SFAS No. 5, “Accountingfor Contingencies.”  The Company recordedin the second quarter of 2005 a $750 million litigation charge to increase thereserve for private litigation involving Enron, certain initial public offeringallocation practices, research analyst independence and other relatedlitigation.  This charge, coupled withthe charge recorded in 2002, brings the Company’s reserves for these privatelitigation matters to $1.0 billion after the application of settlements enteredinto through September 30, 2006.

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 defenditself vigorously in these matters, litigating or settling when determined bymanagement to be in the best interests of the Company.

It is inherently difficult to predict the outcome ofmany of these matters. In presenting the condensed consolidated financialstatements, management makes estimates regarding the outcome of these mattersand records a reserve and takes a charge to income when losses with respect tosuch matters are probable and can be reasonably estimated.  Estimates, by their nature, are based onjudgment and currently available information and involve a variety of factors,including, but not limited to, the type and nature of the litigation, claim orproceeding, the progress of the matter, the advice of legal counsel, theCompany’s defenses and its experience in similar cases or proceedings as wellas its assessment of matters, including settlements, involving other defendantsin similar or related cases or proceedings. Further litigation charges or releases of litigation reserves may benecessary in the future as developments in such cases or proceedings warrant.

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# **CREDIT SUISSE (USA), INC.AND SUBSIDIARIES**

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited) (Continued)**

**September 30, 2006**

**13.Industry Segment and Geographic Data**

The Company operates and manages its businesses through three operatingsegments: the Investment Banking segment, consisting primarily of investmentbanking, trading and certain separately managed private equity and distressedassets; the Asset Management segment, consisting primarily of the privateequity business; and Private Banking, consisting of the private client servicesbusiness in the United States. For additional information, see Note 1.

The Company’s segments are managed based on types of products andservices offered and their related client bases. The Company evaluates theperformance of its segments based primarily on income (loss) before provision(benefit) for income taxes and cumulative effect of a change in accountingprinciple but excluding minority interests. Minority interest-relatedrevenues and expenses resulting from the consolidation of certain privateequity funds are reported in Elimination & Other.  Net income is unaffected by the consolidationof these private equity funds because offsetting minority interests are alsorecorded.  

The Investment Bankingsegment consists of:

·                  investmentbanking, which serves a broad range of users and suppliers of capital andprovides financial advisory and securities underwriting and placement services;and

·                  trading,which trades and distributes equity and equity-related products, includinglisted and OTC derivatives, fixed income financial instruments and derivativesand risk management products, and engages in securities lending and borrowing.

The Investment Bankingsegment also includes the results from certain separately managed private equityand distressed assets.

The Asset Managementsegment consists primarily of the private equity business. The private equitybusiness makes privately negotiated investments and acts as an investmentadvisor for private equity funds. 

The Private Bankingsegment consists of the private client services business in the UnitedStates.  Private client services is afinancial advisory business serving high-net-worth individuals and corporateinvestors with a wide range of Credit Suisse and third-party investmentmanagement products and services. 

The Company allocates to its segments a *pro rata* share of certain centrallymanaged costs. Leased facilities and equipment costs, employee benefits andcertain general overhead expenses are allocated based upon specified amounts,usage criteria or agreed rates. Interest expense is allocated based upon theparticular type of asset. The allocation of some costs, such as incentivebonuses, has been estimated. The timing and magnitude of changesin the Company’s incentive bonus accrual can have a significant effect on theCompany’s operating results for a given period. Any revenues and expenses not allocated to the Company’s segments appearin Elimination & Other in the table below. For additional information, seeNote 1.

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# **CREDIT SUISSE (USA), INC.AND SUBSIDIARIES**

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited) (Continued)**

**September 30, 2006**

**13. Industry Segment and Geographic Data(Continued)**

The followingtable sets forth selected financial information for the Company’s segments.
| ** **                                          | ** ** | **Investment  Banking** | ** ** | **Asset  Management** | ** ** | **Private  Banking** | ** ** | **Elimination  & Other**(1) | ** ** | **Total** | ** ** |
|-----------------------------------------------------|------------|-------------------------|------------|-----------------------|------------|----------------------|------------|--------------------------------------|------------|-----------|------------|
| ** **                                          | ** ** | **(In millions)**  | ** ** |
| **For the  three months ended September 30, 2006:** |       |                    |       |                  |       |                 |       |                                 |       |      |       |
| Net revenues  excluding net interest                |       | $                       | 1,339      |                  | $          | 101                  |       | $                                    | 56         |      | $          | 391 |   | $ | 1,887 |   |
| Net interest and  dividends revenue                 |       | 210                     |       | 6                     | ** ** | **—**           |       | 2                                    |       | 218       |       |
| Total net  revenues(2)                              |       | 1,549                   |       | 107                   |       | 56                   |       | 393                                  |       | 2,105     |       |
| Total expenses                                      |       | 1,276                   |       | 47                    |       | 74                   |       | 5                                    |       | 1,402     |       |
| Income (loss)(3)                                    |       | 273                     |       | 60                    |       | (18                  | )          | 388                                  |       | 703       |       |
| Minority  interests                                 |       | —                  |       | —                |       | —               |       | 413                                  | ** ** | 413       | ** ** |
| Income (loss)  after minority interests(4)          |       | $                       | 273        |                  | $          | 60                   |       | $                                    | (18        | )         | $          | (25 | ) | $ | 290 |   |
| ** **                                          | ** ** | ** **              | ** ** | ** **            | ** ** | ** **           | ** ** | ** **                           | ** ** |      | ** ** |
| **For the  three months ended September 30, 2005:** |       |                    |       |                  |       |                 |       |                                 |       |      |       |
| Net revenues  excluding net interest                |       | $                       | 1,249      |                  | $          | 147                  |       | $                                    | 60         |      | $          | 206 |   | $ | 1,662 |   |
| Net interest and  dividends revenue                 |       | 406                     |       | 2                     |       | 2                    |       | 8                                    |       | 418       |       |
| Total net  revenues(2)                              |       | 1,655                   |       | 149                   |       | 62                   |       | 214                                  |       | 2,080     |       |
| Total expenses                                      |       | 1,126                   |       | 86                    |       | 72                   |       | 2                                    |       | 1,286     |       |
| Income (loss)(3)                                    |       | 529                     |       | 63                    |       | (10                  | )          | 212                                  |       | 794       |       |
| Minority  interests                                 |       | —                  |       | —                |       | —               |       | 212                                  | ** ** | 212       | ** ** |
| Income (loss)  after minority interests(4)          |       | $                       | 529        |                  | $          | 63                   |       | $                                    | (10        | )         | $          | — |   | $ | 582 |   |

 
| ** **                                         | ** ** | **Investment  Banking** | ** ** | **Asset  Management** | ** ** | **Private  Banking** | ** ** | **Elimination  & Other**(1) | ** ** | **Total** | ** ** |
|----------------------------------------------------|------------|-------------------------|------------|-----------------------|------------|----------------------|------------|--------------------------------------|------------|-----------|------------|
| ** **                                         | ** ** | **(In millions)**  | ** ** |
| **For the  nine months ended September 30, 2006:** |       |                    |       |                  |       |                 |       |                                 |       |      |       |
| Net revenues  excluding net interest               |       | $                       | 4,348      |                  | $          | 262                  |       | $                                    | 188        |      | $          | 1,937 |   | $ | 6,735 |   |
| Net interest and  dividends revenue                |       | 745                     |       | 8                     | ** ** | **—**           |       | 7                                    |       | 760       |       |
| Total net  revenues(2)                             |       | 5,093                   |       | 270                   |       | 188                  |       | 1,944                                |       | 7,495     |       |
| Total expenses                                     |       | 3,622                   |       | 160                   |       | 231                  |       | 18                                   |       | 4,031     |       |
| Income (loss)(3)                                   |       | 1,471                   |       | 110                   |       | (43                  | )          | 1,926                                |       | 3,464     |       |
| Minority  interests                                |       | —                  |       | —                |       | —               |       | 1,989                                | ** ** | 1,989     | ** ** |
| Income (loss)  after minority interests(4)         |       | $                       | 1,471      |                  | $          | 110                  |       | $                                    | (43        | )         | $          | (63 | ) | $ | 1,475 |   |
| ** **                                         | ** ** | ** **              | ** ** | ** **            | ** ** | ** **           | ** ** | ** **                           | ** ** |      | ** ** |
| **For the  nine months ended September 30, 2005:** |       |                    |       |                  |       |                 |       |                                 |       |      |       |
| Net revenues  excluding net interest               |       | $                       | 2,351      |                  | $          | 455                  |       | $                                    | 169        |      | $          | 661 |   | $ | 3,636 |   |
| Net interest and  dividends revenue                |       | 1,485                   |       | 1                     |       | 4                    |       | 14                                   |       | 1,504     |       |
| Total net  revenues(2)                             |       | 3,836                   |       | 456                   |       | 173                  |       | 675                                  |       | 5,140     |       |
| Total expenses                                     |       | 3,905                   |       | 225                   |       | 200                  |       | 5                                    |       | 4,335     |       |
| Income (loss)(3)                                   |       | (69                     | )          | 231                   |       | (27                  | )          | 670                                  |       | 805       |       |
| Minority  interests                                |       | —                  |       | —                |       | —               |       | 670                                  | ** ** | 670       | ** ** |
| (Loss) income  after minority interests(4)         |       | $                       | (69        | )                     | $          | 231                  |       | $                                    | (27        | )         | $          | — |   | $ | 135 |   |
| ** **                                         | ** ** | ** **              | ** ** | ** **            | ** ** | ** **           | ** ** | ** **                           | ** ** |      | ** ** |
| **Segment  assets as of September 30, 2006**       | ** ** | $                       | 350,454    |                  | $          | 1,688                |       | $                                    | 279        |      | $          | 10,478 |   | $ | 362,899 |   |
| **Segment assets as of December  31, 2005**        | ** ** | $                       | 293,278    |                  | $          | 1,512                |       | $                                    | 225        |      | $          | 2,739 |   | $ | 297,754 |   |

 

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(1)                                  Relatedprimarily to the Company’s consolidation of certain private equity funds. SeeNotes 1 and 3 for more information.  Alsoincludes a limited amount of treasury costs not allocated to the Company’ssegments.

(2)                                  Interestincome and expense is accrued at the stated coupon rate for coupon-bearingfinancial instruments, and for non-coupon-bearing financial instruments,interest income is recognized by accreting the discount over the life of theinstrument. For coupon-bearing financial instruments purchased at a discount orpremium, the difference between interest income and expense accrued at thestated coupon rate and interest income and expense determined on an effectiveyield basis, which could be significant, is included in 

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# **CREDIT SUISSE (USA), INC.AND SUBSIDIARIES**

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited) (Continued)**

**September 30, 2006**

**13. Industry Segment and Geographic Data(Continued)**

principal transactions-net instead of interestand dividends, net, in the Company’s condensed consolidated statements ofincome and in net revenues excluding net interest.

(3)                                  Income (loss) before provision (benefit)for income taxes, minority interests and cumulative effect of a change inaccounting principle.

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

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**Reportof Independent Registered Public Accounting Firm**

TheBoard of Directors and Stockholder

Credit Suisse (USA), Inc.

We have reviewed the condensed consolidated statementof financial condition of Credit Suisse (USA), Inc. and subsidiaries (the “Company”)as of September 30, 2006, the related condensed consolidated statements ofincome for the three and nine-month periods ended September 30, 2006 and 2005,and the related condensed consolidated statements of changes in stockholder’sequity and cash flows for the nine-month periods ended September 30, 2006 and2005. These condensed consolidated financial statements are the responsibilityof the Company’s management.

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 issubstantially less in scope than an audit conducted in accordance with thestandards of the Public Company Accounting Oversight Board (United States), theobjective of which is the expression of an opinion regarding the financialstatements taken as a whole. Accordingly, we do not 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 previouslyaudited, in accordance with the standards of the Public Company AccountingOversight Board (United States), the consolidated statement of financialcondition of Credit Suisse (USA), Inc. and subsidiaries as of December 31,2005, and the related consolidated statements of income, changes in stockholder’sequity, and cash flows for the year then ended (not presented herein); and inour report dated March 20, 2006, 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 ofDecember 31, 2005 is fairly stated, in all material respects, in relation tothe consolidated statement of financial condition from which it has beenderived.**
| /s/ KPMG LLP |   |
|--------------|--------|

New York, New York

November 14, 2006

28

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

We serve institutional,corporate, government and high-net-worth individual clients. Ourbusinesses include securities underwriting, sales and trading, financial advisory services, private equityinvestments, full-service brokerage services, derivatives and risk managementproducts, asset management and investment research. We are part of threesegments, Investment Banking, Asset Management and Private Banking, of CreditSuisse Group, or CSG, and our results do not reflect the overall performance ofthese segments or CSG.

When we use the terms “we,” “our,”“us” and the “Company,” we mean Credit Suisse (USA), Inc., a Delawarecorporation, 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 businessactivities, investment banking, securities underwriting and sales, trading andasset management are, by their nature, highly competitive and subject to generalmarket conditions that include volatile trading markets, fluctuations in thevolume of new issues, mergers and acquisitions activities and the valueof financial instruments. Consequently, ourresults have been, and are likely to continue to be, subject to widefluctuations reflecting the impact of many factors beyond our control,including securities market conditions, the level and volatility of interestrates and credit spreads, competitive conditions, the size and timing oftransactions and the geopolitical environment.

Despite a weakenedresidential housing market and concerns of a slowdown in the second half of2006, the U.S. economy showed resilience during the three months endedSeptember 30, 2006 as gross domestic product growth was moderate while gasolineprices fell and the threat of inflation eased.

After raising short-term interest rates atthe last 17 consecutive meetings, the Federal Reserve held rates steady at itsmeetings in August and September citing a slowdown in economic growth and adecline in energy prices. The federal funds rate was 5.25% as of September 30,2006 and June 30, 2006 compared to 4.25% as of December 31, 2005.  The yield on 10-year U.S. Treasury notesincreased from 4.39% as of December 31, 2005 to 4.64% as of September 30, 2006but declined compared to the yield of 5.15% as of June 30, 2006.

The major U.S. stock market indices reacted favorably to the FederalReserve Board’s pause on interest rate hikes. For the three months ended September 30, 2006, the Dow Jones IndustrialAverage, the Standard & Poor’s 500 stock index and the NASDAQ compositeindex increased 5%, 5% and 4%, respectively. For the nine months ended September 30, 2006, the Dow Jones IndustrialAverage, the Standard & Poor’s 500 stock index and the NASDAQ compositeindex increased 9%, 7% and 2%, respectively.

The dollarvalue of U.S. equity and equity-related underwriting decreased for the threemonths ended September 30, 2006 compared to the three months ended September30, 2005, reflecting decreases in secondary common stock issuances and initialpublic offerings.  For the nine monthsended September 30, 2006 the dollar value of U.S. equity and equity-relatedunderwriting increased compared to the nine months ended September 30, 2005primarily due to an increase in convertible securities new issuances.  The dollar value of U.S. debtunderwriting increased for the three and nine months ended September 30, 2006 compared to the threeand nine months ended September 30,2005, primarily as a result of increases in investment grade, non-investmentgrade and asset-backed securities underwritings.  The dollar value of announced U.S. mergersand acquisitions for the three and nine months ended September 30, 2006 increased compared to the three andnine months ended September 30,2005.   The dollar value of completedU.S. mergers and acquisitions for the three months ended September 30, 2006 decreased comparedto the three months endedSeptember 30, 2005 but increased for the nine months ended September 30, 2006 compared to the ninemonths ended September 30, 2005.

29

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**MANAGEMENTOVERVIEW**

The Company recorded net income of $179 million in the third quarter of2006 compared to $386 million in the third quarter of 2005 and net income of$980 million in the first nine months of 2006 compared to $123 million in thefirst nine months of 2005.  The Company’sresults in the third quarter of 2006 reflected flat net revenues and a 9%increase in total expenses, and the results for the first nine months of 2006reflected a 46% increase in net revenues and a 7% decrease in expenses.  Total expenses for the first nine months of2006 included credits for insurance settlements for litigation and relatedcosts of $390 million, which reduced operating expenses, and total expenses forthe first nine months of 2005 included a $750 million charge to increase thereserve for certain private litigation.

