**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

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**FORM 10-K**

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

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| **For  the fiscal year ended December 31, 2005** | ** ** | **Commission File Number: 1-6862** |
|-------------------------------------------------------|------------|------------------------------------|

 

**CreditSuisse (USA), Inc.**

(Exactname of registrant as specified in its charter)

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

 

**(212) 325-2000**

(Registrant’stelephone number, including area code)

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**Reduced Disclosure Format**

**The Registrant meets theconditions set forth in General Instruction I (1) (a) and (b) ofForm 10-K and is therefore filing this Form 10-K with the reduceddisclosure format.**

Securitiesregistered pursuant to Section 12(b) of the Act:

|                                                                                 | **Title of each class:** | ** **                  | ** ** | ** ** | **Name of each exchange on which registered:** | ** ** |
|---------------------------------------------------------------------------------|--------------------------|-----------------------------|------------|------------|------------------------------------------------|------------|
| **6****1****¤****8****% Notes due 2011**                                   | ** **               | **New York Stock Exchange** |
| **Five-Year  Contingent Protection Securities due**                             |                     | **American Stock Exchange** |
| **September 30, 2008 Linked  to the S&P 500****®**** Index** |                     |                        |
| **Five-Year  Contingent Protection Securities due**                             |                     | **American Stock Exchange** |
| **November 26, 2008 Linked to the S&P 500****®**** Index**   | ** **               | ** **                  |

 

Securities registeredpursuant to Section 12(g) of the Act:

**None**

Indicateby check mark if the registrant is not required to file reports pursuant to Section 13or Section 15 (d) of the Act Yes o  No x

Indicateby check mark whether the registrant is a well known seasoned issuer (asdefined in Rule 405 of the Act): Yes x  No o

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days: Yes x  No o

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to thebest of registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K:  x

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.(Check one):

Large accelerated filer o    Accelerated filer o   Non-accelerated filer x

Indicateby check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act): Yes o  No x

Becausethe registrant is an indirect wholly owned subsidiary of Credit Suisse Group,none of the registrant’s outstanding voting stock is held by nonaffiliates ofthe Registrant. As of the date hereof, 1,100.103543 shares of the Registrant’sCommon Stock, $.10 par value, were issued and outstanding and held by CreditSuisse Holdings (USA), Inc.

Documents Incorporated byReference: **None**

 

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**CREDIT SUISSE(USA), INC.Annual Report on Form 10-K for the Fiscal Year EndedDecember 31, 2005**

|                                                                                        | ** **                                                                                                               | Page No. |
|----------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------|---------------|
| Cautionary  Statement Pursuant to The Private Securities Litigation Reform Act of 1995 |                                                                                                                     | i             |   |
| Form 10-K Item Number:                                                            |                                                                                                                     |          |   |
| PART I                                                                            |                                                                                                                     |          |   |   |
| Item 1:                                                                                | Business                                                                                                                 |          | 1 |   |
| Item 1A:                                                                               | Risk Factors                                                                                                             |          | 10 |   |
| Item 1B:                                                                               | Unresolved  Staff Comments                                                                                               |          | 15 |   |
| Item 2:                                                                                | Properties                                                                                                               |          | 16 |   |
| Item 3:                                                                                | Legal  Proceedings                                                                                                       |          | 16 |   |
| Item  4:                                                                               | Omitted Pursuant to General  Instruction I                                                                               |          | 21 |   |
| PART II                                                                           |                                                                                                                     |          |   |   |
| Item 5:                                                                                | Market  for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities |          | 22 |   |
| Item 6:                                                                                | Selected  Financial Data                                                                                                 |          | 22 |   |
| Item 7:                                                                                | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                              |          | 23 |   |
| Item 7A:                                                                               | Quantitative  and Qualitative Disclosures About Market Risk                                                              |          | 56 |   |
| Item 8:                                                                                | Financial  Statements and Supplementary Data                                                                             |          | 67 |   |
| Item 9:                                                                                | Changes  in and Disagreements with Accountants on Accounting and Financial Disclosure                                    |          | 67 |   |
| Item 9A:                                                                               | Controls  and Procedures                                                                                                 |          | 67 |   |
| Item 9B:                                                                               | Other  Information                                                                                                       |          | 67 |   |
| PART III                                                                          |                                                                                                                     |          |   |   |
| Item 10:                                                                               | Directors  and Executive Officers of the Registrant                                                                      |          | 68 |   |
| Item 11:                                                                               | Omitted  Pursuant to General Instruction I                                                                               |          | 69 |   |
| Item 12:                                                                               | Omitted  Pursuant to General Instruction I                                                                               |          | 70 |   |
| Item 13:                                                                               | Omitted  Pursuant to General Instruction I                                                                               |          | 70 |   |
| Item 14:                                                                               | Principal  Accountant Fees and Services                                                                                  |          | 70 |   |
| PART IV                                                                           |                                                                                                                     |          |   |   |
| Item 15:                                                                               | Exhibits  and Financial Statement Schedule                                                                               |          | 71 |   |
| Index  to Financial Statements and Financial Statement Schedule                        |                                                                                                                     | F-1           |   |
| Signatures                                                                             |                                                                                                                     | II-1          |   |
| Index to Exhibits                                                                      |                                                                                                                     | E-1           |   |

 

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***Cautionary Statement Pursuant to The PrivateSecurities Litigation Reform Act of 1995***

We have made in this Annual Report on Form 10-K,including, without limitation, in “Legal Proceedings” in Part I, Item 3and in “Management’s Discussion and Analysis of Financial Condition and Resultsof Operations” in Part II, Item 7, and from time to time may otherwisemake in our public filings, press releases or other statements, forward-lookingstatements concerning our operations, economic performance and financial condition,as well as our future plans and strategic objectives. Such forward-lookingstatements are subject to various risks and uncertainties, and we claim theprotection afforded by the safe harbor for forward-looking statementscontained in the Private Securities Litigation Reform Act of 1995. Actualresults could differ materially from those anticipated herein or in any suchother filings, releases or statements because of a number of factors,including, without limitation, those detailed in “Risk Factors” in Part I,Item 1A, those discussed elsewhere herein, and in other public filings andpress releases. These forward-looking statements are not historical factsbut instead represent only our belief regarding future events, many of which,by their nature, are inherently uncertain and beyond our control. Forward-lookingstatements are typically identified by the use of future or conditional verbssuch as “will,” “should,” “would,” or “could” and by words or phrases such as “believe,”“expect,” “intend,” “estimate” and similar expressions. By identifying thesestatements for you in this manner, we are alerting you to the possibility thatour actual results may differ, possibly materially, from the results indicatedin these forward-looking statements. We undertake no obligation to updateor revise any forward-looking statements except as otherwise required byapplicable law.

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**PART I**

***Item 1:****                         Business*

**OVERVIEW**

We are anintegrated investment bank, serving institutional, corporate, government andhigh-net-worth clients as a financial intermediary. We provide abroad range of products and services, including:

·       securitiesunderwriting, sales and trading;

·       financialadvisory services;

·       alternativeinvestments;

·       fullservice brokerage;

·       derivativesand risk management products;

·       assetmanagement; and

·       research.

We are an indirect wholly owned subsidiary, and partof the banking businesses, of Credit Suisse Group, or CSG. CSG is a globalfinancial services company providing a comprehensive range of banking,investment banking, asset management and insurance products and services. Ourprincipal subsidiary is Credit Suisse Securities (USA) LLC (formerly CreditSuisse First Boston LLC), CSG’s principal U.S. registered broker-dealer.Effective January 16, 2006, we changed our name from Credit Suisse FirstBoston (USA), Inc. to Credit Suisse (USA), Inc. When we use the terms“we,” “our,” and the “Company,” we mean Credit Suisse (USA), Inc. and itsconsolidated subsidiaries.

In 2005, CSG was operated and managed in six reportingsegments. We were a part of two segments, Institutional Securities and Wealth &Asset Management. The****InstitutionalSecurities segment provides financial advisory and capital raising services andsales and trading for global users and suppliers of capital. The Wealth &Asset Management****segment providesinternational asset management services to institutional, mutual fund andprivate investors, makes private equity investments and manages private equityfunds, and provides financial advisory services to high-net-worth individualsand corporate investors.

Our indirect parent is Credit Suisse, a Swiss bank. Thebank is comprised of the former Swiss banks Credit Suisse and Credit SuisseFirst Boston, which merged on May 13, 2005 as the first step in theintegration of CSG’s banking businesses. CSG conducts its investment bankingand wealth and asset management businesses under the Credit Suisse legalentity.

Effective January 1, 2006, CSG aligned itsorganizational structure to its new strategic orientation, which is to focus onbanking and hold its insurance business as a financial investment. In itsbanking business, CSG launched a key strategic initiative in December 2004to form a fully integrated bank, with three lines of business: InvestmentBanking, Private Banking and Asset Management. These changes reflect theincreasingly complex needs and global orientation of Credit Suisse’s clients,who require sophisticated, integrated solutions and access to a broad spectrumof products and services. They also reflect the changes in the way CreditSuisse operates as a bank as a result of globalization and new technologies, andthe growing competitive pressure in the industry. As a result of theserealignments, the banking business now consists of three divisions: InvestmentBanking (consisting of investment banking and trading), Private Banking(consisting of wealth management and corporate and retail banking) and AssetManagement (consisting of traditional asset management and alternativeinvestments). We are managed as a subsidiary of Credit Suisse and CSG, and ourbusinesses are a part of each of these divisions.

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Unless otherwise indicated, the information in thisAnnual Report reflects the operational and management structure in place during2005.

For the year ended December 31,2005, according to Thomson Financial, Dealogic and the Loan PricingCorporation, Institutional Securities ranked:

·       Firstin U.S. dollar value of global initial public offerings, or IPOs;

·       Eighthin U.S. dollar value of global equity and equity-linked underwriting;

·       Sixthin U.S. dollar value of global debt underwriting;

·       Thirdin U.S. dollar value of global high-yield debt underwriting;

·       Fourthin U.S. dollar value of global asset-backed financing;

·       Firstin Swiss franc-denominated international debt issuances;

·       Tenthin global mergers and acquisitions advisory services in U.S. dollar value of announcedtransactions; and

·       Eighthin global mergers and acquisitions advisory services in U.S. dollar value ofcompleted transactions.

We file annual, quarterlyand current reports and other information with the Securities and ExchangeCommission, or SEC. Our SEC filings are available to the public on the SEC’swebsite at *www.sec.gov.*You mayalso view our annual, quarterly and current reports on our website at *h**ttp://www.csfb.com/about_csfb/company_information/sec/index.shtml*as soon as is reasonably practicable after any such report is electronicallyfiled with, or furnished to, the SEC. The information on Credit Suisse’swebsite is not incorporated by reference into this Annual Report.

**STRATEGY**

Credit Suisse seeks to create value for clients andshareholders in its investment banking businesses by delivering differentiatedproducts and services while maintaining a high priority on controls, riskmanagement and reputation. The essence of Credit Suisse’s investment bankingstrategy, as announced in December 2004, is delivering a more focusedfranchise, and good progress continues to be made in achieving this goal.

Progress can bemeasured by the revenue gains in the investment banking businesses as well asby the milestones achieved during the past year. For example:

·       Theresidential mortgage-backed securities business has grown significantly byallocating additional capital, increasing origination through a larger networkof wholesalers and correspondents, and through the acquisition of SelectPortfolio Servicing, Inc., or SPS, a mortgage servicing company.

·       Strongresults have been achieved within the commercial mortgage-backed securitiesbusiness by delivering innovative solutions for clients and further expandingthe platform into Europe and Asia.

·       TheGlobal Markets Solutions Group was established, through the integration of thecapital markets, leveraged finance origination and structuring teams. CreditSuisse is confident this integrated global product platform will increase theability to provide more value-added funding and financing solutions to clientsacross all products, including derivatives. In 2005, Credit Suisse ranked firstin IPOs globally, participating in a number of high profile transactions.Credit Suisse also maintained its strong leveraged finance franchise andimproved the profitability of its debt capital markets business.

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Credit Suisse’sinvestment banking businesses are also very well positioned to benefit fromsome of the important trends shaping the investment banking industry.

·       TheAutomated Execution Products group is a recognized leader in electronic tradeexecution, an area experiencing rapid growth.

·       Theinvestment banking business has a leading position in some of the fastestgrowing and most important emerging markets, such as China, Russia, Brazil, andMexico.

·       Hedgefunds are an increasingly large and important segment of the investment bankingclient base, and the Institutional Securities Prime Services business hasstrong momentum with hedge funds. Prime Services was recognized by the industryin 2005 for its quality of service, ranking as the second prime broker byclients in the 2005 Global Custodian magazine survey (the industry benchmarksurvey), up from eighth last year, and as the second global prime broker by clientsin Institutional Investor's Alpha magazine 2005 prime brokerage survey. Thisrecognition by clients has translated into strong revenue and profitabilitygrowth in the business.

·       Leveragedfinance and financial sponsors are increasingly important components of themarket, and each is an area of strength and core competency.

Credit Suisse has made good progress implementing itsinvestment banking strategy, by building on its strengths, focusing on its mostimportant clients and delivering products and services that its clients valueand are willing to pay for.

The asset managementbusiness will build on its leading alternative investment franchise andleverage existing strengths to promote growth in traditional and alternativeasset management. In alternative investments, Credit Suisse will build on abroad diversity of funds, focus increasingly on international markets, such asAsia, that display strong secular growth, spin out funds that could benefitfrom an independent platform and establish a new services platform for limitedpartners. In traditional asset management,****CreditSuisse will seek to grow European distribution, expand global productofferings, improve profitability in its U.S. franchise and streamline its Asianpresence.

**OPERATIONAL STRUCTURE**

In 2005, we operated and managed our business throughtwo segments: the Institutional Securities segment, which provides financialadvisory and capital raising services and sales and trading for users andsuppliers of capital, and the Wealth & Asset Management****segment, which invests in and managesprivate equity and other alternative investments and provides financialadvisory services to high-net-worth individuals and corporate investors. In2004, CSG reorganized its operations by transferring the private equity andprivate funds group activities previously in the Institutional Securitiessegment to Wealth & Asset Management. CSG also reorganized thebusinesses within the Institutional Securities segment along the lines of itsinvestment banking and trading businesses and realigned the businesses withinthe Wealth & Asset Management segment to bring together itsalternative investment activities, including the private equity and privatefunds groups. Our businesses were reorganized along similar lines.

InstitutionalSecurities includes:

·       Trading,which includes sales and trading in equity and debt securities and derivatives,and other related activities; and

·       InvestmentBanking, which raises and invests capital, provides financial and otheradvisory services, manages and underwrites securities offerings and arrangesprivate placements.

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Wealth &Asset Management includes:

·       AlternativeCapital, which makes investments in, manages and provides capital raising andother services to, private equity funds and other alternative investmentvehicles; and

·       PrivateClient Services, a financial advisory business that serves high-net-worthindividuals and corporate investors with a wide range of Credit Suisse andthird-party investment management products and services.

Only a portion of the businesses represented by thesesegments are conducted by the Company.

Effective January 1,2006, CSG’s banking businesses have been structured as three businessdivisions: Investment Banking, Private Banking and Asset Management. Ourbusinesses will be operated and managed along these same three divisions. See “—Overview”.

**PRODUCTS AND SERVICES**

**Institutional Securities**

Institutional Securities provides financial advisoryand capital raising services and sales and trading for users and suppliers ofcapital. The operations of Institutional Securities include debt and equityunderwriting and financial advisory services and the equity and fixed incometrading businesses. Institutional Securities clients demand high-qualityproducts and services for their funding, investing, risk management andfinancial advisory needs. In response to these needs, Institutional Securitieshas developed a global product-based structure delivered through regionalteams.

The principal products andactivities of Institutional Securities are:

***Trading***

·       Commodities;

·       Creditproducts, including investment-grade debt securities and credit derivatives;

·       Equitysecurities and equity derivatives, including convertible bonds;

·       Foreignexchange services including currency derivatives;

·       Fund-linkedproducts;

·       Indexarbitrage and other program-trading activities, including Advanced ExecutionServices;

·       Interestrate products, including global government securities and interest ratederivatives;

·       Leveragedfinance, including high-yield and distressed debt and non-investment gradeloans;

·       Lifeinsurance finance and risk solutions;

·       Marginlending;

·       Marketmaking in securities and options;

·       Matchedbook activities;

·       Moneymarket instruments;

·       Primeservices;

·       Proprietarytrading;

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·       Realestate activities, including originating loans secured by commercial andresidential properties, and servicing commercial and residential mortgageloans;

·       Riskarbitrage in the equity securities of companies involved in publicly announcedcorporate transactions;

·       Securitieslending;

·       Securities,futures and options clearing services; and

·       Structuredproducts, including asset-backed securities such as collateralized debtobligations and commercial and residential mortgage-backed securities, andmortgages.

On January 1, 2006,we began conducting certain syndicated loan trading activities that werepreviously conducted by a branch of Credit Suisse outside of our consolidatedgroup.

***Investment Banking***

·       Mergersand acquisitions and other advisory services, including corporate sales andrestructuring, divestitures and take-over defense strategy; and

·       Capital raising services,including equity and debt underwriting.

***Other***

Other products andactivities of Institutional Securities that are not part of Trading orInvestment Banking include private equity investments that are not managed aspart of Alternative Capital, certain real estate investments and certaindistressed asset portfolios. Institutional Securities also makes loans, includingsenior bank debt in the form of syndicated loans and commitments to extendcredit to investment grade and non-investment grade borrowers through branchesof Credit Suisse.

***Global investment research***

Institutional Securitiesprovides in-depth research on companies and industries, macroeconomics and debtstrategy globally. Core strengths include focused company and business modelanalysis and customized client service. Equity analysts perform differentiatedinformation gathering and value-added information processing and providehigh-quality investment recommendations. Equity research also includesextensive data resources, analytical frameworks and methodologies that leveragea global platform and enable its analysts to customize their products for institutionalcustomers. Fixed income research provides clients with credit portfoliostrategies and analysis, forecasts of swaps and generic spread movements andoutstanding credit strategy research for both high-grade and high-yieldproducts. Institutional Securities analysts’ in-depth understanding of markets,companies, investment instruments and local, regional and global economiesforms a strong foundation for the innovative web-based analytical tools andtechnology of Institutional Securities.

**Wealth & Asset Management**

Wealth & Asset Management makes investmentsin, manages and provides capital raising and other services to hedge funds,private equity funds and other alternative investments through its AlternativeCapital business and serves high-net-worth and corporate investors with a widerange of proprietary and third-party investment management products andservices through its Private Client Services business. Private Client Serviceshad 250 investment advisors and managed or advised clients on approximately$57.3 billion in assets as of December 31, 2005. CSG’s wealth andasset management business also provides traditional asset management servicesthrough Credit Suisse and affiliates outside of our consolidated group.

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The following is adiscussion of the key products and services of Wealth & AssetManagement and the businesses through which they are delivered.

***Alternative Capital***

Alternative Capital invests in, manages and providescapital raising and other services to, hedge funds, private equity funds andother alternative investment vehicles. Alternative Capital includes the privateequity group, the private funds group and the capital markets group.

*Privateequity group.**  *Theprivate equity group makes privately negotiated investments and acts as aninvestment manager for private equity funds.

*Privatefunds group.**  *Theprivate funds group raises capital for hedge funds, private equity funds andreal estate funds.

*Capital markets group.*   Thecapital markets group has direct hedge funds and invests in hedge funds offunds and leveraged loans and collateralized debt obligations, or CDOs.

***Private Client Services***

The Private ClientServices business offers a range of services, including brokerage, hedging andsales of restricted securities for high-net-worth and corporate investors.Private Client Services also offers its clients a wide range of investmentmanagement products, including third-party-managed accounts, fee-basedasset management and alternative investments.

**OPERATINGENVIRONMENT AND COMPETITION**

**Operating environment**

The operating environment for Institutional Securitiesis expected to remain challenging in the near term, reflecting expectedcontinued slow securities market growth in developed countries, fee compressionand commoditization across products, and the ongoing importance of balancesheet commitments for clients. In addition, the regulatory environment remainsdifficult, with significant new reporting requirements and increasingcomplexity in managing potential conflicts of interest across its evolvingbusinesses.

Institutional Securities is well positioned to benefitfrom a number of trends in the industry. As a leader in emerging markets,Institutional Securities is likely to benefit from the rapid growth andincreasing importance of these markets. The growth of hedge funds andalternative investments is expected to continue to fuel growth in theInstitutional Securities prime services business, which has been recognized asa top provider to hedge funds. Institutional Securities, with its strengths intechnology and its advanced execution services platform, is expected to benefitfrom the move towards electronic execution. Institutional Securities is alsowell positioned to benefit from the rise in residential and commercialmortgage-backed securitization activity. In addition, Institutional Securitiesis likely to continue to benefit from leveraging its leadership position infinancial sponsor activity and leveraged finance, both of which are expected togain greater importance in the market.

The operating environmentfor asset management was generally favorable during the last year as worldequity indices primarily posted gains. Surging markets in Europe, Asia andLatin America outperformed markets in the U.S., and interest rates remainedlow. Short-term interest rates in the U.S. rose appreciably during the year,reflecting the Federal Reserve Board’s continued policy of tightening, butlong-term rates were mostly unchanged from the prior year. The demographicprofile of most developed countries suggests medium-term growth opportunitiesas aging populations seek to invest for retirement. Nevertheless, thecontinuing development of markets makes it increasingly difficult for activeasset 

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managersto outperform, and the regulatory environment for mutual funds remainsdifficult. CSG expects structured and alternative investments to continue togain in importance.

**Competition**

Institutional Securities faces intense globalcompetition across each of its businesses. Institutional Securities competeswith investment and commercial banks, broker-dealers and other firms offeringfinancial services. New entrants into the financial services and executionmarkets, such as commercial banks and technology companies, have contributed tofurther market fragmentation, fee and spread compression and productcommoditization. In addition, Institutional Securities faces continuedcompetitive pressure to make loans or commit capital to clients.

Wealth & AssetManagement****faces competitionprimarily from retail and institutional fund managers. Passive investmentstrategies are gaining share at the expense of active managers as marketsdevelop, and a larger share of new investment flows are being directed to asmall number of fund managers. Competition for attractive alternativeinvestments, including private equity investments, will likely remain intenseand contribute to increasingly large private equity investments.

**FINANCE,ADMINISTRATION AND OPERATIONS**

Included within finance, administration and operationsare various support departments, including treasury, controllers, credit, riskmanagement, corporate services, information technology, tax, legal andcompliance, human resources and operations. These departments support ourbusinesses through the processing of securities, derivatives, foreign exchangeand commodities transactions; receipt and delivery of funds and securities;safeguarding of customers’ securities; internal financial controls, includingmanagement of global expenses, capital structure and funding; and our effortsat ensuring compliance with regulatory and legal requirements. Certain of theseareas also assist in the management and monitoring of the risks associated withour business activities.

Our indirect parent,Credit Suisse, fully recognizes the importance of maintaining a comprehensive business continuity plan in anintegrated financial services business environment. Credit Suisse has anestablished business continuity plan that includes systems and procedures forback up and recovery of mission critical systems and data, alternatecommunications with customers and employees and alternate physical locationsfor employees.

**EMPLOYEES**

As of December 31,2005, we had 10,465 employees based in the United States and 434 employeesbased outside the United States. As of December 31, 2004, we had 8,930employees based in the United States and 414 employees based outside of theUnited States. These figures include contractors as well as employees. Theincrease in headcount in 2005 reflects our acquisition of SPS. See Item 7 “Management’sDiscussion and Analysis of Financial Condition and Results of Operations—Recent Developments”.

**U.S. REGULATION AND SUPERVISION**

Our business is, and the securities and commodityfutures and options industries generally are, subject to extensive regulationin the United States and elsewhere. As a matter of public policy, regulatorybodies in the United States and the rest of the world are charged withsafeguarding the integrity of the securities and other financial markets andwith protecting the interests of customers participating in those markets.

In the United States, the SEC is the federal agencyprimarily responsible for the regulation of broker-dealers, investmentadvisers and investment companies, and the Commodity Futures TradingCommission, or the CFTC, is the federal agency primarily responsible for theregulation of futures 

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commission merchants,commodity pool operators and commodity trading advisers. In addition, theDepartment of the Treasury has the authority to promulgate rules relatingto U.S. Treasury and government agency securities, the Municipal SecuritiesRulemaking Board has the authority to promulgate rules relating tomunicipal securities, and the Board of Governors of the Federal Reserve System,or the Board, promulgates regulations applicable to certain securities credittransactions. In addition, broker-dealers are subject to regulation byindustry self-regulatory organizations, including NASD, Inc., or the NASD,and the New York Stock Exchange, Inc., or the NYSE, and by stateauthorities. Because we are also engaged in futures activities, our U.S. broker-dealeraffiliates are subject to industry self-regulatory organizations such as theNational Futures Association, or the NFA.

Credit SuisseSecurities (USA) LLC, or CS Securities, our principal wholly owned subsidiary,is a broker-dealer registered with the SEC, in all fifty states, the Districtof Columbia and Puerto Rico and a futures commission merchant and commoditytrading advisor registered with the CFTC. As a result of these registrations,and memberships in self-regulatory organizations such as the NASD, the NYSE andthe NFA, our business is subject to overlapping regulation covering all aspectsof its securities, commodities and futures activities. Such regulations covermatters including:

·       capitalrequirements;

·       theuse and safekeeping of customers’ funds and securities;

·       recordkeepingand reporting requirements;

·       supervisoryand organizational procedures intended to ensure compliance with securities andcommodities laws and the rules of the self-regulatory organizations;

·       supervisoryand organizational procedures intended to prevent improper trading on materialnon-public information;

·       employee-relatedmatters;

·       limitationson extensions of credit in securities transactions;

·       requiredprocedures for trading on securities and commodities exchanges and in the over-the-counter,or OTC, market;

·       anti-moneylaundering procedures;

·       proceduresrelating to research analyst independence; and

·       proceduresrelating to the clearance and settlement of trades.

As a registered futures commission merchant, ourbroker-dealer is subject to the requirements of the CFTC under theCommodity Exchange Act. These requirements include the provision of certain disclosuredocuments, generally impose prohibitions against trading ahead of customerorders and other fraudulent trading practices, and include provisions as to thehandling of customer funds and reporting and recordkeeping requirements.

Our businesses include legal entities registered andregulated as investment advisers under the U.S. Investment Advisers Act of1940, as amended, and the SEC’s rules and regulations thereunder. Wealth &Asset Management provides asset management services primarily to individuals,corporations and public pension funds. For pension fund clients, we are subjectto the Employee Retirement Income Security Act of 1974, as amended, and similarstate statutes. These regulations provide for the way in which client assetsshould be managed. In addition, these regulations impose limitations on theability of investment advisors to charge performance-based ornon-refundable fees to clients, recordkeeping and recording requirements,disclosure requirements and limitations on principal transactions between anadviser or its affiliates and 

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advisory clients, as wellas general anti-fraud prohibitions. Finally, because some of the investmentvehicles we advise are commodity pools, we are subject to the CommodityExchange Act for such clients.

In addition, because we are an indirect wholly ownedsubsidiary of each of CSG and Credit Suisse, our activities are subject tosignificant bank regulatory restrictions. These restrictions are primarilyimposed pursuant to the International Banking Act of 1978, or IBA, the BankHolding Company Act of 1956, the Gramm-Leach-Bliley Act of 1999, orGLBA, and the regulations and interpretations of the Board and other applicableregulators.

Once GLBA took effect, qualifying bank holdingcompanies and foreign banks qualifying as “financial holding companies” werepermitted to engage in a substantially broader range of non-banking activitiesin the United States, including insurance, securities, private equity and otherfinancial activities. GLBA does not authorize banks or their affiliates toengage in commercial activities that are not financial in nature or incidentalthereto without other specific legal authority or exemption.

Certain provisions governing the acquisition of U.S.banks were not affected by GLBA. Accordingly, CSG is required to obtain theprior approval of the Board before acquiring, directly or indirectly, theownership or control of more than 5% of any class of voting shares of any U.S.bank or bank holding company.

Under GLBA and related Board regulations, CSG andCredit Suisse became financial holding companies effective March 23, 2000by certifying and demonstrating that CSG and Credit Suisse were “wellcapitalized” and “well managed.” If in the future CSG or Credit Suisse ceasesto be “well capitalized” or “well managed”, or otherwise fail to meet any ofthe requirements for financial holding company status, then, depending on whichrequirement they fail to meet, they may be required to discontinue newlyauthorized financial activities or terminate Credit Suisse’s New York Branch.CSG’s ability to undertake acquisitions permitted by financial holdingcompanies could also be adversely affected.

GLBA and the regulations issued thereunder contain anumber of other provisions that could affect our operations and the operationsof all financial institutions. One such provision relates to the financialprivacy of consumers. In addition, the so-called “push-out” provisions of GLBAhave narrowed and will further narrow the exclusion of banks from the definitionsof “broker” and “dealer” under the Securities Exchange Act of 1934, or theExchange Act. The SEC has granted a series of temporary exemptions to delay therequired implementation of these push-out provisions. The narrowed “dealer”definition took effect in September 2003, and the narrowed “broker”definition is currently expected to take effect no later than September 2006.As a result, it is likely that certain securities activities currentlyconducted by Credit Suisse’s New York branch will need to be restructured ortransferred to one or more U.S. registered broker-dealer affiliates.

We believe that we havebeen in compliance in all material respects with the regulations describedherein.

**Capital Requirements**

As a registered broker-dealer and member firm ofvarious self-regulatory organizations, CS Securities is subject to the uniformnet capital rule, Rule 15c3-1 under the Exchange Act. This rule requiresbroker-dealers to maintain a specified level of minimum net capital inrelatively liquid form. Our OTC derivatives dealer subsidiary, Credit SuisseCapital LLC, or CS Capital, is also subject to the uniform net capital rule butcalculates its net capital requirements based on value at risk pursuant toAppendix F of Rule 15c3-1. CS Securities is also subject to thenet capital requirements of the CFTC and various commodity exchanges. SeeNote 12 of the consolidated financial statements in Part II, Item 8.

The SEC and variousself-regulatory organizations impose rules that require notification whennet capital falls below certain criteria, dictate the ratio of subordinateddebt to equity in the regulatory capital 

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compositionof a broker-dealer and constrain the ability of a broker-dealer toexpand its business under certain circumstances. Additionally, the SEC’suniform net capital rule imposes certain requirements that may have theeffect of prohibiting a broker-dealer from distributing or withdrawingcapital and requiring prior notice to the SEC for certain withdrawals ofcapital.

Compliance with net capitalrequirements of these and other regulators could limit the operations of oursubsidiaries that require the intensive use of capital, such as underwritingand trading activities and the financing of customer account balances, and alsocould restrict our ability to withdraw capital from our regulated subsidiaries,which in turn could limit our ability to pay dividends and make payments on ourdebt obligations.

As of December 31,2005, our subsidiaries complied with all applicable regulatory capital adequacyrequirements.

***Item 1A:      Risk Factors***

Our businesses are exposedto a variety of risks that could adversely affect our results of operations orfinancial condition, including, among others, those described below.

**Market Risk**

***We may incur significant losses on our trading andinvestment activities due to market fluctuations and volatility.***

We maintain large tradingand investment positions and hedges in the debt, currency, commodity and equitymarkets, and in private equity, real estate and other assets. These positionscould be adversely affected by volatility in financial and other markets, thatis, the degree to which prices fluctuate over a particular period in aparticular market, regardless of market levels. To the extent that we ownassets, or have net long positions, in any of those markets, a downturn inthose markets could result in losses from a decline in the value of our netlong positions. Conversely, to the extent that we have sold assets that we donot own, or have net short positions, in any of those markets, an upturn inthose markets could expose us to potentially significant losses as we attemptto cover our net short positions by acquiring assets in a rising market.

We have risk managementtechniques and policies designed to manage our market risk. These techniquesand policies, however, may not be effective. For information on management ofmarket risk, refer to “Quantitative and Qualitative Disclosures about MarketRisk” in Part II, Item 7A.

***Adverse market oreconomic conditions may cause a decline in net revenues.***

As a global financialservices company, our businesses are materially affected by conditions in thefinancial markets and economic conditions generally in the U.S. and elsewherearound the world. Adverse market or economic conditions could create achallenging operating environment for financial services companies. Inparticular, the impact of oil prices, interest rates and the risk ofgeopolitical events could materially affect financial markets and the economy.Movements in interest rates could affect our net interest income and the valueof our trading and non-trading fixed income portfolios, and movements in equitymarkets could affect the value of our trading and non-trading equityportfolios.

Future terrorist attacks,military conflicts and economic or political sanctions could have a materialadverse effect on economic and market conditions, market volatility andfinancial activity.

Adversemarket or economic conditions could reduce the number and size of investmentbanking transactions in which we provide underwriting, mergers and acquisitionsadvice or other services and, therefore, adversely affect our financialadvisory and underwriting fees. Such conditions could also lead to a decline inthe volume of securities trades that we execute for customers and, therefore,adversely affect the net revenues we receive from commissions and spreads.

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Adverse market or economic conditions could negativelyaffect our private equity investments since, if a private equity investmentsubstantially declines in value, we may not receive any increased share of theincome and gains from such investment (to which we are entitled in certaincases when the return on such investment exceeds certain threshold returns),may be obligated to return to investors previously received excess carriedinterest payments and may lose our pro rata share of the capital invested. Inaddition, it could become more difficult to dispose of the investment, as eveninvestments that are performing well may prove difficult to exit in weak IPOmarkets.

In addition, we areexposed to market risk through our proprietary investments in hedge funds.

***We may incur significant losses in the real estatesector.***

We finance and acquireprincipal positions in a number of real estate and real estate-relatedproducts, both for our own account and for major participants in the commercialand residential real estate markets, and originate loans secured by commercialand residential properties. We also securitize and trade in a wide range ofcommercial and residential real estate and real estate-related whole loans,mortgages, and other real estate and commercial assets and products, includingresidential and commercial mortgage-backed securities. These businesses couldbe adversely affected by a downturn in the real estate sector.

***Our revenues may decline in line with declines incertain sectors.***

Decreasing economic growthin a sector, such as the technology and telecommunications sectors, in which wemake significant commitments, for example through underwriting or advisoryservices, could negatively affect net revenues of our investment bankingbusiness.

***Holding large and concentrated positions may expose usto large losses.***

Concentrations of riskcould increase losses at our investment banking businesses, which may havesizeable loans to and securities holdings in certain customers or industries.We maintain a system of risk limits designed to control concentration risks.These controls, however, may not be effective.

***Our hedging strategies may not prevent losses.***

If any of the variety ofinstruments and strategies we use to hedge our exposure to various types ofrisk in our businesses is not effective, we may incur losses. We may only bepartially hedged, or these strategies may not be fully effective in mitigatingour risk exposure in all market environments or against all types of risk. Inaddition, gains and losses resulting from certain ineffective hedges may resultin volatility in our reported earnings.

***Market risk may increase the other risks that we face.***

In addition to thepotentially adverse effects on our businesses described above, market risk couldexacerbate the other risks that we face. For example, if we were to incursubstantial trading losses, our need for liquidity could rise sharply whileaccess to liquidity could be impaired. In conjunction with a market downturn,our customers and counterparties could also incur substantial losses of theirown, thereby weakening their financial condition and increasing our credit riskto them.

**Credit Risk**

***We may suffer significant losses from our creditexposures.***

Our businesses are subject to the risk that borrowersand other counterparties will be unable to perform their obligations. Creditexposures exist within lending relationships, commitments and letters ofcredit, as well as derivative, foreign exchange and other transactions.

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In recent years, our investmentbanking business has significantly expanded its use of swaps and otherderivatives. As a result, our credit exposures have increased and may continueto increase in amount and duration. In addition, we have experienced, due tocompetitive factors, pressure to assume longer-term credit risk, to extendcredit against less liquid collateral and to price derivative instruments moreaggressively based on the credit risks that we take. An increase in ourinvestment bank’s provisions for credit losses, or any credit losses in excessof related provisions, could have an adverse effect on our results ofoperations.

***Defaults by a large financial institution couldadversely affect financial markets generally and us specifically.***

Concerns about, or adefault by, one institution could lead to significant liquidity problems,losses or defaults by other institutions because the commercial soundness ofmany financial institutions may be closely related as a result of credit,trading, clearing or other relationships between institutions. This risk issometimes referred to as “systemic risk” and may adversely affect financialintermediaries, such as clearing agencies, clearinghouses, banks, securitiesfirms and exchanges with which we interact on a daily basis, and couldadversely affect us.

***The information that we use to manage our credit riskmay be inaccurate or incomplete.***

Although we regularlyreview our credit exposure to specific clients and counterparties and tospecific industries, countries and regions that we believe may present creditconcerns, default risk may arise from events or circumstances that aredifficult to foresee or detect, such as fraud. We may also fail to receive fullinformation with respect to the credit or trading risks of a counterparty.

**CrossBorder and Foreign Exchange Risk**

***Cross border risks may increase market and creditrisks we face.***

Country, regional andpolitical risks are components of market and credit risk. Financial markets andeconomic conditions generally have been and may be materially affected by suchrisks. Economic or political pressures in a country or region, including thosearising from local market disruptions, currency crises and monetary controls,may adversely affect the ability of clients or counterparties located in thatcountry or region to obtain foreign exchange or credit and, therefore, toperform their obligations to us, which in turn may have an adverse impact onour results of operations.

***We may face significant losses in emerging markets.***

We are exposed to economicinstability in emerging market countries. We monitor these risks, seekdiversity in the sectors in which we invest and emphasize customer-drivenbusiness. Our efforts at containing emerging market risk, however, may notsucceed.

***Currency fluctuations may adversely affect our resultsof operations.***

We are exposed to riskfrom fluctuations in exchange rates for currencies.

**Liquidity Risk**

***Our liquidity could be impaired if we could not accessthe capital markets or sell our assets.***

Liquidity, or ready accessto funds, is essential to our businesses, particularly our investment bankingbusiness, which depend on continuous access to the debt capital and moneymarkets to finance day-to-day operations. An inability to obtain financing inthe unsecured long-term or short-term debt capital markets, or to access thesecured lending markets, could have a substantial adverse effect on ourliquidity. In a time 

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ofreduced liquidity, we may be unable to sell some of our assets, or we may needto sell assets at depressed prices, which in either case could adversely affectour results of operations and financial condition.

***Changes in our ratings may adversely affect ourbusiness.***

Reductions in our creditratings could increase our borrowing costs, limit our access to capital marketsand adversely affect the ability of our businesses to sell or market theirproducts, engage in business transactions — particularly longer-term andderivatives transactions — and retain their customers. Ratings are assigned byrating agencies, which may reduce, indicate their intention to reduce orwithdraw the ratings at any time. For more information relating to our creditratings, refer to “Management’s Discussionand Analysis of Financial Condition and Results of  Operations—Liquidity and Capital Resources” in Part II, Item 7.

**Operational Risk**

***We are exposed to a wide variety of operational risks***

Operational risk is therisk of loss resulting from inadequate or failed internal processes, people andsystems or from external events. In general, our businesses face a wide varietyof operational risks, including technology risk that stems from dependencies oninformation technology and the telecommunications infrastructure and businessdisruption, including the infrastructure supporting our businesses and/or theareas where our businesses or third-party suppliers are situated. We relyheavily on our financial, accounting and other data processing systems, whichare varied and complex. If any of these systems does not operate properly or isdisabled, including as a result of terrorist attacks or other unforeseeableevents, we could suffer financial loss, a disruption of our businesses,liability to our clients, regulatory intervention or reputational damage.

***We may suffer losses due to employee misconduct.***

Our businesses are exposedto risk from potential non-compliance with policies, employee misconduct andfraud, which could result in regulatory sanction and serious reputational orfinancial harm. It is not always possible to deter employee misconduct, and theprecautions we take to prevent and detect this activity may not be effective.

**Legal and Regulatory Risks**

***Our exposure to legal liability is significant.***

We face significant legal risks in our businesses, andthe volume and amount of damages claimed in litigation, regulatory proceedingsand other adversarial proceedings against financial services firms areincreasing.

We and our subsidiaries are subject to a number ofmaterial legal proceedings, regulatory actions and investigations, and an adverseresult in one or more of these proceedings could have a material adverse effecton our operating results for any particular period depending, in part, upon ouroperating results for such period. For information relating to these and otherlegal and regulatory proceedings involving our investment banking and otherbusinesses, refer to “Legal Proceedings” in Item 3.

It is inherently difficultto predict the outcome of many of the legal, regulatory and other adversarialproceedings involving our businesses, particularly those cases in which thematters are brought on behalf of various classes of claimants, seek damages ofunspecified or indeterminate amounts or involve novel legal claims. Forinformation on management’s judgments in relation to estimating losses andtaking charges for legal, regulatory and arbitration proceedings, refer to “Legal Proceedings” in Item 3.

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***Extensive regulation of our businesses limits ouractivities and may subject us to significant penalties.***

As a participant in the financial services industry,we are subject to extensive regulation by governmental agencies, supervisoryauthorities, and self-regulatory organizations. Such regulation is becomingincreasingly more extensive and complex. These regulations often serve to limitour activities, including through net capital, customer protection and marketconduct requirements, and restrictions on the businesses in which we mayoperate or invest. Despite our best efforts to comply with applicableregulations, there are a number of risks, particularly in areas whereapplicable regulations may be unclear or where regulators revise their previousguidance or courts overturn previous rulings. Authorities in many jurisdictionshave the power to bring administrative or judicial proceedings against us,which could result, among other things, in suspension or revocation of ourlicenses, cease and desist orders, fines, civil penalties, criminal penaltiesor other disciplinary action which could materially adversely affect ourresults of operations and seriously harm our reputation.

Changes in laws, rules or regulations or in theirinterpretation or enforcement may adversely affect our results of operationsand capital requirements.

For a description of ourregulatory regime and capital requirements, refer to “U.S. Regulation andSupervision.”

***Legal restrictions on our clients may reduce thedemand for our services.***

We may be materiallyaffected not only by regulations applicable to us as a financial servicescompany, but also by regulations of general application. For example, thevolume of our businesses in any one year could be affected by, among otherthings, existing and proposed tax legislation, antitrust and competitionpolicies, corporate governance initiatives and other governmental regulationsand policies and changes in the interpretation or enforcement of existing lawsand rules that affect business and the financial markets.

**Competition**

***We face increased competition due to consolidation andnew entrants.***

We face intense competitionin all financial services markets and for the products and services we offer.Consolidation, through mergers and acquisitions, alliances and cooperation, isincreasing competition. Competition is based on many factors, including theproducts and services offered, pricing, distribution systems, customer service,brand recognition, perceived financial strength and the willingness to usecapital to serve client needs. Consolidation has created a number of firmsthat, like us, have the ability to offer a wide range of products. Some ofthese firms may be able to offer a broader range of products than we do, oroffer such products at more competitive prices. In addition, new lower-costcompetitors may enter the market, and those competitors may not be subject tocapital or regulatory requirements and may be able to offer their products andservices on more favorable terms.

***Our competitive position could be harmed if ourreputation is damaged.***

In the highly competitiveenvironment arising from globalization and convergence in the financialservices industry, a reputation for financial strength and integrity iscritical to our ability to attract and maintain customers. Our reputation couldbe harmed if our comprehensive procedures and controls fail, or appear to fail,to address conflicts of interest as we increase our client base and the scaleof our businesses, prevent employee misconduct, produce materially accurate andcomplete financial and other information or prevent adverse legal or regulatoryactions.

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***We must recruit and retain highly skilled employees.***

Our performance is largelydependent on the talents and efforts of highly skilled individuals. Competitionfor qualified employees is intense. We have devoted considerable resources torecruiting, training and compensating employees. Our continued ability tocompete effectively in our businesses depends on our ability to attract newemployees and to retain and motivate our existing employees.

***We face competition from new trading technologies.***

Our businesses facecompetitive challenges from new trading technologies. Securities and futurestransactions are now being conducted through the Internet and otheralternative, non-traditional trading systems, and it appears that the trendtoward alternative trading systems will continue and probably accelerate. Adramatic increase in computer-based or other electronic trading may adverselyaffect our commission and trading revenues, exclude our businesses from certaintransaction flows, reduce our participation in the trading markets and theassociated access to market information and lead to the creation of new andstronger competitors. We may also be required to make additional expendituresto develop or invest in new trading systems or otherwise to invest in technologyto maintain our competitive position.

***Financial servicesbusinesses that we acquire may not perform well or may prove difficult tointegrate into our existing operations.***

Even though we review the records of companies we planto acquire, it is generally not feasible for us to review in detail all suchrecords. Even an in-depth review of records may not reveal existing orpotential problems or permit us to become familiar enough with a business toassess fully its capabilities and deficiencies. As a result, we may assumeunanticipated liabilities, or an acquisition may not perform as well asexpected. We also face the risk that we will not be able to integrateacquisitions into our existing operations effectively as a result of, amongother things, differing procedures, business practices and technology systems,as well as difficulties in adapting an acquired company into our organizationalstructure. We face the risk that the returns on acquisitions will not supportthe expenditures or indebtedness incurred to acquire such businesses, or thecapital expenditures needed to develop such businesses.

Moreover, if we fail toidentify attractive businesses to acquire, we may be unable to expand ourbusinesses as quickly or successfully as our competitors, which could adverselyaffect our results of operations and reputation.

***We may fail torealize the anticipated revenue growth and cost synergies from the integrationof CSG’s banking businesses.***

On the basis of CSG’sglobal integrated structure and single banking brand, officially launched on January 1,2006, CSG aims to achieve revenue growth and cost synergies. However, torealize the anticipated benefits from the global integration, CSG mustsuccessfully combine components of our banking businesses in a manner thatpermits cost savings to be achieved while enhancing revenues. For a descriptionof CSG’s integrated global bank initiative, refer to “Business—Overview” in Item 1.

***Item 1B:****                 UnresolvedStaff Comments*

There are no material unresolved SEC comments regardingour periodic reports under the Exchange Act that were issued more than 180 daysprior to the end of the fiscal year and that remain outstanding as of the datethis Annual Report was filed.

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***Item 2:****                         Properties*

Ourprincipal offices consist of the following properties: 

| **Location**             | ** ** | ** ** | ** ** | **Owned/Leased** | ** ** | **Lease Expiration** | ** ** | **Approximate  Square Feet** | ** ** |
|--------------------------|------------|------------|------------|------------------|------------|---------------------------|------------|-----------------------------------|------------|
| New York City, New York  |       |       |       |             |       |                      |       |                              |       |   |   |   |   |
| Eleven Madison Avenue(1) |       |       | Leased     |             |       |                      | 2017       |                              |       |   | 1,488,000 |   |   |
| One Madison Avenue       |       |       | Leased     |             |       |                      | 2020       |                              |       |   | 1,124,000 |   |   |
| 315 Park Avenue  South   |       |       | Leased     |             |       |                      | 2017       |                              |       |   | 220,000 |   |   |

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(1)                 Our principalexecutive offices.

In addition, we lease andoccupy approximately 931,000 square feet for our other offices in the UnitedStates. The leases for these properties expire at various dates through 2025. Foradditional information on our leases, see Note 9 of the consolidated financialstatements in Part II, Item 8. Webelieve that our existing facilities are adequate for our current and future needs.

***Item 3:****                         LegalProceedings*

We are involved in a number of judicial, regulatoryand arbitration proceedings (including those described below) concerningmatters arising in connection with the conduct 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 oncurrently available information and advice of counsel, that the results of suchproceedings, in the aggregate, will not have a material adverse effect on ourfinancial condition but might be material to operating results for anyparticular period, depending, in part, upon the operating results for suchperiod. The Company intends to defend itself vigorously in these matters, litigatingor settling when determined by management to be in the best interests of theCompany. See note 18 of the consolidated financial statements in Part II,Item 8.

In accordance with SFAS No. 5,“Accounting for Contingencies,” the Company recorded in the second quarter of2005 a $750 million litigation charge to increase the reserve for privatelitigation involving Enron, certain IPO allocation practices, research analystindependence and other related litigation. This charge, coupled with the chargerecorded in 2002, brings the Company’s reserves for these private litigationmatters as of December 31, 2005 to $1.1 billion after the applicationof settlements. It is inherently difficult to predict the outcome of many ofthese matters. In presenting the consolidated financial statements, managementmakes estimates regarding the outcome of these matters and records a reserveand takes a charge to income when losses with respect to such matters areprobable and can be reasonably estimated. Estimates, by their nature, are basedon judgment and currently available information and involve a variety offactors, including, but not limited to, the type and nature of the litigation,claim or proceeding, the progress of the matter, the advice of legal counsel,the Company’s defenses and its experience in similar cases or proceedings aswell as its assessment of matters, including settlements, involving otherdefendants in similar or related cases or proceedings. Further litigationcharges or releases of litigation reserves may be necessary in the future asdevelopments in such cases or proceedings warrant.

**In reIssuer Plaintiff Initial Public Offering Fee Antitrust Litigation**

Since November 1998, several lawsuits have beenfiled in the U.S. District Court for the Southern District of New York, orSDNY, against CS Securities, an affiliate of the Company and numerous otherbrokerage firms, alleging that the defendant broker-dealers conspired tofix the “fee” paid for underwriting certain IPO securities by setting theunderwriters’ fee or “spread” at 7%, in violation of the federal antitrust laws.The lawsuits purport to be class actions brought on behalf of classes ofpersons and entities 

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that purchased and issuedsecurities in those IPOs. In February 1999, the district courtconsolidated the purchaser cases in a single litigation, captioned *In re Public Offering FeeAntitrust Litigation*.

Separately, in July 2001,the issuer plaintiffs filed a consolidated issuer complaint in the SDNY, namingnumerous defendants, including CS Securities and the Company, under the caption*In re Issuer Plaintiff Initial Public Offering FeeAntitrust Litigation*. In September 2004, the plaintiffs in both theconsolidated issuer and consolidated purchaser cases filed motions for classcertification. These motions are fully briefed. On October 25, 2005, theplaintiffs in both the consolidated issuer and consolidated purchaser casesfiled a motion for summary judgment.