The Company’s total net revenues for the third quarter of 2006increased 1% to $2.1 billion compared to the third quarter of 2005.  Net revenues for the third quarter of 2006include $420 million from the consolidation of certain private equity funds,compared to $214 million in the third quarter of 2005.  Net income was unaffected by thisconsolidation as the Company recorded offsetting minority interests and relatedoperating expenses.  Excluding therevenues from the consolidation of these entities, net revenues declined 10%,primarily reflecting significantly lower total trading revenues offset in partby increased total investment banking revenues. The decline in total trading revenues was mainly driven by 38% lowerfixed income trading revenues, with decreases in structured, credit andinterest rate products offset in part by higher commodities revenues fromenergy trading.  Equity trading revenuesincreased 5% reflecting higher revenues from advanced execution services,derivatives and convertible products and prime services partially offset bylower revenues from proprietary trading. Total investment banking revenues increased 20%, reflecting a strongincrease in debt underwriting due to underwriting revenues from syndicatedloans, which was offset in part by decreases in equity underwriting andadvisory and other fees that were largely driven by lower industry activitythroughout much of the quarter.  TheCompany’s total net revenues also reflected higher interest expenses and lowerprivate equity gains.

The Company’s total expenses for the third quarter of 2006 increased 9%to $1.4 billion compared to the third quarter of 2005, primarily due to higherother operating expenses.  The increasein other expenses primarily reflected higher legal fee accruals, increasedbrokerage, clearing and exchange fees in connection with higher levels ofbusiness activity and higher occupancy and equipment expense reflecting theacquisition of SPS Holdings Corp. Compensation and benefits expenses increased slightly, with highershare-based compensation, salaries and severance partially offset by lowerincentive compensation.

The Company’s total net revenues for the first nine months of 2006increased 46% to $7.5 billion compared to the first nine months of 2005.  Net revenues for the first nine months of2006 include $2.0 billion from the consolidation of certain private equityfunds, compared to $675 million in the first nine months of 2005.  Net income was unaffected by thisconsolidation as the Company recorded offsetting minority interests and relatedoperating expenses.  Excluding therevenues from the consolidation of these entities, net revenues increased 23%,mainly driven by significantly higher equity and fixed income trading and debtunderwriting revenues.  Equity tradingrevenues increased 39% reflecting higher revenues across most businesses.  Fixed income trading revenues increased 14%,reflecting higher interest rate product revenues and commodities revenues fromenergy trading offset in part by weaker revenues from structured and creditproducts.  Debt underwriting revenuesincreased $568 million to $838 million, primarily from increased underwritingrevenues from syndicated loans.  Advisoryand other fees increased 18% reflecting higher revenues from our private fundsgroup and higher industry-wide mergers and acquisitions activity.  Equity underwriting revenues decreasedmodestly.  The Company’s revenues alsoreflected higher interest expenses and lower private equity gains.

The Company’s total expenses for the first nine months of 2006decreased 7% to $4.0 billion compared to the first nine months of 2005.  Total expenses for the first nine months of2006 included credits for insurance settlements for litigation and relatedcosts of $390 million, which reduced operating expenses.  Total expenses for the first nine months of2005 included a $750 million charge to increase the reserve for certain privatelitigation.  Excluding the insurancesettlements and the litigation charge, expenses increased $836 million, or 23%,primarily due to higher employee compensation and benefits expenses reflectinghigher incentive and share-based compensation, salaries and head count.Excluding the insurance settlements and the litigation charge, other expensesincreased significantly, primarily reflecting higher legal fee accruals, higherprofessional fees, increased brokerage, 

30

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clearing and exchange feesin connection with higher levels of business activity and higher occupancy andequipment expense reflecting the acquisition of SPS Holdings Corp. 

The Company’s alternative investments business announced a jointventure with General Electric to invest in global infrastructure assets and astrategic alliance with Ospraie Management to invest in commodities and basicindustries.  These arrangements involvesignificant investment commitments.

**CRITICAL ACCOUNTING POLICIES ANDESTIMATES**

**In order to prepare the condensedconsolidated financial statements in accordance with accounting principlesgenerally accepted in the United States of America, we must make estimates andassumptions based on judgment and available information. The reported amountsof assets and liabilities and revenues and expenses are affected by these estimatesand assumptions. Actual results could differ from these estimates, and thedifferences 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 ofour Annual Report on Form 10-K for the year ended December 31, 2005. We believethat the critical accounting policies discussed below involve the most complexjudgments. We believe that the estimates and assumptions used in thepreparation of the condensed consolidated financial statements are reasonableand consistently applied. 

## **FairValue**

The fair value ofthe majority of our financial instruments is based on quoted market prices inactive markets or observable market parameters, or is derived from such pricesor parameters. These instruments include government and agency securities,commercial paper, most investment-grade corporate debt securities, mosthigh-yield debt securities, exchange traded and certain over-the-counter, orOTC, derivative instruments, most collateralized debt obligations, or CDOs,most mortgage-backed and asset-backed securities, certain residential mortgagewhole loans and listed equities.

In addition, wehold financial instruments that are thinly traded or for which no market pricesare available, and which have reduced or no price transparency. For theseinstruments the determination of fair value requires subjective assessment andvarying degrees of judgment depending on liquidity, concentration, pricingassumptions and the risks affecting the specific instrument. In suchcircumstances, valuation is determined based on management’s best estimate offair value. These instruments include certain investment-grade corporate debtsecurities, high-yield debt securities, distressed debt securities, certainmortgage-backed and asset-backed securities, certain CDOs, certain residentialmortgage whole loans, certain OTC derivatives, non-traded equity securities andprivate equity and other long-term investments. Valuation techniques forcertain of these instruments are described more fully below.

# ***Controlsover the fair valuation 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 determined on a reliable basis. The Companydetermines fair value using observable market prices or market-based parameterswhenever possible. In the absence of observable market prices or market-basedparameters in an active market, observable prices or market-based parameters ofcomparable market transactions, or other observable data supporting anestimation of fair value using a valuation model at the inception of acontract, fair value is based on the transaction price. Control processes aredesigned to assure that the valuation approach utilized is appropriate and theassumptions are reasonable.

These controlprocesses include the review and approval of new instruments, review of profitand loss, risk monitoring and review, price verification procedures and reviewsof models used to estimate the fair value of financial instruments by seniormanagement and personnel with relevant expertise who are independent of thetrading and investment functions.

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The Company alsohas agreements with certain counterparties to exchange collateral based on thefair value 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 valuation of certain derivativescontracts. As a participant in the OTC derivatives market, the Company and otherparticipants provide pricing information to aggregation services that compilethis data and provide this information to subscribers. This information isconsidered in the determination of fair value for certain OTC derivatives.

For further discussion ofthe Company’s risk management policies and procedures, refer to “Quantitativeand Qualitative Disclosures About Market Risk” in Part I, Item 3.

# ***Pricetransparency of financial instruments recorded at fair value***

Financialinstruments which are recorded on the Company’s condensed consolidatedstatements of financial condition at fair value have been categorized basedupon the transparency of the pricing information available. 

The categories ofpricing transparency have been broadly segregated as follows:

·                  *Quoted market prices or observable market parameters.*These financial instruments are valued based upon directly observable marketprices or through the use of valuation models and techniques for which therequired parameters are directly observable. 

·                  *Reduced or no observable market parameters.*These financial instruments are priced by using management’s best estimate offair value using valuation techniques that are based on significant judgmentsince observable, market-based data is generally not available. 

The following table sets forth asummary of the price transparency of the Company’s financial instruments thatare carried at fair value as of September 30, 2006 and December 31, 2005:
| ** **                                        | ** ** | **As of September 30, 2006**                       | ** ** | **As of December 31, 2005**             | ** ** |
|---------------------------------------------------|------------|------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                        | ** ** | **Quoted market  prices or  observable  market  parameters** | ** ** | **Reduced or no  observable  market  parameters** | ** ** | **Quoted market  prices or  observable  market  parameters** | ** ** | **Reduced or no  observable  market  parameters** | ** ** |
| ** **                                        | ** ** | **(In millions)**                                                 | ** ** | **(In millions)**                                      | ** ** |
| **Financial  instruments owned**                  |       |                                                                   |       |                                                        |       |   |   |   |   |
| Cash products(1)                                  |       | $                                                                      | 123,357    |                                                        | $          | 2,880 |   | $ | 101,211 |   | $ | 3,394 |   |
| Derivatives(2)                                    |       | 14,220                                                                 |       | 2,587                                                       |       | 7,658 |   | 1,841 |   |
| Private equity  and other long-term investments   |       | 2,352                                                                  |       | 8,594                                                       |       | 315 |   | 3,326 |   |
| Total                                             |       | $                                                                      | 139,929    |                                                        | $          | 14,061 |   | $ | 109,184 |   | $ | 8,561 |   |
|                                              |       |                                                                   |       |                                                        |       |   |   |   |   |
| **Financial  instruments sold not yet purchased** |       |                                                                   |       |                                                        |       |   |   |   |   |
| Cash products                                     |       | $                                                                      | 37,096     |                                                        | $          | 30 |   | $ | 36,304 |   | $ | 27 |   |
| Derivatives(2)                                    |       | 13,845                                                                 |       | 952                                                         |       | 6,155 |   | 521 |   |
| Total                                             |       | $                                                                      | 50,941     |                                                        | $          | 982 |   | $ | 42,459 |   | $ | 548 |   |

 

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(1)                                  Excluded from thetable above are $11,463 million and $5,835 million as of September 30, 2006 andDecember 31, 2005, respectively, in cash products which are carried at thelower of cost or fair value primarily consisting of commercial mortgage wholeloans and originated residential mortgage whole loans.

(2)                                  Based on gross mark-to-marketvaluations of the Company’s derivatives prior to netting of $8,968 millionand $4,414 million as of September 30, 2006 and December 31, 2005,respectively, under Financial Accounting Standards Board, or FASB,Interpretation No. 39, “Offsetting of Amounts Related to Certain Contracts (AnInterpretation of Accounting Principles Board Opinion No. 10 and FASB StatementNo. 105).”

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# ***FinancialInstruments***

# *Cashproducts*

The Company’s cashproducts consist of interest-bearing securities, purchased residential mortgagewhole loans, equity securities and certain variable prepaid forwards.Interest-bearing securities include debt securities, residential and commercialmortgage-backed and other asset-backed securities and CDOs. Equity securitiesinclude common equity shares, preferred stock and convertible bonds.

For debtsecurities for which market prices are not available, valuations are based onyields reflecting the perceived risk of the issuer and the maturity of thesecurity, recent disposals in the market or other modeling techniques, whichinvolve judgment. 

Values ofresidential and commercial mortgage-backed securities and other asset-backedsecurities are generally available through quoted market prices, which areoften based on market information of the prices at which similarly structuredand collateralized securities trade between dealers and to and from customers.Values of residential and commercial mortgage-backed securities and otherasset-backed securities for which there are no significant observable marketparameters are valued using valuation models incorporating prepayment scenariosand Monte Carlo simulations. 

Collateralized debt, bondand loan obligations are split into various structured tranches, and eachtranche is valued based upon its individual rating and the underlyingcollateral supporting the structure. Values are determined using present value of estimated future cash flowsvaluation techniques that incorporate assumptions that market participantscustomarily use in their estimates of values including payment speeds, creditlosses and discount rates.   

Purchasedresidential mortgage whole loans are valued using pricing factors specific toloan level attributes, such as loan-to-value ratios, current balances andliens. 

For loans wherequoted market prices are available, fair values are based on such prices.  For loans where quoted market prices are notavailable, fair values are based on recent disposals in the market, comparableinstruments or modeling techniques.

The majority ofour positions in equities are traded on public stock exchanges, for which dailyquoted market prices are available. Fair values of preferred shares aredetermined by their yield and the subordination relative to the issuer’s othercredit obligations. Convertible bonds are generally valued using direct pricingsources; for a small number of convertible bonds no direct prices are availableand valuation is determined using internal and external models, for which thekey input parameters include stock price, dividend rates, credit spreads,prepayment rates and equity market volatility. 

*Derivatives*

Positions inderivatives held for trading purposes include both OTC and exchange-tradedderivatives. The fair values of exchange-traded derivatives are typically derivedfrom observable exchange prices and/or observable market parameters. Fairvalues for OTC derivatives are determined on the basis of 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. 

The determinationof the fair value of many derivatives involves only a limited degree ofsubjectivity because the required input parameters are observable in themarketplace. The pricing of these instruments is referred to as “direct.” Forother more complex derivatives, subjectivity relating to the determination ofinput parameters reduces price transparency. The pricing of these instrumentsis referred to as “indirect.” Specific areas of subjectivity include estimatinglong-dated volatility assumptions on OTC option transactions and recovery rateassumptions for credit derivative transactions. Uncertainty of pricingassumptions and liquidity are also considered as part of the valuation process.In accordance with Emerging Issues Task Force Issue No. 02-3, “Issues Involvedin Accounting for Derivatives Contracts Held for Trading Purposes and ContractsInvolved in Energy Trading and 

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Risk Management Activities,”or EITF 02-3, we do not recognize a dealer profit or loss (unrealized gain orloss at inception of a derivative transaction), or day one profit/loss, unlessthe valuation underlying the unrealized gain or loss is evidenced by (a) quotedmarket prices in an active market, (b) observable prices of other currentmarket transactions or (c) other observable data supporting a valuationtechnique. The deferred profit or loss is amortized over either the life of thederivative or the period until which observable data is available. 

For furtherinformation on the fair value of derivatives as of September 30, 2006 andDecember 31, 2005, see Note 5 of the condensed consolidated financialstatements in Part I, Item 1.

*Privateequity and other long-term investments*

Private equity and other long-term investments include directinvestments and investments in partnerships that make private equity andrelated investments in various portfolio companies and funds. Private equityinvestments and other long-term investments consist of both publicly tradedsecurities and private securities. Publicly traded investments are valued basedupon readily available market quotes with appropriate adjustments for liquidityas a result of holding large blocks and/or having trading restrictions. Privatesecurities, which generally have no readily available market or may beotherwise restricted as to resale, are valued taking into account a number offactors, such as the most recent round of financing involving unrelated newinvestors, earnings multiple analyses using comparable companies or discountedcash flow analysis. 

Thefollowing table sets forth the fair value of our private equity and otherlong-term investments by category as of September 30, 2006 and December 31,2005:
| ** **                                                                                                                                                           | ** ** | **As of  September 30, 2006** | ** ** | **As of  December 31, 2005** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                                                                                           | ** ** | **Fair value**                          | ** ** | **Percent  of total**                  | ** ** | **Fair value** | ** ** | **Percent  of total** | ** ** |
| ** **                                                                                                                                                           | ** ** | **(In millions)**                       | ** ** | ** **                                  | ** ** | **(In millions)** | ** ** | ** ** | ** ** |
| Credit  Suisse-managed funds (which includes $9,767 and $2,562 related to funds  consolidated(1) as of September 30, 2006 and December 31,  2005, respectively) |       | $                                            | 10,522     |                                        | 96         | % | $ | 3,256 |   | 89 | % |
| Funds managed by  third parties                                                                                                                                      |       | 407                                          |       | 3                                           |       | 359 |   | 10 |   |
| Direct  investments                                                                                                                                                  |       | 17                                           |       | 1                                           |       | 26 |   | 1 |   |
| Total                                                                                                                                                                |       | $                                            | 10,946     |                                        | 100        | % | $ | 3,641 |   | 100 | % |

 

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(1)                                  For more information on the consolidatedfunds as of September 30, 2006 and December 31, 2005, see Notes 3 and 4 of thecondensed consolidated financial statements in Part I, Item 1.

CreditSuisse-managed funds include partnerships and related direct investments forwhich the Company acts as the fund’s advisor and makes investment decisions.Credit Suisse-managed funds principally invest in private securities and, to alesser extent, publicly traded securities and fund of fund partnerships. Thefair value of investments in Credit Suisse-managed fund of funds partnershipsis based on the valuation received from the underlying fund manager, isreviewed by us and reflected in “Reduced or no observable market parameters” inthe table above. The fair value of investments in other Credit Suisse-managedfunds is based on the Company’s valuation. Balances reported in CreditSuisse-managed funds also include amounts relating primarily to theconsolidation of private equity funds, which are described in further detail inNotes 3 and 4 of the condensed consolidated financial statements in Part I,Item 1. A substantial portion of the private equity funds consolidated are alsoreflected in “Reduced or no observable market parameters” in the table above.Funds managed by third parties include investments in funds managed by anexternal fund manager. The fair value of these funds is based on the valuationreceived from the general partner of the fund, is reviewed by us and isreflected in “Reduced or no observable market parameters” in the table above.

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## **IncomeTaxes**

***Deferred Tax Assets***

We recognize deferred tax assetsand liabilities for the estimated future tax effects of operating loss carry-forwardsand temporary differences between the carrying amounts of existing assets andliabilities and their respective tax basis as of the date of the statement offinancial condition. 