**LitigationRelating to IPO Allocation**

Since January 2001, CS Securities, one of itsaffiliates and several other investment banks have been named as defendants ina large number of putative class action complaints filed in the SDNY concerningIPO allocation practices. In April 2002, the plaintiffs filed consolidatedamended complaints alleging various violations of the federal securities lawsresulting from alleged material omissions and misstatements in registrationstatements and prospectuses for the IPOs and, in some cases, follow-onofferings, and with respect to transactions in the aftermarket for theseofferings. The complaints contain allegations that the registration statementsand prospectuses either omitted or misrepresented material information aboutcommissions paid to investment banks and aftermarket transactions by certain customersthat received allocations of shares in the IPOs. The complaints also allegethat misleading analyst reports were issued to support the issuers’ allegedlymanipulated stock price and that such reports failed to disclose the allegedallocation practices or that analysts were allegedly subject to conflicts ofinterest.

In October 2004, the SDNY granted in substantialpart plaintiffs’ motion for class certification in each of six “focus” cases. TheSDNY stated that the order “is intended to provide strong guidance, if notdispositive effect, to all parties when considering class certification in theremaining actions.”  In June 2005,the Second Circuit granted the underwriter defendants permission to appeal theclass certification order; that appeal is now fully briefed. Separately, in February 2005,the SDNY preliminarily approved a settlement between plaintiffs and the issuerdefendants and the issuers’ officers and directors.

Since March 2001, CS Securities and several otherinvestment banks have been named as defendants in a number of putative classactions filed with the SDNY, alleging violations of the federal and stateantitrust laws in connection with alleged practices in allocation of shares inIPOs in which such investment banks were a lead or co-managing underwriter. Theamended complaint in these lawsuits, which have now been consolidated into asingle action, alleges that the underwriter defendants engaged in an illegalantitrust conspiracy to require customers, in exchange for IPO allocations, topay non-competitively determined commissions on transactions in othersecurities, to purchase an issuer’s shares in follow-on offerings, and tocommit to purchase other less desirable securities. The complaint also allegesthat the underwriter defendants conspired to require customers, in exchange forIPO allocations, to agree to make aftermarket purchases of the IPO securitiesat a price higher than the offering price, as a precondition to receiving anallocation. These alleged “tie-in” arrangements are further alleged to haveartificially inflated the market price for the securities.

In November 2003, the SDNY dismissed the actionwith prejudice as to all defendants. In September 2005, the Second Circuitvacated the SDNY’s dismissal of the action and remanded the case to the SDNYfor further proceedings. The underwriter defendants have filed a motion in theSecond Circuit to stay the issuance of the mandate and remand the cases to the SDNYpending the filing of a petition for writ of certiorari to the U.S. SupremeCourt. That motion remains pending.

In November 2002, theCompany was sued in the U.S. District Court for the SDNY on behalf of aputative class of issuers in IPOs for which an affiliate of the Company actedas underwriter. The complaint 

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allegedthat the issuers’ IPOs were underpriced, and that the Company’s affiliateallocated the underpriced IPO stock to certain of its favored clients andsubsequently shared in portions of the profits of such favored clients pursuantto side agreements or understandings. This purported conduct was alleged tohave been in breach of the underwriting agreements between the Company’saffiliate and those issuers. In December 2005,the Company entered into a settlement agreement with the plaintiffs, and astipulation of dismissal was filed with the SDNY.

**Research-related Litigation**

Putative class action lawsuits were filed against CSSecurities in the wake of publicity surrounding the 2002 industry-widegovernmental and regulatory investigations into research analyst practices. Currently,four federal class action cases remain pending. These cases were brought onbehalf of purchasers of shares of AOL Time Warner Inc., Razorfish, Inc.,Lantronix, Inc. and Winstar, Inc. Class certification has beengranted in the Winstar and Razorfish matters.

In September 2005, the U.S. District Court forthe District of Massachusetts granted CS Securities’ motion to dismiss thecomplaint brought on behalf of purchasers of shares of AOL Time Warner Inc. butallowed plaintiffs to file an amended complaint. In February 2006, CSSecurities and other defendants moved to dismiss plaintiffs’ amended complaint.

CS Securities was alsonamed as a defendant in a class action filed in California state court in June 2003on behalf of residents of California who held shares in certain issuers forwhich CS Securities had issued research reports. Plaintiffs appealed the lowercourt’s dismissal of that case to the Supreme Court of California and in February 2006,the Supreme Court of California denied that appeal.

**Enron-relatedLitigation and Inquiries**

Numerous actions have been filed against CS Securitiesand certain affiliates relating to Enron Corp. or its affiliates, or Enron. In April 2002,CS Securities and certain of its affiliates and certain other investment bankswere named as defendants along with, among others, Enron, Enron executives anddirectors, and external law and accounting firms in a putative class actioncomplaint filed in the U.S. District Court for the Southern District of Texas (*Newby, et al. v. Enron, et al.*). The *Newby* action was filed by purchasers ofEnron securities and alleges violations of the federal securities laws. In May 2003,the lead plaintiff in *Newby* filedan amended complaint that, among other things, named as defendants additionalCredit Suisse entities, expanded the putative class to include purchasers ofcertain Enron-related securities, and alleged additional violations of thefederal securities laws. Lead plaintiff’s motion for class certification in *Newby* is pending.

In April 2005, the bank defendants in the *Newby* action, including CS Securities andits affiliates, filed a cross-claim against Arthur Andersen LLP, andcross-claims or third-party claims against certain former Enron executives, forcontribution in the event that the bank defendants are found liable on any ofthe plaintiffs’ claims. Arthur Andersen and certain former Enron executiveshave moved to dismiss the cross-claims or third-party claims asserted againstthem by the banks, and those motions are pending. Arthur Andersen also filed acounterclaim against the bank defendants, including CS Securities and itsaffiliates, seeking contribution in the event it is found liable either to theplaintiffs or to any of the bank defendants. CS Securities and its affiliatesand other banks moved to dismiss the counterclaim. That motion was granted andArthur Andersen has filed a motion seeking reconsideration of that dismissal.

Certain Enron-related actions filed against CSSecurities and certain of its affiliates were not consolidated or coordinatedwith the *Newby*action. The onlyone of these actions that is still pending is a suit by a sub-group of thelimited partners in LJM2 Co-Investment, L.P., or LJM2, a now bankrupt limitedpartnership, against the other limited partners of LJM2 and LJM2’s lenders,including certain affiliates of CS Securities. Several other actions filedagainst CS Securities and certain of its affiliates and other parties 

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have been consolidated orcoordinated with the *Newby* actionand stayed as to the filing of amended or responsive pleadings pending thedistrict court’s decision on class certification in *Newby*. Several actions against Arthur Andersen LLP, in whichAndersen brought claims for contribution against CS Securities and its affiliatesand other parties as third-party defendants, have been similarly consolidatedor coordinated with *Newby* andstayed. During the course of 2005, various Enron-related actions, somecoordinated with the *Newby* actionand some not, have been settled or otherwise dismissed, at least as theyrelated to CS Securities and its affiliates.

In December 2001, Enron filed a petition forChapter 11 relief in the U.S. Bankruptcy Court for the Southern District of NewYork. In November 2003, a court-appointed bankruptcy examiner filed afinal report that contained the examiner’s conclusions with respect to severalparties, including CS Securities and certain of its affiliates. Enron broughtfour adversary proceedings against CS Securities and certain of its affiliates(the principal adversary proceeding has been amended several times as recentlyas January 2005) seeking avoidance and recovery of various allegedpreferential, illegal and fraudulent transfers; disallowance and equitablesubordination of CS Securities and its affiliates’ claims in the bankruptcyproceedings; recharacterization of one transaction as a loan and relateddeclaratory relief, avoidance of security interests, and turnover and recoveryof property; and damages, attorneys’ fees and costs for alleged aiding andabetting of fraud and breaches of fiduciary duty by Enron employees and civilconspiracy.

Other than the principal adversary proceeding, thethree other adversary proceedings brought by Enron relate to (i) E-NextGeneration LLC (“E-Next”), (ii) a transaction known as Project Nile and (iii) certainequity forward and swap transactions. In May 2005, the adversaryproceeding relating to E-Next was dismissed with prejudice pursuant to asettlement agreement. In June 2005, the adversary proceeding relating toProject Nile was consolidated into the principal adversary proceeding. In July 2005,the U.S. Bankruptcy Court for the Southern District of New York denied CSSecurities’ and an affiliate’s motion to dismiss Enron’s claims to recovercertain payments made in connection with the equity forward and swaptransactions. In September 2005, CS Securities filed a motion with theSDNY for leave to appeal, which motion is pending.

CS Securities and certainof its affiliates have received periodic requests for information and/orsubpoenas from certain governmental and regulatory agencies, including theEnron Task Force (a joint task force of the U.S. Department of Justice and theSEC), regarding Enron and its affiliates. CS Securities and its affiliates havecooperated with such inquiries and requests.

**NCFE-related Litigation**

Since February 2003,lawsuits have been filed against CS Securities with respect to services that itprovided to National Century Financial Enterprises, Inc. and itsaffiliates, or NCFE. From January 1996 to May 2002, CS Securitiesacted as a placement agent for bonds issued by NCFE that were to becollateralized by health-care receivables, and in July 2002, as aplacement agent for a sale of NCFE preferred stock. NCFE filed for bankruptcy protectionin November 2002. In these lawsuits, which have since been consolidated inthe U.S. District Court for the Southern District of Ohio and are known as theMDL cases, investors in NCFE’s bonds and preferred stock have sued numerousdefendants, including the founders and directors of NCFE, the trustees for thebond issuances, NCFE’s auditors and law firm, the rating agencies that ratedNCFE’s bonds, and NCFE’s placement agents, including CS Securities. Theallegations include claims for breach of contract, negligence, fraud andviolation of federal and state securities laws.

In addition, in November 2004,the trust created through NCFE’s confirmed bankruptcy plan commenced twoactions against CS Securities and certain affiliates. The trust filed an actionin the U.S. District Court for the Southern District of Ohio asserting commonlaw claims similar to those asserted in 

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the MDLcases against several of the same defendants, and it also alleged statutoryclaims under the Ohio Corrupt Practices Act, claims for professional negligenceand claims under the U.S. Bankruptcy Code. The trust also filed an action inthe U.S. Bankruptcy Court for the Southern District of Ohio objecting to theproofs of claim filed by CS Securities and its affiliates in NCFE’s bankruptcyand seeking disgorgement of amounts previously distributed to CS Securities andits affiliates under the bankruptcy plan. A claims trust has also commenced asuit in the bankruptcy court against certain Company affiliates seeking torecover an alleged preference payment from NCFE prior to its bankruptcy filing.

**U.K. Insurance Litigation**

On August 7, 2003, asyndicate of insurance companies filed Consolidated Particulars of Claimsagainst CSG, CS Securities and the Company in the London Commercial Courtalleging that certain excess liability insurance policies provided to theseentities should be invalidated. These insurance policies are intended toprovide coverage for damages, expenses, or settlements in excess of designateddeductibles and below designated caps resulting from certain legal proceedingsinvolving CSG or its subsidiaries. The insurance syndicate alleges that theseinsurance policies should be invalidated based on certain purportedmisrepresentations and misleading statements made by the CSG defendants to theinsurance syndicate in connection with the underwriting of the policies. In June 2004,the court ordered a stay of the proceedings on the terms of a stay agreementbetween the parties.

**AdelphiaCommunications Corporation Litigation**

The Company and certain affiliates have been named ineight civil actions brought by investors in Adelphia CommunicationsCorporation, or Adelphia, debt and/or equity securities concerning allegedmisstatements in certain Adelphia securities offerings and in the merger ofCentury Communications Corporation with Adelphia in October 1999. Thesecomplaints have been consolidated in the SDNY. The Company and its affiliateshave filed, or expect to file motions to dismiss in each of these cases.

In June and July 2005, the SDNY dismissed afederal securities fraud class action claim and certain non-class actionfederal securities claims brought by Adelphia securityholders against CSSecurities and its affiliates on statute of limitations grounds with leave toreplead. In opinions in August 2005 and September  2005, the SDNYdenied motions to dismiss in two of the actions by institutional investors onthe ground that the plaintiffs in those cases lacked standing. In November2005, the Company and certain affiliates joined in a motion to certify an interlocutory appeal of the court’sAugust 2005 opinion.

In addition, in July 2003,a creditors’ committee filed a bankruptcy adversary proceeding on behalf ofAdelphia against certain lenders and investment banks, including CS Securitiesand its affiliates in the U.S. Bankruptcy Court for the Southern District ofNew York. The complaint asserts claims against CS Securities and its affiliatesand numerous other defendants under state law, bankruptcy law and the BankHolding Company Act. The complaint against CS Securities and its affiliatesseeks the disallowance and/or subordination of claims or liens against Adelphia(and its assets) in its bankruptcy proceedings, and an unspecified amount ofcompensatory and punitive damages. The equity committee in the Adelphiabankruptcy has also filed a motion for leave to intervene in the adversaryproceeding to join in many of the claims asserted by the creditors’ committeeand assert additional state law claims against CS Securities and its affiliatesand other defendants. In August 2005, the bankruptcy court deniedobjections to the creditors’ and equity committees’ standing, holding that bothcommittees had standing to bring the adversary proceeding. CS Securities andits affiliates have moved to dismiss both the creditors’ committee and equitycommittee claims and those motions remain pending.

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**Mutual Fund Investigation**

CS Securities and certainof its current and former affiliates, including Pershing LLC, which was sold toThe Bank of New York Company, Inc. in May 2003, have receivedsubpoenas and/or requests for information from the New York Attorney General’sOffice and the SEC, as part of the industry-wide investigation relating to thepractices of mutual funds and certain of their customers. These requests arefocused on the practices of market timing and late trading. CS Securities andits affiliates are cooperating with these requests.

**IndemnificationClaim Relating to Sale of Pershing**

The Company understandsthat an SEC investigation focused on possible market-timing transactionscleared by Pershing for Mutuals.com and other introducing brokers is ongoing. Inaddition, the Company has been informed by Pershing that it is defending threeputative class action lawsuits, filed in the U.S. District Court for theDistrict of Maryland and naming the Company as defendant, that seek unspecifieddamages relating to alleged mutual fund market-timing transactions clearedthrough Pershing. The Bank of New York, Inc. has made a claim for indemnificationagainst the Company relating to these lawsuits under the Pershing saleagreement on the basis that the conduct at issue is alleged to have occurredlargely during the period that Pershing was owned by the Company. The Companyis disputing this claim for indemnification.

**Refco-related Litigation**

In October 2005, CS Securities was named, alongwith other financial services firms, accountants, officers, directors andcontrolling persons, as a defendant in several federal class action andderivative lawsuits filed in the SDNY relating to Refco Inc. The actions allegethat CS Securities and other underwriters violated federal securities laws andstate laws in connection with the sale of Refco securities, including in theRefco IPO in August 2005.

CS Securities and certainof its affiliates have received subpoenas and requests for information fromvarious regulators, including the SEC, regarding Refco. CS Securities and itsaffiliates have cooperated with such inquiries and requests.

**Parmalat-related Legal Proceedings**

Affiliates of the Companyhave been named as defendants in a putative class action brought in the SDNYalleging violations of federal securities law in connection with a financingtransaction involving certain Parmalat entities. Affiliates of the Companymoved to dismiss the action, and in an opinion in July 2005, the SDNYdismissed the claims brought against affiliates of the Company by non-U.S.residents and allowed the claims by U.S. residents to proceed.

***Item 4:****                         Submissionof Matters to a Vote of Security Holders*

Pursuant to General Instruction I of Form 10-K,the information required by Item 4 is omitted.

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**PART II**

***Item 5:****                         Marketfor Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities.*

All of our common equitysecurities are owned indirectly by CSG.

***Item 6:****                         SelectedFinancial Data*

The Selected Consolidated Financial Data table is setforth on the following page.

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***Item 7:****                         Management’sDiscussion and Analysis of Financial Condition and Results of Operations*

**SELECTEDCONSOLIDATED FINANCIAL DATA**(1)Credit Suisse (USA), Inc. and Subsidiaries

| ** **                                                                                                                                                                                             | ** ** | **As of and for the Year Ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                                                                                             | ** ** | **2005**                                                                              | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                                                                                                                                                                             | ** ** | **(In millions)**                                                                | ** ** |
| **Consolidated Statements of  Operations Data:**                                                                                                                                                       |       |                                                                                  |       |   |   |   |   |   |   |   |   |
| Revenues:                                                                                                                                                                                              |       |                                                                                  |       |   |   |   |   |   |   |   |   |
| Total net  revenues                                                                                                                                                                                    |       | $                                                                                     | 7,025      |   | $ | 6,341 |   | $ | 4,997 |   | $ | 4,963 |   | $ | 6,506 |   |
| Expenses:                                                                                                                                                                                              |       |                                                                                  |       |   |   |   |   |   |   |   |   |
| Employee compensation and benefits                                                                                                                                                                     |       | 3,807                                                                                 |       | 3,335 |   | 2,740 |   | 2,997 |   | 4,347 |   |
| Other expenses                                                                                                                                                                                         |       | 2,077                                                                                 |       | 1,180 |   | 1,688 |   | 2,447 |   | 2,623 |   |
| Total expenses                                                                                                                                                                                         |       | 5,884                                                                                 |       | 4,515 |   | 4,428 |   | 5,444 |   | 6,970 |   |
| Income (loss)  from continuing operations before provision (benefit) for income taxes, minority  interests, discontinued operations and cumulative effect of a change in  accounting principle(2) |       | 1,141                                                                                 |       | 1,826 |   | 569 |   | (481 | ) | (464 | ) |
| Provision  (benefit) for income taxes                                                                                                                                                                  |       | 61                                                                                    |       | 397 |   | 244 |   | (135 | ) | (155 | ) |
| Minority  interests                                                                                                                                                                                    |       | 959                                                                                   |       | 642 |   | — |   | — |   | — |   |
| Income (loss)  from continuing operations before discontinued operations and cumulative  effect of a change in accounting principle(2)                                                            |       | 121                                                                                   |       | 787 |   | 325 |   | (346 | ) | (309 | ) |
| Net income (loss)                                                                                                                                                                                      |       | $                                                                                     | 127        |   | $ | 787 |   | $ | 1,192 |   | $ | (257 | ) | $ | (217 | ) |
| **Consolidated Statements of  Financial Condition Data:**                                                                                                                                              |       |                                                                                  |       |   |   |   |   |   |   |   |   |
| Total assets                                                                                                                                                                                           |       | $                                                                                     | 297,754    |   | $ | 275,813 |   | $ | 241,566 |   | $ | 236,455 |   | $ | 220,065 |   |
| Long-term  borrowings                                                                                                                                                                                  |       | 33,926                                                                                |       | 28,941 |   | 24,321 |   | 23,094 |   | 15,663 |   |
| Total stockholder’s  equity                                                                                                                                                                       |       | $                                                                                     | 12,011     |   | $ | 11,064 |   | $ | 9,641 |   | $ | 8,089 |   | $ | 7,480 |   |

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(1)                 Our results donot reflect the overall performance of Credit Suisse Group or its InstitutionalSecurities or Wealth & Asset Management segments.

(2)                 OnMay 1, 2003, we sold Pershing to The Bank of New York Company, Inc.and recorded a pre-tax gain of approximately $1.3 billion and an after-taxgain of $852 million. The gain on the sale of Pershing in 2003, as well asthe operating results of Pershing for the years ended December 31, 2003,2002 and 2001 are included in discontinued operations.

**MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION ANDRESULTS OF OPERATIONS**

We serve institutional, corporate, government andhigh-net-worth individual clients. Our businesses include securitiesunderwriting, sales and trading, financial advisory services, alternativeinvestments, full-service brokerage services, derivatives and riskmanagement products, asset management and investment research. In 2005, we werea part of two segments, Institutional Securities and Wealth & AssetManagement, of CSG, and our results do not reflect the overall performance ofthese segments or CSG. Beginning in 2006, CSG’s banking businesses arestructured along three divisions, Investment Banking, Private Banking and AssetManagement. Our businesses will be operated and managed along these same threedivisions. See Item 1 “Business—Overview”. Unless otherwise indicated, the discussionin this Annual Report is based on the segment and management structure that wasin place during 2005.

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

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

**BUSINESS ENVIRONMENT**

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

Although there was a slow down in the fourth quarterof 2005, the U.S. economy experienced moderate growth for most of the year asgross domestic product growth and consumer spending were strong despite theimpact of two hurricanes on the Gulf Coast and rising oil prices. The FederalReserve Board continued to raise short-term interest rates at a measured pacein an effort to contain inflationary pressures but hinted in the fourth quarterthat its campaign of raising short-term interest rates may be nearing an end.

The major U.S. stock market indices were relativelyflat for the year ended December 31, 2005 as rising interest rates and oilprices slowed the momentum generated from steady economic growth and solidcorporate earnings. For the year ended December 31, 2005, the Dow JonesIndustrial Average declined 1%, while the Standard & Poor’s 500 stockindex and the NASDAQ composite index increased 3% and 1%, respectively.

The federal funds rate was 4.25% as of December 31,2005 compared to 2.25% as of December 31, 2004 as the Federal ReserveBoard increased the federal funds rate eight times during the year. Despiteincreases in short-term interest rates by the Federal Reserve Board, the yieldcurve continued to flatten as the yield on 10-year U.S. Treasury notesremained low, increasing slightly from 4.22% as of December 31, 2004 to4.39% as of December 31, 2005. Spreads between U.S. high-yield corporatebonds and U.S. Treasury bonds increased from 3.10% as of December 31, 2004to 3.65% as of December 31, 2005.

The dollar value of U.S.equity and equity-related underwriting decreased slightly for the year ended December 31,2005 compared to the year ended December 31, 2004, primarily reflectingdecreases in secondary common stock issuances and IPOs offset in part by anincrease in convertible securities issuances. The dollar value of U.S. debtunderwriting increased for the year ended December 31, 2005 compared tothe year ended December 31, 2004, primarily as a result of an increase inasset-backed and mortgage-backed securities underwritings partially offset by asignificant decline in high-yield corporate debt underwritings. Mergers andacquisitions activity was robust as the dollar value of both announced andcompleted U.S. mergers and acquisitions for the year ended December 31,2005 increased compared to the year ended December 31, 2004.

**MANAGEMENT OVERVIEW**

In 2005, theCompany began implementing Credit Suisse’s investment banking strategy ofdelivering a more focused franchise. Milestones for Credit Suisse over the lastyear in investment banking include:

·       significantgrowth in the residential mortgage-backed securities business through a networkof wholesalers and correspondents and the acquisition of SPS;

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·       expansionof the commercial mortgage-backed securities businesses in Europe and Asia;

·       establishmentof an integrated capital markets, leveraged finance origination and structuringteam; and

·       rankingfirst in U.S. dollar value of global IPOs and growing its mergers andacquisitions business.

Credit Suisse also took steps to enhance its positionin electronic trade execution, emerging markets, prime services for hedge fundsand with leveraged finance and financial sponsor clients. In asset management,Credit Suisse spun out certain alternative capital funds that would benefitfrom an independent platform and added new funds, particularly in internationalmarkets.

The integration of Credit Suisse’s banking businessesis expected to further improve its client service, strengthen its competitiveposition and improve its cost discipline. The operating environment is expectedto remain challenging, reflecting slow securities market growth in developedcountries, fee compression and commoditization across products and theimportance of balance sheet commitments for clients. In addition, theregulatory environment remains difficult and there is increasing complexity inmanaging potential conflicts of interest. Credit Suisse continues to place ahigh priority on controls, risk management, the firm’s reputation anddeveloping an ownership culture.

The Company recorded net income of $127 million in2005 compared to $787 million in 2004. This reflected an increase in netrevenues but significantly higher expenses. Our total net revenues for 2005increased by 11% compared to 2004. Net revenues for 2005 include approximately$975 million from the consolidation of certain private equity funds primarilyunder FIN 46R compared to $649 million in 2004. The increase in net revenuesalso reflected higher trading revenues, advisory and other fees, placement feesfrom our private funds business and other revenues, partially offset by lowerdebt and equity underwriting revenues.

Total expenses for 2005increased 30% compared to 2004. Our 2005 results included a $750 millionpre-tax ($487 million after-tax) litigation charge to increase the reserve forcertain private litigation. In addition, our 2005 results included an expenseof approximately $296 million ($12 million of which was charged toaffiliates) pre-tax related to the recognition of compensation expense due to achange in accounting treatment for share-based awards which reduced net incomeby $185 million. Employee compensation and benefits expenses increased in 2005compared to 2004, reflecting higher incentive and share-based compensation.

**CRITICALACCOUNTING POLICIES AND ESTIMATES**

In order to prepare the consolidated financialstatements in accordance with accounting principles generally accepted in theUnited States of America, we must make estimates and assumptions based onjudgment and available information. The reported amounts of assets andliabilities and revenues and expenses are affected by these estimates andassumptions. 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.We believe that the critical accounting policies discussed below involve themost complex judgments and available information. We believe that the estimatesand assumptions used in the preparation of the consolidated financialstatements are reasonable and consistently applied.

**Fair Value**

The fair value of the majority of our financialinstruments is based on quoted market prices in active markets or observablemarket parameters, or is derived from such prices or parameters. Theseinstruments 

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include government andagency securities, commercial paper, most investment-grade corporate debtsecurities, most high-yield debt securities, exchange traded and certainover-the-counter, or OTC, derivative instruments, most collateralized debtobligations, or CDOs, most mortgage-backed and asset-backed securities,certain residential mortgage whole loans and listed equities.

In addition, we holdfinancial instruments that are thinly traded or for which no market prices areavailable, 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 debt,high-yield debt securities, distressed debt securities, certain mortgage-backedand asset-backed securities, certain CDOs, certain residential mortgage wholeloans, certain OTC derivatives, non-traded equity securities and private equityand other long-term investments. Valuation techniques for certain of theseinstruments are described more fully below.

***Controls over the fair valuation process***

Control processes are applied to ensure that the fairvalue of the financial instruments reported in our consolidated financialstatements, including those derived from pricing models, are appropriate anddetermined on a reliable basis. The Company determines fair value usingobservable market prices or market-based parameters whenever possible. In theabsence of observable market prices or market-based parameters in an activemarket, observable prices or market-based parameters of comparable markettransactions, or other observable data supporting an estimation of fair valueusing a valuation model at the inception of a contract, fair value is based onthe transaction price. Control processes are designed to assure that thevaluation approach utilized is appropriate and the assumptions are reasonable.

These control processes include the review andapproval of new instruments, review of profit and loss at regular intervals,risk monitoring and review, price verification procedures and reviews of modelsused to estimate the fair value of financial instruments by senior managementand personnel with relevant expertise who are independent of the trading andinvestment functions.

The Company also has agreements with certaincounterparties to exchange collateral based on the fair value of derivativescontracts. Through this process, one or both parties provide the other partywith the fair value of these derivatives contracts in order to determine theamount of collateral required. This exchange of information provides additionalsupport for valuation of certain derivatives contracts. As a participant in theOTC derivatives market, the Company and other participants provide pricinginformation to aggregation services that compile this data and provide thisinformation to subscribers. This information is considered in the determinationof 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 II, Item 7A.

***Price transparency of financial instruments recordedat fair value***

Financial instruments which are recorded on theCompany’s consolidated statement of financial condition at fair value have beencategorized based upon the transparency of the pricing information available.

The categories ofpricing transparency have been broadly segregated as follows:

·       *Quoted market prices or observable market parameters.*   Thesefinancial instruments are valued based upon directly observable market pricesor through the use of valuation models and techniques for which the requiredparameters are directly observable.

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·       *Reduced or no observable market parameters.*   Thesefinancial instruments are priced by using management’s best estimate of fairvalue using valuation techniques that are based on significant judgment sinceobservable, market-based data is generally not available.

Thefollowing table sets forth a summary of the price transparency of the Company’sfinancial instruments that are carried at fair value as of December 31,2005:

| ** **                                       | ** ** | **Quoted market  prices or  observable market  parameters** | ** ** | **Reduced or noobservable market parameters** | ** ** |
|--------------------------------------------------|------------|----------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                       | ** ** | **(In millions)**                                                     | ** ** |
| **Financial  instruments owned**                 |       |                                                                       |       |                                                    |       |   |   |   |   |
| Cash products(1)                                 |       |                                                                       | $          | 101,211                                                 |       |   |   | $ | 3,394 |   |   |
| Derivatives(2)                                   |       |                                                                       | 7,658      |                                                    |       |   | 1,841 |   |   |
| Private equity  and other long-term investments  |       |                                                                       | 315        |                                                    |       |   | 3,326 |   |   |
| Total                                            |       |                                                                       | $          | 109,184                                                 |       |   |   | $ | 8,561 |   |   |
| **Financial instruments sold not yet purchased** |       |                                                                       |       |                                                    |       |   |   |   |   |
| Cash products                                    |       |                                                                       | $          | 36,304                                                  |       |   |   | $ | 27 |   |   |
| Derivatives(2)                                   |       |                                                                       | 6,155      |                                                    |       |   | 521 |   |   |
| Total                                            |       |                                                                       | $          | 42,459                                                  |       |   |   | $ | 548 |   |   |

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(1)                 Excluded from thetable above are $5,835 million in cash products which are carried at the lowerof cost or fair value primarily consisting of commercial mortgage whole loansand originated residential mortgage whole loans.

(2)                 Basedon gross mark-to-market valuations of the Company’s derivatives prior tonetting of $4,414 million under Financial Accounting Standards Board, orFASB, Interpretation No. 39, “Offsetting of Amounts Related to CertainContracts (An Interpretation of APB Opinion No. 10 and FASB Statement No. 105).

***Financial Instruments***

*Cash products*

The Company’s cash products consist ofinterest-bearing securities, purchased residential mortgage whole loans, equitysecurities and certain variable prepaid forwards. Interest-bearing securitiesinclude debt securities, residential and commercial mortgage-backed and otherasset-backed securities and CDOs. Equity securities include common equityshares, preferred stock and convertible bonds.

For debt securities for which market prices are notavailable, valuations are based on yields reflecting the perceived risk of theissuer and the maturity of the security, recent disposals in the market orother modeling techniques, which involve judgment.

Values of residential and commercial mortgage-backedsecurities and other asset-backed securities are generally available throughquoted market prices, which are often based on market information of the pricesat which similarly structured and collateralized securities trade betweendealers and to and from customers. Values of residential and commercialmortgage-backed securities and other asset-backed securities for which thereare no significant observable market parameters are valued using valuationmodels incorporating prepayment scenarios and Monte Carlo simulations.

Collateralized debt, bond and loan obligations aresplit into various structured tranches, and each tranche is valued based uponits individual rating and the underlying collateral supporting the structure.Values are determined using present value ofestimated future cash flows valuation techniques that incorporate assumptionsthat market participants customarily use in their estimates of values includingpayment speeds, credit losses and discount rates.

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Purchased residential mortgage whole loans are valuedusing pricing factors specific to loan level attributes, such as loan-to-valueratios, current balances and liens.

The majority of ourpositions 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 in derivatives held for trading purposesinclude both OTC and exchange-traded derivatives. The fair values ofexchange-traded derivatives are typically derived from observable exchangeprices and/or observable market parameters. Fair values for OTC derivatives aredetermined on the basis of internally developed proprietary models usingvarious input parameters. The input parameters include those characteristics ofthe derivative that have a bearing on the economics of the instrument andmarket parameters.

The determination of the fair value of manyderivatives involves only a limited degree of subjectivity because the requiredinput parameters are observable in the marketplace. The pricing of theseinstruments is referred to as “direct.” For other more complex derivatives,subjectivity relating to the determination of input parameters reduces pricetransparency. The pricing of these instruments is referred to as “indirect.”Specific areas of subjectivity include estimating long-dated volatilityassumptions on OTC option transactions and recovery rate assumptions for creditderivative transactions. Uncertainty of pricing assumptions and liquidity arealso considered as part of the valuation process. In accordance with EmergingIssues Task Force Issue No. 02-3, “Issues Involved in Accounting forDerivatives Contracts Held for Trading Purposes and Contracts Involved inEnergy Trading and Risk Management Activities”, we do not recognize a dealerprofit or loss, (unrealized gain or loss at inception of a derivativetransaction), or day one profit/loss, unless the valuation underlying theunrealized gain or loss is evidenced by (a) quoted market prices in anactive market, (b) observable prices of other current market transactionsor (c) other observable data supporting a valuation technique. Thedeferred profit or loss is amortized over either the life of the derivative orthe period until which observable data is available.

For further information onthe fair value of derivatives as of December 31, 2005 and 2004, see Note 6of the consolidated financial statements in Part II, Item 8.

*Private equity andother long-term investments*

Private equity and other long-term investments includedirect investments and investments in partnerships that make private equity andrelated investments in various portfolio companies and funds. 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.

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Thefollowing table sets forth the fair value of our private equity and otherlong-term investments by category as of December 31, 2005 and December 31,2004:

| ** **                                                                                                                                                               | ** ** | **As of   December 31, 2005** | ** ** | **As of   December 31, 2004** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                                                                                               | ** ** | **Fair value**                               | ** ** | **Percent  of total**                        | ** ** | **Fair value** | ** ** | **Percent  of total** | ** ** |
| ** **                                                                                                                                                               | ** ** | **(In millions)**                            | ** ** | **(In millions)**                            | ** ** |
| CS-managed funds  (which includes $2,562 and $1,947 related to funds consolidated primarily  under FIN 46R(1)  as of December 31, 2005 and 2004, respectively) |       |                                              | $          | 3,256                                             |       |   |   | 89 | % |   |   | $ | 2,670 |   |   |   | 85 | % |   |
| Funds managed by  third parties                                                                                                                                          |       |                                              | 359        |                                              |       |   | 10 |   |   |   | 442 |   |   |   | 14 |   |   |
| Direct  investments                                                                                                                                                      |       |                                              | 26         |                                              |       |   | 1 |   |   |   | 15 |   |   |   | 1 |   |   |
| Total                                                                                                                                                                    |       |                                              | $          | 3,641                                             |       |   |   | 100 | % |   |   | $ | 3,127 |   |   |   | 100 | % |   |

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(1)                 For moreinformation on the consolidated funds as of December 31, 2005 and 2004,see Notes 3 and 4 of the consolidated financial statements in Part II,Item 8.

Internally-managed fundsinclude partnerships and related direct investments for which the Company actsas the fund’s advisor and makes investment decisions. Internally-managed fundsprincipally invest in private securities and, to a lesser extent, publiclytraded securities and fund of fund partnerships. The fair value of investmentsin internally-managed fund of funds partnerships is based on the valuationreceived from the underlying fund manager, reviewed by us and reflected in “Reducedor no price transparency” in the table above. The fair value of investments inother internally managed funds is based on the Company’s valuation. Balancesreported in internally-managed funds also include amounts relating primarily tothe consolidation of private equity funds under FIN No. 46, “Consolidationof Variable Interest Entities”, or FIN 46, as subsequently modified through theissuance of FIN 46R, which aredescribed in further detail in Note 5 of the consolidated financial statementsin Part II, Item 8. A substantial portion of the private equity fundsconsolidated primarily under FIN 46R are reflected in “Reduced or no pricetransparency” in the table above. Funds managed by third parties includeinvestments in funds managed by an external fund manager. The fair value ofthese funds is based on the valuation received from the general partner of thefund, reviewed by us and reflected in “Reduced or no price transparency” in thetable above.

**Income Taxes**

***Deferred Tax Assets***

We recognize deferred tax assets and liabilities forthe estimated future tax effects of operating loss carry-forwards andtemporary 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 tax assets on temporarydifferences is dependent upon the generation of taxable income during theperiods in which those temporary differences become deductible. The realizationof deferred tax assets on net operating losses is dependent upon the generationof taxable income during the periods prior to their expiration. Periodically,management evaluates whether deferred tax assets can be realized. If managementconsiders it more likely than not that all or a portion of a deferred tax assetwill not be realized, a corresponding valuation allowance is established. Inevaluating whether deferred tax assets can be realized, management considers:projected future taxable income, the scheduled reversal of deferred taxliabilities and tax planning strategies.

This evaluation requires significant managementjudgment, primarily with respect to projected taxable income. The estimate offuture taxable income can never be predicted with certainty. It is derived frombudgets and strategic business plans but is dependent on numerous factors, someof which are beyond our control. Substantial variance of actual results fromestimated future taxable profits, or changes in our 

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estimate of future taxableprofits, could lead to changes in deferred tax assets being realizable orconsidered realizable, and would require a corresponding adjustment to thevaluation allowance.

As of December 31,2005 and 2004, we had deferred tax assets resulting from temporary differencesthat could reduce taxable income in future periods. The consolidated statementsof financial condition as of December 31, 2005 and 2004 include deferredtax assets of $1.8 billion and $1.6 billion, respectively, anddeferred tax liabilities of $602 million and $438 million,respectively. Due to uncertainty concerning our ability to generate thenecessary amount and mix of state and local taxable income in future periods,we maintained a valuation allowance against our deferred state and local taxassets in the amount of $35 million and $32 million as of December 31,2005 and 2004, respectively. For further information on the temporarydifferences that generate deferred tax assets, see Note 17 of theconsolidated financial statements in Part II, Item 8.

***Tax Contingencies***

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

**Litigation Contingencies**

We are involved in avariety of legal, regulatory and arbitration matters in connection with theconduct of our business. It is inherently difficult to predict the outcome ofmany of these matters, particularly those cases in which the matters are broughton behalf of various classes of claimants, seek damages of unspecified orindeterminate amounts or involve novel legal claims. In presenting ourconsolidated financial statements, management makes estimates regarding theoutcome of these matters and records a reserve and takes a charge to incomewhen losses with respect to such matters are probable and can be reasonablyestimated. Charges, other than those taken periodically for cost of defense,are not established for matters when losses cannot be reasonably estimated.Estimates, by their nature, are based on judgment and currently availableinformation and involve a variety of factors, including, but not limited to,the type and nature of the litigation, claim or proceeding, the progress of thematter, the advice of legal counsel and other advisors, our defenses and ourexperience in similar cases or proceedings as well as our assessment ofmatters, including settlements, involving other defendants in similar orrelated cases or proceedings. For a discussion of legal proceedings, see “LegalProceedings” in Part I, Item 3.

**RECENT DEVELOPMENTS**

On October 4, 2005, we acquired all of theoutstanding stock of SPS Holding Corp., including its subsidiary, SPS, from PMIGroup, Inc., FSA Portfolio Management Inc. and Greenrange Partners LLC,for approximately $140 million. We are contractually obligated to makeadditional future contingent payments up to approximately $34 million forservicing rights on mortgage loans currently serviced by SPS on behalf of thirdparties. SPS is a leading nonprime residential mortgage loan servicer,headquartered in Salt Lake City, Utah, with facilities in Jacksonville, Florida.SPS services certain mortgage loan collateral supporting our mortgagesecuritizations. SPS will be integrated into our residential mortgage-backedsecurities businesses.

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On January 1, 2006,we acquired FLCM Holding Co., Inc. and its operating subsidiary,****Frye Louis Capital Management, Inc.,an investment management firm for high-net-worth clients, from our indirectparent Credit Suisse. In addition, on January 1, 2006, we began to conductcertain syndicated loan trading activities that were previously conducted by abranch of Credit Suisse outside of our consolidated group. These syndicatedloan trading activities have produced significant revenues in past periods.

**RESULTS OF OPERATIONS**

Thefollowing table sets forth a summary of our financial results:

| ** **                                                                                                                                                                    | ** ** | **For the Year Ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                                                                                                                                    | ** ** | **   2005   **                 | ** ** | **   2004   ** | ** ** | **   2003   ** | ** ** |
| ** **                                                                                                                                                                    | ** ** | **(In millions)**                                       | ** ** |
| Total net revenues                                                                                                                                                            |       |                                                         | $          | 7,025 |   |   |   | $ | 6,341 |   |   |   | $ | 4,997 |   |   |
| Total expenses                                                                                                                                                                | ** ** |                                                         | 5,884      |   |   |   | 4,515 |   |   |   | 4,428 |   |   |
| Income from  continuing operations before provision for income taxes, minority interests,  discontinued operations and cumulative effect of a change in accounting  principle | ** ** |                                                         | 1,141      |   |   |   | 1,826 |   |   |   | 569 |   |   |
| Provision for  income taxes                                                                                                                                                   | ** ** |                                                         | 61         |   |   |   | 397 |   |   |   | 244 |   |   |
| Minority  interests                                                                                                                                                           | ** ** |                                                         | 959        |   |   |   | 642 |   |   |   | — |   |   |
| Income from  continuing operations before discontinued operations and cumulative effect of  a change in accounting principle                                                  | ** ** |                                                         | 121        |   |   |   | 787 |   |   |   | 325 |   |   |
| Income from  discontinued operations, net of income tax provision of $485 in 2003                                                                                             | ** ** |                                                         | —     |   |   |   | — |   |   |   | 876 |   |   |
| Cumulative effect  of a change in accounting principle, net of income tax expense of $3 in 2005  and income tax benefit of $5 in 2003                                         | ** ** |                                                         | 6          |   |   |   | — |   |   |   | (9 | ) |   |
| Net income                                                                                                                                                                    |       |                                                         | $          | 127 |   |   |   | $ | 787 |   |   |   | $ | 1,192 |   |   |

 

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

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

We use derivatives and cash instruments to mitigatethe interest rate exposure associated with commercial mortgage whole loans,originated residential mortgage whole loans and resale and repurchaseagreements. These derivatives and cash instruments are carried at fair value,while the commercial mortgage whole loans and originated residential mortgagewhole loans are carried at the lower of cost or fair value and resale andrepurchase agreements are carried at contract amounts. As a result, decreasesin the value of the derivatives and cash instruments, if any, are not offset byincreases in the value of the commercial mortgage whole loans and originatedresidential whole loans until the loans are sold and increases and decreases inthe value of the derivatives and cash instruments, if any, are not offset bydecreases and increases in the value of the resale and repurchase agreementsuntil the securities are sold or repurchased. Commercial mortgage whole loans,originated residential mortgage whole loans and resale and repurchaseagreements can be a significant part of our statement of financial condition.Therefore, our net revenues are subject to volatility from period to period.

The Company allocates revenues and expenses to itssegments. Any revenues and expenses not allocated appear in the Company’sconsolidated income statements and in Elimination & Other in the notesto its consolidated financial statements. For the year ended December 31,2005, Elimination & Other included only the recognition ofcompensation expense in the fourth quarter due to a change in accountingtreatment for share-based awards to early-retirement eligible employees (net ofthe amount which was charged to affiliates as described below). Elimination &Other did not have any revenues for the years ended December 31, 2005,2004 and 2003 or any expenses for the years ended December 31, 2004 and2003. See “—Share-basedcompensation” and Notes 1, 15 and 19 of the consolidated financialstatements in Part II, Item 8 for more information.

Our businesses arematerially affected by conditions in the financial markets and economicconditions generally, including geopolitical events. Unpredictable or adversemarket and economic conditions have adversely affected and may in the futureadversely affect our results of operations. See “Risk Factors” in Part I,Item 1A.

**YearEnded December 31, 2005 Compared to Year Ended December 31, 2004**

The Company recorded net income of $127 millionfor the year ended December 31, 2005 compared to net income of $787million for the year ended December 31, 2004, reflecting an increase innet revenues but significantly higher expenses. Expenses include a litigationcharge of $750 million pre-tax ($487 million after-tax) in 2005 to increase thereserve for certain private litigation. In addition, expenses included $296 million($12 million of which was charged to affiliates) pre-tax related to the recognitionof compensation expense due to a change in accounting treatment for share-basedawards which reduced net income by $185 million. See “—Share-based compensation”.

Total net revenues increased $684 million, or 11%, to$7.0 billion for the year ended December 31,2005, compared to the year ended December 31,2004, resulting from a significant increase in principal transactions-netand a slight increase in investment banking and advisory revenues partiallyoffset by a decrease in net interest and dividend revenues, and slightdecreases in commissions and fees and other revenues. The increase in principaltransactions-net was primarily due to higher revenues from structured products,higher revenues from the consolidation of private equity funds primarily underFIN 46R and 

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improved results in equitytrading. Investment banking and advisory fees increased due to higher placementfees from Alternative Capital and higher advisory fees from InstitutionalSecurities, offset in part by lower debt and equity underwriting fees. Netinterest and dividend revenues decreased primarily due to higher short-termborrowing costs associated with our trading business, offset in part byincreases in net interest revenues from prime services. Commissions wereslightly lower primarily as a result of decreased trading activity from fixedincome listed derivatives and lower management fees from our private equitybusiness, partially offset by higher commissions from equity derivatives.

The Company consolidates certain private equity funds,resulting in an increase in net revenues of $975 million and $649 million,respectively, for the years ended December 31, 2005 and 2004. Net incomewas unaffected by the consolidation of private equity funds as offsetting minorityinterests and related operating expenses were recorded in the consolidatedstatements of income. See Note 4 of the consolidated financial statements in Part II,Item 8 for more information. Excluding the increases attributable to theconsolidation of certain private equity funds, total net revenues increased 6%.

Total expenses increased$1.4 billion, or 30%, to $5.9 billion forthe year ended December 31, 2005 compared to the year ended December 31, 2004,primarily due to increases in other operating expenses resulting from thelitigation charge of $750 million in the second quarter of 2005 to increase thereserve for certain private litigation and higher employee compensation andbenefits expenses, which include the recognition of a $296 million expense inthe fourth quarter of 2005 due to a change in our accounting treatment forshare-based awards to early-retirement eligible employees ($12 million ofwhich was charged to affiliates as described below). Included in employeecompensation expense is $179 million and $289 million for the years ended December 31,2005 and 2004, respectively, related to business activities conducted byCompany employees on behalf of CSG affiliates outside of the Company. These expenses were charged to these affiliatesand are reflected as a reduction in our other operating expenses. See “—Expenses.”

**YearEnded December 31, 2004 Compared to Year Ended December 31, 2003**

The Company recorded net income of $787 million forthe year ended December 31, 2004 compared to net income of $1.2 billionfor the year ended December 31, 2003. The decrease reflects the after-taxgain of $852 million from the sale of Pershing, included in income fromdiscontinued operations, and an after-tax gain of $74 million on the saleof our 50% stake in a Japanese online broker, offset in part by the$130 million after-tax loss relating to the write-down of intangibleassets from an asset management high-net-worth business, or HNW business,in 2003. Excluding these items, net income increased $391 million,reflecting both higher net revenues and higher expenses.

Total net revenues increased $1.3 billion, or27%, to $6.3 billion for the year ended December 31, 2004, asprincipal transactions, investment banking and advisory, commissions and netinterest revenues improved compared to the year ended December 31, 2003,partially offset by a decrease in other revenues. The significant increase inprincipal transactions revenue was primarily due to the consolidation ofcertain private equity funds in 2004, which increased principal transactions by$643 million and increased net revenues by $649 million, significant gainsfrom certain private equity investments and increases in revenues fromstructured products. Net income was unaffected by the consolidation of suchprivate equity funds as offsetting minority interests of $642 million andrelated operating expenses of $7 million were recorded in the consolidatedstatements of income. See Note 4 of the consolidated financial statements in Part II,Item 8 for more information. Investment banking and advisory feesincreased primarily due to higher equity underwriting fees and higher placementfees from our private funds business. Commissions were higher primarily as aresult of increased trading activity from fixed income listed derivatives. Netinterest revenues increased due to higher net interest from prime services. Thedecline in other revenues reflects the pre-tax gain of $115 million from thesale of the Japanese online broker in 2003.

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Total expenses increased$87 million, or 2%, to $4.5 billion for the year ended December 31, 2004compared to the year ended December 31, 2003, as increases in employeecompensation and benefits expenses were partially offset by lower otheroperating expenses and merger-related costs. Other operating expenses for theyear ended December 31, 2003 included the $200 million pre-tax loss relating to the write-down ofintangible assets from the HNW business. Included in employee compensation andbenefits expense is $289 million and $88 million for the years ended December 31,2004 and 2003, respectively, related to business activities conducted byCompany employees on behalf of CSG affiliates outside of the Company. Theseexpenses were charged to these affiliates and are reflected as a reduction inour other operating expenses. See “—Expenses.”

**Results by Segment**

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

Our segments are managed based on types of productsand services offered and their related client bases. We evaluate theperformance of our segments based primarily on income from continuingoperations before the provision for income taxes, minority interests,discontinued operations 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 segmentresults.

The cost structure of each of our segments is similarand, consequently, the discussion of expenses is presented on an aggregatedbasis for our segments. 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 changes in ourincentive bonus accrual can have a significant effect on our operating resultsfor a given period. For information on expenses that are not allocated to theCompany’s segments, see “Results of Operations” and Notes 1, 15 and 19 of theconsolidated financial statements in Part II, Item 8.

Beginning in 2004, theGlobal Treasury department allocated to the Company’s segments certain interestexpense primarily relating to the goodwill and intangible assets from theacquisition of Donaldson, Lufkin & Jenrette, Inc., or DLJ, whichis recorded in the financial statements of Credit Suisse Holdings (USA), Inc.,or CS Holdings, which is the Company’s direct parent. In addition, the GlobalTreasury department allocated to the Company’s segments gains and lossesrelated to certain corporate treasury funding transactions, which allocation isbased upon the expected funding requirements of the segments. There is anoffsetting credit for this allocated interest expense and offsettingcontra-revenues/revenues for the allocated gains and losses in OtherInstitutional Securities and Other Wealth & Asset Management.

***Institutional Securities***

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

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financial advice tocompanies throughout the United States and abroad. Through Investment Banking,we manage and underwrite offerings of securities, arrange private placementsand provide financial advisory and other services.

Thefollowing table sets forth certain financial information of the Company’sInstitutional Securities segment:

| ** **                          | ** ** | **For the Year Ended December 31,** | ** ** |
|-------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                          | ** ** | **   2005   **                 | ** ** | **   2004   ** | ** ** | **   2003   ** | ** ** |
| ** **                          | ** ** | **(In millions)**                                       | ** ** |
| Revenues:                           |       |                                                         |       |   |   |   |   |   |   |   |   |   |   |
| Principal transactions—net     |       |                                                         | $          | 688 |   |   |   | $ | (295 | ) |   |   | $ | (826 | ) |   |
| Investment banking and advisory     |       |                                                         | 1,613      |   |   |   | 1,639 |   |   |   | 1,654 |   |   |
| Commissions and fees                |       |                                                         | 1,016      |   |   |   | 1,014 |   |   |   | 971 |   |   |
| Net interest and dividends          |       |                                                         | 1,917      |   |   |   | 2,435 |   |   |   | 2,342 |   |   |
| Other                               |       |                                                         | 67         |   |   |   | 67 |   |   |   | 95 |   |   |
| Total net revenues                  |       |                                                         | 5,301      |   |   |   | 4,860 |   |   |   | 4,236 |   |   |
| Total expenses                      |       |                                                         | 4,982      |   |   |   | 3,970 |   |   |   | 3,678 |   |   |
| Income(1)                           |       |                                                         | 319        |   |   |   | 890 |   |   |   | 558 |   |   |
| Minority  interests(2)              |       |                                                         | 237        |   |   |   | 79 |   |   |   | — |   |   |
| Income after minority  interests(3) |       |                                                         | $          | 82 |   |   |   | $ | 811 |   |   |   | $ | 558 |   |   |

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(1)                 Income fromcontinuing operations before provision for income taxes, minority interests,discontinued operations and cumulative effect of a change in accountingprinciple.