The realization of deferred taxassets on temporary differences is dependent upon the generation of taxableincome during the periods in which those temporary differences becomedeductible. The realization of deferred tax assets on net operating losses isdependent upon the generation of taxable income during the periods prior totheir expiration. Periodically, management evaluates whether deferred taxassets can be realized. If management considers it more likely than not thatall or a portion of a deferred tax asset will not be realized, a correspondingvaluation allowance is established. In evaluating whether deferred tax assetscan be realized, management considers projected future taxable income, thescheduled reversal of deferred tax liabilities and tax planning strategies. 

This evaluation requiressignificant management judgment, primarily with respect to projected taxableincome. The estimate of future taxable income can never be predicted with certainty.It is derived from budgets and strategic business plans but is dependent onnumerous factors, some of which are beyond our control. Substantial variance ofactual results from estimated future taxable profits, or changes in ourestimate of future taxable profits, could lead to changes in deferred taxassets being realizable or considered realizable, and would require acorresponding adjustment to the valuation allowance. 

As of September 30, 2006 andDecember 31, 2005, we had deferred tax assets resulting from temporarydifferences that could reduce taxable income in future periods. The condensedconsolidated statements of financial condition as of September 30, 2006 andDecember 31, 2005 include deferred tax assets of $1.9 billion and $1.8 billion,respectively, and deferred tax liabilities of $645 million and$602 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 $36 million and $35 million asof September 30, 2006 and December 31, 2005, respectively. 

***TaxContingencies***

Significant judgment is required in determining the effective tax rateand in evaluating certain of our tax positions. We accrue for tax contingencies when, despite our belief that our taxreturn positions are fully supportable, certain positions could be challengedand our positions may not be fully sustained. Once established, tax contingency accruals are adjusted due to changingfacts and circumstances, such as case law, progress of audits or when an eventoccurs requiring a change to the tax contingency accruals.  We regularly assess the likelihood of adverseoutcomes to determine the appropriateness of our provision (benefit) for incometaxes.  Although the outcome of anydispute is uncertain, management believes that it has appropriately accrued forany unfavorable outcome.

**Litigation Contingencies**

We are involved in a variety oflegal, regulatory and arbitration matters in connection with the conduct of ourbusiness. It is inherently difficult to predict the outcome of many of thesematters, particularly those cases in which the matters are brought on behalf ofvarious classes of claimants, seek damages of unspecified or indeterminateamounts or involve novel legal claims. In presenting our condensed consolidatedfinancial statements, management makes estimates regarding the outcome of thesematters and records a reserve and takes a charge to income when losses withrespect to such matters are probable and can be reasonably estimated. Charges,other than those taken periodically for cost of defense, are not establishedfor matters when losses cannot be reasonably estimated. Estimates, by theirnature, are based on judgment and currently available information and involve avariety of factors, including, but not limited to, the type and nature of thelitigation, claim or proceeding, the progress of the matter, the advice of legalcounsel and 

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other advisors, our defenses and our experience insimilar cases or proceedings as well as our assessment of matters,including settlements, involving other defendants in similar or related casesor proceedings. For a discussion oflegal proceedings, see “Legal Proceedings” in Part II, Item 1.

**RECENT DEVELOPMENTS**

As part of astrategy to develop opportunities in the alternative investment markets, in thesecond quarter of 2006, Credit Suisse and General Electric Company announcedtheir intention to form a joint venture, Global Infrastructure Partners, toinvest in global infrastructure assets. In July 2006, each of Credit Suisse(through a subsidiary of the Company) and affiliates of General Electric agreedto commit, subject to certain conditions, approximately $500 million to thejoint venture, which intends to invest in energy, transportation and waterinfrastructure worldwide. This commitment is expected to be funded by theCompany, with a portion being funded in the fourth quarter of 2006.

In September 2006,Credit Suisse announced a strategic alliance with Ospraie Management, LLC, aNew York-based investment management firm focused on commodities and basicindustries.  The Company has committed toprovide or arrange for investments of approximately $500 million with Ospraieand its affiliates in private equity-type opportunities in the commodities andbasic industries sectors.  The Companyhas also made certain additional commitments to provide or arrange forinvestments of up to approximately $100 million, subject to certain conditions,in connection with future Ospraie products (with additional investments at theoption of the Company).  As part of theagreement, the Company purchased a small, non-controlling interest in Ospraieand its affiliates, and has an option to purchase additional interests inOspraie.  

**RESULTS OF OPERATIONS**

The following table sets forth asummary of our financial results:  
| ** **                                                                                                               | ** ** | **For the Three Months Ended  September 30,** | ** ** | **For the Nine Months Ended  September 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                                                                               | ** ** | **2006**                                                               | ** ** | **2005**                                                              | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                                                               | ** ** | **(In millions)**                                                 | ** ** |
| Total net  revenues                                                                                                      |       | $                                                                      | 2,105      |                                                                  | $          | 2,080 |   | $ | 7,495 |   | $ | 5,140 |   |
| Total expenses                                                                                                           |       | 1,402                                                                  |       | 1,286                                                                 |       | 4,031 |   | 4,335 |   |
| Income before  provision for income taxes, minority interests and cumulative effect of a  change in accounting principle |       | 703                                                                    |       | 794                                                                   |       | 3,464 |   | 805 |   |
| Provision for  income taxes                                                                                              |       | 111                                                                    |       | 196                                                                   |       | 495 |   | 18 |   |
| Minority  interests                                                                                                      |       | 413                                                                    |       | 212                                                                   |       | 1,989 |   | 670 |   |
| Income before  cumulative effect of a change in accounting principle                                                     |       | 179                                                                    |       | 386                                                                   |       | 980 |   | 117 |   |
| Cumulative  effect of a change in accounting principle, net of income tax expense of $3  in 2005                         |       | —                                                                 |       | —                                                                |       | — |   | 6 |   |
| Net income                                                                                                               |       | $                                                                      | 179        |                                                                  | $          | 386 |   | $ | 980 |   | $ | 123 |   |

 

A substantialportion of our financial instruments are marked to market daily and, therefore,the value of such financial instruments and our net revenues are subject tofluctuations based on market movements. In addition, net revenues derived fromour less liquid assets may fluctuate significantly depending on the revaluationor sale of these investments in any given period. We also regularly enter intolarge transactions as part of our proprietary and other trading businesses, andthe number and size of such transactions may subject our net revenues tovolatility from period to period.

Interest income and expense isaccrued at the stated coupon rate for coupon-bearing financialinstruments, and for non-coupon-bearing financial instruments, interestincome is recognized by accreting the discount over the life of 

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the instrument. For coupon-bearing financialinstruments purchased at a discount or premium, the net difference betweeninterest income and expense accrued at the stated coupon rate and interestincome and expense determined on an effective yield basis, which could besignificant, is included in principal transactions-net instead of net interestand dividends in the condensed consolidated statements of income. 

We use derivatives and cashinstruments to economically hedge the interest rate exposure associated withcommercial mortgage whole loans, originated residential mortgage whole loans,resale and repurchase agreements and long-term borrowings.  These derivatives and cash instruments arecarried at fair value, while the commercial mortgage whole loans and originatedresidential mortgage whole loans are carried at the lower of cost or fair valueand the resale and repurchase agreements are carried at contract amounts.  As aresult, decreases in the value of the derivatives and cash instruments, if any,are not offset by increases in the value of the commercial mortgage whole loansand originated residential whole loans until the loans are sold and increasesand decreases in the value of the derivatives and cash instruments, if any, arenot offset by decreases and increases in the value of the resale and repurchaseagreements until the securities are sold or repurchased. In addition, we havecertain derivatives that economically hedge our long-term borrowings that werenot designated for hedge accounting treatment under Statement of FinancialAccounting Standards, or SFAS, No. 133 “Accounting for Derivatives Interest andHedging Activities,” or SFAS 133. Increasesand decreases in the value of the derivatives that economically hedge ourlong-term borrowings are not offset by decreases and increases in our long-termborrowings.  Commercial mortgage wholeloans, originated residential mortgage whole loans, resale and repurchaseagreements and economically hedged long-term borrowings can be a significantpart of our statement of financial condition. Therefore, our net revenues aresubject to volatility from period to period.

Our businesses are materially affected by conditions in the financialmarkets and economic conditions generally, including geopolitical events.Unpredictable or adverse market and economic conditions have adversely affectedour past results and may in the future adversely affect our results ofoperations. See “Risk Factors” in Part I, Item 1A of our Annual Report on Form10-K for the year ended December 31, 2005.

**Three Months Ended September 30, 2006 Compared to Three Months Ended September 30, 2005**

The Companyrecorded net income of $179 million for the three months ended September30, 2006 compared to $386 million for the three months ended September 30,2005, reflecting relatively flat net revenues and an increase in expenses.

Total net revenuesincreased $25 million, or 1%, to $2.1 billion forthe three months ended September 30, 2006, compared to the three months ended September 30, 2005, resulting from increases inprincipal transactions-net, investment banking and advisory revenues,commissions and fees and other revenues partially offset by a decrease in netinterest and dividends revenue.  Theincrease in principal transactions-net was primarily due to higher revenuesfrom the consolidation of certain private equity funds and increased revenues from equity trading partiallyoffset by decreases in revenues from fixed income trading.  Investment banking and advisory revenuesincreased due to higher debt underwriting revenues partially offset by lowerequity underwriting revenues and advisory fees. Commissions and fees werehigher reflecting growth in our advanced execution services business, highercommissions from prime services and higher management fees from our privateequity business.  Net interest anddividend revenues decreased primarily due to higher short-term borrowing costsassociated with our trading business.

The Company allocates most revenues and expenses to its segments. Anyrevenues and expenses not allocated appear in Elimination & Other in Note13 to the condensed consolidated financial statements in Part I, Item 1.  For the three months ended September 30, 2006and 2005, Elimination & Other primarily included revenues and expenses thatresult from the consolidation of certain private equity funds. Elimination& Other also included a limited amount of treasury costs notallocated to the Company’s segments.  TheCompany’s consolidation of certain private equity funds resulted in an increasein net revenues of $420 million and $214 million, respectively, and an increasein total expenses of $5 million and $2 million, respectively, for thethree months ended September 30, 2006 and 2005. Excluding the increases attributable to the consolidation of certainprivate equity funds, total net revenues decreased 10%.  As of September 30, 2006, the Company’scondensed consolidated statement of financial condition reflected 

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assets and liabilities of$10.5 billion due to the consolidation of certain private equity funds,including $6.7 billion as required by Emerging Issues Task Force, or EITF,Issue No. 04-5, “Determining Whether a General Partner, or the General Partnersas a Group, Controls a Limited Partnership or Similar Entity When the LimitedPartners Have Certain Rights”, or EITF 04-5.  See Notes, 1, 3 and 13 of the condensed consolidated financialstatements in Part I, Item 1 for more information.

Total expensesincreased $116 million, or 9%, to $1.4 billion for the three months ended September 30, 2006 compared to the three months ended September 30, 2005primarily due to higher other operating expenses.  Employee compensation and benefits expensesincreased $10 million, or 1%, to $969 million for the three months endedSeptember 30, 2006 compared to the three months ended September 30, 2005,reflecting higher share-based compensation, base salaries and severancepartially offset by lower incentive compensation.  Included in employeecompensation expense is $24 million and $54 million for the three months endedSeptember 30, 2006 and 2005, respectively, related to business activitiesconducted by Company employees on behalf of CSG affiliates outside of theCompany.  These expenses were charged to these affiliates and are reflected as areduction in our other operating expenses. Other expenses increased $106 million for the three months endedSeptember 30, 2006 compared to the three months ended September 30, 2005primarily as a result of increases in otheroperating expenses, brokerage, clearing and exchange fees and occupancy andequipment rental expenses.  See “—SegmentExpenses.”

## **NineMonths Ended September 30, 2006 Compared to Nine Months Ended September 30,2005**

The Company recorded netincome of $980 million for the nine months ended September 30, 2006compared to $123 million for the nine months ended September 30, 2005,reflecting a significant increase in net revenues and a decrease in expenses.

Total net revenuesincreased $2.4 billion, or 46%, to $7.5 billion for the nine months ended September 30, 2006 compared to the nine months ended September 30, 2005, resulting from significantincreases in principal transactions-net and investment banking and advisoryrevenues and increases in commissions and fees and other revenues partiallyoffset by a significant decrease in net interest and dividends revenue.  The increase in principal transactions-netwas primarily due to higher revenues from the consolidation of certain privateequity funds and equity and fixed income trading partially offset by decreasesin revenues from our private equity business and losses from swaps thateconomically hedged our long-term borrowings that were not designated for hedgeaccounting treatment under SFAS 133. Investment banking and advisory revenues increased due to higher debtunderwriting and advisory fees. Commissions and fees were higher reflectinggrowth in our advanced execution services business, higher management fees fromour private equity business and higher commissions from our listed derivativesbusiness.  Net interest and dividendrevenues decreased primarily due to higher short-term borrowing costsassociated with our trading business.

For the nine months ended September 30, 2006 and 2005, Elimination &Other primarily included revenues and expenses that result from theconsolidation of certain private equity funds. Elimination & Other alsoincluded a limited amount of treasury costs not allocated to the Company’ssegments.  The Company’s consolidation ofcertain private equity funds resulted in an increase in net revenues of $2.0billion and $675 million, respectively, and an increase in total expenses of$18 million and $5 million, respectively, for the nine months endedSeptember 30, 2006 and 2005.  Excludingthe increases attributable to the consolidation of certain private equityfunds, total net revenues increased 23%. As of September 30, 2006, the Company’s condensed consolidated statementof financial condition reflected assets and liabilities of $10.5 billion due tothe consolidation of certain private equity funds, including $6.7 billion asrequired by EITF 04-5.   See Notes, 1, 3and 13 of the condensed consolidated financial statements in Part I, Item 1 formore information.

Total expensesdecreased $304 million, or 7%, to $4.0 billion for the nine months ended September 30, 2006 compared to the nine months ended September 30,2005.  Total expenses for the nine monthsended September 30, 2006 included insurance settlements for litigation andrelated costs totaling $390 million, which reduced other operatingexpenses.  Total expenses for the ninemonths ended September 30, 2005 included a $750 million charge to increase thereserve for certain private litigation. Excluding the insurance settlements and the litigation charge, expensesincreased $836 million, or 23%, to $4.4 billion primarily due to higheremployee compensation and 

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benefits expenses.  Employee compensation and benefits expensesincreased by $554 million, or 21%, to $3.2 billion for the nine months endedSeptember 30, 2006 compared to the nine months ended September 30, 2005,reflecting higher incentive compensation, share-based compensation, basesalaries and head count.  Included in employee compensationexpense is $83 million and $159 million for the nine months ended September 30,2006 and 2005, 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.  Otherexpenses decreased $858 million, or 51%, for the nine months endedSeptember 30, 2006 compared to the nine months ended September 30, 2005. Excludingthe insurance settlements and the litigation charge, other expenses increased$282 million, or 30%, to $1.2 billion primarilyas a result of increases in other operating expenses, professional fees,brokerage, clearing and exchange fees and occupancy and equipment rentalexpenses.  See “—Segment Expenses.”

## **Resultsby Segment**

EffectiveJanuary 1, 2006, CSG realigned its organizational structure to its newstrategic orientation, which is to focus on its banking businesses.  As a result of this realignment, CSG’sbanking business consists of three reporting segments:  Investment Banking, Private Banking and AssetManagement.  We are managed as asubsidiary of Credit Suisse and CSG, and our businesses are a part of each ofthese banking segments.  Therefore,effective January 1, 2006, we began operating and managing our businesses alongthese same three banking segments.

Our InvestmentBanking segment consists principally of the businesses that comprised ourformer Institutional Securities segment, with the addition of the private fundsgroup that was formerly part of our Wealth & Asset Management segment.  Our Asset Management segment consists of theprivate equity business and the Volaris business that were formerly part of ourWealth & Asset Management segment. Our Private Banking segment consists ofthe private client services business in the United States (other than Volaris)that was formerly part of our Wealth & Asset Management segment.  

The operations of the Investment Banking segmentconsist of 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. TheInvestment Banking segment also includes the results from certain separatelymanaged private equity and distressed assets. The operations of the Asset Management segment primarily consist of theprivate equity business. The operations of the Private Banking segment consistof the private client services business in the United States. 