(2)                 Representsminority interest revenues related to the Company’s consolidation of certainprivate equity funds net of related operating expenses.

(3)                 Income fromcontinuing operations before provision for income taxes, discontinuedoperations and cumulative effect of a change in accounting principle.

*Year Ended December 31,2005 Compared to Year Ended December 31, 2004*

The InstitutionalSecurities segment recorded income after minority interests of $82 millionfor the year ended December 31,2005 compared to $811 million for theyear ended December 31, 2004. The results for the year ended December 31,2005 include a litigation charge of $750 million to increase the reserve forcertain private litigation. Total net revenues increased $441 million, or9%, to $5.3 billion for the year ended December 31,2005, reflecting higher revenues from Other Institutional Securities andTrading partially offset by lower Investment Banking revenues. Theconsolidation of private equity funds resulted in an increase in net revenuesof $242 million and $82 million for the year ended December 31, 2005and 2004, respectively. See Note 4 of the consolidated financial statements in Part II,Item 8 for more information. Excluding the increases attributable to theconsolidation of certain private equity funds, net revenues increased$281 million, or 6%, for the year ended December 31, 2005 compared tothe year ended December 31, 2004.

*Year Ended December 31,2004 Compared to Year Ended December 31, 2003*

The InstitutionalSecurities segment recorded income after minority interests of$811 million for the year ended December 31, 2004 compared to$558 million for the year ended December 31, 2003. Total net revenuesincreased $624 million, or 15%, to $4.9 billion for the year ended December 31,2004, reflecting higher revenues from Trading and Other InstitutionalSecurities, partially offset by decreases in Investment Banking revenues.Excluding $82 million of revenues from the consolidation of certain legacyprivate equity funds, total net revenues increased $542 million, or 13%.

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***Trading***

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

Thefollowing table sets forth net Trading revenues of the Institutional Securitiessegment:

| ** **       | ** ** | **For the Year Ended  December 31,** | ** ** |
|------------------|------------|----------------------------------------------------------|------------|
| ** **       | ** ** | **2005**                                                 | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **       | ** ** | **(In millions)**                                   | ** ** |
| Fixed Income     |       | $                                                        | 1,728      |   | $ | 1,711 |   | $ | 1,418 |   |
| Equity           |       | 1,108                                                    |       | 1,064 |   | 1,034 |   |
| Total Trading(1) |       | $                                                        | 2,836      |   | $ | 2,775 |   | $ | 2,452 |   |

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(1)                 Revenuesreflect the allocation of certain net revenues and interest expense from theGlobal Treasury department to Trading. For the years ended December 31,2005 and 2004, the amount was $309 million and $272 million of contra-revenues,respectively. See “—Resultsby Segment” above.

*Year Ended December 31,2005 Compared to Year Ended December 31, 2004*

Total net trading revenues for the InstitutionalSecurities segment increased $61 million, or 2%, to $2.8 billion for the year ended December 31,2005 compared to theyear ended December 31, 2004, due to modest increases in equity andfixed income net trading revenues.

Fixed income net trading revenues increased 1% to $1.7billion reflecting increases in revenues from structured products, our newcommodities business and proprietary trading largely offset by lower revenuesfrom credit products and interest rate products. The increase in structuredproducts net trading revenues was due to higher revenues primarily fromresidential mortgage and commercial mortgage products. During the third quarterof 2005, Institutional Securities enhanced its estimate of fair value of itsretained interests in residential mortgage-backed securities. This change inestimate resulted in a $167 million adjustment to the valuation of thesepositions, which increased revenues for the year ended December 31, 2005. Thedecrease in revenues from credit products reflected lower revenues primarilyfrom high-grade, high-yield and distressed products, reflecting lower volumesand wider credit spreads. The decrease in revenues from interest rate productsreflected lower revenues from listed derivatives and U.S. government and agencysecurities.

Equity net tradingrevenues increased 4% to $1.1 billion primarily reflecting growth in our primeservices business and higher revenues from most cash products and equityderivatives. The increase was partially offset by losses from convertiblesecurities reflecting reduced liquidity and low volatility and lower revenuesfrom proprietary trading.

*Year Ended December 31,2004 Compared to Year Ended December 31, 2003*

Total net Trading revenues for the InstitutionalSecurities segment increased $323 million, or 13%, to $2.8 billion for theyear ended December 31, 2004 compared to the year ended December 31,2003, due to significant increases in fixed income net trading revenues and amodest increase in equity net trading revenues.

Fixed income net trading revenues increased 21% to$1.7 billion reflecting significantly improved results in structuredproducts. The increase in structured products net trading revenues was dueprimarily to higher revenues from trading and securitizing residentialmortgages as a result of improved market conditions and lower write-downs.Revenues from trading and securitizing commercial mortgages were 

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also higher, reflectingfavorable market conditions, while revenues from interest rate productsincreased modestly primarily due to listed derivatives trading. These increaseswere partially offset by lower revenues from credit products, primarilyhigh-yield, and an increase in interest expense allocated to our Tradingbusinesses.

Equity net tradingrevenues increased 3% to $1.1 billion due to higher revenues from certainarbitrage strategies, growth in our advanced execution services and primeservices businesses and improved results from options and structured products.These improvements were offset by declines in revenues from convertiblesecurities, reflecting lower trading volumes which reduced liquidity andwidened spreads, declines in revenues from listed and OTC trading due tocommission compression and increases in interest expense allocated to ourTrading businesses.

***Investment Banking***

Thefollowing table sets forth the Investment Banking revenues for theInstitutional Securities segment:

| ** **                | ** ** | **For the Year Ended  December 31,** | ** ** |
|---------------------------|------------|----------------------------------------------------------|------------|
| ** **                | ** ** | **2005**                                                 | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                | ** ** | **(In millions)**                                   | ** ** |
| Debt underwriting         |       | $                                                        | 599        |   | $ | 683 |   | $ | 734 |   |
| Equity  underwriting      |       | 402                                                      |       | 423 |   | 383 |   |
| Total underwriting        |       | 1,001                                                    |       | 1,106 |   | 1,117 |   |
| Advisory and  other fees  |       | 612                                                      |       | 533 |   | 537 |   |
| Total Investment  Banking |       | $                                                        | 1,613      |   | $ | 1,639 |   | $ | 1,654 |   |

 

*Year Ended December 31,2005 Compared to Year Ended December 31, 2004*

Investment Bankingrevenues decreased 2% to $1.6 billion, reflecting declines in debt and equityunderwriting partially offset by an increase in advisory and other fees. Forthe year ended December 31, 2005, debt underwriting revenues decreased 12%compared to the year ended December 31, 2004 to $599 million,primarily reflecting the industry wide decline in underwriting revenues fromhigh-yield securities, as well as lower underwriting revenues from asset-backedand commercial mortgage-backed securities and CDOs partially offset by higherresidential mortgage-backed securities and high-grade debt underwritingrevenues. Equity underwriting revenues decreased 5% to $402 million reflectinga decrease in convertible and common stock new issuance volumes. Advisory andother fees increased 15% to $612 million reflecting higher fees frommergers and acquisitions and private placements.

*Year Ended December 31,2004 Compared to Year Ended December 31, 2003*

Investment Bankingrevenues decreased 1% to**$1.6billion, reflecting a decline in debt underwriting offset by an increase inequity underwriting. For the year ended December 31, 2004, debtunderwriting revenues decreased 7% compared to the year ended December 31,2003 to $683 million, primarily due to lower underwriting revenues fromcommercial mortgage-backed securities reflecting the industry-wide decline inmortgage-backed new issues. Underwriting revenues from high-yield debt andinvestment grade new issuance revenues also declined significantly due to lowervolume and smaller deal sizes. These declines were partially offset byincreases in debt underwriting revenues from residential mortgage-backedsecurities. Equity underwriting revenues increased 10% to $423 milliondespite a decline in convertible securities issuances, as our IPO and secondarynew issuance volumes increased compared to the weak volumes in 2003. Advisoryand other fees decreased less than 1% to $533 million reflecting lowerfees from restructurings, private placements and structured products and flatmergers and acquisition fees.

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***Other Institutional Securities***

Other Institutional Securitiesrevenues primarily consist of revenues from the consolidation of certainprivate equity funds, the results for certain separately managed private equityand distressed assets, interest income on loans to affiliates and treasuryallocations to our Trading business.

Thefollowing table sets forth Other Institutional Securities revenues:

| ** **                                               | ** ** | **For the Year Ended December 31,** | ** ** |
|----------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                               | ** ** | **    2005    **     | ** ** | **    2004    ** | ** ** | **    2003    ** | ** ** |
| ** **                                               | ** ** | **(In millions)**                                       | ** ** |
| Separately  managed private equity and distressed assets |       |                                                         | $          | 278 |   |   |   | $ | 130 |   |   |   | $ | 26 |   |   |
| Other                                                    |       |                                                         | 574        |   |   |   | 316 |   |   |   | 104 |   |   |
| Total Other  Institutional Securities                    |       |                                                         | $          | 852 |   |   |   | $ | 446 |   |   |   | $ | 130 |   |   |

 

*Year Ended December 31,2005 Compared to Year Ended December 31, 2004*

Total revenues from OtherInstitutional Securities increased $406 million to $852 million during the yearended December 31, 2005 compared to the year ended December 31, 2004,reflecting the consolidation of certain private equity funds, which resulted inan increase in net revenues of $242 million and $82 million, respectively. Netincome was unaffected by the consolidation of private equity funds asoffsetting minority interests and related operating expenses were recorded inthe consolidated statements of income. See Note 4 of the consolidated financialstatements in Part II, Item 8 for more information. Excluding the revenuesattributable to the consolidation of certain private equity funds, OtherInstitutional Securities revenues increased $246 million, primarily related toincreases in interest income on loans to affiliates and a credit that offsetsthe Global Treasury department’s allocation of interest expense as acontra-revenue to our Trading business, both of which reflected highershort-term interest rates.

*Year Ended December 31,2004 Compared to Year Ended December 31, 2003*

Total revenues from Other InstitutionalSecurities increased $316 million to $446 million for the year ended December 31,2004, primarily reflecting a credit that offsets certain allocations ofinterest to our Institutional Securities businesses and an increase in revenuesfrom certain separately managed private equity investments of $82 millionas a result of our consolidation, primarily under FIN 46R, of certain privateequity funds. Net income was unaffected by the consolidation of private equityfunds as offsetting minority interests and related operating expenses wererecorded in the consolidated statements of income. See Note 4 of theconsolidated financial statements in Part II, Item 8 for more information.

***Wealth & Asset Management***

The Wealth & Asset Management segmentconsists of Alternative Capital, which includes the private equity and privatefunds businesses, and Private Client Services. The private equity business makes privately negotiated investments and actsas an investment manager for private equity funds. The private funds businessraises private capital, primarily from institutional investors, for directinvestment in venture capital, management buyout and other alternativeinvestment funds. Private Client Services is a financial advisorybusiness serving high-net-worth individuals and corporate investors with a widerange of Credit Suisse and third-party investment management products andservices.

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Thefollowing table sets forth certain financial information of the Wealth &Asset Management segment:

| ** **                          | ** ** | **For the Year Ended December 31,** | ** ** |
|-------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                          | ** ** | **   2005   **                 | ** ** | **   2004   ** | ** ** | **   2003   ** | ** ** |
| ** **                          | ** ** | **(In millions)**                                       | ** ** |
| Revenues:                           |       |                                                         |       |   |   |   |   |   |   |   |   |   |   |
| Principal transactions—net     |       |                                                         | $          | 1,176 |   |   |   | $ | 952 |   |   |   | $ | 184 |   |   |
| Investment banking and advisory     |       |                                                         | 213        |   |   |   | 132 |   |   |   | 99 |   |   |
| Asset management and other fees     |       |                                                         | 303        |   |   |   | 328 |   |   |   | 322 |   |   |
| Net interest and dividends          |       |                                                         | 17         |   |   |   | 48 |   |   |   | 50 |   |   |
| Other                               |       |                                                         | 15         |   |   |   | 21 |   |   |   | 106 |   |   |
| Total net revenues                  |       |                                                         | 1,724      |   |   |   | 1,481 |   |   |   | 761 |   |   |
| Total expenses                      |       |                                                         | 618        |   |   |   | 545 |   |   |   | 750 |   |   |
| Income(1)                           |       |                                                         | 1,106      |   |   |   | 936 |   |   |   | 11 |   |   |
| Minority  interests(2)              |       |                                                         | 722        |   |   |   | 563 |   |   |   | — |   |   |
| Income after minority  interests(3) |       |                                                         | $          | 384 |   |   |   | $ | 373 |   |   |   | $ | 11 |   |   |

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(1)                 Income fromcontinuing operations before provision for income taxes, minority interests,discontinued operations and cumulative effect of a change in accountingprinciple.

(2)                 Representsminority interest revenues related to the Company’s consolidation of certainprivate equity funds net of related operating expenses.

(3)                 Incomefrom continuing operations before provision for income taxes, discontinuedoperations and cumulative effect of a change in accounting principle.

*Year Ended December 31,2005 Compared to Year Ended December 31, 2004*

The Wealth &Asset Management segment recorded income after minority interests of$384 million for the year ended December 31, 2005 compared to $373million for the year ended December 31, 2004. Total net revenues increased$243 million to $1.7 billion for the year ended December 31, 2005,primarily reflecting an increase in net revenues from the consolidation,primarily under FIN 46R, of certain private equity funds to $733 million forthe year ended December 31, 2005 from $567 million for the year ended December 31,2004. Net income was unaffected by the consolidation of private equity funds asoffsetting minority interests and related operating expenses were recorded inthe consolidated statements of income. See Note 4 of the consolidated financialstatements in Part II, Item 8 for more information. Excluding the effectsof the consolidation of certain private equity funds, total net revenuesincreased $77 million, or 8%, primarily reflecting increases in placementfees from the private funds business partially offset by lower management feesfrom our private equity business.

*Year Ended December 31,2004 Compared to Year Ended December 31, 2003*

The Wealth &Asset Management segment recorded income after minority interests of$373 million for the year ended December 31, 2004 compared to $11million for the year ended December 31, 2003. Total net revenues increased$720 million to $1.5 billion for the year ended December 31, 2004,primarily reflecting $567 million of revenues as a result of ourconsolidation, primarily under FIN 46R, of certain private equity funds andincreases in net investment gains from certain private equity investments. Netincome was unaffected by the consolidation of private equity funds asoffsetting minority interests and related operating expenses were recorded inthe consolidated statements of income. See Note 4 of the consolidated financialstatements in Part II, Item 8 for more information. The 2003 results included a pre-tax gain of$115 million from the sale of the Japanese online broker and a pre-tax loss of $200 million relating tothe write-down of intangible assets from the HNW business, which was reflectedas an increase in expenses for the year ended December 31, 2003. Excludingthe effects of the consolidation of certain 

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privateequity funds and the gain on the sale from the Japanese online broker, totalnet revenues increased $268 million, or 41%, reflecting net investment gainsfrom certain private equity investments and increased placement fees from ourprivate funds business.

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

Thefollowing table sets forth the Alternative Capital, Private Client Services andOther revenues for the Wealth & Asset Management segment:

| ** **                               | ** ** | **For the Year Ended  December 31,** | ** ** |
|------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                               | ** ** | **2005**                                                 | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                               | ** ** | **(In millions)**                                   | ** ** |
| Alternative  Capital(1)                  |       | $                                                        | 1,467      |   | $ | 1,240 |   | $ | 426 |   |
| Private Client  Services(1)              |       | 221                                                      |       | 219 |   | 232 |   |
| Other                                    |       | 36                                                       |       | 22 |   | 103 |   |
| Total Wealth & Asset Management |       | $                                                        | 1,724      |   | $ | 1,481 |   | $ | 761 |   |

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(1)                 Revenuesreflect the allocation of certain net revenues and interest expense from theGlobal Treasury department to Alternative Capital and Private Client Services. Forthe years ended December 31, 2005 and 2004, the amount was$36 million and $22 million of contra-revenues, respectively. See “—Results by Segment” above.

*Year EndedDecember 31, 2005 Compared to Year Ended December 31, 2004*

Revenue for Alternative Capital consist of managementand placement fees, net investment gains and losses, which include realized andunrealized gains and losses, including carried interest, net interest and otherrevenues from private equity and private funds. Revenues from AlternativeCapital increased $227 million to $1.5 billion for the year endedDecember 31, 2005, primarily reflecting an increase in net revenues fromthe consolidation, primarily under FIN 46R, of certain private equity funds to$733 million for the year ended December 31, 2005 from $567 million forthe year ended December 31, 2004. Net income was unaffected by theconsolidation of private equity funds as offsetting minority interests andrelated operating expenses were recorded in the consolidated statements ofincome. See Note 4 of the consolidated financial statements in Part II,Item 8 for more information. Excluding the effect of the consolidation ofcertain private equity funds, Alternative Capital’s total net revenuesincreased $61 million, or 9%, primarily reflecting increases in placement feesfrom the private funds business partially offset by slightly lower managementfees from our private equity business.

Revenues for Private Client Services increased lessthan 1% to $221 million, primarily due to higher commissions partiallyoffset by lower net interest revenues.

Other revenues increased$14 million in 2005 compared to the year ended December 31, 2004,reflecting an increase in the credit thatoffsets allocations by the Global Treasury department to our alternativecapital and private client services businessesof certain interest expense and revenues.

*Year EndedDecember 31, 2004 Compared to Year Ended December 31, 2003*

Revenues for Alternative Capital increased$814 million to $1.2 billion, primarily reflecting$567 million of revenues as a result of our consolidation, primarily underFIN 46R, of certain private equity funds. Net income was unaffected by theconsolidation of private equity funds as offsetting minority interests andrelated operating expenses were recorded in the consolidated statements ofincome. See Note 4 of the consolidated financial statements in Part II,Item 8 for more information. Excluding the effect of the consolidation ofcertain private equity funds, Alternative Capital’s total net revenuesincreased $247 million, or 58%, reflecting net investment gains from certainprivate equity investments and increased placement fees from our private fundsbusiness.

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Revenues for Private Client Services decreased 6% to$219 million, primarily reflecting lower net interest income as a resultof increases in allocated interest expense. The decrease was partially offsetby a modest increase in fee revenue from assets under management.

Other revenues decreased79% to $22 million compared to 2003, reflecting the pre-tax gain of$115 million from the sale of the Japanese online broker in 2003.

**Segment Expenses**

The normal operating cost structure of each of oursegments is similar and, consequently, the discussion of expenses is presentedon an aggregate basis for our segments. For information on expenses that arenot allocated to the Company’s segments, see “Results of Operations” and Notes1, 15 and 19 of the consolidated financial statements in Part II, Item 8.

Thefollowing table sets forth employee compensation and benefits expenses, otherexpenses and total expenses of the Company’s segments and does not includeexpenses from Elimination & Other:

| ** **                          | ** ** | **For the Year Ended  December 31,** | ** ** |
|-------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                          | ** ** | **2005**                                                 | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                          | ** ** | **(In millions)**                                   | ** ** |
| Employee compensation  and benefits |       | $                                                        | 3,511      |   | $ | 3,335 |   | $ | 2,740 |   |
| Other expenses                      |       | 2,089                                                    |       | 1,180 |   | 1,688 |   |
| Total expenses                      |       | $                                                        | 5,600      |   | $ | 4,515 |   | $ | 4,428 |   |

 

As is normal in thefinancial services industry, a significant portion of compensation expense is abonus amount awarded shortly after year end. Our bonuses are based upon anumber of factors, including the profitability of each business segment andmarket conditions. From time to time, we guarantee certain minimum compensationlevels to attract new employees or to retain existing employees. A portion ofour bonus is in the form of non-cash incentive compensation, which may includeawards of CSG shares under a CSG share plan, options to acquire shares and ROEunits tied to the return on equity of Institutional Securities and Wealth &Asset Management, generally over a three to five-year period. In the thirdquarter of 2003, we introduced a general three-year vesting period for shareawards, in line with our long-term service and retention strategy and industrypractice, and we increased the amount of compensation in the form of sharesrather than options. In the first quarter of 2005, we introduced a five-yearvesting period for share awards linked to the earnings and share price of CSG.

***Year Ended December 31, 2005 Compared to YearEnded December 31, 2004***

Total expenses increased$1.1 billion, or 24%, to $5.6 billion forthe year ended December 31, 2005 compared to the year ended December 31, 2004,primarily as a result of a litigation charge of $750 million in 2005 toincrease the reserve for certain private litigation. Employee compensation andbenefits expenses were higher reflecting higher incentive compensation,share-based compensation, base salaries and headcount. These increases werepartially offset by lower accruals for severance and certain deferredcompensation plans. Included in employeecompensation and benefits expense was $179 million and $289 millionfor the years ended December 31, 2005 and 2004, respectively, related tobusiness activities conducted by Company employees on behalf of CSG affiliatesoutside of the Company. These expenses were charged to these affiliates and arereflected as a reduction in our other operating expenses. See Notes 1, 3and 15 of the consolidated financial statements in Part II, Item 8 formore information.

Other expenses consistprincipally of occupancy and equipment rental; brokerage, clearing and exchangefees; communications; professional fees; merger-related costs of retentionawards and all other operating expenses, all of which increased reflectingincreased levels of business activity, except for merger-related expenses whichdecreased reflecting the completion of retention awards in 2004. Other 

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expensesincreased $909 million for the year ended December 31, 2005 compared tothe year ended December 31, 2004, primarily as a result of a litigationcharge of $750 million in 2005 to increase the reserve for certain privatelitigation. In addition, expenses for the year ended December 31, 2004included the positive impact of an insurance settlement of $65 million.Included in other operating expenses are affiliate service fees (including thecharge to affiliates for compensation expense) that are treated as a reductionin other operating expenses. Excluding the litigation charge to increase thereserve for certain private litigation and the charges to affiliates forcompensation expense, other operating expenses increased 3%.

***Year Ended December 31,2004 Compared to Year Ended December 31, 2003***

Total expenses increased$87 million, or 2%, to $4.5 billion for the year ended December 31, 2004compared to the year ended December 31, 2003. The increase was principallydue to higher employee compensation and benefits expenses, which increased $595million, or 22%, reflecting the change in vesting of share awards in 2003 andincreases in incentive compensation due to improved net revenues, higherseverance expenses, primarily related to the restructuring of the AlternativeCapital business, and increased base salary expenses, offset in part bydecreases in accruals for certain deferred compensation plans. Compensationexpense in 2003 would have been $406 million higher if we had not changedthe vesting for share awards in 2003. Included in compensation and benefitsexpense is $289 million and $88 million for the years ended December 31,2004 and 2003, respectively, related to business activities conducted byCompany employees on behalf of CSG affiliates outside of the Company and includesmost of the severance costs related to the restructuring of the AlternativeCapital business in 2004. These expenses were charged to these affiliates andare reflected as a reduction of our other operating expenses. Excluding theseexpenses, compensation and benefits expense increased $394 million, or15%.

Other expenses decreased30% for the year ended December 31, 2004 compared to the year ended December 31,2003, primarily as a result of reductions in other operating expenses andmerger-related costs. The decrease in other operating expenses reflects higheraffiliate service fees that are treated as a reduction in other operatingexpenses, the $200 million pre-tax loss relating to the write-down ofintangible assets from the HNW business in 2003 and lower litigation chargesreflecting the receipt of an insurance settlement in 2004. The decline inmerger-related costs reflects the completion of the retention awards in 2004.

**Provision for Taxes**

***Year Ended December 31,2005 Compared to Year Ended December 31, 2004***

The provision for incometaxes from continuing operations for the years ended December 31, 2005 and2004 was $61 million and $397 million, respectively. Excluded fromthe provision for income taxes for the year ended December 31, 2005 was anincome tax expense of $3 million related to the Company’s adoption of Statementof Financial Accounting Standards, or SFAS, No. 123, “Accounting forStock-Based Compensation,” as amended by SFAS No. 148, “Accounting forStock-Based Compensation—Transition and Disclosure,” and SFAS No. 123(Revised 2004), “Share-Based Payment,” or SFAS 123R. See Note 15 of theconsolidated financial statements in Part II, Item 8.

The effective tax ratefrom continuing operations changed from a provision of 21.8% in 2004 to a provisionof 5.4% in 2005. The change in the effective tax rate was due primarily to anincrease in non-taxable revenues from certain private equity fundsconsolidated primarily under FIN 46R. See Note 17 of the consolidated financialstatements in Part II, Item 8.

***Year Ended December 31, 2004 Compared to YearEnded December 31, 2003***

The provision for incometaxes from continuing operations for the years ended December 31, 2004 and2003 was $397 million and $244 million, respectively. Excluded fromthe provision for income taxes for 

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the yearended December 31, 2003 was a provision of $485 million fromdiscontinued operations and a benefit of $5 million related to thecumulative effect of a change in accounting principle as a result of ouradoption of FIN 46. See Note 4 of the consolidated financial statements in Part II,Item 8.