Our segments are managed based on types of products and servicesoffered and their related client bases. We evaluate the performance of oursegments based primarily on income (loss) before provision (benefit) for incometaxes, minority interests and cumulative effect of a change in accountingprinciple.

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 segment results.

The cost structure of each of our segments is similar and, consequently,the discussion of expenses is presented on an aggregated basis for oursegments. The Company allocates to its segments a *pro rata* share of certain centrally managed costs. Leasedfacilities and equipment costs, employee benefits and certain general overheadexpenses are allocated based upon specified amounts, usage criteria or agreedrates. Interest expense is allocated based upon the particular type of asset.The allocation of some costs, such as incentive bonuses, has been estimated. Thetiming and magnitude of changes in our incentive bonus accrual can have asignificant effect on our operating results for a given period. 

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The Global Treasury department allocates to the Company’s segmentsgains and losses related to certain corporate treasury funding transactionsbased upon the estimated funding requirements of the segments. 

We manage andreport our segments on a pre-tax basis and exclude revenues and expensesprimarily related to the consolidation of certain private equity funds, whichare reported in Elimination & Other. Net income is unaffected by the consolidation of these private equityfunds because offsetting minority interests are also recorded in Elimination& Other.  

Certainreclassifications have been made to our prior year condensed consolidatedfinancial statements in this Quarterly Report to reflect the operational andmanagement structure in place during 2006.

***Investment Banking***

The Investment Banking segment includes the trading and investmentbanking businesses and the results from certain separately managed privateequity and distressed assets. Trading consists of sales and trading in equitysecurities, equity-related derivatives, fixed income financial instruments,fixed income-related derivatives and other related activities. Investmentbanking raises capital and provides financial advice to companies throughoutthe United States and abroad. Through investment banking, we manage andunderwrite offerings of securities, arrange private placements and providefinancial advisory and other services. 

The followingtable sets forth certain financial information of the Company’s InvestmentBanking segment:
| ** **                                      | ** ** | **For the Three Months Ended  September 30,** | ** ** | **For the Nine Months Ended  September 30,** | ** ** |
|-------------------------------------------------|------------|------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                      | ** ** | **2006**                                                               | ** ** | **2005**                                                              | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                      | ** ** | **(In millions)**                                                 | ** ** |
| Revenues:                                       |       |                                                                   |       |                                                                  |       |   |   |   |   |
| Principal transactions-net                      |       | $                                                                      | 439        |                                                                  | $          | 490 |   | $ | 1,483 |   | $ | 338 |   |
| Investment banking and advisory                 |       | 581                                                                    |       | 495                                                                   |       | 1,909 |   | 1,219 |   |
| Commissions                                     |       | 281                                                                    |       | 247                                                                   |       | 870 |   | 757 |   |
| Interest and dividends, net of interest expense |       | 210                                                                    |       | 406                                                                   |       | 745 |   | 1,485 |   |
| Other                                           |       | 38                                                                     |       | 17                                                                    |       | 86 |   | 37 |   |
| Total net revenues                              |       | 1,549                                                                  |       | 1,655                                                                 |       | 5,093 |   | 3,836 |   |
| Total expenses                                  |       | 1,276                                                                  |       | 1,126                                                                 |       | 3,622 |   | 3,905 |   |
| Income (loss)(1)                                |       | $                                                                      | 273        |                                                                  | $          | 529 |   | $ | 1,471 |   | $ | (69 | ) |

 

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(1)                                  Income (loss) before provision (benefit)for income taxes, minority interests and cumulative effect of a change inaccounting principle.

*Three Months Ended September 30, 2006Compared to Three Months Ended September 30, 2005*

The InvestmentBanking segment recorded income before provision for income taxes, minorityinterests and the cumulative effect of a change in accounting principle of $273million for the three months ended September30, 2006 compared to $529 million for the three months ended September30, 2005, reflecting a decrease in net revenues and an increase inexpenses.  Total net revenues decreased$106 million, or 6%, to $1.5 billion for the three months ended September 30, 2006 compared to thethree months ended September 30, 2005, reflecting lower revenues from tradingpartially offset by higher revenues from investment banking and otherinvestment banking.

*Nine months ended September 30, 2006 Comparedto Nine months ended September 30, 2005*

The InvestmentBanking segment recorded income before provision for income taxes, minorityinterests and the cumulative effect of a change in accounting principle of $1.5billion for the nine months ended September30, 2006 compared to a loss before benefit for income taxes, minorityinterests and cumulative effect of a change in accounting principle of $69million for the nine months ended September 30, 2005, reflecting a significantincrease in net revenues and a decrease in expenses.  Total net revenues increased $1.3 billion, or33%, to $5.1 billion for the ninemonths ended September 30, 2006 compared to the nine months endedSeptember 30, 2005, reflecting higher 

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revenues fromtrading and investment banking. Total expenses for Investment Bankingfor the nine months ended September 30, 2006 included insurance settlements forlitigation and related costs of $390 million, which reduced expenses.  Total expenses for Investment Banking for thenine months ended September 30, 2005 included a $750 million charge to increasethe reserve for certain private litigation. See “—Segment Expenses.”

Trading

In evaluating the performance of its tradingactivities, the Company aggregates principal transactions-net, commissions, netinterest and dividends revenue and certain servicing fees recorded in otherrevenues as net trading revenues.  Changesin the composition of trading inventories and hedge positions can causeprincipal transactions and net interest income to vary from period to period.

The following table sets forthnet trading revenues of theInvestment Banking segment:
| ** **       | ** ** | **For the Three Months Ended  September 30,** | ** ** | **For the Nine Months Ended  September 30,** | ** ** |
|------------------|------------|------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **       | ** ** | **2006**                                                               | ** ** | **2005**                                                              | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **       | ** ** | **(In millions)**                                                 | ** ** |
| Equity           |       | $                                                                      | 427        |                                                                  | $          | 406 |   | $ | 1,311 |   | $ | 940 |   |
| Fixed Income     |       | 516                                                                    |       | 836                                                                   |       | 2,062 |   | 1,801 |   |
| Total Trading(1) |       | $                                                                      | 943        |                                                                  | $          | 1,242 |   | $ | 3,373 |   | $ | 2,741 |   |

 

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(1)                                  Revenues reflect the allocation of certainnet revenues and interest expense from the Global Treasury department totrading. For the three months ended September 30, 2006 and 2005, the amount was$199 million and $90 million of income, respectively. For the nine months endedSeptember 30, 2006 and 2005, the amount was $478 million and $168 million ofincome, respectively. See “—Results by Segment” above.

*Three Months Ended September 30, 2006 Comparedto Three Months Ended September 30, 2005*

Total nettrading revenues for the Investment Banking segment decreased $299 million, or24%, to $943 million for the three months ended September 30, 2006compared to thethree months ended September 30, 2005, due to a significant decrease infixed income net trading revenues and a modest increase in equity net tradingrevenues. Net revenues reflected higher allocated net revenues and interestexpense from the Global Treasury department due to higher borrowing costs.

Equity net trading revenuesincreased 5% to $427 million reflecting higher revenues from advanced executionservices as this business continues to grow as well as higher revenues fromderivative and convertible products and prime services.  These increases were partially offset bylower revenues from proprietary trading.

Fixed income net trading revenues decreased 38% to$516 million, reflecting a significant decrease in revenues from structuredproducts and decreases in revenues from credit products and interest rateproducts partially offset by higher revenues from commodities.  The decrease in structured products nettrading revenues was due to lower revenues from residential and commercialmortgage-backed products and asset-backed products despite an increase inrevenues as a result of our acquisition of SPS Holdings Corp. In addition,during the three months ended September 30, 2005, Investment Banking changedits estimate of fair value of its retained interests in residentialmortgage-backed securities resulting in a $167 million adjustment to thevaluation of these positions, which increased revenues. Credit productsrevenues were lower primarily due to lower results from leveraged finance.  The decrease in revenues from interest rateproducts primarily reflected losses on derivatives that hedged certain resaleand repurchase agreements and losses on certain OTC derivatives.  Commodities revenues grew as we continue toexpand this business.  Included in fixedincome trading revenues are commercial and residential mortgage-backedunderwriting revenues.  

*Nine Months Ended September 30, 2006 Comparedto Nine Months Ended September 30, 2005*

Total nettrading revenues for the Investment Banking segment increased $632 million, or23%, to $3.4 billion for the nine months ended September 30, 2006compared to thenine months ended September 30, 2005, 

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due to increases in equity and fixed income net trading revenues. Netrevenues reflected higher allocated net revenues and interest expense from theGlobal Treasury department due to higher borrowing costs.

Equity net trading revenuesincreased 39% to $1.3 billion reflecting higher revenues across most of ourequity business including convertibles, which had losses during the nine monthsended September 30, 2005 due to reduced liquidity and low volatility. Revenuesfrom proprietary trading were higher. Revenues from prime services were also higher as this business continuesto grow.  Revenues from our cash businesswere flat.  

Fixed income net trading revenues increased 14% to$2.1 billion, reflecting increases in revenues from interest rate products andcommodities partially offset by lower revenues from structured products andcredit products.  The increase inrevenues from interest rate products primarily reflected gains on derivativesthat hedged certain resale and repurchase agreements as well as higher revenuesfrom listed derivatives and U.S. government bonds.  Commodities contributed to the growth inrevenues as we continue to expand this business.  The decrease in structured products nettrading revenues was due to lower revenues from asset-backed and residentialmortgage-backed products reflecting the fact that during the nine months endedSeptember 30, 2005, Investment Banking changed its estimate of fair value ofits retained interests in residential mortgage-backed securities resulting in a$167 million adjustment to the valuation of these positions, which increasedrevenues. Credit products revenues were down primarily due to lower revenuesfrom high grade preferred securities and leveraged finance products.  

Investment Banking

The following table sets forth the investmentbanking revenues for the Investment Banking segment: 
| ** **                | ** ** | **For the Three Months Ended  September 30,** | ** ** | **For the Nine Months Ended  September 30,** | ** ** |
|---------------------------|------------|------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                | ** ** | **2006**                                                               | ** ** | **2005**                                                              | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                | ** ** | **(In millions)**                                                 | ** ** |
| Debt underwriting         |       | $                                                                      | 251        |                                                                  | $          | 89 |   | $ | 838 |   | $ | 270 |   |
| Equity  underwriting      |       | 54                                                                     |       | 119                                                                   |       | 261 |   | 268 |   |
| Total underwriting        |       | 305                                                                    |       | 208                                                                   |       | 1,099 |   | 538 |   |
| Advisory and  other fees  |       | 220                                                                    |       | 229                                                                   |       | 633 |   | 536 |   |
| Total investment  banking |       | $                                                                      | 525        |                                                                  | $          | 437 |   | $ | 1,732 |   | $ | 1,074 |   |

 

*Three Months Ended September 30, 2006 Comparedto Three Months Ended September 30, 2005*

Investment banking revenuesincreased 20% to $525 million, reflecting an increase in debt underwritingpartially offset by decreases in equity underwriting and advisory and otherfees. For the three months ended September 30, 2006, debt underwriting revenuesincreased $162 million to $251 million compared to the three months endedSeptember 30, 2005, primarily due to an increase in underwriting revenues fromsyndicated loans reflecting the fact that on January 1, 2006, we began toconduct certain syndicated loan activities that were previously conducted by abranch of Credit Suisse outside of our consolidated group.  High-yield underwriting revenues were alsohigher reflecting an industry-wide increase in high-yield issuance activity.Equity underwriting revenues decreased 55% to $54 million reflecting lowerindustry-wide equity issuance activity. Advisory and other fees decreased 4% to $220 million reflecting anindustry-wide decline in completed mergers and acquisitions partially offset byhigher revenues from our private funds group.

*Nine Months Ended September 30, 2006 Comparedto Nine Months Ended September 30, 2005*

Investment banking revenuesincreased 61% to $1.7 billion, reflecting increases in debt underwriting andadvisory and other fees. For the nine months ended September 30, 2006, debtunderwriting revenues increased $568 million compared to the nine monthsended September 30, 2005 to $838 million, primarily due to an increase inunderwriting revenues from syndicated loans reflecting the fact that on January1, 2006, we began to conduct certain syndicated loan activities that werepreviously conducted by a branch of Credit Suisse outside of our consolidatedgroup.  Debt underwriting revenues werealso higher reflecting higher asset-backed and high-yield underwritingrevenues.  Advisory and other feesincreased 18% to $633 million reflecting higher revenues from our 

42

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private funds group andhigher industry-wide completed mergers and acquisitions activity. Equityunderwriting revenues decreased 3% to $261 million reflecting modestdecreases in common stock and convertible underwriting revenues despite anindustry-wide increase.

Other Investment Banking

Other investment banking revenues primarilyconsist of the results forcertain separately managed private equity, distressed and real estate assetsand gains and losses on swaps that economically hedge our long-term borrowingsthat were not designated for hedge accounting treatment under SFAS 133.

The following table sets forthother investment banking**revenues:
| ** **                                               | ** ** | **For the Three Months Ended  September 30,** | ** ** | **For the Nine Months Ended  September 30,** | ** ** |
|----------------------------------------------------------|------------|------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                               | ** ** | **2006**                                                               | ** ** | **2005**                                                              | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                               | ** ** | **(In millions)**                                                 | ** ** |
| Separately  managed private equity and distressed assets |       | $                                                                      | 23         |                                                                  | $          | (11 | ) | $ | 20 |   | $ | 42 |   |
| Other                                                    |       | 58                                                                     |       | (13                                                                   | )          | (32 | ) | (21 | ) |
| Total other  investment banking                          |       | $                                                                      | 81         |                                                                  | $          | (24 | ) | $ | (12 | ) | $ | 21 |   |

 

*Three Months Ended September 30,2006 Compared to Three Months EndedSeptember 30, 2005*

Other investment banking had net revenues of $81 millionfor the three months ended September 30, 2006 compared to negative net revenuesof $24 million for the three months ended September 30, 2005, reflecting gainson swaps that economically hedge our long-term borrowings that were not designatedfor hedge accounting treatment under SFAS 133 and higher revenues from certainseparately managed private equity, real estate and distressed assets.

*Nine Months Ended September 30, 2006Compared to Nine Months Ended September 30,2005*

Other investment banking had negative net revenues of $12 millionfor the nine months ended September 30, 2006 compared to net revenues of $21million for the nine months ended September 30, 2005, reflecting losses onswaps that economically hedge our long-term borrowings that were not designatedfor hedge accounting treatment under SFAS 133, and lower revenues from certainseparately managed private equity and real estate assets and losses fromcertain separately managed distressed assets.

***Asset Management***

The Asset Management segment primarily consists of theprivate equity business.  The privateequity business makes privately negotiated investments and acts as aninvestment manager for private equity funds. 

The following table sets forth certain financialinformation of the Company’s Asset Management segment: 
| ** **                                      | ** ** | **For the Three Months Ended  September 30,** | ** ** | **For the Nine Months Ended  September 30,** | ** ** |
|-------------------------------------------------|------------|------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                      | ** ** | **2006**                                                               | ** ** | **2005**                                                              | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                      | ** ** | **(In millions)**                                                 | ** ** |
| Revenues:                                       |       |                                                                   |       |                                                                  |       |   |   |   |   |
| Principal transactions-net                      |       | $                                                                      | 49         |                                                                  | $          | 109 |   | $ | 123 |   | $ | 339 |   |
| Asset management and other fees                 |       | 52                                                                     |       | 36                                                                    |       | 137 |   | 110 |   |
| Interest and dividends, net of interest expense |       | 6                                                                      |       | 2                                                                     |       | 8 |   | 1 |   |
| Other                                           |       | —                                                                 |       | 2                                                                     |       | 2 |   | 6 |   |
| Total net revenues                              |       | 107                                                                    |       | 149                                                                   |       | 270 |   | 456 |   |
| Total expenses                                  |       | 47                                                                     |       | 86                                                                    |       | 160 |   | 225 |   |
| Income(1)                                       |       | $                                                                      | 60         |                                                                  | $          | 63 |   | $ | 110 |   | $ | 231 |   |

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(1)                                  Income beforeprovision for income taxes, minority interests and cumulative effect of achange in accounting principle. 

43

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*ThreeMonths Ended September 30, 2006 Compared to ThreeMonths Ended September 30, 2005*

Revenues for Asset Management primarily consist of management fees, netinvestment gains and losses, which include realized and unrealized gains andlosses, including carried interest, net interest and other revenues from theprivate equity business.  The AssetManagement segment recorded income before provision for income taxes, minorityinterests and cumulative effect of a change in accounting principle of $60million for the three months ended September 30, 2006 compared to $63 millionfor the three months ended September 30, 2005. Total net revenues decreased $42 million, or 28%, to $107 million,primarily due to lower principal transactions-net from our private equitybusiness, which had significant gains during the three months ended September30, 2005, partially offset by higher management fees due to new private equityfunds managed by the Company.  