The effective tax ratefrom continuing operations changed from a provision of 43.0% in 2003 to aprovision of 21.8% in 2004. The change in the effective tax rate was dueprimarily to non-taxable revenues from certain private equity fundsconsolidated primarily under FIN 46R and lower state and local income taxexpense. See Note 17 of the consolidated financial statements in Part II,Item 8.

**Employee BenefitPlan**

We participate in a non-contributorydefined benefit pension plan for certain individuals employed on or before January 1,2000. CSG applies sponsor accounting for accounting and reporting for definedbenefit pension plans. The Company and other CSG entities participate in and contributeto the same plan and the assets held by the plan are not restricted orsegregated and can be used to provide benefits to employees of any of theparticipating CSG entities. The Company has been designated to be the sponsorof the plan and records all liabilities and expenses and allocates a portion ofthe expenses to affiliates for employees outside of the Company.

For the year ended December 31,2005, the Company did not make any contributions to the defined benefit pensionplan. For the years ended December 31, 2004 and 2003, we contributed$225 million and $40 million, respectively, to the defined benefit pensionplan.

To determine ourobligations with respect to the pension plan, we are required to make certainactuarial assumptions and estimates, including the expected rate of return onplan assets and the discount rate. The assumption of the expected long-termrate of return on plan assets is based on historical real rates of return ofthe various asset classes, weighted based on the target asset allocationpercentages for each major category of plan assets. The expected long-term rateof return on plan assets was 8.25% for 2005 and 8.5% for 2004. The discountrate is used to discount the liability for expected future benefit payments andis determined using certain AA and AAA bond indices. The discount rate used indetermining the projected benefit obligation for the defined benefit pensionplan was 5.5% for 2005 and 6% for 2004. See Note 16 of the consolidatedfinancial statements in Part II, Item 8 for additional information,including quantitative data and recent changes relating to the defined benefitpension plan and other plans.

In 2005 and 2003, we hadan unfunded accumulated benefit obligation in this pension plan and recordedminimum pension liability adjustments of $175 million and $4 million,respectively, net of tax, in accumulated other comprehensive loss in theconsolidated statements of financial condition. The unfunded accumulatedbenefit obligation of our defined benefit pension plan in 2005 was$15 million and was due primarily to changes in the assumptions used todetermine our accumulated benefit obligation. In 2004, the fair value of theplan assets was greater than the accumulated benefit obligation. Accordingly,in 2004 we reversed the minimum pension liability adjustments recorded in 2003,2002 and 2001, which resulted in an increase in accumulated other comprehensiveincome of $150 million, net of tax.

**Share-based Compensation**

We have adopted SFAS 123R as of January 1, 2005,using the modified prospective method. We had previously adopted therecognition provisions of SFAS 123 effective January 1, 2003. See Note 15of the consolidated financial statements in Part II, Item 8 for moreinformation.

In connection with ouradoption of SFAS 123R, we recorded an after-tax gain of $6 million in theconsolidated statement of income as a cumulative effect of a change inaccounting principle to reverse the expense for awards previously recognized onall outstanding unvested awards that are expected to be 

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forfeited.For new grants after January 1, 2005, forfeitures are included in theinitial estimate of compensation expense at the grant date.

In a December 2005speech, the SEC staff provided further guidance on SFAS 123R relating to accountingfor share-based compensation awards subject to a non-competition provision thathave scheduled vesting beyond an employee’s eligibility for early retirement.The SEC staff noted that such share-based awards should generally be expensedover the period from grant date to the date an employee becomes eligible forearly retirement, rather than over the entire vesting, or stated service,period, unless the non-competition provision and other factors establish anin-substance requisite service period that extends beyond the early retirementdate. Based on a review of relevant share-based awards granted during 2005, theCompany had previously concluded that the most appropriate service period to beused for expensing those awards is the vesting period. As a result of the December 2005guidance, and based on subsequent discussions with the SEC staff, the Companyrecorded in the fourth quarter of 2005 an incremental expense to reflect thefull-year cost of its 2005 share-based awards to early-retirement eligibleemployees. This incremental expense reflects the attribution of the total costof these awards over the period from the grant date to the date the employeebecomes eligible for early retirement rather than over the vesting period thatranged from three to five years.

The impact of the Company’schange in accounting was to increase fourth quarter and full year 2005compensation and benefits by $296 million ($12 million of which wascharged to affiliates), and to decrease fourth quarter and full year 2005 netincome by $185 million. This non-cash charge, recorded in Elimination &Other, represents the recognition of compensation expense for share-basedawards granted in 2005 that otherwise would have been recorded generally overvesting periods of three to five years.

**LIQUIDITYAND CAPITAL RESOURCES**

**LiquidityManagement Oversight**

We believe thatmaintaining access to liquidity is fundamental for firms operating in thefinancial services industry. We have therefore established a comprehensiveprocess for the management and oversight of our capital, liquidity and fundingstrategies. Credit Suisse’s Asset and Risk Management Committee, or CARMC**,** has primary oversight responsibility forthese functional disciplines. This committee, which meets on a quarterly basis,includes the CEOs of CSG and of its divisions, the Chief Financial Officer, theChief Risk Officer and the Treasurer. CARMC reviews capital and balance sheetdevelopment, current and prospective funding, and adherence to internalTreasury risk limits and capital and liquidity targets. The tacticalimplementation of this strategy is subsequently refined and updated through regularmonthly sessions with the Chief Risk Officer, the Chief Financial Officer andthe 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 creditor banks and fixed incomeinvestors. It also maintains regular contact with rating agencies andregulators on these and other issues. See “Liquidity Risk” in “Risk Factors” inPart I, Item 1A.

**LiquidityManagement Organization**

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

First, at the holdingcompany level, 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 

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regulatoryrestrictions that limit the amount of cash that could be distributed upstreamby our principal broker-dealer subsidiaries, CS Securities and CS Capital,which hold over 86% 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 andFunding**

The majority of our assetsare held in our broker-dealer subsidiaries and comprise a substantial portionof the Bank Franchise. These assets — principally trading inventories in ourInstitutional Securities business — are funded by a combination ofcollateralized short-term borrowings, which include securities sold underagreements to repurchase and securities loaned, as well as unsecured loans fromCredit Suisse, the central funding entity of the Bank Franchise. Significantportions of our assets held in the Bank Franchise are highly liquid, with themajority consisting of securities inventories and collateralized receivables,which fluctuate depending on the levels of proprietary trading and customerbusiness. Collateralized receivables consist primarily of securities purchasedunder agreements 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.

Unsecured funding for theBank Franchise originates largely from Credit Suisse’s borrowings in thewholesale and institutional deposit markets as well as access to retaildeposits. The retail and private bank funding base is primarily comprised oftime deposits and deposits callable on demand. While the contractual maturityof these deposits is typically under three months, they have historically shownremarkable stability even under extreme market conditions. Additional fundingis also sourced via short-term inter-company borrowings from other CSGentities on both a secured and unsecured basis.

Assets not funded by theBank Franchise 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 isgenerally obtained at rates related to the Federal Funds rate, the LondonInterbank Offered rate , or LIBOR, or other money market indices, whilelong-term funding is generally obtained at fixed and floating rates related toU.S. Treasury securities or LIBOR, depending upon prevailing market conditions.We continually aim to broaden our funding base by geography, investor andfunding instrument.

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

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extended on a term basisand we structure our long-term market borrowings with maturities that extendbeyond those of our subordinated advances to subsidiaries and affiliates.

Because of changes relating to customer needs,economic and market conditions and proprietary trading and other strategies,our total assets, or the individual components of total assets, may varysignificantly from period to period. As of December 31, 2005 and 2004, ourtotal assets were $297.8 billion and $275.8 billion, respectively.

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

**Liquidity Measurement and Planning**

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

For the Non-Bank Franchise, our objective is to ensurethat the liquidity barometer equals or exceeds a time horizon of one year. Forthe Bank Franchise, our objective is to ensure the liquidity barometer equalsor exceeds 120 days. The different time horizons reflect the relative stabilityof the unsecured funding base of each franchise. In the Non-Bank Franchise,liabilities are measured at their contractual maturities because historically,investors in publicly issued debt securities and commercial paper are highlysensitive to liquidity events such that we believe access to these marketscould be quickly diminished. Conversely, the Bank Franchise’s retail andinstitutional deposit base is measured using contractual maturities that havebeen adjusted to reflect behavioral stability. Historically, this core depositbase has proven extremely stable, even in stressed markets. The conservativeparameters we use in establishing the time horizons in the funding franchisesassume that assets will not be sold to generate cash, no new unsecured debt canbe issued, and funds that are assumed to be trapped because of regulatoryrestrictions are not available to be distributed upstream in a stressedliquidity environment. For liquidity purposes, the adjusted market value ofunencumbered assets includes a conservative reduction from market value, or “haircut,”reflecting the amount that could be realized by pledging an asset as collateralto a third-party lender in a secured funding transaction.

In the case of 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 derivativesbusiness is primarily conducted in Credit Suisse International, a wholly-ownedsubsidiary of CSG);

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

·       committedundrawn credit facilities to clients (CreditSuisse’s corporate lending business is conducted in Credit Suisse).

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The Bank Franchisemaintains two large secondary sources of liquidity. The first is via a largeportfolio of liquid fixed income securities, which is segregated and managed toprovide for emergency liquidity needs only. This liquidity portfolio ismaintained at a level well beyond regulatory requirements and could provide asignificant source of liquidity for an extended period in the event of stressedmarket conditions. In addition to these assets held directly in Credit Suisse,the Bank Franchise maintains another large source of secondary liquiditythrough Credit Suisse’s principal broker-dealers and other regulatedoperating entities. The Bank Franchise has historically been able to accesssignificant liquidity through the secured funding markets (securities soldunder agreements to repurchase, securities loaned and other collateralizedfinancing arrangements), even in periods of market stress. We continuallymonitor overall liquidity by tracking the extent to which unencumberedmarketable assets and alternative unsecured funding sources exceed bothcontractual obligations and anticipated contingent commitments.

As of December 31,2005, we estimate that the Non-Bank Franchise held cash, other liquidityreserves and marginable assets, net of haircuts, of approximately $9.0 billionversus estimated maturing obligations and commitments out to one year of $5.8billion. Also, as of December 31, 2005, we estimate that the BankFranchise held cash, other liquidity reserves and marginable assets, net ofhaircuts, of approximately $104.9 billion versus estimated maturingobligations, commitments and contingent funding requirements out to 120 days of$95.1 billion.

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

·       StageI—Market disruption

·       StageII—Unsecured markets partially inaccessible

·       StageIII—Unsecured markets fully inaccessible

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

**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 December 31,2005 totaled $42.2 billion compared with $36.9 billion as of December 31,2004. The increase in cash capital of $5.3 billion was primarily due to anincrease in long-term debt. As of December 31, 2005, cash capitalwas substantially in excess of our cash capital requirements.

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**ContractualObligations and Commitments**

Thefollowing table sets forth future cash payments on our contractual obligationspursuant to long-term borrowings, operating leases and purchase obligations asof December 31, 2005:

| ** **                    | ** ** | **Contractual Obligations Expiration Per Period** | ** ** |
|-------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                    | ** ** | **Less than  1 year**                                  | ** ** | **1-3  years** | ** ** | **4-5  years** | ** ** | **Over  5 years** | ** ** | **Total** | ** ** |
| ** **                    | ** ** | **(In millions)**                                           | ** ** |
| Long-term borrowings          |       |                                                             | $          | 3,692 |   |   | $ | 11,045 |   | $ | 6,032 |   | $ | 13,157 |   | $ | 33,926 |   |
| Operating leases              |       |                                                             | 154        |   |   | 290 |   | 271 |   | 982 |   | 1,697 |   |
| Purchase obligations(1)       |       |                                                             | 43         |   |   | 57 |   | 38 |   | 26 |   | 164 |   |
| Total contractual obligations |       |                                                             | $          | 3,889 |   |   | $ | 11,392 |   | $ | 6,341 |   | $ | 14,165 |   | $ | 35,787 |   |

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(1)                 Purchase obligations for goods and servicesinclude payments for, among other things, benefits consulting, corporateservices 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 borrowingsare unsecured. As of December 31, 2005, the weighted average maturity ofour long-term borrowings was approximately 4.9 years. Our lease obligations areprimarily for our principal offices in New York City and other locations. Theoperating lease obligations in the table above do not reflect $310 millionin sublease revenue and $560 million of executory costs such as insurance,maintenance and taxes. We had no material capital lease obligations as of December 31,2005.

We havecommitments under a variety of arrangements that are not recorded asliabilities in our consolidated statements of financial condition. Thesecommitments are in addition to guarantees and other arrangements discussed in “—Off-Balance Sheet Arrangements.”The following table sets forth certainof our commitments, including the current portion as of December 31, 2005:

| ** **                           | ** ** | **Commitment Expiration Per Period** | ** ** |
|--------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                           | ** ** | **Less than 1  year**                     | ** ** | **1-3  years** | ** ** | **4-5  years** | ** ** | **Over  5 years** | ** ** | **Total  commitments** | ** ** |
| ** **                           | ** ** | **(In millions)**                              | ** ** |
| Standby resale  agreements(1)        |       |                                                | $          | 25 |   |   | $ | 125 |   | $ | — |   |   | $ | — |   |   |   | $ | 150 |   |   |
| Private equity(2)                    |       |                                                | 174        |   |   | 93 |   | 58 |   |   | 401 |   |   |   | 726 |   |   |
| Forward  agreements(3)               |       |                                                | 9,677      |   |   | — |   | — |   |   | — |   |   |   | 9,677 |   |   |
| Unfunded lending  commitments(4)     |       |                                                | 97         |   |   | 178 |   | 236 |   |   | 219 |   |   |   | 730 |   |   |
| Unfunded  warehousing commitments(5) |       |                                                | 1,168      |   |   | — |   | — |   |   | — |   |   |   | 1,168 |   |   |
| Total commitments                    |       |                                                | $          | 11,141 |   |   | $ | 396 |   | $ | 294 |   |   | $ | 620 |   |   |   | $ | 12,451 |   |   |

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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 December 31, 2005 we hadcommitments to invest up to an additional $726 million in non-consolidatedprivate equity funds and $924 million in consolidated private equityfunds.

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

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

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

For information on theseand other material commitments, see Notes 5, 8, 9 and 10 of the consolidatedfinancial statements in Part II, Item 8. For information on commitmentsunder our pension arrangements, see Note 16 of the consolidated financialstatements in Part II, Item 8.

Excluded from the tableabove are certain commitments to originate and purchase mortgage whole loansthat qualify as derivatives. These commitments are reflected in derivativescontracts in the 

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consolidatedstatements of financial condition. For more information on our derivativescontracts, see Note 6 of the consolidated financial statements in Part II,Item 8.

Thefollowing table sets forth our commercial paper and other short-term unsecuredborrowings:

| ** **               | ** ** | **December 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|--------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **               | ** ** | **(In millions)**      | ** ** |
| Bank loans               |       |                        | $          | 263                         |       |   |   | $ | 350 |   |   |
| Commercial paper         |       |                        | 1,298      |                        |       |   | 1,249 |   |   |
| Loans from affiliates(1) |       |                        | 12,093     |                        |       |   | 20,085 |   |   |
| Total                    |       |                        | $          | 13,654                      |       |   |   | $ | 21,684 |   |   |

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(1)                 Wehave significant financing transactions with Credit Suisse and certain of itssubsidiaries and affiliates. See “—Related Party Transactions” and Note 3 of theconsolidated financial statements in Part II, Item 8.

**Credit Facilities**

As of December 31,2005, CS Securities maintained with third parties five 364-day committedsecured revolving credit facilities totaling $2.2 billion, with onefacility for $500 million maturing in July 2006, one facility for $200million maturing in August 2006, one facility for $500 million maturing inNovember 2006, one facility for $500 million maturing in February 2007and one facility for $500 million maturing in March 2007. We expect torenew these facilities as they mature. These facilities require CS Securities topledge unencumbered marketable securities to secure any borrowings. Borrowingsunder each facility would bear interest at short-term rates related to eitherthe Federal Funds rate or LIBOR and can be used for general corporate purposes.The facilities contain customary covenants that we believe will not impair ourability to obtain funding. As of December 31, 2005, no borrowings wereoutstanding under any of the facilities. We may from time to time enter intoadditional secured revolving credit facilities as part of our liquiditymanagement.

**Long-term Funding**

We issue long-term debtthrough U.S. and Euromarket medium-term note programs, as well as syndicatedand privately placed offerings around the world.

Our currently effectiveautomatic shelf registration statement on file with the SEC, which wasestablished in February 2006, allows us to issue from time to time seniorand subordinated debt securities and warrants to purchase such securities.

Under our$5.0 billion Euro medium-term note program, which was established in July 2001and allows us to issue notes from time to time, we had as of March 17,2006 $1.2 billion available for issuance.

For the year ended December 31,2005, we issued $8.3 billion in senior notes and $217 million instructured notes and we repaid approximately $2.1 billion of medium-term notes,$1.0 billion of senior notes and $56 million of structured notes.

**Credit Ratings**

Our access to the debtcapital markets and our borrowing costs depend significantly on our creditratings. Credit ratings are important to us when competing in certain marketsand when seeking to engage in longer-term transactions, including OTCderivatives. Rating agencies take many factors into consideration indetermining a company’s rating and may raise, lower or withdraw their ratingsor publicly announce an intention to raise or lower their ratings at any time.Such factors include earnings performance, business mix, market position,financial strategy, level of capital, risk management policies and practicesand management team, and our affiliation with Credit Suisse and CSG, inaddition to the broader outlook for the financial services industry.

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A reduction in our creditratings could limit our access to capital markets, increase our borrowingcosts, require us to provide additional collateral in connection with OTCderivatives contracts, and allow counterparties to terminate transactions undercertain of our trading and collateralized financing contracts. This, in turn,could reduce our liquidity and negatively impact our operating results andfinancial position. Our liquidity planning takes into consideration thosecontingent events associated with a reduction in our credit ratings.

Because a significantportion of our OTC derivatives arrangements are with affiliates, the amount ofcollateral that we would have been required to post pursuant to such contractsin the event of a one-notch downgrade of our senior long-term debt creditrating was not material as of December 31, 2005.

As of March 17,2006, our ratings and ratings outlooks were as follows:

| ** **                       | ** ** | **Long-Term Debt** | ** ** | **Commercial Paper** | ** ** | **Outlook** | ** ** |
|----------------------------------|------------|-------------------------|------------|---------------------------|------------|-------------|------------|
| Fitch Ratings                    |       |                    | AA-        |                      |       |        | F-1        | + |   | Stable |   |
| Moody’s Investors Service   |       |                    | Aa3        |                      |       |        | P-1        |   |   | Stable |   |
| Standard &  Poor’s |       |                    | A+         |                      |       |        | A-1        |   |   | Positive |   |

 

**Capital Resources**

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

***Regulated Subsidiaries***

Our principal wholly ownedsubsidiary, CS Securities, is a registered broker-dealer, registeredfutures commission merchant and member firm of the NYSE. Accordingly, CSSecurities is subject to the minimum net capital requirements of the SEC andthe CFTC. Under the alternative method permitted by SEC Rule 15c3-1, 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, therequired minimum net capital requirement is 8% of the total risk marginrequirement (as defined) for all positions carried in customer accounts plus 4%of the total risk margin requirement (as defined) for all positions carried innon-customer accounts. As of December 31, 2005, CS Securities’ net capitalof approximately $4.5 billion was 59.1% of aggregate debit balances and inexcess of the minimum requirement by approximately $4.3 billion.

Our OTC derivatives dealer subsidiary, CS Capital, isalso subject to the uniform net capital rule, but computes its net capitalrequirements based on value at risk pursuant to Appendix F of Rule 15c3-1.As of December 31, 2005, CS Capital’s net capital of $504 million,allowing for market and credit risk exposure of $60 million and $216 million,respectively, was in excess of the minimum net capital requirement by$484 million. CS Capital operates pursuant to the(k)(2)(ii) exemptive provisions of Rule 15c3-3 of the Exchange Actand accordingly, all customer transactions are cleared through CS Securities ona fully disclosed basis.

As of December 31,2005, our subsidiaries complied with all applicable regulatory capital adequacyrequirements.

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**Cash Flows**

Our consolidated statements of cash flows classifycash flows into three broad categories: cash flows from operating activities,investing activities and financing activities. These statements should be readin conjunction with “—Related Party Transactions” as well as Note 3 of theconsolidated financial statements in Part II, Item 8. 

We present the consolidated statements of cash flowsfor the year ended December 31, 2003 as if Pershing was part of ourcontinuing operations until its sale in May 2003. The assets andliabilities of Pershing as of December 31, 2002 were not presented asassets held for sale and liabilities held for sale. 

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 cash flow analysis is not a particularly usefulmethod to evaluate our liquidity position as discussed above. Cash flowanalysis may, however, assist in highlighting certain macro trends andstrategic initiatives in our business.

***For the Year Ended December 31, 2005***

Cash and cash equivalents increased $157 millionto $884 million as of December 31, 2005. Cash used in operatingactivities was $6.5 billion. The change in cash used in operatingactivities reflected a net increase in operating assets relative to operatingliabilities of $7.8 billion, which occurred in the normal course ofoperations as a result of changes in customer needs, market conditions andproprietary trading and other strategies.

Cash of $2.9 billion was used in investing activities.The Company provided funding to affiliates, resulting in increases inreceivables from parent and affiliates of $2.5 billion. The Company also usedcash of $126 million in connection with acquisitions.

Cash provided by financingactivities was $9.5 billion. The changes are due to increases in netcollateralized financing arrangements of $12.3 billion and an increase of$8.5 billion in long-term borrowings used primarily to fund normaloperating activities and provide funding to affiliates as part of the Company’sinvesting activities and repay $3.2 billion in long-term borrowings and$8.2 billion in short-term borrowings.

***For the Year Ended December 31, 2004***

Cash and cash equivalents increased $393 million to$727 million as of December 31, 2004. Cash used in operating activitieswas $5.9 billion. The change in cash used in operating activitiesreflected a net increase in operating assets relative to operating liabilitiesof $7.8 billion, which occurred in the normal course of operations as aresult of changes in customer needs, market conditions and proprietary tradingand other strategies. 

Cash of $3.3 billion was used for investingactivities. The Company provided funding to its affiliates, resulting inincreases in receivables from parent and affiliates of $3.2 billion.

Cash provided by financingactivities was $9.6 billion. The changes are due to decreases in netcollateralized financing arrangements of $759 million and increases of$5.7 billion in short-term borrowings and an increase of $7.0 billionin long-term borrowings used primarily to fund normal operating activities,provide funding to affiliates as part of the Company’s investing activities andrepay $2.2 billion in long-term borrowings.

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**OFF-BALANCE SHEET ARRANGEMENTS**

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

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

**Guarantees**

In the ordinary course of our business, we provideguarantees and indemnifications that contingently obligate us to make paymentsto the guaranteed or indemnified party based on changes in an asset, liabilityor equity security of the guaranteed or indemnified party. We may also becontingently obligated to make payments to a guaranteed party based on anotherentity’s failure to perform, or an indirect guarantee of the indebtedness ofothers. Guarantees we provide include customary indemnifications to purchasersin conjunction with the sale of assets or businesses; to investors in privateequity funds sponsored by the firm regarding potential obligations of employeesto return amounts previously paid as carried interest; 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 disclosureof our maximum potential payment obligations under certain guarantees to theextent that it is possible to estimate them and requires recognition of aliability at inception for the fair value of guaranteed obligations forguarantees issued or amended after December 31, 2002. The recognition ofthese liabilities did not have a material effect on our financial position orresults of operations. For disclosure of our estimable maximum paymentobligations under certain guarantees and related information, see Note 10of the consolidated financial statements in Part II, Item 8. 

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

We originate commercial mortgages and originate andpurchase residential mortgages and purchase other debt obligations such asautomobile loans and student loans and sell these assets directly or throughaffiliates to special purpose entities that are, in most cases, qualifiedspecial purpose entities, or QSPEs. These QSPEs issue securities that arebacked by the assets transferred to the QSPEs and pay a return based on thereturns on those assets. Investors in these mortgage-backed and asset-backedsecurities typically have recourse to the assets in the QSPE. The investors andthe QSPEs have no recourse to our assets. 

These QSPEs are generally sponsored by oursubsidiaries. Our principal broker-dealer subsidiary, CS Securities, underwritesand makes markets in these mortgage-backed and asset-backed securities. UnderSFAS No. 140, “Accounting for Transfers and Servicing of Financial Assetsand Extinguishments of Liabilities, a replacement of FASB Statement No. 125,”a QSPE is not required to be consolidated with the transferor. Ourmortgage-backed and asset-backed securitization activities are generallystructured to use QSPEs, and the assets and liabilities transferred to QSPEsare not included in our financial statements. 

We may retain interests inthese securitized assets if CS Securities holds the assets in connection withits underwriting or market-making activities. Retained interests insecuritized financial assets are included 

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at fairvalue in the consolidated statements of financial condition. Any changes in thefair value of these retained interests are recognized in the 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 4 of the consolidated financial statements in Part II,Item 8, which includes quantitative information on our securitizationactivities and retained interests.