*Nine Months Ended September 30, 2006 Comparedto Nine Months Ended September 30, 2005*

The AssetManagement segment recorded income before provision for income taxes, minorityinterests and cumulative effect of a change in accounting principle of $110million for the nine months ended September 30, 2006 compared to $231 millionfor the nine months ended September 30, 2005. Total net revenues decreased $186 million, or 41%, to $270 million,primarily due to significantly lower principal transactions-net from ourprivate equity business, which had significant gains during the nine monthsended September 30, 2005, partially offset by higher management fees due to newprivate equity funds managed by the Company.

***PrivateBanking***

The Private Banking segment consists of the private client servicesbusiness in the United States.  Private client services is a financialadvisory business serving high-net-worth individuals and corporate investorswith a wide range of Credit Suisse and third-party investment managementproducts and services.  

The following table sets forth certain financialinformation of the Company’s Private Banking segment: 
| ** **                                      | ** ** | **For the Three Months Ended  September 30,** | ** ** | **For the Nine Months Ended  September 30,** | ** ** |
|-------------------------------------------------|------------|------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                      | ** ** | **2006**                                                               | ** ** | **2005**                                                              | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                      | ** ** | **(In millions)**                                                 | ** ** |
| Revenues:                                       |       |                                                                   |       |                                                                  |       |   |   |   |   |
| Principal transactions-net                      |       | $                                                                      | 2          |                                                                  | $          | 11 |   | $ | 24 |   | $ | 33 |   |
| Investment banking and advisory                 |       | 2                                                                      |       | 8                                                                     |       | 12 |   | 12 |   |
| Asset management and other fees                 |       | 52                                                                     |       | 41                                                                    |       | 152 |   | 124 |   |
| Interest and dividends, net of interest expense |       | —                                                                 |       | 2                                                                     |       | — |   | 4 |   |
| Total net revenues                              |       | 56                                                                     |       | 62                                                                    |       | 188 |   | 173 |   |
| Total expenses                                  |       | 74                                                                     |       | 72                                                                    |       | 231 |   | 200 |   |
| Loss (1)                                        |       | $                                                                      | (18        | )                                                                     | $          | (10 | ) | $ | (43 | ) | $ | (27 | ) |

 

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

*Three Months Ended September 30, 2006 Comparedto Three Months Ended September 30, 2005*

The PrivateBanking segment reported a loss before benefit for income taxes, minorityinterests and cumulative effect of a change in accounting principle of $18million for the three months ended September 30, 2006 compared to a loss of $10million for the three months ended September 30, 2005, reflecting an increasein total expenses and a decrease in net revenues.  Net revenues for Private Banking decreased 10%to $56 million, reflecting lower investment banking revenues.

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*Nine months ended September 30, 2006 Comparedto Nine months ended September 30, 2005*

The Private Banking segmentreported a loss before benefit for income taxes, minority interests andcumulative effect of a change in accounting principle of $43 million for thenine months ended September 30, 2006 compared to a loss of $27 million for thenine months ended September 30, 2005, reflecting an increase in total expensesthat exceeded the increase in net revenues. Net revenues for Private Banking increased 9% to $188 million, primarilydue to higher commissions as a result of higher volume and from our acquisitionof Frye Louis Capital Management, Inc., on January 1, 2006 from our indirectparent Credit Suisse.

**Segment Expenses**

The normal operating cost structureof each of our segments is similar and, consequently, the discussion ofexpenses is presented on an aggregate basis for our segments. For informationon expenses that are not allocated to the Company’s segments, see “—Results ofOperations” and Note 13 of the condensed consolidated financial statements inPart I, Item 1.

The following table sets forthemployee compensation and benefits expenses, other expenses and total expensesof the Company’s segments and does not include expenses not allocated to thesegments:
| ** **                          | ** ** | **For the Three Months Ended  September 30,** | ** ** | **For the Nine Months Ended  September 30,** | ** ** |
|-------------------------------------|------------|------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                          | ** ** | **2006**                                                               | ** ** | **2005**                                                              | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                          | ** ** | **(In millions)**                                                 | ** ** |
| Employee compensation  and benefits |       | $                                                                      | 969        |                                                                  | $          | 959 |   | $ | 3,198 |   | $ | 2,644 |   |
| Other expenses                      |       | 428                                                                    |       | 325                                                                   |       | 815 |   | 1,686 |   |
| Total expenses                      |       | $                                                                      | 1,397      |                                                                  | $          | 1,284 |   | $ | 4,013 |   | $ | 4,330 |   |

*Three Months Ended September 30, 2006 Comparedto Three Months Ended September 30, 2005*

Total expensesincreased $113 million, or 9%, to $1.4 billion for the three months ended September 30, 2006 compared to the three months ended September 30, 2005primarily due to higher other operating expenses. Employee compensation andbenefits expense increased $10 million, or 1% to $969 million primarilydue to higher share-based compensation, base salaries and severance partiallyoffset by lower incentive compensation. Included in employee compensation and benefits expense is $24 millionand $54 million for the three months ended September 30, 2006 and 2005,respectively, related to business activities conducted by Company employees onbehalf of CSG affiliates outside of the Company.  Theseexpenses were charged to these affiliates and are reflected as a reduction inour other operating expenses.

Other expenses consist principally of occupancy and equipment rental;brokerage, clearing and exchange fees; communications; professional fees; andall other operating expenses. Other expenses increased $103 million for thethree months ended September 30, 2006 compared to the three months endedSeptember 30, 2005 primarily as a result of increases in other operatingexpenses, brokerage, clearing and exchange fees and occupancy and equipmentrental expenses.  The increase in otheroperating expenses primarily reflected higher accruals for legal fees and lowerexpenses charged to affiliates that are reflected as a reduction in our otheroperating expenses. The decrease in expenses charged to affiliatesreflected our commencement of certain syndicated loan activities that werepreviously conducted by a branch of Credit Suisse outside of our consolidatedgroup.  Brokerage, clearing and exchange fees increased due to higher levels ofbusiness activity.  The increase in occupancy and equipment rentalreflected higher depreciation and amortization as a result of our acquisitionof SPS Holdings Corp.  Excluding theimpact of the charge to affiliates for compensation expense, other operatingexpenses increased 19%.

*Nine Months Ended September 30, 2006 Compared to NineMonths Ended September 30, 2005*

Total expensesdecreased $317 million, or 7%, to $4.0 billion for the nine months ended September 30, 2006 compared to the nine months ended September 30,2005.  Total expenses for the

45

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nine months endedSeptember 30, 2006 included insurance settlements for litigation and relatedcosts totaling $390 million.  Totalexpenses for the nine months ended September 30, 2005 included a $750 millioncharge to increase the reserve for certain private litigation.  Excluding the insurance settlements and thelitigation charge, total expenses increased $823 million, or 23%, to $4.4billion primarily due to higher employee compensation and benefits expensesreflecting higher incentive compensation, share-based compensation, basesalaries and head count.  Employeecompensation and benefits expense increased $554 million, or 21%, to $3.2billion. Included in employee compensation and benefits expense is $83 millionand $159 million for the nine months ended September 30, 2006 and 2005,respectively, related to business activities conducted by Company employees onbehalf of CSG affiliates outside of the Company.  Theseexpenses were charged to these affiliates and are reflected as a reduction inour other operating expenses.

Other expenses decreased $871 million, or 52%, for the nine monthsended September 30, 2006 compared to the nine months ended September 30, 2005.Other expenses for the nine months ended September 30, 2006included insurance settlements for litigation and related costs totaling $390million, which reduced other operating expenses.  Other expenses for the nine months endedSeptember 30, 2005 included a $750 million charge to increase the reserve forcertain private litigation.  Excludingthe insurance settlements and the litigation charge, other expenses increased$269 million, or 29%, to $1.2 billion primarilyas a result of increases in other operating expenses, professional fees,brokerage, clearing and exchange fees, and occupancy and equipment rentalexpenses.  The increase in otheroperating expenses primarily reflected higher accruals for legal fees and lowerexpenses charged to affiliates that are reflected as a reduction in our otheroperating expenses. The decrease in expenses charged to affiliatesreflected our commencement of certain syndicated loan activities that werepreviously conducted by a branch of Credit Suisse outside of our consolidatedgroup.  Professionalfees and brokerage, clearing and exchange fees increased due to higher levelsof business activity.  The increase inoccupancy and equipment rental reflected higher depreciation and amortizationas a result of our acquisition of SPS Holdings Corp.  Excluding the charge to affiliates forcompensation expense, the insurance settlements and the litigation charge,other operating expenses increased 18%.

**Provision for Taxes**

*Nine Months Ended September 30, 2006 Compared to Nine Months EndedSeptember 30, 2005*

The provision for income taxes for the nine months ended September 30,2006 was $495 million compared to a provision of $18 million for thenine months ended September 30, 2005. Excluded from the provision forincome taxes for the nine months ended September 30, 2005 was an income taxexpense of $3 million related to our adoption of SFAS No. 123, “Accounting forStock-Based Compensation,” as amended by SFAS No. 148, “Accounting forStock-Based Compensation—Transition and Disclosure,” and SFAS No. 123 (Revised2004), “Share-Based Payment,” or SFAS 123R.

The effective tax rate for the nine months endedSeptember 30, 2006 and 2005 was a provision of 14.3% and 2.3%, respectively,which is not meaningful because of the significant non-taxable revenues fromcertain private equity funds we consolidate. The effective tax rate excluding the non-taxable revenues from certainprivate equity funds we consolidate for the nine months ended September 30,2006 and 2005 was a provision of 33.6% and 13.6%, respectively. The increase in the effective tax rate wasdue to the significantly higher pre-tax earnings in the nine months endedSeptember 30, 2006 as compared to the nine months ended September 30, 2005.This significant increase in pre-tax earnings reduced the effect of permanentdifferences and resulted in a greater proportion of taxable income as comparedto the nine months ended September 30, 2005.

## **Share-basedCompensation**

We adopted SFAS123R as of January 1, 2005, using the modified prospective method.  We had previously adopted the recognitionprovisions of SFAS 123 effective January 1, 2003.  See Note 1 of the condensed consolidatedfinancial statements in Part I, Item 1 for more information.

In connection withour adoption 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 beforfeited.  For new grants after January1, 2005, forfeitures are included in the initial estimate of compensationexpense at the grant date.

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**LIQUIDITY AND CAPITAL RESOURCES**

**Liquidity Management Oversight**

We believe that maintainingaccess to liquidity is fundamental for firms operating in the financialservices industry. We have therefore established a comprehensive process forthe management and oversight of our capital, liquidity and funding strategies.Credit Suisse’s Asset and Risk Management Committee, or CARMC**,** has primary oversight responsibility forthese functional disciplines. This committee, which meets on a quarterly basis,includes the Chief Executive Officers of CSG and of its divisions, the ChiefFinancial Officer, the Chief Risk Officer and the Treasurer. CARMC reviewscapital and balance sheet development, current and prospective funding, andadherence to internal Treasury risk limits and capital and liquidity targets.The tactical implementation of this strategy is subsequently refined andupdated through regular monthly sessions with the Chief Risk Officer, the ChiefFinancial Officer and the Treasurer and other senior management.

The Global Treasurydepartment is responsible for the day-to-day management of capital, liquidityand funding, as well as relationships with regulators and creditor banks onthese and other issues. Working jointly with the Global Investor Relationsdepartment, it also maintains regular contact with rating agencies and fixedincome investors. See “Liquidity Risk” in “Risk Factors” in Part I, Item 1A ofour Annual Report on Form 10-K for the year ended December 31, 2005 for moreinformation.

## **Liquidity Management Organization**

We are an indirect subsidiary ofCredit Suisse, a Swiss bank. Consequently, our liquidity management structureoperates at two levels, the “Non-Bank Franchise” and the “Bank Franchise.”  See “—Balance Sheet and Funding.”

First, at the holding companylevel, the “Non-Bank Franchise,” where access to parent bank funding islimited, we aim to maintain sufficient liquidity so that in the event that weare unable to access the unsecured capital markets, we have cash and liquidassets sufficient to repay maturing liabilities for a minimum period of oneyear. When assessing the amount of cash and liquid assets, we take account ofthe regulatory restrictions that limit the amount of cash that could bedistributed upstream by our principal broker-dealer subsidiaries, Credit SuisseSecurities (USA) LLC, or CS Securities, and Credit Suisse Capital LLC, or CSCapital, which hold over approximately 83% 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 areheld in our broker-dealer subsidiaries and comprise a substantial portion ofthe Bank Franchise. These assets – principally trading inventories in ourInvestment Banking business – are funded by a combination of collateralizedshort-term borrowings, which include securities sold under agreements torepurchase and securities loaned, as well as unsecured loans from CreditSuisse, the central funding entity of the Bank Franchise. Significant portionsof our assets held in the Bank Franchise are highly liquid, with the majorityconsisting of securities inventories and collateralized receivables, whichfluctuate depending 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 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.

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Unsecured funding for the BankFranchise originates largely from Credit Suisse’s borrowings in the wholesaleand institutional deposit markets as well as access to retail deposits. Theretail and private bank funding base is primarily comprised of time depositsand deposits callable on demand. While the contractual maturity of thesedeposits is typically under three months, they have historically shown remarkablestability even under extreme market conditions. Additional funding is alsosourced via short-term intercompany borrowings from other CSG entities on botha secured and unsecured basis.

Assets not funded by the BankFranchise include less liquid assets such as certain mortgage whole loans,distressed securities, high-yield debt securities, asset-backedsecurities and private equity and other long-term investments. These lessliquid assets are principally held in the Non-Bank Franchise. These assets maybe relatively illiquid at times, especially during periods of market stress.Mortgage whole loans, distressed securities, high-yield debt and asset-backedsecurities are generally financed with a combination of short-term unsecuredfinancing or repurchase agreements, long-term borrowings and stockholder’sequity. We typically fund a significant portion of less liquid assets, such asprivate equity investments, with long-term borrowings that we issue directly tothe market, and stockholder’s equity.

Short-term funding is generallyobtained at rates related to the Federal Funds rate, the London InterbankOffered rate, or LIBOR, or other money market indices, while long-term fundingis generally obtained at fixed and floating rates related to U.S. Treasury securitiesor LIBOR, depending upon prevailing market conditions. We continually aim tobroaden our funding base by geography, investor and funding instrument.

We lend funds as needed to ouroperating subsidiaries and affiliates on both a senior and subordinated basis,the latter typically to meet capital requirements of regulated subsidiaries. Wegenerally try to ensure that loans to our operating subsidiaries and affiliateshave maturities equal to or shorter than the maturities of our marketborrowings. As such, senior funding to operating subsidiaries and affiliates istypically extended on a demand basis. Alternatively, subordinated financing toregulated subsidiaries is extended on a term basis and we structure ourlong-term market borrowings with maturities that extend beyond those of oursubordinated advances to subsidiaries and affiliates.

Because of changes relating tocustomer needs, economic and market conditions and proprietary trading andother strategies, our total assets, or the individual components of totalassets, may vary significantly from period to period. As of September 30, 2006and December 31, 2005, our total assets were $362.9 billion and$297.8 billion, respectively.

Included below is a discussion ofour long-term contractual obligations, off-balance sheet arrangements and lessliquid assets.

**Liquidity Measurement and Planning**

The principal measure we use to monitor ourliquidity position at each funding franchise is the “liquidity barometer,”which estimates the time period over which the adjusted market value ofunencumbered assets (including cash) exceeds the aggregate value of ourmaturing unsecured liabilities plus a conservative forecast of anticipatedcontingent commitments. Our objective, as mandated by CARMC, is to ensure thatthe liquidity barometer for each of the funding franchises is maintained at asufficient level so as to ensure that, in the event we are unable to accessunsecured funding, we will have sufficient liquidity for an extended period. Webelieve this will enable us to carry out our business plans during extendedperiods of market stress, while minimizing, to the extent possible, disruptionsto our business.