**Variable InterestEntities**

We are involved withvarious entities in the normal course of business that may be deemed to bevariable interest entities, or VIEs, including VIEs that issue CDOs. 

We purchase loans andother debt obligations from and on behalf of clients primarily for the purposeof securitization. The loans and other debt obligations are sold by us toaffiliates for warehousing prior to being transferred by affiliates, to QSPEsor to VIEs that issue CDOs. CDOs are securities backed by the assetstransferred to the VIE and pay a return based on the returns on those assets. Investorstypically have recourse to the assets in the CDO VIE. The investors and the CDOVIE have no recourse to the Company’s assets. CS Securities structures,underwrites and makes a market in these CDOs, and we may have retainedinterests in these CDOs in connection with CS Securities’ underwriting andmarket-making activities. We engage in these CDO transactions to meet theneeds of clients, to earn fees and to sell financial assets. These CDOtransactions do not provide a material source of our liquidity, capitalresources or credit risk or market risk support. 

FIN 46 requires us to consolidateall VIEs for which we are the primary beneficiary which is defined as theentity that will absorb a majority of expected losses, receive a majority ofthe expected residual returns, or both. In December 2003, the FASBmodified 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 December 31, 2005 and2004, we consolidated CDO VIEs for which we are the primary beneficiary. Wealso have interests in CDO VIEs that are not required to be consolidatedbecause we are not the primary beneficiary. 

As of January 1,2004, the Company consolidated, primarily under FIN 46R, certain private equityfunds that are managed by the Company. SeeNotes 1 and 4 of the consolidated financial statements in Part II,Item 8.

**RELATED PARTYTRANSACTIONS**

CSG, through CS Holdings,owns all of our outstanding voting common stock. We are involved in significantfinancing and other transactions, and have significant related party balances,with Credit Suisse 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 3 and 6 of the consolidated financialstatements in Part II, Item 8 for more information.

Certain of our directors,officers and employees and those of our affiliates and their subsidiariesmaintain margin accounts with 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. 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.

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**LESS LIQUID ASSETS**

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

**Private Equity Activities**

Our private equity andother long-term investment activities include direct investments andinvestments in partnerships that make private equity and related investments invarious portfolio companies and funds. These investments are primarily inunlisted or illiquid equity or equity-related securities and are carriedat fair value based on a number of factors. As of December 31, 2005 and2004, we had investments in private equity and other long-term investments of$3.6 billion and $3.1 billion, respectively. As of December 31,2005, we had commitments to invest up to an additional $726 million innon-consolidated private equity funds and $924 million in consolidated privateequity funds. The increase in private equity and other long-term investmentsreflects our consolidation of certain private equity funds. See “Business—Productsand Services—Wealth & Asset Management—Alternative Capital—Privateequity group” in Part I, Item 1, “—Critical Accounting Policies andEstimates—Fair Value” in Part II, Item 7 and Notes 1 and 5 of theconsolidated financial statements in Part II, Item 8 for more information.

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

Weunderwrite, trade and hold non-investment-grade financial instruments, whichinclude corporate debt, commercial and residential mortgage whole loans, loanparticipations, derivatives contracts and certain separately managed distressedfinancial instruments. Corporate debt includes high-yield debt, distresseddebt, commercial and residential mortgage-backed securities, other asset-backedsecurities and CDOs. Due to credit considerations, liquidity of secondarytrading markets and vulnerability to general economic conditions, thesefinancial instruments and loans generally involve greater risk thaninvestment-grade financial instruments. We record corporate debt, derivativescontracts and certain separately managed distressed financial instruments atfair value. We record commercial mortgage whole loans, certain residentialmortgage whole loans and loan participations that are held for sale at thelower of cost or fair value. Timing of the securitization of our mortgage wholeloan inventory will affect the size of our positions at any given time. Thefollowing table sets forth our positions in these instruments as of December 31,2005 and 2004:

| ** **                        | ** ** | **December 31, 2005** | ** ** | **December 31, 2004** | ** ** |
|-----------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                        | ** ** | **Assets**                      | ** ** | **Liabilities**                 | ** ** | **Assets** | ** ** | **Liabilities** | ** ** |
| ** **                        | ** ** | **(In millions)**          | ** ** |
| Corporate debt                    |       | $                               | 3,286      |                            |       | $ | 917 |   |   | $ | 2,152 |   |   | $ | 709 |   |   |
| Mortgage whole  loans             |       | 17,817                          |       |                            | —     |   |   | 14,987 |   |   | — |   |   |
| Loan  participations              |       | 9                               |       |                            | —     |   |   | 17 |   |   | — |   |   |
| Derivatives  contracts            |       | 321                             |       |                            | —     |   |   | 141 |   |   | — |   |   |
| Distressed financial  instruments |       | 113                             |       |                            | —     |   |   | 185 |   |   | — |   |   |
| Total                             |       | $                               | 21,546     |                            |       | $ | 917 |   |   | $ | 17,482 |   |   | $ | 709 |   |   |

 

**DERIVATIVES**

We enter into varioustransactions involving derivatives. We use derivatives contracts for bothtrading and hedging purposes and to provide products for our clients. Thesederivatives include options, forwards, futures and swaps. In general,derivatives are contractual agreements that derive their values from the 

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performanceof underlying assets, interest or currency exchange rates or a variety ofindices. Most of our derivatives transactions are considered trading positions.See Note 6 of the consolidated financial statements in Part II, Item8 for more information. 

**Sourcesand Maturities of OTC Derivatives**

Thefollowing table sets forth the distributions, by maturity, of our exposure withrespect to OTC derivatives as of December 31, 2005. Fair values weredetermined on the basis of pricing models and other valuation methods. See “—CriticalAccounting Policies and Estimates—Fair Value” in Part II, Item 7 and Notes1, 6 and 10 of the consolidated financial statements in Part II, Item 8for more information. 

| ** **                            | ** ** | **Assets  Maturity Distribution as of December 31, 2005** | ** ** |
|---------------------------------------|------------|-----------------------------------------------------------------------------------------|------------|
| ** **                            | ** ** | **Less than  1 year**                                                         | ** ** | **1-3 years** | ** ** | **4-5 years** | ** ** | **Over 5 years** | ** ** | **Total fair  value** | ** ** |
| ** **                            | ** ** | **(In millions)**                                                                  | ** ** |
| Interest rate and  credit spread risk |       |                                                                                    | $          | 1,436 |   |   |   | $ | 1,594 |   |   |   | $ | 150 |   |   |   | $ | 689 |   |   |   | $ | 3,869 |   |   |
| Foreign exchange  risk                |       |                                                                                    | 21         |   |   |   | 14 |   |   |   | — |   |   |   | — |   |   |   | 35 |   |   |
| Equity price risk                     |       |                                                                                    | 109        |   |   |   | 259 |   |   |   | 29 |   |   |   | 102 |   |   |   | 499 |   |   |
| Total                                 |       |                                                                                    | $          | 1,566 |   |   |   | $ | 1,867 |   |   |   | $ | 179 |   |   |   | $ | 791 |   |   |   | $ | 4,403 |   |   |

 

| ** **                            | ** ** | **Liabilities  Maturity Distribution as of December 31, 2005** | ** ** |
|---------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| ** **                            | ** ** | **Less than  1 year**                                                              | ** ** | **1-3 years** | ** ** | **4-5 years** | ** ** | **Over 5 years** | ** ** | **Total fair  value** | ** ** |
| ** **                            | ** ** | **(In millions)**                                                                       | ** ** |
| Interest rate and  credit spread risk |       |                                                                                         | $          | 898 |   |   |   | $ | 416 |   |   |   | $ | 18 |   |   |   | $ | 84 |   |   |   | $ | 1,416 |   |   |
| Foreign exchange  risk                |       |                                                                                         | 7          |   |   |   | 9 |   |   |   | — |   |   |   | — |   |   |   | 16 |   |   |
| Equity price risk                     |       |                                                                                         | 164        |   |   |   | 164 |   |   |   | 14 |   |   |   | 12 |   |   |   | 354 |   |   |
| Total                                 |       |                                                                                         | $          | 1,069 |   |   |   | $ | 589 |   |   |   | $ | 32 |   |   |   | $ | 96 |   |   |   | $ | 1,786 |   |   |

 

Thefollowing table sets forth as of December 31, 2005 substantially all ofour exposure with respect to OTC derivatives, by counterparty credit rating andwith affiliates. 

| **Credit Rating**(1)   | ** ** | ** **             | ** ** | **December 31,  2005** | ** ** |
|-----------------------------|------------|------------------------|------------|-----------------------------|------------|
| ** **                  | ** ** | **(In millions)** | ** ** |
| AA+/AA                      |       |                   | $          | 108                         |       |   |
| AA-                         |       |                   | 3,043      |                        |       |
| A+/A/A-                     |       |                   | 89         |                        |       |
| BBB+/BBB/BBB-               |       |                   | 19         |                        |       |
| BB+ or lower                |       |                   | 118        |                        |       |
| Unrated                     |       |                   | 184        |                        |       |
| Derivatives with affiliates |       |                   | 842        |                        |       |
| Total                       |       |                   | $          | 4,403                       |       |   |

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

**DerivativesWith Related Parties**

Weenter into a substantial number of derivatives transactions with relatedparties. The following table sets forth derivatives transactions with relatedparties consisting primarily of interest rate swaps, credit default swaps,foreign exchange forward contracts, equity forward contracts and total returnswaps 

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on equities. The fair values of derivatives contractsoutstanding with related parties as of December 31, 2005 and 2004 were asfollows.

| ** **                            | ** ** | **December 31, 2005** | ** ** | **December 31, 2004** | ** ** |
|---------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                            | ** ** | **Assets**                      | ** ** | **Liabilities**                 | ** ** | **Assets** | ** ** | **Liabilities** | ** ** |
| ** **                            | ** ** | **(In millions)**          | ** ** |
| Interest rate and  credit spread risk |       |                            | $          | 738                             |       |   |   | $ | 443 |   |   | $ | 1,346 |   |   | $ | 616 |   |   |
| Foreign exchange  risk                |       |                            | 20         |                            |       |   | 5 |   |   | 45 |   |   | 18 |   |   |
| Equity price risk                     |       |                            | 84         |                            |       |   | 41 |   |   | 9 |   |   | 61 |   |   |
| Total                                 |       |                            | $          | 842                             |       |   |   | $ | 489 |   |   | $ | 1,400 |   |   | $ | 695 |   |   |

 

See Notes 3 and 6 of theconsolidated financial statements in Part II, Item 8 for more information.

***Item 7A:*      *Quantitative and Qualitative DisclosuresAbout Market Risk***

**RISK MANAGEMENT**

**OVERVIEW**

The Company is part of CSGand its risks are managed as part of CSG. The CSG risk management process isdesigned to ensure that there are sufficient independent controls to measure,monitor and control risks in accordance with CSG’s control framework and inconsideration of industry best practices. The primary responsibility for riskmanagement lies with CSG’s senior business line managers. They are heldaccountable for all risks associated with their businesses, includingcounterparty risk, market risk, liquidity risk, operational risk, legal riskand reputational risk.

**RISK MANAGEMENT PRINCIPLES**

The prudent takingof risk is fundamental to the business of CSG. The primary objectives of riskmanagement are to protect the financial strength and the reputation of CSG.CSG’s risk management framework is based on the following principles, whichapply universally across all businesses and risk types.

·       Protectionof financial strength: CSG controls risk in order to limit the impact ofpotentially adverse events on CSG’s capital and income. CSG’s risk appetite isto be consistent with its financial resources.

·  Protection of reputation: Thevalue of the CSG franchise depends on CSG’s reputation. Protecting a strongreputation is both fundamental and an overriding concern for all staff members.

·  Risk transparency: Risktransparency is essential so that risks are well understood by seniormanagement and can be balanced against business goals.

·  Management accountability: The variousbusinesses are organized into segments that own the comprehensive risks assumedthrough their operations. Management for each segment is responsible for theactive management of their respective risk exposures and the return for therisks taken.

·  Independent oversight: Risk management is astructured process to identify, measure, monitor and report risk. The riskmanagement, controlling and legal and compliance functions operateindependently of the front office to ensure the integrity of the risk andcontrol processes. The risk management functions are responsible forimplementing all relevant risk policies, developing tools to assist seniormanagement to determine risk appetite and assessing the overall risk profile of CSG.

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**RISK MANAGEMENT OVERSIGHT**

Risk management oversightis performed at several levels of the organization. CSG has adapted itsexisting framework to its new organizational structure. In addition to variousCSG boards and committees, key responsibilities lie with the followingmanagement bodies and committees.

***Risk management oversight at the Board level***

·  CSG Board of Directors: Responsible toshareholders for the strategic direction, supervision and control of CSG andfor defining CSG’s overall tolerance for risk.

·  Boards of Directors of other CSG legalentities: Responsible for the strategic direction, supervision and control ofthe respective legal entity and for defining the legal entity’s tolerance forrisk.

·  Risk Committees: Responsible for assisting theBoards of Directors of CSG and other CSG legal entities in fulfilling theiroversight responsibilities by providing guidance regarding risk governance andthe development of the risk profile, including the regular review of major riskexposures and the approval of risk limits.

·  CSG Audit Committee: Responsible for assistingthe Boards of Directors of CSG and other CSG legal entities in fulfilling theiroversight responsibilities by monitoring management’s approach with respect tofinancial reporting, internal controls, accounting and legal and regulatorycompliance. Additionally, the CSG Audit Committee is responsible for monitoringthe independence and the performance of the internal and external auditors.

·  Internalauditors: Responsible for assisting the Boards of Directors, the CSG AuditCommittee and management in fulfilling their responsibilities by providing anobjective and independent evaluation of the effectiveness of control, riskmanagement and governance processes.

***Risk management oversight at the Credit Suissemanagement level as of January 1, 2006:***

·  Executive Management (Chief Executive Officerand Executive Board): Responsible for implementing Credit Suisse’s strategy andactively managing its portfolio of businesses and its risk profile to ensurethat risk and return are balanced and appropriate for current marketconditions.

·  Strategic Risk Management, or SRM: SRM is anindependent function with responsibility for assessing the overall risk profileboth on a group-wide level and for individual businesses and recommendingcorrective action if necessary. SRM reports to the Chief Risk Officer of CreditSuisse.

·  Risk Measurement and Management, or RMM: RMMis an independent function responsible for measuring and reporting of creditrisk, market risk, operational risk and economic risk capital data; managingrisk limits; and establishing policies on market risk and economic riskcapital. RMM reports to the Chief Risk Officer of Credit Suisse.

·  CreditRisk Management, or CRM: CRM is an independent function headed by the ChiefCredit Officer of Credit Suisse with responsibility for approving creditlimits, monitoring and managing individual exposures and assessing and managingthe quality of the segment and business area credit portfolios. CRM reports tothe Chief Risk Officer of Credit Suisse.

***Credit Suisse risk management committees as of January 1,2006:***

·  Capital Allocation and Risk ManagementCommittee, or CARMC: Responsible for supervising and directing the CreditSuisse risk profile on a consolidated basis, recommending risk limits to theCredit Suisse Board of Directors and its Risk Committee and for establishingand allocating risk 

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limits within CreditSuisse. CARMC is also responsible for supervising the development of thebalance sheets of Credit Suisse banking businesses and for reviewing andaddressing operational risk issues at Credit Suisse.****CARMC divides its oversight into three cycles: Asset andLiability Management; Position Risk for Market and Credit Risk; and OperationalRisk.

·  Risk Processes and Standards Committee, orRPSC: Responsible for establishing and approving standards regarding riskmanagement and risk measurement.

·  Credit Portfolio & Provisions ReviewCommittee: Responsible for reviewing the quality of the credit portfolio, witha focus on the development of impaired assets and the assessment of relatedprovisions and valuation allowances.

·  Reputational Risk Review Committee:Responsible for setting the policy regarding reputational risks within CreditSuisse.

·  DivisionalRisk Management Committees, or RMC: Within the investment banking, privatebanking and asset management divisions of Credit Suisse, the respectivedivisional RMC is responsible for supervising and directing the divisional riskprofile on a consolidated basis, for establishing and implementing riskmanagement policies, recommending risk limits to CARMC and establishing andallocating risk limits.

**Risk limits**

Fundamental to risk management is the establishmentand maintenance of a sound system of risk limits to control the range of risksinherent in the business activities. The size of the limits reflects CSG’s riskappetite given the market environment, the business strategy and the financialresources available to absorb losses.

CSG uses an Economic RiskCapital, or ERC, limit structure to limit overall position risk-taking. Thelevel of risk incurred by the segments is further restricted by specificlimits, for example with respect to trading exposures, the mismatch ofinterest-earning assets and interest-bearing liabilities, private equityinvestments and****emerging marketcountry exposures. Within the businesses, the risk limits are allocated tolower organizational levels. Numerous other limits are established to controlspecific risks and a system of individual counterparty credit limits is used tolimit concentration risks.

**ECONOMIC RISK CAPITAL**

Economic risk capital represents current market bestpractice for measuring and reporting all quantifiable risks. It is called “economic”risk capital because it measures risk in terms of economic realities ratherthan regulatory or accounting rules. CSG uses an economic risk capital model,or ERC, as a consistent and comprehensive risk management tool, which forms animportant element in the capital management and planning process and an elementin the performance measurement process.

ERC is calculatedseparately for position risk, operational risk and expense risk. These threerisk categories measure very different types of risk:

·  Position risk ERC—the level of unexpected lossin economic value on CSG’s portfolio of positions over a one-year horizon thatis exceeded with a given, small probability (1% for risk management purposes;0.03% for capital management purposes).

·  Operational risk ERC—the level of lossresulting from inadequate or failed internal processes, people and systems orfrom external events over a one-year horizon that is exceeded with a smallprobability (0.03%). Estimating this type of ERC is inherently more subjective,and reflects both quantitative tools as well as senior management judgment.

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·  Expenserisk ERC—the difference between expenses and revenues in a severe market event,exclusive of the elements captured by position risk ERC and operational riskERC.

**MARKET RISK**

**Overview**

Market risk is the risk of loss arising from adversechanges in interest rates, foreign currency exchange rates, equity prices,commodity prices and other relevant market parameters, such as marketvolatilities. CSG defines its market risk as potential changes in fair valuesof financial instruments in response to market movements. A typical transactionmay be exposed to a number of different market risks.

CSG devotes considerableresources to ensuring that market risk is comprehensively captured, accuratelymodeled and reported, and effectively managed. Trading and non-tradingportfolios are managed at various organizational levels, from CSG overall downto specific business areas. CSG uses market risk measurement and managementmethods designed to meet or exceed industry standards. These include bothgeneral tools capable of calculating comparable exposures across CSG’s manyactivities as well as focused tools that can specifically model uniquecharacteristics of certain business areas’ functions. The tools are used forinternal market risk management, internal market risk reporting and externaldisclosure purposes. The principal measurement methodologies are Value at Risk,or VaR, and scenario analysis. Additionally, the market risk exposures are alsoreflected in CSG’s ERC calculations described above in “Economic Risk Capital.”The risk management techniques and policies are regularly reviewed to ensurethat they remain appropriate.

***Value-at-Risk***

VaR measures the potential loss in terms of fair valuechanges over a given time interval under normal market conditions at a givenconfidence level. VaR as a concept is applicable for all financial risk typeswith valid regular price histories. Positions are aggregated by risk typerather than by product. For example, interest rate risk includes risk arisingfrom money market and swap transactions, bonds, and interest rate, foreignexchange, equity and commodity options. The use of VaR allows the comparison ofrisk in different businesses, such as fixed income and equities, and alsoprovides a means of aggregating and netting a variety of positions within aportfolio to reflect actual correlations and offsets between different assets.

Historical market rates and prices serve as a basisfor the statistical VaR model underlying the potential loss estimation. CSGuses a ten-day holding period and a confidence level of 99% calculated using,in general, a rolling two-year history of market data to model the risk in itstrading portfolios. These assumptions are in agreement with the “Amendment tothe Capital Accord to Incorporate Market Risks” published by the BaselCommittee on Banking Supervision in 1996 and other related internationalstandards for market risk management. For some purposes, such as backtesting,disclosure and benchmarking with competitors, the resulting VaR figures arescaled down or calculated using one-day holding period values.

Credit Suisse has approvalfrom the Swiss Federal Banking Commission as well as from certain otherregulators of its subsidiaries, to use its VaR model in the calculation oftrading book market risk capital requirements. Credit Suisse continues toreceive regulatory approval for ongoing enhancements to the methodology, andthe model is subject to regular reviews by regulators and auditors.

*Assumptions*

CSG uses a historicalsimulation model for the majority of risk types and businesses within itstrading portfolios. Where insufficient data is available for such an approach,an extreme move methodology is 

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used.The model is based on the profit and loss distribution resulting from thehistorical changes of market rates applied to evaluate the portfolio using, ingeneral, a rolling two-year history. This methodology also avoids any explicitassumptions on correlation between risk factors. The VaR model uses assumptionsand estimates that CSG believes are reasonable, but different assumptions orestimates could result in different estimates of VaR.

*Limitations*

VaR as a risk measurequantifies the potential loss on a portfolio under normal market conditionsonly. It is not intended to cover losses associated with unusually severemarket movements (these are covered by scenario analysis). VaR also assumesthat the price data from the recent past can be used to predict future events.If future market conditions differ substantially from past market conditions,then the risk predicted by VaR may be too conservative or too liberal.

***Scenario analysis***

CSG regularly performsscenario analysis for all of its business areas exposed to market risk in orderto estimate the potential economic loss that could arise from extreme, butplausible, stress events. The scenario analysis calculations performed arespecifically tailored towards their respective risk profile. In order toidentify areas of risk concentration and potential vulnerability to stressevents across CSG, CSG has developed a set of scenarios, which are consistentlyapplied across all business areas. Key scenarios include significant movementsin interest rates, equity prices and exchange rates, as well as adverse changesin counterparty default rates. The scenario analysis framework also considersthe impact of various scenarios on key capital adequacy measures such asregulatory capital and economic capital ratios. The Board of Directors and seniormanagement at CSG and the segments are regularly provided with scenarioanalysis estimates, scenario analysis trend information and supportingexplanations to create transparency on key risk exposures and to support seniormanagement in managing risk.

*Assumptions*

Scenario analysisestimates the impact that could arise from extreme, but plausible, stressevents by applying predefined scenarios to the relevant portfolios. Scenariosare typically defined in light of past economic or financial market stress periods,but statistical analysis is also used to define the less severe scenarios inthe framework.

*Limitations*

Scenario analysisestimates the loss that could arise if specific events in the economy or infinancial markets were to occur. Seldom do past events repeat themselves inexactly the same way. Therefore, it is necessary to use business experience tochoose a set of meaningful scenarios and to assess the scenario results inlight of current economic and market conditions.

**Trading portfolios**

***Risk measurement and Management***

For the purposes of thisdisclosure, VaR is used for the trading portfolio, which includes thosefinancial instruments treated as part of the “trading book” for Bank forInternational Settlements regulatory capital purposes. This classification ofassets as trading is done for purposes of analyzing our market risk exposure,not for financial statement purposes.

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***Development of trading portfolio risks***

Thetable below shows the trading-related market risk exposure for the Company on aconsolidated basis, as measured by scaled one-day, 99% VaR. VaR estimates arecomputed separately for each risk type and for the whole portfolio using thehistorical simulation methodology. Diversification benefit reflects the netdifference between the sum of the 99th percentile loss for each individual risktype and for the total portfolio.

| ** **                       | ** ** | **Market Risk in Credit Suisse (USA), Inc. trading portfolios (1-day, 99% Value-at-Risk)**(1) | ** ** |
|----------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                       | ** ** | **For the year ended  December 31, 2005**                                                                                   | ** ** | **As of  December 31,** | ** ** | **For the year ended  December 31, 2004** | ** ** | **As of  December 31,** | ** ** |
| ** **                       | ** ** | **  Min.  **                                                                                                                     | ** ** | **  Max.  ** | ** ** | **Average** | ** ** | **2005** | ** ** | **  Min.  ** | ** ** | **  Max.  ** | ** ** | **Average** | ** ** | **2004** | ** ** |
| ** **                       | ** ** | **(In millions)**                                                                                                                               | ** ** | **(In millions)** | ** ** |
| Interest rate and  credit spread |       |                                                                                                                                                 | 19         |   |   |   | 52 |   |   |   | 33 |   |   |   | 34 |   |   |   | 25 |   |   |   | 55 |   |   |   | 39 |   |   |   | 34 |   |   |
| Foreign exchange  rate           |       |                                                                                                                                                 | —     |   |   |   | 4 |   |   |   | 1 |   |   |   | — |   |   |   | — |   |   |   | 4 |   |   |   | 1 |   |   |   | 1 |   |   |
| Equity                           |       |                                                                                                                                                 | 13         |   |   |   | 27 |   |   |   | 20 |   |   |   | 20 |   |   |   | 12 |   |   |   | 32 |   |   |   | 19 |   |   |   | 15 |   |   |
| Commodity                        |       |                                                                                                                                                 | —     |   |   |   | 10 |   |   |   | 3 |   |   |   | 6 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Subtotal                         |       |                                                                                                                                                 | 32         |   |   |   | 93 |   |   |   | 57 |   |   |   | 60 |   |   |   | 37 |   |   |   | 91 |   |   |   | 59 |   |   |   | 50 |   |   |
| Diversification  benefit         |       |                                                                                                                                                 | —     | (2) |   |   | — | (2) |   |   | (17 | ) |   |   | (21 | ) |   |   | — | (2) |   |   | — | (2) |   |   | (14 | ) |   |   | (13 | ) |   |
| Total                            |       |                                                                                                                                                 | 27         |   |   |   | 55 |   |   |   | 40 |   |   |   | 39 |   |   |   | 27 |   |   |   | 69 |   |   |   | 45 |   |   |   | 37 |   |   |

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(1)                 Disclosure coversall trading books of the Company. Numbers represent 10-day VaR scaled toa 1-day holding period.