For the Non-Bank Franchise, ourobjective is to ensure that the liquidity barometer equals or exceeds a timehorizon of one year. For the Bank Franchise, our objective is to ensure theliquidity barometer equals or exceeds 120 days. The different time horizonsreflect the relative stability of the unsecured funding base of each franchise.In the Non-Bank Franchise, liabilities are measured at their contractualmaturities because historically, investors in publicly issued debt securitiesand commercial paper are highly sensitive to liquidity events such that webelieve access to these markets could be quickly diminished. Conversely, theBank Franchise’s retail and institutional deposit base is measured usingcontractual maturities that have been adjusted to reflect behavioral stability.Historically, this core deposit base has proven extremely stable, even in stressedmarkets. The conservative parameters we use in establishing the time

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horizons in the funding franchises assume that assetswill not be sold to generate cash, no new unsecured debt can be issued, andfunds that are assumed to be trapped because of regulatory restrictions are notavailable to be distributed upstream in a stressed liquidity environment. Forliquidity purposes, the adjusted market value of unencumbered assets includes aconservative reduction from market value, or “haircut,” reflecting the amountthat could be realized by pledging an asset as collateral to a third-partylender in a secured funding transaction.

In the case of the Non-Bank Franchise, contingentcommitments include such items as commitments to invest in private equityfunds. Certain contingent obligations do not materially impact the liquidityplanning at the Company or Non-Bank Franchise, as these are incurred by otheraffiliated operating entities that are not consolidated by the Company. Theseitems, which are taken into account in our liquidity planning for the BankFranchise, include:

·                  creditrating-related collateralization requirements (Credit Suisse’s derivatives business is primarily conducted in CreditSuisse International, a wholly-owned subsidiary of CSG);

·                  back-upliquidity lines provided to asset-backed commercial paper conduits (back-upliquidity lines are provided by Credit Suisse); and

·                  committedundrawn credit facilities to clients (substantially all of Credit Suisse’s corporate lending businessis conducted in Credit Suisse).

The Bank Franchise maintains twolarge secondary sources of liquidity. The first is via a large portfolio ofliquid fixed income securities, which is segregated and managed to provide foremergency liquidity needs only. This liquidity portfolio is maintained at alevel well beyond regulatory requirements and could provide a significantsource of liquidity for an extended period in the event of stressed marketconditions. In addition to these assets held directly in Credit Suisse, the BankFranchise maintains another large source of secondary liquidity through CreditSuisse’s principal broker-dealers and other regulated operating entities.The Bank Franchise has historically been able to access significant liquiditythrough the secured funding markets (securities sold under agreements torepurchase, securities loaned and other collateralized financing arrangements),even in periods of market stress. We continually monitor overall liquidity bytracking the extent to which unencumbered marketable assets and alternativeunsecured funding sources exceed both contractual obligations and anticipatedcontingent commitments.

As of September 30, 2006, weestimate that the Non-Bank Franchise held cash, other liquidity reserves andmarginable assets, net of haircuts, of approximately $7.9 billion versusestimated maturing obligations and commitments out to one year of $4.7 billion.Also, as of September 30, 2006, we estimate that the Bank Franchise held cash,other liquidity reserves and marginable assets, net of haircuts, ofapproximately $126.6 billion versus estimated maturing obligations, commitmentsand contingent funding requirements out to 120 days of $105.5 billion.

Our liquidity planning andmanagement focuses on maintaining a liquidity cushion so that we may continueto conduct business for an extended period in the event of a crisis. Ourliquidity contingency plan focuses on the specific actions that we would takein the event of a crisis, including a detailed communication plan forcreditors, investors and customers. The plan, which is regularly updated, setsout a three-stage process of the specific actions we would take:

·                  Stage I – Market disruption

·                  Stage II – Unsecured markets partiallyinaccessible

·                  Stage III – Unsecured markets fully inaccessible

In the event of a liquiditycrisis, a meeting of the Liquidity Crisis Committee would be convened by GlobalTreasury to activate the contingency plan. The Liquidity Crisis Committee’smembership includes senior business line, Global Treasury and financedepartment management. This committee would meet frequently throughout thecrisis to ensure our plans are executed.

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**Cash Capital**

We measure cash capital(long-term funding sources) against long-term unsecured funding requirements onan ongoing basis, and seek to maintain a surplus at all times. Sources of cashcapital include the non-current component of the Company’s long-term borrowingsand stockholder’s equity. Uses of cash capital include illiquid assets such asrelated party receivables (except where the receivable is the short-terminvestment of our excess cash with Credit Suisse), property, goodwill andintangibles, deferred tax assets, private equity and other long-terminvestments.

Our cash capital as of September30, 2006 totaled $51.1 billion compared with $42.2 billion as of December 31,2005. The increase in cash capital of $8.9 billion was primarily due to theincreases in long-term debt and retained earnings. As of September 30, 2006,cash capital was substantially in excess of our cash capital requirements.

**Contractual Obligations and Commitments**

The following table sets forthfuture cash payments on our contractual obligations pursuant to long-termborrowings, operating leases and purchase obligations as of September 30, 2006:
| ** **                     | ** ** | **Contractual Obligations Expiration Per Period** | ** ** |
|--------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                     | ** ** | **Less than  1 year**                                       | ** ** | **1-3  years** | ** ** | **4-5  years** | ** ** | **Over  5 years** | ** ** | **Total** | ** ** |
| ** **                     | ** ** | **(In millions)**                                                | ** ** |
| Long-term  borrowings          |       | $                                                                     | 2,797      |   | $ | 14,240 |   | $ | 7,764 |   | $ | 15,597 |   | $ | 40,398 |   |
| Operating leases               |       | 157                                                                   |       | 296 |   | 278 |   | 908 |   | 1,639 |   |
| Purchase obligations(1)        |       | 53                                                                    |       | 63 |   | 38 |   | 13 |   | 167 |   |
| Total  contractual obligations |       | $                                                                     | 3,007      |   | $ | 14,599 |   | $ | 8,080 |   | $ | 16,518 |   | $ | 42,204 |   |

 

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(1)                                  Purchase obligations for goods andservices include payments for, among other things, benefits consulting,corporate services outsourcing and computer and telecommunications maintenanceagreements. Purchase obligations reflect the minimum contractual obligationunder legally enforceable contracts through the termination dates specified inthe respective agreements, even if the contract is renewable. Purchaseobligations do not reflect termination fees payable upon the Company’stermination of the respective contracts.

Our long-term borrowings are unsecured. As of September 30, 2006, theweighted average maturity of our long-term borrowings was approximately 4.8years. Our lease obligations are primarily for our principal offices in NewYork City and other locations. The operating lease obligations in the tableabove do not reflect $292 million in sublease revenue and $533 millionof executory costs such as insurance, maintenance and taxes. We had no materialcapital lease obligations as of September 30, 2006.

We have commitments under a variety of arrangements that are notrecorded as liabilities in our condensed consolidated statements of financialcondition. These commitments are in addition to guarantees and otherarrangements discussed in “—Off-Balance Sheet Arrangements.” The following table sets forth certain of ourcommitments, including the current portion as of September 30, 2006:
| ** **                           | ** ** | **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)        |       | $                                                   | 100        |   | $ | 50 |   | $ | — |   | $ | — |   | $ | 150 |   |
| Private equity(2)                    |       | 4                                                   |       | 45 |   | 64 |   | 1,500 |   | 1,613 |   |
| Forward  agreements(3)               |       | 2,141                                               |       | — |   | — |   | — |   | 2,141 |   |
| Unfunded lending  commitments(4)     |       | 432                                                 |       | 128 |   | 102 |   | 441 |   | 1,103 |   |
| Unfunded  warehousing commitments(5) |       | 920                                                 |       | — |   | — |   | — |   | 920 |   |
| Total  commitments                   |       | $                                                   | 3,597      |   | $ | 223 |   | $ | 166 |   | $ | 1,941 |   | $ | 5,927 |   |

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(1)                                 In the ordinary course of business, wemaintain certain standby resale agreement facilities that commit us to enterinto securities purchased under agreements to resell with customers at currentmarket rates.

(2)                                  As of September 30, 2006 we hadcommitments to invest up to an additional $1.3 billion in consolidatedprivate equity funds.

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(3)                                  Represents commitments to enter intosecurities purchased under agreements to resell and agreements to borrowsecurities.

(4)                                  We enter into commitments to extend creditin connection with certain premium finance, leveraged finance and otheractivities.

(5)                                    We enter into commitments to warehousecommercial mortgage whole loans.

For information on these and other material commitments, see Notes 4, 6,7 and 8 of the condensed consolidated financial statements in Part I, Item1. For information on commitments under our pension arrangements, see Note 11of the condensed consolidated financial statements in Part I, Item 1.

Excluded from the tableabove are certain commitments to originate and purchase mortgage whole loans andpurchase certain other loans that qualify as derivatives. These commitments arereflected in derivatives contracts in the condensed consolidated statements offinancial condition. For more information on our derivatives contracts, seeNote 5 of the condensed consolidated financial statements in Part I, Item 1.

The following table sets forthour commercial paper and other short-term unsecured borrowings:
| ** **                | ** ** | **September 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|---------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                | ** ** | **(In millions)**       | ** ** |
| Bank loans                |       | $                            | 858        |                        | $          | 263 |   |
| Commercial paper          |       | 1,275                        |       | 1,298                       |       |
| Loans from  affiliates(1) |       | 20,224                       |       | 12,093                      |       |
| Total                     |       | $                            | 22,357     |                        | $          | 13,654 |   |

 

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(1)                                  We have significantfinancing transactions with Credit Suisse and certain of its subsidiaries andaffiliates. See “—Related Party Transactions” and Note 2 of the condensedconsolidated financial statements in Part I, Item 1.

# **Credit Facilities**

As of September30, 2006, CS Securities maintained with third parties five 364-day committedsecured revolving credit facilities totaling $2.2 billion, with onefacility for $500 million maturing in February 2007, one facility for $500million maturing in March 2007, one facility for $500 million maturing in July2007, one facility for $200 million maturing in August 2007 and one facilityfor $500 million maturing in November 2007. We expect to renew these facilitiesas they mature. These facilities require CS Securities to pledge unencumberedmarketable securities to secure any borrowings. Borrowings under each facility would bear interest at short-term ratesrelated to either the Federal Funds rate or LIBOR and can be used for generalcorporate purposes. The facilities contain customary covenants that we believewill not impair our ability to obtain funding. As of September 30, 2006, noborrowings were outstanding 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 throughU.S. and Euromarket medium-term note programs, as well as syndicated andprivately placed offerings around the world.

Our currently effectiveautomatic shelf registration statement on file with the Securities and ExchangeCommission, or SEC, which was established in February 2006, allows us to issuefrom time to time senior and subordinated debt securities and warrants topurchase such securities.

Under our$5.0 billion Euro medium-term note program, which was established in July2001 and allows us to issue notes from time to time, we had as of November 13,2006 $1.2 billion available for issuance.

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For the ninemonths ended September 30, 2006, we issued $10 billion in senior notes, $82million in medium-term notes and $153 million in structured notes and werepaid approximately $2.3 billion of senior notes, $1.5 billion ofmedium-term notes and $17 million of structured notes.

**Credit Ratings**

Our access to the debt capitalmarkets and our borrowing costs depend significantly on our credit ratings.Credit ratings are important to us when competing in certain markets and whenseeking to engage in longer-term transactions, including OTC derivatives.Rating agencies take many factors into consideration in determining a company’srating and may raise, lower or withdraw their ratings or publicly announce anintention to raise or lower their ratings at any time. Such factors includeearnings performance, business mix, market position, financial strategy, levelof capital, risk management policies and practices and management team, and ouraffiliation with Credit Suisse and CSG, in addition to the broader outlook forthe financial services industry.

A reduction in our credit ratingscould limit our access to capital markets, increase our borrowing costs,require us to provide additional collateral in connection with OTC derivativescontracts, and allow counterparties to terminate transactions under certain ofour trading and collateralized financing contracts. This, in turn, could reduceour liquidity and negatively impact our operating results and financialposition. Our liquidity planning takes into consideration those contingentevents associated with 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 ofSeptember 30, 2006.

As of November 13, 2006, ourratings 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      |       | AA-                     |       | A-1+                      |       | Stable      |       |

**Capital Resources**

Certain of our businesses arecapital 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 are regularlyreviewed to ensure that our capital base can appropriately support theanticipated needs of our business and the regulatory and other capitalrequirements of our subsidiaries. Based upon these analyses, we believe thatour capitalization is adequate for current operating levels.

***RegulatedSubsidiaries***

Our principal wholly owned subsidiary, CS Securities, is aregistered broker-dealer, registered futures commission merchant and memberfirm of the New York Stock Exchange. Accordingly, CS Securities is subject to the minimum net capitalrequirements of the SEC and the Commodities Futures Trading Commission, orCFTC.  Under the alternative methodpermitted by SEC Rule 15c3-1, the required net capital may not be less than thegreater of 2% of aggregate debit balances arising from customer transactions or4% of the funds required to be segregated pursuant to the Commodity ExchangeAct less the market value of certain commodity options, all as defined.  Under CFTC Regulation 1.17, the requiredminimum net capital requirement is 8% of the total risk margin requirement (asdefined) for all positions carried in customer accounts plus 4% of the totalrisk margin requirement (as defined) for all positions carried in non-customeraccounts.  As of September 30, 2006, CSSecurities’ net capital of approximately $4.4 billion was 60.1% ofaggregate debit balances and in excess of the minimum requirement byapproximately $4.2 billion.

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Our OTC derivatives dealer subsidiary, CS Capital, is also subject tothe uniform net capital rule, but computes its net capital requirements basedon value at risk pursuant to Appendix F of Rule 15c3-1. As of September 30,2006, CS Capital’s net capital of $352 million, after allowing for marketand credit risk exposure of $66 million and $388 million,respectively, was in excess of the minimum net capital requirement by $332million. CS Capital operates pursuant to the (k)(2)(ii) exemptive provisions ofRule 15c3-3 of the Exchange Act and accordingly, all customer transactions are clearedthrough CS Securities on a fully disclosed basis.

As of September 30, 2006, oursubsidiaries complied with all applicable regulatory capital adequacyrequirements.

**Cash Flows**

Our condensed consolidatedstatements of cash flows classify cash flows into three broad categories: cashflows from operating activities, investing activities and financing activities.These statements should be read in conjunction with “—Related PartyTransactions” as well as Note 2 of the condensed consolidated financialstatements in Part I, Item 1.

Our cash flows are complexand frequently bear little relation to our net 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 cashflow analysis is not a particularly useful method to evaluate our liquidityposition as discussed above.  Cash flow analysismay, however, assist in highlighting certain macro trends and strategicinitiatives in our business.

***For the Nine MonthsEnded September 30, 2006***

Cash and cash equivalents increased$855 million to $1.7 billion as of September 30, 2006.  Cash used in operating activities was$16.5 billion.  The change in cashused in operating activities reflected a net increase in operating assetsrelative to operating liabilities of $18.3 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 $3.5 billion was used ininvesting activities.  The Companyprovided funding to affiliates, resulting in increases in receivables fromparent and affiliates of $3.2 billion.

Cash provided by financingactivities was $20.9 billion. The changes are due to increases inlong-term borrowings of $10.2 billion, $5.7 billion in net collateralizedfinancing arrangements and $8.7 billion in short-term borrowings used primarilyto fund normal operating activities, provide funding to affiliates as part ofthe Company’s investing activities and repay $3.7 billion in long-termborrowings.

***For the Nine Months Ended September 30,2005***

Cash and cash equivalents decreased$104 million to $623 million as of September 30, 2005.  Cash used in operating activities was$11.9 billion.  The change in cashused in operating activities reflected a net increase in operating assetsrelative to operating liabilities of $12.8 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 $1.1 billion was used ininvesting activities, primarily reflecting an increase in funding toaffiliates.  The Company providedfunding to affiliates, resulting in increases in receivables from parent andaffiliates of $1.0 billion.

Cash provided by financing activities was $12.9 billion. This was due toincreases in net collateralized financing arrangements of $13.4 billion andincreases of $6.3 billion in long-term borrowings used primarily to fundnormal operating activities, provide funding to affiliates as part of theCompany’s investing activities and repay $2.7 billion in long-term borrowingsand $4.0 billion in commercial paper and short-term borrowings.

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**OFF-BALANCE SHEET ARRANGEMENTS**

We enter into off-balance sheetarrangements in the ordinary course of business. Off-balance sheet arrangementsare transactions, agreements or other contractual arrangements with, or for thebenefit of, an entity that is not consolidated with an issuer, and whichinclude guarantees and similar arrangements, retained or contingent interestsin assets transferred to an unconsolidated entity, and obligations andliabilities (including contingent obligations and liabilities) for the purposeof providing financing, liquidity, market risk or credit risk support.

We have not entered into anyderivatives contracts indexed or linked to the stock of CSG.

**Guarantees**

In the ordinary course of ourbusiness, we provide guarantees and indemnifications that contingently obligateus to make payments to the guaranteed or indemnified party based on changes inan asset, liability or equity security of the guaranteed or indemnified party.We may also be contingently obligated to make payments to a guaranteed partybased on another entity’s failure to perform, or 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 the Company to return amounts previouslypaid as carried interest to the Company and certain other partners, most ofwhich are current and former employees of the Company; and to investors in oursecurities and other arrangements to provide “gross up” payments if there is awithholding or deduction because of a tax assessment or other governmentalcharge. From time to time, we also guarantee the obligations of subsidiaries ofCSG that are not our consolidated subsidiaries, and these guarantees areincluded in the scope of the disclosure requirements of FIN No. 45, “Guarantor’sAccounting and Disclosure Requirements for Guarantees, Including IndirectGuarantees of Indebtedness of Others,” or FIN 45.

FIN 45 requires disclosure of ourmaximum potential payment obligations under certain guarantees to the extentthat it is possible to estimate them and requires recognition of a liability atinception for the fair value of guaranteed obligations for guarantees issued oramended after December 31, 2002. The recognition of these liabilities didnot have a material effect on our financial condition or results of operations.For disclosure of our estimable maximum payment obligations under certainguarantees and related information, see Note 8 of the condensedconsolidated financial statements in Part I, Item 1.

**Retained or Contingent Interests inAssets Transferred to Unconsolidated Entities**

We originate commercial mortgagesand originate and purchase residential mortgages and purchase other debtobligations such as automobile loans and student loans and sell these assetsdirectly or through affiliates to special purpose entities that are, in mostcases, qualified special purpose entities, or QSPEs. These QSPEs issuesecurities that are backed by the assets transferred to the QSPEs and pay areturn based on the returns on those assets. Investors in these mortgage-backedand asset-backed securities typically have recourse to the assets in the QSPE.The investors and the QSPEs have no recourse to our assets.

These QSPEs are generallysponsored by our subsidiaries. Our principal broker-dealer subsidiary, CSSecurities, underwrites and makes markets in these mortgage-backed andasset-backed securities. Under SFAS No. 140, “Accounting for Transfers andServicing of Financial Assets and Extinguishments of Liabilities, a replacementof FASB Statement No. 125,” or SFAS 140, assets and liabilities transferredto a QSPE are not included in a transferor’s financial statements except whenSFAS 140 sale and QSPE criteria are not met. Our mortgage-backed andasset-backed securitization activities are generally structured to use QSPEs.

As of September 30, 2006, weheld encumbered mortgage loans totaling $995 million related to securitizationtransactions that did not qualify for sale accounting treatment under paragraph40b of SFAS 140.  Prior tosecuritization, such encumbered loans were accounted for in financialinstruments owned; however, due to the transfer of legal title in the form of apledge in the securitization, these loans have been reclassified to Otherassets and deferred amounts in the condensed consolidated statement offinancial condition.  Cash amountsreceived in payment upon transfer for such loans are accounted for as securedborrowings and are recorded in Other liabilities

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in the condensedconsolidated statements of financial condition. Also included in Other assets and Other liabilities as of September 30,2006 was $4.6 billion in VIEs that were consolidated under FSP FIN 46(R)-6related to securitization transactions that did not qualify for sale accountingtreatment under SFAS 140, and were similarly encumbered.

We may retain interests in thesesecuritized assets if CS Securities 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 income. We engage in these securitization activities to meet theneeds of clients as part of our fixed income activities, to earn fees and tosell 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 financialstatements in Part I, Item 1, which includes quantitative information onour securitization activities and retained interests.

**Variable Interest Entities**

We are involved with variousentities in the normal course of business that may be deemed to be variableinterest entities, or VIEs, including VIEs that issue CDOs.

We purchase loans and other debtobligations from and on behalf of clients primarily for the purpose ofsecuritization. The loans and other debt obligations may be sold by us toaffiliates for warehousing prior to being transferred by affiliates, to VIEsthat issue CDOs. CDOs are securities backed by the assets transferred tothe VIE and pay a return based on the returns on those assets.  Investors typically have recourse to theassets in the CDO VIE.  The investors andthe CDO VIE have no recourse to the Company’s assets. CS Securities structures, underwrites and makes a market in these CDOs,and we may have retained interests in these CDOs in connection with CSSecurities’ underwriting and market-making activities. We engage in theseCDO transactions to meet the needs of clients, to earn fees and to sellfinancial assets.  These CDO transactionsdo not provide a material source of our liquidity, capital resources or creditrisk or market risk support.

Our mortgage-backed and asset-backedsecuritization activities are generally structured to use QSPEs, and the assetsand liabilities transferred to QSPEs are not included in our financialstatements except when SFAS 140 sale and QSPE criteria are not met.

Financial Accounting Standards Board Interpretation,or FIN, No. 46, “Consolidation of Variable Interest Entities,” or FIN 46, requires us to consolidate all VIEs for which weare the primary beneficiary, which is defined as the entity that will absorb amajority of expected losses, receive a majority of the expected residualreturns, or both.  In December 2003, theFASB modified FIN 46, through the issuance of FIN 46R, to address variousimplementation issues that had arisen since the issuance of FIN 46 and toprovide companies the option to defer the adoption of FIN 46 for certain VIEsto periods ending after March 15, 2004. As of September 30, 2006 and December 31, 2005, we consolidated CDO VIEsand certain other VIEs for which we are the primary beneficiary.  As of September 30, 2006 and December31, 2005, we recorded $5.4 billion and $673 million, respectively,representing the carrying amount of the consolidated assets of these CDO VIEsand other VIEs that are collateral for the VIE obligations. We also have interests in CDO VIEs that are notrequired to be consolidated because we are not the primary beneficiary.

We consolidate certain private equity funds that aremanaged by us. See Notes 1 and 3 of thecondensed consolidated financial statements in Part I, Item 1.

In connectionwith our acquisition of Guilford Holding Corporation in May 2006, we haveconsolidated certain tax credit funds resulting in an increase in assets andliabilities of $311 million as of September 30, 2006. The consolidation ofthese tax credit funds did not have an impact on the condensed consolidatedstatement of income.

**RELATED PARTY TRANSACTIONS**

CSG, through Credit SuisseHoldings (USA), Inc. owns all of our outstanding voting common stock. We areinvolved in significant financing and other transactions, and have significantrelated party balances, with Credit Suisse

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and certain affiliates. We generally enter into thesetransactions in the ordinary course of business and believe that thesetransactions are on market terms that could be obtained from unrelated thirdparties. See “—Derivatives” and Notes 2 and 5 of the condensed consolidatedfinancial statements in Part I, Item 1 for more information.

Certain of our directors,officers and employees and those of our affiliates and their subsidiaries maintainmargin accounts with CS Securities and other affiliated broker-dealers inthe 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. CS Securities and other affiliatedbroker-dealers, from time to time and in the ordinary course of business,enter into, as principal, transactions involving the purchase or sale ofsecurities from or to such directors, officers and employees and members oftheir immediate families.

**LESS LIQUID ASSETS**

Certain of our assets, including private equity and other long-terminvestments, distressed securities, high-yield debt, mortgage whole loans andother non-investment-grade debt, are not highly liquid or trade inmarkets that have periods of volatility and illiquidity. The values ofmost of the more illiquid assets are reported at fair value, and thedetermination of fair value is based on management’s best estimate and dependson varying factors.  See “—CriticalAccounting Policies and Estimates—Fair Value” for further information on the determinationof fair value of these less liquid assets.

**Private Equity Activities**

Our private equity and otherlong-term investment activities include direct investments and investments inpartnerships that make private equity and related investments in variousportfolio companies and funds. These investments are primarily in unlisted orilliquid equity or equity-related securities and are carried at fairvalue based on a number of factors. As of September 30, 2006 and December 31,2005, we had investments in private equity and other long-term investments of$10.9 billion and $3.6 billion, respectively. The increase inprivate equity and other long-term investments reflects our consolidation ofcertain private equity funds. See “—CriticalAccounting Policies and Estimates—Fair Value” and Notes 1 and 4 of thecondensed consolidated financial statements in Part I, Item 1 for moreinformation. As part of our private equity business, we make commitments fromtime to time to both non-consolidated and consolidated private equityfunds.  We expect to continue to increasethese commitments in the future.  As ofSeptember 30, 2006, we had commitments to invest up to an additional$1.6 billion in non-consolidated private equity funds and $1.3billion in consolidated private equity funds.

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**Corporate Debt, Mortgage Whole Loans and Other Non-Investment-GradeFinancial Instruments**

We underwrite, trade and hold non-investment-gradefinancial instruments, which include corporate debt, commercial and residentialmortgage whole loans, loan participations, derivatives contracts and certainseparately managed distressed financial instruments.  Corporate debt includes high-yield debt,distressed debt, commercial and residential mortgage-backed securities, other asset-backedsecurities, CDOs and loans.  Due tocredit considerations, liquidity of secondary trading markets and vulnerabilityto general economic conditions, these financial instruments and loans generallyinvolve greater risk than investment-grade financial instruments. We recordcorporate debt, derivatives contracts, certain loans and certain separatelymanaged distressed financial instruments at fair value. We record commercialmortgage whole loans, certain residential mortgage whole loans, certain loansand loan participations that are held for sale at the lower of cost or fairvalue. Timing of the securitization of our mortgage whole loan inventory willaffect the size of our positions at any given time. The following table setsforth our positions in these instruments as of September 30, 2006 and December 31, 2005:
| ** **                        | ** ** | **September 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|-----------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                        | ** ** | **Assets**                       | ** ** | **Liabilities**                 | ** ** | **Assets** | ** ** | **Liabilities** | ** ** |
| ** **                        | ** ** | **(In millions)**           | ** ** |
|                              |       |                             |       |                            |       |   |   |   |   |
| Corporate debt                    |       | $                                | 9,223      |                            | $          | 1,508 |   | $ | 3,286 |   | $ | 917 |   |
| Mortgage whole loans              |       | 19,833                           |       | —                          |       | 17,817 |   | — |   |
| Loan participations               |       | 19                               |       | —                          |       | 9 |   | — |   |
| Derivatives contracts             |       | 290                              |       | —                          |       | 321 |   | — |   |
| Distressed financial  instruments |       | 57                               |       | —                          |       | 113 |   | — |   |
| Total                             |       | $                                | 29,422     |                            | $          | 1,508 |   | $ | 21,546 |   | $ | 917 |   |

**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.

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## **Sources andMaturities of OTC Derivatives**

The following table sets forththe distributions, by maturity, of our exposure with respect to OTC derivativesas of September 30, 2006. Fair values were determined on the basis of pricingmodels and other valuation methods. See “—Critical Accounting Policies andEstimates—Fair Value” in Part I, Item 2 and Notes 5 and 8 of the condensedconsolidated financial statements in Part I, Item 1 for more information.
| ** **                            | ** ** | **Assets  Maturity Distribution as of September 30, 2006** | ** ** |
|---------------------------------------|------------|------------------------------------------------------------------------------------------|------------|
| ** **                            | ** ** | **Less than  1 year**                                                          | ** ** | **1-3 years** | ** ** | **4-5 years** | ** ** | **Over 5 years** | ** ** | **Total fair  value** | ** ** |
| ** **                            | ** ** | **(In millions)**                                                                   | ** ** |
| Interest rate  and credit spread risk |       | $                                                                                        | 2,146      |   | $ | 276 |   | $ | 210 |   | $ | 944 |   | $ | 3,576 |   |
| Foreign exchange  risk                |       | 5                                                                                        |       | 11 |   | — |   | — |   | 16 |   |
| Equity price  risk                    |       | 295                                                                                      |       | 106 |   | 27 |   | 2,532 |   | 2,960 |   |
| Commodity risk                        |       | 100                                                                                      |       | 242 |   | 71 |   | 27 |   | 440 |   |
| Total                                 |       | $                                                                                        | 2,546      |   | $ | 635 |   | $ | 308 |   | $ | 3,503 |   | $ | 6,992 |   |

 
| ** **                            | ** ** | **Liabilities  Maturity Distribution as of September 30, 2006** | ** ** |
|---------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|
| ** **                            | ** ** | **Less than  1 year**                                                               | ** ** | **1-3 years** | ** ** | **4-5 years** | ** ** | **Over 5 years** | ** ** | **Total fair  value** | ** ** |
| ** **                            | ** ** | **(In millions)**                                                                        | ** ** |
| Interest rate  and credit spread risk |       | $                                                                                             | 1,968      |   | $ | 305 |   | $ | 126 |   | $ | 1,010 |   | $ | 3,409 |   |
| Foreign exchange  risk                |       | 10                                                                                            |       | 8 |   | — |   | 18 |   | 36 |   |
| Equity price  risk                    |       | 317                                                                                           |       | 177 |   | 61 |   | 10 |   | 565 |   |
| Commodity risk                        |       | 243                                                                                           |       | 390 |   | 123 |   | 45 |   | 801 |   |
| Total                                 |       | $                                                                                             | 2,538      |   | $ | 880 |   | $ | 310 |   | $ | 1,083 |   | $ | 4,811 |   |

The following table sets forth as of September 30, 2006 substantiallyall of our exposure with respect to OTC derivatives, by counterparty creditrating and with affiliates.
| **Credit Rating**(1)    | ** ** | ** **             | **September 30,  2006** | ** ** |
|------------------------------|------------|------------------------|------------------------------|------------|
| ** **                   | ** ** | **(In millions)** | ** **                   |
| AAA/AA+/AA                   |       | $                      | 29                           |       |
| AA-                          |       | 4,118                  |                         |
| A+/A/A-                      |       | 463                    |                         |
| BBB+/BBB/BBB-                |       | —                 |                         |
| BB+ or lower                 |       | 91                     |                         |
| Unrated                      |       | 199                    |                         |
| Derivatives with  affiliates |       | 2,092                  |                         |
| Total                        |       | $                      | 6,992                        |       |

 

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(1)                                  Credit ratings are determined by external rating agencies or by ourcredit risk management department.

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**Derivatives With Related Parties**

We enter into a substantialnumber of derivatives transactions with related parties. The following tablesets forth derivatives transactions with related parties consisting primarilyof interest rate swaps, credit default swaps, foreign exchange forward contracts,equity forward contracts and total return swaps on equities. The fair values ofderivatives contracts outstanding with related parties as of September 30, 2006and December 31, 2005 were as follows.
| ** **                            | ** ** | **September 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|---------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                            | ** ** | **Assets**                       | ** ** | **Liabilities**                 | ** ** | **Assets** | ** ** | **Liabilities** | ** ** |
| ** **                            | ** ** | **(In millions)**           | ** ** |
|                                  |       |                             |       |                            |       |   |   |   |   |
| Interest rate  and credit spread risk |       | $                                | 1,894      |                            | $          | 1,694 |   | $ | 738 |   | $ | 443 |   |
| Foreign exchange  risk                |       | 4                                |       | 23                              |       | 20 |   | 5 |   |
| Equity price  risk                    |       | 194                              |       | 244                             |       | 64 |   | 41 |   |
| Commodity risk                        |       | —                           |       | 33                              |       | 20 |   | — |   |
| Total                                 |       | $                                | 2,092      |                            | $          | 1,994 |   | $ | 842 |   | $ | 489 |   |

See Notes 2 and 5 of the condensed consolidated financial statements inPart I, Item 1 for more information.

## **FORWARDLOOKING STATEMENTS**

We have made in this Quarterly Report onForm 10-Q, including, without limitation, in “Legal Proceedings” inPart II, Item 1, and in “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” in Part I, Item 2, and from time totime may otherwise make in our public filings and press releases,forward-looking statements concerning our operations, economic performance andfinancial condition, as well as our future plans and strategic objectives. Suchforward-looking statements are subject to various risks and uncertainties, andwe claim the protection afforded by the safe harbor for forward-lookingstatements contained in the Private Securities Litigation Reform Act of 1995.Actual results could differ materially from those anticipated herein or in anysuch other filings, releases or statements because of a number of factors, includingwithout limitation, those detailed in “Risk Factors” in Part I, Item 1A ofour Annual Report on Form 10-K for the year ended December 31, 2005, thosediscussed elsewhere herein, and in other public filings and press releases.These forward-looking statements are not historical facts but instead representonly our belief regarding future events, many of which, by their nature, areinherently uncertain and beyond our control. Forward-looking statements aretypically 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 statements for you inthis manner, we are alerting you to the possibility that our actual results maydiffer, 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.

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

# **RISK MANAGEMENT AND VALUE AT RISK**

# Fora description of the Company’s risk management policies and procedures andvalue-at-risk, or VAR, model, including such model’s assumptions andlimitations, see “Quantitative and Qualitative Disclosure About Market Risk” inPart II, Item 7A of the Company’s Annual Report on Form 10-K for the year endedDecember 31, 2005.

# **Market Risk Exposure**

We measure market risk exposure by using complementary risk measurementtechniques, including VAR and sensitivity analysis.  VAR is used for our trading portfolio, whichincludes those financial instruments treated as part of our “trading book” forBank for International Settlements regulatory capital purposes.  Sensitivity analysis is used for ournon-trading portfolio, which primarily includes certain mortgage products,private equity investments, the Company’s long-term borrowings and theirderivatives hedges and certain commodity positions.  This classification of assets as trading andnon-trading is done for purposes of analyzing our market risk exposure,not for financial statement purposes.

# ***TradingPortfolios***

TheCompany-wide trading portfolio VAR was approximately $20 million, $39 millionand $36 million as of September 30, 2006, December 31, 2005 and September30, 2005, respectively. The reduction in VAR as ofSeptember 30, 2006 compared to December 31, 2005 was primarily due to adecrease in interest rate and credit spread VAR and increased diversificationbetween interest rate, credit spread and equity risk types. The decrease ininterest rate and credit spread VAR was primarily caused by the implementationof a revised VAR methodology for certain residential and commercial mortgageproducts during 2006.

# Due to the benefit ofdiversification, the Company-wide VAR is less than the sum of the individualcomponents. The four main components of market risk, expressed in terms oftheoretical fair values, had the following

# VAR:

| ** **                       | ** ** | **Company’s Market Risk Exposures in Trading Portfolios** | ** ** |
|----------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| ** **                       | ** ** | **As of  September 30,  2006**                                                     | ** ** | **As of  December 31,  2005** | ** ** | **As of  September 30,  2005** | ** ** |
| ** **                       | ** ** | **(In millions)**                                                                       | ** ** |
| 99%, one-day VAR                 |       |                                                                                         |       |   |   |   |   |
| Interest rate  and credit spread |       | $                                                                                            | 19         |   | $ | 34 |   | $ | 24 |   |
| Equity                           |       | 21                                                                                           |       | 20 |   | 21 |   |
| Foreign exchange  rate           |       | 1                                                                                            |       | — |   | 1 |   |
| Commodity                        |       | 6                                                                                            |       | 6 |   | 9 |   |
| Diversification  benefit         |       | (27                                                                                          | )          | (21 | ) | (19 | ) |
| Total                            |       | $                                                                                            | 20         |   | $ | 39 | (1) | $ | 36 | (1) |

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(1)                               During 2006, the Company introduced a revised VAR methodology for certain mortgage products. If the revised methodology had been in place during2005, the Company’s total VAR would have been approximately $37 million and $35million as of December 31, 2005 and September 30, 2005, respectively.

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The table below presentsminimum, maximum and average VAR by market risk component.  The decrease in average interest rate and creditspread VAR for the three and nine months ended September 30, 2006 compared withthe three and nine months ended September 30, 2005 was primarily causedby the implementation of a revised VAR methodology for certain residential andcommercial mortgage products during 2006 and a reduction in the volatility ofthe market data used to calculate VAR, as data from 2003 was replaced by lessvolatile data from 2005. Minimum, maximum and average VAR for the threeand nine months ended September 30, 2005 do not reflect the revised VARmethodology for certain residential and commercial mortgage products introducedduring 2006.
| ** **                       | ** ** | **Company’s Market Risk Exposures in Trading Portfolios** | ** ** |
|----------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| ** **                       | ** ** | **Three Months Ended  September 30, 2006**                               | ** ** | **Three Months Ended  September 30, 2005** | ** ** |
| ** **                       | ** ** | **Minimum**                                                                                  | ** ** | **Maximum** | ** ** | **Average** | ** ** | **Minimum** | ** ** | **Maximum** | ** ** | **Average** | ** ** |
| ** **                       | ** ** | **(In millions)**                                                                       | ** ** |
| 99%, one-day VAR                 |       |                                                                                         |       |   |   |   |   |   |   |   |   |   |   |
| Interest rate  and credit spread |       | $                                                                                            | 16         |   | $ | 23 |   | $ | 19 |   | $ | 20 |   | $ | 37 |   | $ | 27 |   |
| Equity                           |       | 15                                                                                           |       | 23 |   | 19 |   | 17 |   | 27 |   | 21 |   |
| Foreign exchange  rate           |       | —                                                                                       |       | 1 |   | — |   | — |   | 1 |   | 1 |   |
| Commodity                        |       | 5                                                                                            |       | 11 |   | 7 |   | 4 |   | 10 |   | 7 |   |
| Diversification  benefit         |       | —                                                                                       | (1)        | — | (1) | (21 | ) | — | (1) | — | (1) | (18 | ) |
| Total                            |       | $                                                                                            | 20         |   | $ | 29 |   | $ | 24 |   | $ | 27 |   | $ | 45 |   | $ | 38 |   |

 
| ** **                       | ** ** | **Company’s Market Risk Exposures in Trading Portfolios** | ** ** |
|----------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| ** **                       | ** ** | **Nine Months Ended  September 30, 2006**                                | ** ** | **Nine Months Ended  September 30, 2005** | ** ** |
| ** **                       | ** ** | **Minimum**                                                                                  | ** ** | **Maximum** | ** ** | **Average** | ** ** | **Minimum** | ** ** | **Maximum** | ** ** | **Average** | ** ** |
| ** **                       | ** ** | **(In millions)**                                                                       | ** ** |
| 99%, one-day VAR                 |       |                                                                                         |       |   |   |   |   |   |   |   |   |   |   |
| Interest rate  and credit spread |       | $                                                                                            | 16         |   | $ | 35 |   | $ | 21 |   | $ | 20 |   | $ | 52 |   | $ | 34 |   |
| Equity                           |       | 15                                                                                           |       | 26 |   | 19 |   | 13 |   | 27 |   | 19 |   |
| Foreign exchange  rate           |       | —                                                                                       |       | 2 |   | 1 |   | — |   | 4 |   | 1 |   |
| Commodity                        |       | 3                                                                                            |       | 11 |   | 7 |   | — |   | 10 |   | 3 |   |
| Diversification  benefit         |       | —                                                                                       | (1)        | — | (1) | (20 | ) | — | (1) | — | (1) | (16 | ) |
| Total                            |       | $                                                                                            | 20         |   | $ | 42 |   | $ | 28 |   | $ | 27 |   | $ | 55 |   | $ | 41 |   |

 

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(1)                                  As the minimum and maximum occur ondifferent days for different risk types, it is not meaningful to calculate aportfolio diversification benefit.

**The Company usesbacktesting to assess the accuracy of the VAR model. Daily backtesting profitand loss is compared with VAR calculated using a one-day holding period.Backtesting profit and loss is a subset of actual trading revenue and includesonly the profit and loss effects due to movements in financial market variablessuch as interest rates, equity prices and foreign exchange rates on theprevious night’s positions. The Company had no backtesting exceptions duringthe third quarter of 2006**and five backtestingexceptions during the second quarter of 2006 after a period of two years withno exceptions. These exceptions were primarily driven by equity marketvolatility during the second quarter of 2006. During this period, equity marketvolatility was significantly greater than the volatility within the trailingtwo year period of historic data used in the VAR model at that point in time.The VAR model is also subject to continuous assessment and evaluation to ensureit remains accurate given current market conditions and positions.

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**The average,maximum and minimum daily trading revenue for the three and nine months endedSeptember 30, 2006 and 2005 are shown below:**
| ** **             | ** ** | **Three Months  Ended  September 30,2006** | ** ** | **Three Months  Ended  September 30,2005** | ** ** | **Nine months  Ended  September 30,2006** | ** ** | **Nine months  Ended  September 30,2005** | ** ** |
|------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **             | ** ** | **(In millions)**                               | ** ** |
| Daily trading  revenue |       |                                                 |       |                                                 |       |                                                |       |                                                |       |
| Average                |       | $                                                    | 16         |                                                 | $          | 17                                                  |       | $                                                   | 17         |   | $ | 14 |   |
| Maximum                |       | $                                                    | 80         |                                                 | $          | 95                                                  |       | $                                                   | 80         |   | $ | 95 |   |
| Minimum                |       | $                                                    | (9         | )                                                    | $          | (10                                                 | )          | $                                                   | (45        | ) | $ | (15 | ) |

For details of the Company’s average, maximumand minimum daily trading revenue for 2005, see “Quantitative and QualitativeDisclosure About Market Risk” in Part II, Item 7A of the Company’s AnnualReport on Form 10-K for the year ended December 31, 2005.

#### ***Non-tradingPortfolios***

The equity risk on non-trading positions, which is primarily comprisedof private equity investments, is measured using sensitivity analysis thatestimates the potential change in the recorded value of the investmentsresulting from a 10% decline in the equity markets of developed nations and a20% decline in the equity markets of emerging market nations. The estimated impact of equity risk on ournon-trading financial instruments portfolio would be a decrease in the value ofthe non-trading portfolio of approximately $119 million and $108 million as ofSeptember 30, 2006 and December 31, 2005, respectively.  The estimated impact of equity risk is net ofthe minority interests in certain consolidated private equity funds.

The interest rate risk on non-trading positions, whichis primarily comprised of certain residential mortgage retained interests andthe Company’s long-term borrowings and their derivatives hedges, is measuredusing sensitivity analysis that estimates the potential change in the value ofthe non-trading portfolio resulting from a 50 basis point decline in theinterest rates of developed nations and a 200 basis point decline in theinterest rates of emerging market nations. The estimated impact of interestrate risk on the value of the non-trading portfolio would be an increase ofapproximately $18 million and a decrease of $21 million as of September30, 2006 and December 31, 2005, respectively. The change was primarily causedby an increase in certain residential mortgage retained interests that benefitfrom a fall in interest rates and a decrease in interest rate reset risk on theCompany’s long-term liabilities and related derivatives hedges.

We do not have material foreign exchange risk or commodity price riskin our non-trading portfolio.

***Item4: Controls and Procedures***

Pursuant to Rule13a-15(b) under the Securities Exchange Act of 1934, or Exchange Act, as of theend of the period covered by this report, an evaluation was carried out underthe supervision and with the participation of our management, including ourChief Executive Officer and Chief Financial and Accounting Officer, of theeffectiveness of the design and operation of our disclosure controls andprocedures (as defined in Rule 13a-15(e) under the Exchange Act). There areinherent limitations to the effectiveness of any system of disclosure controlsand procedures, including the possibility of human error and the circumventionor overriding of the controls and procedures. Accordingly, even effectivedisclosure controls and procedures can only provide reasonable assurance ofachieving their control objectives. Based upon and as of the date of theevaluation, our Chief Executive Officer and Chief Financial and AccountingOfficer concluded that the design and operation of these disclosure controlsand procedures were effective in all material respects to provide reasonableassurance that information required to be disclosed in the reports we file andsubmit under the Exchange Act is recorded, processed, summarized and reportedas and when required. There were no changes in our internal control overfinancial reporting (as defined in Rule 13a-15(f) under the Exchange Act) thatoccurred during the quarter ended September 30, 2006 that materially affected,or are reasonably likely to materially affect, our internal control overfinancial reporting.

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**PART II**

# **OTHER INFORMATION**

***Item1: Legal Proceedings***

Certain significantlegal proceedings and matters have been previously disclosed in the Company’sAnnual Report on Form 10-K for the year ended December 31, 2005 and the Company’sQuarterly Report on Form 10-Q for the quarters ended March 31, 2006 and June30, 2006.  The following is an update ofsuch proceedings.

## **In re Issuer Plaintiff Initial PublicOffering Fee Antitrust Litigation**

On August 1, 2006, the U.S. Court of Appeals for the Second Circuitgranted plaintiffs’ petition seekingan interlocutory appeal of the denial of class certification.

**Research-related Litigation**

The actions brought on behalf ofpurchasers of shares of Winstar, Inc. and Razorfish, Inc. have been settled andthe U.S. District Court for the District of Massachusetts has entered finaljudgment in both matters.

On September 29, 2006, in theaction brought on behalf of purchasers of shares of AOL Time Warner Inc., theU.S. District Court for the District of Massachusetts denied the motion todismiss plaintiffs’ amended complaint filed by CS Securities and otherdefendants.

On October 24, 2006, the U.S.District Court for the Southern District of New York granted the plaintiffs’class certification motion in the action brought on behalf of purchasers ofshares of Lantronix, Inc.

## **Short Selling Litigation**

On October 13, 2006, an amended putative class actioncomplaint was filed in the U.S. District Court for the Southern District of NewYork against numerous investment banks, including CS Securities.  The complaint alleges that the bankdefendants conspired to fix the minimum loan rate for certain securities andunlawfully agreed not to effect buy-ins on delivery failures relating to shortsales, thus enabling the defendants to charge customers borrowing fees forsecurities that were never actually borrowed. The plaintiffs also allege that the bank defendants conspired to chargetheir customers improper “finders” or “locate” fees in connection with shortsale transactions.  The complaintincludes claims for violation of antitrust law, breach of fiduciary duty andbreach of contract.

## **Enron-relatedLitigation and Inquiries**

On October 26,2006, the U.S. Bankruptcy Court for the Southern District of New Yorkapproved a settlement agreement between the Company and certainaffiliates previously disclosed settling the “megaclaim” litigation aswell as certain related litigation, bankruptcy objections and proofs ofclaim.  The settlement does not coverseparate litigation by Enron in U.S. Bankruptcy Court to recover certainpayments in connection with equity forward and swap transactions or otherEnron-related litigation.

**NCFE-related Litigation**

On August 30,2006, a settlement was reached in the action brought by Avidity Partners, LLC,as trustee of the CSFB Claims Trust, against certain Company affiliates andanother entity in the U.S. Bankruptcy Court for the Southern District of Ohioseeking to recover an alleged preference payment from National CenturyFinancial Enterprises, Inc. prior to its bankruptcy filing.  The settlement was paid by an affiliate thatis not consolidated with the Company.

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**Refco-related Litigation**

CS Securities and otherunderwriters of Refco, Inc.’s initial public offering were not named asdefendants in the amended complaint filed in the U.S. District Court for theSouthern District of New York on September 5, 2006 on behalf of individuals whoheld securities custodied with certain Refco Inc. affiliates.

**Other**

The Company hasprovided reserves for litigation, claims and proceedings involving the Companyin 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 charge recorded in 2002, brings the Company’sreserves for these private litigation matters to $1.0 billion after theapplication of settlements as of September 30, 2006.

We are involvedin a number of judicial, regulatory and arbitration proceedings (includingthose described above) concerning matters arising in connection with theconduct of our businesses.  Some of theseactions have been brought on behalf of various classes of claimants and seekdamages of material and/or indeterminate amounts.  We believe, based on currently available informationand advice of counsel, that the results of such proceedings, in the aggregate,will not have a material adverse effect on our financial condition but might bematerial to operating results for any particular period, depending, in part,upon the operating results for such period. 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.

It isinherently difficult to predict the outcome of many of these matters.  In presenting the condensed consolidatedfinancial statements, management makes estimates regarding the outcome of thesematters and records a reserve and takes a charge to income when losses with respectto such matters are probable and can be reasonably estimated.  Estimates, by their nature, are based onjudgment and currently available information and involve a variety of factors,including, but not limited to, the type and nature of the litigation, claim orproceeding, the progress of the matter, the advice of legal counsel, theCompany’s defenses and its experience in similar cases or proceedings as wellas its assessment of matters, including settlements, involving other defendantsin similar or related cases or proceedings. Further litigation charges or releases of litigation reserves may benecessary in the future as developments in such cases or proceedings warrant.

***Item1A: Risk Factors***

There are no material changes from the risk factors set forth in PartI, Item 1A, in the Company’s Annual Report on Form 10-K for the year endedDecember 31, 2005.

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

Pursuant to General Instruction H of Form 10-Q, the informationrequired by Items 2, 3 and 4 is 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**

Pursuant to the requirements ofthe Securities Exchange Act of 1934, the Registrant has duly caused this reportto be signed on its behalf by the undersigned thereunto duly authorized.
|                   | Credit Suisse (USA), Inc. |
|-------------------|---------------------------|
|              |                      |
|              |                      |
| November 14, 2006 | By:                       | /s/ Paul J. O’Keefe |
|              |                      | Chief Financial and Accounting Officer |
|              |                      | (On behalf of the Registrant and as Principal  Financial Officer) |

 

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**INDEX TOEXHIBITS**
| 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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