(2)                 As the minimumand maximum occur on different days for different risk types, it is notmeaningful to calculate a portfolio diversification benefit.

The Company’s one-day, 99%VaR as of December 31, 2005, was $39 million, compared to $37 million asof December 31, 2004. This increase was primarily caused by higher equityand commodity VaR, partially offset by an increase in diversification benefit.The increases in equity and commodity VaR were mainly caused by increases inequity proprietary trading and the build out of its energy trading business,respectively. The increase in diversification benefit reflects a more evenspread of risks across businesses. Interest rate and credit spread VaR remainedstable over the period ends, reflecting increased positions in mortgage products,offset by a reduction in the volatility of the market data used to calculateVAR, as data from 2003 was replaced by less volatile data from 2005.

***VaR results and distribution of trading revenues***

CSG uses backtesting as the primary method to assessthe accuracy of the VaR model used for its trading portfolios. Backtesting ofthe trading portfolio is performed at various organizational levels, fromCredit Suisse overall down to more specific business areas. The backtestingprocess compares daily backtesting profit and loss to VaR calculated using aone-day holding period. Profit and loss used for backtesting purposes is asubset of actual trading revenue and includes only the profit and loss effectsdue to financial market variables such as interest rates, equity prices,foreign exchange rates and commodity prices on the previous night’s positions.It excludes such items as fees, commissions, certain provisions and any tradingsubsequent to the previous night’s positions. It is appropriate to compare thismeasure with VaR for backtesting purposes, since VaR assesses only thepotential change in position value due to overnight movements in financialmarket variables. On average, an accurate one-day, 99% VaR model should havebetween zero and four backtesting exceptions per year. A backtesting exceptionoccurs when the daily loss exceeds the daily VaR estimate. The Company had zerobacktesting exceptions in 2005, as shown in the graph below. It is not unusualto have zero backtesting exceptions during periods of low market volatility, asin 2005.

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The graph below illustrates the relationship betweendaily backtesting profit and loss, and the daily one-day, 99% VaR for theCompany in 2005.

**Relationshipbetween backtesting profit and loss and VaR Estimate for the Company during2005**

****

The following histogramcompares the trading revenues for 2005 with those for 2004. The trading revenueshown in this graph is the actual daily trading revenue, which includes notonly backtesting profit and loss but also such items as fees, commissions,certain provisions and the profit and loss effects associated with any tradingsubsequent to the previous night’s positions. The average daily trading revenuewas a $13.6 million gain in 2005 ($13.7 million gain in 2004), the minimumdaily trading revenue level was a loss of $28.9 million in 2005 ($16.8 millionloss in 2004) and the maximum daily trading revenue level was a gain of $94.5million in 2005 ($67.3 million gain in 2004).

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**Non-tradingportfolios**

***Risk MeasurementAnd Management***

The market risksassociated with the non-trading portfolios of the Company, which primarilyincludes commercial mortgage loans, private equity investments, derivativesthat hedge long-term borrowings and certain commodity positions, are measuredand monitored using several tools, including ERC, scenario analysis,sensitivity analysis and VaR. For the purpose of this disclosure, theaggregated market risks associated with the non-trading portfolios of theCompany are measured using sensitivity analysis. The sensitivity analysis forthe non-trading activities measures the amount of potential change in economicvalue; it is not a measure for the potential impact on reported earnings, sincethe non-trading activities generally are not marked to market through earnings.

***Development ofNon-Trading Portfolio Risks***

The equity risk onnon-trading positions, which is primarily comprised of private equityinvestments, is measured using sensitivity analysis that estimates thepotential change in value resulting from a 10% decline in equity markets. Theestimated impact of equity risk on our non-trading portfolio would be adecrease in the value of the non-trading portfolio of approximately $108million as of December 31, 2005 compared to a decrease of approximately$118 million as of December 31, 2004. The estimated impact of equity riskexcludes the minority interests in certain consolidated private equity funds.

The interest rate risk onnon-trading positions, which is primarily comprised of commercial mortgageloans and derivatives that hedge the Company’s long-term borrowings, ismeasured using sensitivity analysis that estimates the potential change in thevalue of the non-trading portfolio resulting from a 50 basis point decline inthe interest 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 a decrease of approximately$21 million as of December 31, 2005 compared to a decrease ofapproximately $12 million as of December 31, 2004. Under this interestrate scenario, the Company would have losses from its long-term borrowings andrelated hedges, partially offset by gains from its commercial mortgage loanportfolio.

We do not have materialforeign exchange risk or commodity price risk in our non-trading portfolio.

**CREDIT RISK**

**Definition of Credit Risk**

Credit risk is thepossibility of loss incurred as a result of a borrower or counterparty failingto meet its financial obligations. In the event of a default, a bank generallyincurs a loss equal to the amount owed by the debtor, less any recoveriesresulting from foreclosure, liquidation of collateral or the restructuring ofthe debtor company.

**Credit Risk Management Approach**

Effective credit riskmanagement is a structured process to assess, quantify, price, monitor andmanage risk on a consistent basis. This requires careful consideration ofproposed extensions of credit, the setting of specific limits, diligent ongoingmonitoring during the life of the exposure, active use of credit mitigationtools and a disciplined approach to recognizing credit impairment.

Thiscredit risk management framework is regularly refined and covers all bankingbusiness areas that are exposed to credit risk. The framework is designed tocover virtually all of the credit exposures in the banking business andcomprises seven core components:

·       Anindividual counterparty and country rating system;

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·       Atransaction rating system;

·       Acounterparty credit limit system;

·       Countryand regional concentration limits;

·       Arisk-based pricing methodology;

·       Activecredit portfolio management; and

·       Acredit risk provisioning methodology.

CSG evaluates credit risk through a credit request andapproval process, ongoing credit and counterparty monitoring and a creditquality review process. Experienced credit officers prepare credit requests andassign internal ratings based on their analysis and evaluation of the clients’creditworthiness and the type of credit transaction. The analysis emphasizes aforward-looking approach, concentrating on economic trends and financialfundamentals. In addition, analysts make use of peer analysis, industrycomparisons and other quantitative tools. The final rating also requires theconsideration of qualitative factors relating to the counterparty, its industryand management. CSG has established a counterparty credit risk classificationsystem with which counterparties are rated and classified on a regular basis.This system affords consistency in (i) statistical and other credit riskanalysis; (ii) credit risk monitoring; (iii) risk-adjustedperformance measurement; and (iv) economic risk capital usage/allocation.It is also used for certain financial accounting purposes.

Each counterparty that generates a potential or actualcredit risk exposure is assigned a risk rating class. Based on the structure ofeach transaction, an estimate of expected loss in the event of a counterpartydefault is also assigned. The counterparty credit rating is used in combinationwith credit (or credit equivalent) exposure and the loss given defaultassumption to estimate the potential credit loss. These inputs allow CSG toprice transactions involving credit risk more accurately, based on risk/returnestimates. Pricing and the terms of the credit extension are sensitive to manyof the credit risk factors described in this section, and are intended toreflect more accurately the situation of the borrower as well as CSG’sinterests and priorities in negotiating the extension of credit.

Senior credit managers make credit decisions on atransaction-by-transaction basis, determined by levels appropriate to theamount and complexity of the transactions, as well as based on the overallexposures to counterparties and their related entities. These approvalauthority levels are set out within the governing principles of the legalentities.

A system of individual credit limits is used to manageindividual counterparty credit risk. Other limits are also established toaddress concentration issues in the portfolio, including a comprehensive set ofcountry and regional limits and limits for certain products. Credit exposuresto individual counterparties, industry segments or product groupings andadherence to the related limits are monitored by credit officers, industryanalysts and other relevant specialists. In addition, credit risk is regularlysupervised by credit and risk management committees taking current marketconditions and trends analysis into consideration. CSG regularly analyzes itsindustry diversification and concentration in selected areas.

A rigorous credit quality review process has beenestablished to provide an early identification of possible changes in thecreditworthiness of clients and includes regular asset and collateral qualityreviews, business and financial statement analysis and relevant economic andindustry studies. Other key factors considered in the review process includecurrent and projected business and economic conditions, historical experience,regulatory requirements and concentrations of credit volume by industry,country, product and counterparty rating. Regularly updated watch-lists andreview meetings are used for the identification of counterparties where adversechanges in creditworthiness could occur due to events such as announcedmergers, earnings weakness and lawsuits.

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The review processculminates in a quarterly determination of the appropriateness of allowancesfor credit losses. A systematic provisioning methodology is used to identifypotential credit risk-related losses. Impaired transactions are classified aspotential problem exposure, non-performing exposure or non-interest earningexposure and the exposures are generally managed within credit recovery units.The risk management and credit committees of CSG determine the adequacy ofallowances, taking into consideration whether the levels are sufficient forcredit losses and whether allowances can be released or if they should beincreased.

**LIQUIDITY AND FUNDING RISK**

CSG’s liquidity management structure operates at twolevels: the Bank Franchise and the Non-Bank Franchise.

Liquidity management at the holding company level, theNon-bank Franchise, seeks to maintain sufficient liquidity so that in the eventthat we are unable to access the unsecured capital markets, we have liquidfinancial resources sufficient to repay maturing liabilities for a minimumperiod of one-year. When assessing the amount of cash and liquid assets, wetake account of the regulatory restrictions that limit the amount of cash thatcould be distributed upstream by our principal regulated broker-dealersubsidiaries.

Liquidity management at the Bank Franchise focuses onthe proven stability of unsecured funding sources, including Credit Suisse’slarge and diversified deposit base. This deposit base provides Credit Suissewith substantial sources of liquidity that are primarily driven by customerrelationships rather than price. These deposits provide a stable source offunds.

The Bank Franchise alsohas access to additional liquidity through our subsidiary broker-dealers,which have the capacity to increase their funding through the secured fundingmarkets (repurchase agreements and other collateralized arrangements). Thesesecured funding markets have proven reliable in high stress conditions. Thissecondary source of liquidity is potentially available as alternative fundingto meet business plans and commercial commitments. CS Securities also hasaccess on a committed basis to secured lending facilities with various banks.Credit Suisse regularly stress tests its liquidity using scenarios designed torepresent highly adverse conditions. See “Management’s Discussion and Analysisof Financial Condition and Results of Operations—Liquidity and Capital Resources—Liquidity Measurement andPlanning” in Part II, Item 7 for a discussion of how we monitor ourliquidity position.

**OPERATIONAL RISK**

Operational risk is the risk of loss resulting frominadequate or failed internal processes, people and systems or from externalevents. CSG’s primary aim is the early identification, recording, assessment,monitoring, prevention and mitigation of operational risks, as well as timelyand meaningful management reporting. Where appropriate, CSG transfers certainoperational risks to third-party insurance companies.

Operational risk is inherent in most aspects of CSG’sactivities and comprises a large number of disparate risks. While market andcredit risk are often chosen for the prospect of gain, operational risk isnormally accepted as a necessary consequence of doing business. In comparisonto market or credit risk, the sources of operational risk are difficult toidentify comprehensively and the amount of risk is also intrinsically difficultto measure. CSG therefore manages operational risk differently from market andcredit risk. CSG believes that effective management of operational risksrequires ownership by the management responsible for the relevant businessprocess. Operational risk is thus controlled through a network of controls,procedures, reports and responsibilities. Within CSG, each individual businessarea and management level takes responsibility for its own operational risksand provides adequate resources and procedures for the management of thoserisks.

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Each segment takes responsibility for its ownoperational risks and has a dedicated operational risk function. In addition,CSG has established central teams that focus on the coordination of aconsistent policy, tools and practices throughout the organization for themanagement, measurement, monitoring and reporting of relevant operational risks.These teams are also responsible for the overall operational risk measurementmethodology and capital calculations. Knowledge and experience are sharedthroughout CSG to maintain a coordinated approach.

In addition to the quarterly firm-level CARMC meetingson operational risk, regular operational risk committees meet at the segmentlevel, with representation from senior staff in all the relevant functions. CreditSuisse utilizes a number of firm-wide tools for the management, measurement,monitoring and reporting of operational risk. These include: risk and controlself-assessments; the collection, reporting and analysis of internal andexternal loss data; and key risk indicator reporting.

CSG has employed the samemethodology to calculate the economic risk capital for operational risk since2000, and plans to use a similar methodology for the Advanced MeasurementApproach under the Basel II Accord. This methodology is based upon theidentification of a number of key risk scenarios that describe all of the majoroperational risks that CSG currently faces. Groups of senior staff review eachscenario and discuss how likely it is to occur and the likely severity of lossif it were to happen. Internal and external loss data, along with certainbusiness environment and internal control factors (*e.g.*Control Self-Assessment results, Key Risk Indicators) are used as significantinputs into these discussions. Based on the output from these meetings, CSGenters the scenario probabilities and severities into an event model thatgenerates a loss distribution. Insurance mitigation is included in the capitalassessment where appropriate, by considering the level of insurance coveragefor each scenario, incorporating haircuts as appropriate. Based on the lossdistribution, the level of capital required to cover operational risk can thenbe calculated.

**LEGAL RISK**

CSG faces significant legal risks in its segments andbusiness areas. The financial services industry is operating in a challenginglegal and regulatory environment with increased scrutiny from regulators andclients around the world. The volume and amount of damages claimed inlitigation, and the penalties and fines sought by regulators, against financialservices firms are increasing substantially.

Legal risks in the investment banking businessinclude, among other things, disputes over the terms of trades and othertransactions in which CSG acts as principal; potential liability undersecurities law or other law for materially false or misleading statements madein connection with transactions in which CSG acts as underwriter, placementagent or financial adviser; potential liability for the “fairness opinions” andother advice CSG provides to participants in corporate transactions; disputesover the terms and conditions of complex trading arrangements; and disputesconcerning the adequacy or enforceability of documents relating to some of CSG’stransactions. CSG faces the possibility that counterparties in complex or riskytrading transactions will claim that it improperly failed to inform them of therisks or that they were not authorized or permitted to enter into thesetransactions with CSG and that their obligations to CSG are not enforceable.CSG is also subject to claims arising from disputes with employees for, amongother things, discrimination or harassment. These risks often may be difficult toassess or quantify and their existence and magnitude often remain unknown forsubstantial periods of time.

CSG seeks to minimize legal risk through the adoptionof compliance and other policies and procedures, continuing to refine controlsover business practices and behavior, extensive employee training sessions, theuse of appropriate legal documentation, and the involvement of the legal andcompliance department and outside legal counsel.

Changes in laws, rules orregulations affecting CSG’s operations, or in the interpretation or enforcementof such laws, rules and regulations, may adversely affect its results. CSGmay be materially 

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affectednot only by regulations applicable to it as a financial services company, butalso by regulations of general application.

**REPUTATIONAL RISK**

Credit Suisse’s policy is to avoid any action ortransaction that brings with it a potentially unacceptable level of risk to CreditSuisse’s reputation.

Reputational risks mayarise from a variety of sources, including the nature or purpose of a proposedtransaction, the identity or nature of a potential client, the regulatory orpolitical climate in which the business will be transacted or significantpublic attention surrounding the transaction itself. Where the presence ofthese or other factors gives rise to potential reputational risk for CreditSuisse, the relevant business proposal is required to be submitted to theReputational Risk Review Process. This involves a vetting of the proposal bysenior management, and its subsequent referral to one of the Reputational RiskApprovers, each of whom is independent of the business segments and who haveauthority to approve, reject, or impose conditions on Credit Suisse’s participation.

***Item 8:        Financial Statements and SupplementaryData***

Our consolidated financialstatements, together with the notes thereto and the Independent Auditor’sreport thereon, are set forth on pages F-1 to F-53 of thisAnnual Report on Form 10-K. In addition, the supplementary financialinformation on selected quarterly financial data is set forth on pages F-52 andF-53 of this Annual Report.

***Item 9:        Changes in and Disagreements withAccountants on Accounting and Financial Disclosure***

There were no changes inor disagreements with accountants on accounting and financial disclosure.

***Item 9A:      Controlsand Procedures***

Pursuant to Rule 13a-15(b) underthe Exchange Act, as of the end of the period covered by this report, anevaluation was carried out under the supervision and with the participation ofour management, including our Chief Executive Officer and Chief Financial andAccounting Officer, of the effectiveness of the design and operation of ourdisclosure controls and procedures (as defined in Rule 13a-15(e) underthe Exchange Act). There are inherent limitations to the effectiveness of anysystem of disclosure controls and procedures, including the possibility ofhuman error and the circumvention or overriding of the controls and procedures.Accordingly, even effective disclosure controls and procedures can only providereasonable assurance of achieving their control objectives. Based upon and asof the date of the evaluation, our Chief Executive Officer and Chief Financialand Accounting Officer concluded that the design and operation of thesedisclosure controls and procedures were effective in all material respects toprovide reasonable assurance that information required to be disclosed in thereports we file and submit under the Exchange Act is recorded, processed,summarized and reported as and when required. There were no changes in ourinternal control over financial reporting (as defined in Rule 13a-15(e) underthe Exchange Act) that occurred during the quarter ended December 31, 2005that materially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

***Item 9B:      OtherInformation***

None.

67

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**PART III**

***Item 10:****                  Directorsand Executive Officers of the Registrant*

Pursuant to General Instruction I of Form 10-K,the Company is not required to provide the information required by Item 10.

Setforth below is information as of March 20, 2006 with respect to ourdirectors and executive officers.

| **Name**         | ** ** | ** ** | ** ** | **Age**                                          | ** ** | **Position** | ** ** | ** ** |
|------------------|------------|------------|------------|--------------------------------------------------|------------|--------------|------------|------------|
| Brady W. Dougan  |       | 46         |       | Director, President and  Chief Executive Officer |
| David C. Fisher  |       | 59         |       | Chief Financial and  Accounting Officer          |
| Neil Moskowitz   |       | 47         |       | Director, Managing Director                      |
| Lewis H. Wirshba |       | 49         |       | Director, Managing  Director                     |
| D. Neil Radey    |       | 51         |       | Managing Director and  General Counsel           |
| Peter J. Feeney  |       | 43         |       | Managing Director and Treasurer                  |

 

**BRADYW. DOUGAN.****  **Mr. Douganis a member of the Board of Directors and the President and Chief ExecutiveOfficer of the Company, positions he has held since April 2005. Mr. Douganis also Chief Executive Officer of the Investment Banking Division of CreditSuisse and the interim Chief Executive Officer, Credit Suisse Americas. He is amember of the Executive Board of Credit Suisse Group, the most senior executiveboard of Credit Suisse Group, and the Executive Board of Credit Suisse, themost senior executive board of Credit Suisse. He is Chairman of the ManagementCommittee of the Investment Banking Division of Credit Suisse, the most seniormanagement committee of the Investment Banking Division, and the AmericasManagement Committee, the most senior management committee of the Americasregion. He has held these positions since January 1, 2006. In July 2004,he was appointed Chief Executive Officer of the Credit Suisse First Bostondivision. From 2002 to July 2004, he was Co-President of the InstitutionalSecurities business of the Credit Suisse First Boston division. From 2001 to2002, he was Global Head of the Securities business of the Credit Suisse FirstBoston division. Prior to this role, he was Head of the Equities business ofthe Credit Suisse First Boston division from 1996 to 2001. Mr. Dougan hasalso been Co-Head of the Global Debt Capital Markets group of the Credit SuisseFirst Boston division and Co-Head of Credit Suisse Financial Products’marketing effort in the Americas from 1993 to 1996. In 1990, he joined the firmfrom Bankers Trust Corporation, where he began his career in the derivativesgroup.

**DAVIDC. FISHER.****  **Mr. Fisheris the Chief Financial and Accounting Officer of the Company, a position he hasheld since March 2005. Mr. Fisher is also a Managing Director andDeputy Chief Accounting Officer of Credit Suisse. He has held these positionssince January 1, 2006. From February 2004 until March 2005, Mr. Fisherserved as a member of the Institutional Securities Infrastructure and Supportgroup in a project management role for the Product Control and Operationsdepartments of the Credit Suisse First Boston division. Prior to that, Mr. Fisherwas the Global Head of Financial Control of the Credit Suisse First Bostondivision from 1999 to the end of 2003 and the Chief Financial and AccountingOfficer of the Company from March 2002 to March 2004. Mr. Fisherjoined the firm from Bankers Trust Corporation, where he was Controller from1998 to 1999.

**NEILMOSKOWITZ.****  **Mr. Moskowitzis a member of the Board of Directors and a Managing Director of the Company,positions he has held since August 2004. Mr. Moskowitz is also ChiefFinancial Officer and Head of the Investment Banking Support functions for theInvestment Banking Division of Credit Suisse. He is a member of the InvestmentBanking Management Committee. He has held these positions since January 1,2006. From August 2004 to December 2005, Mr. Moskowitz served asChief Financial Officer of the Credit Suisse First Boston division. Prior tothat, he served as Chief Operating Officer of the Institutional Securitiesbusiness of the Credit Suisse First Boston division. He joined the firm 

68

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in 1994 as Head ofEuropean Operations and subsequently spent eight years as the Chief OperatingOfficer for the Equities business.

**LEWISH. WIRSHBA.****  **Mr. Wirshbais a member of the Board of Directors and a Managing Director of the Company,positions he has held since August 2005 and January 2004,respectively. Mr. Wirshba is also a Managing Director of Credit Suisse andChief Operating Officer, Credit Suisse Americas. He is a member of the AmericasChief Executive Officer Management Committee. He has held these positions sinceJanuary 1, 2006. Prior to that, he was the Head of the FinancialPerformance Management Group of the Credit Suisse First Boston division from May 2005to December 2005. From November 2000to May 2005, Mr. Wirshba was the Treasurer of the Company andwas Global Treasurer of the Credit Suisse First Boston division from 1997 to May 2005.He was also Head of the New Business Department from 2000 to 2005. Mr. Wirshbajoined the firm in 1986 from the Treasurer’s office of General Motors.

**D.NEIL RADEY.****  **Mr. Radey is a Managing Director and the GeneralCounsel of the Company, positions he has held since March 2001 and August 2005,respectively. Mr. Radey is also a Managing Director of Credit Suisse inthe Legal and Compliance Department. He is General Counsel—Americas andco-General Counsel of the Investment Banking Division of Credit Suisse.He is a member of the Americas Chief Executive Officer Management Committee. Hehas held these positions since January 1, 2006. From January 2003 to December 2005,Mr. Radey served as General Counsel of the Securities business of theCredit Suisse First Boston division. Mr. Radey served as Chief OperatingOfficer of Finance, Administration and Operations (FA&O) in the Finance andRisk cluster of the Credit Suisse First Boston division in 2002 and as ChiefOperating Officer for FA&O from 2000 to 2001. From 1999 to 2000, Mr. Radeywas the Deputy General Counsel-Americas of the Credit Suisse First Bostondivision with primary responsibility for the legal affairs of the InvestmentBanking business of the Credit Suisse First Boston division. Prior to that, Mr. Radeyserved as the firm’s General Counsel-Asia Pacific in 1997 and 1998. Mr. Radeyjoined the firm in 1995 from Kidder, Peabody & Co. where he wasInvestment Banking Counsel.

**PETERJ. FEENEY.****  **Mr. Feeney is a Managing Director andthe Treasurer of the Company, positions he has held since June 2005.Mr. Feeney is also a Managing Director of Credit Suisse in Global Treasuryand is the Head of Americas Treasury. He has held these positions since May 2005.From January 2005 to May 2005 he was a Managing Director in theCorporate Treasury Group of the Credit Suisse First Boston division and from1999 to December 2004 he was a Director in the same group. Mr. Feeneyjoined the firm in August 1999 from Bankers Trust Corporation in London.

Effective April 1,2006, Carlos Onis and Ken Weiner will become Managing Directors and members ofthe Board of Directors of the Company. Mr. Onis is a Managing Director,and Senior Finance Officer of the Investment Banking Division, of Credit Suisse.He joined the firm in 1984. Mr. Weiner is a Managing Director, and Head ofOperational Risk Management for the Investment Banking Division, of CreditSuisse. Mr. Weiner joined the firm in 1995.

**Code of Conduct**

CSG has adopted a code ofconduct that governs our directors, officers and employees, including our ChiefExecutive Officer and our Chief Financial and Accounting Officer. You may request a copy of the code of conduct, atno cost, by writing us at One Madison Avenue, New York, NY 10010, Attention:Corporate Secretary, or by telephoning the Corporate Secretary at (212) 3252000.

***Item 11:****                  ExecutiveCompensation*

Pursuant to GeneralInstruction I of Form 10-K, the information required by Item 11 isomitted.

69

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***Item 12:****                  SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters*

Pursuant to GeneralInstruction I of Form 10-K, the information required by Item 12 isomitted.

***Item 13:****                  CertainRelationships and Related Transactions*

Pursuant to GeneralInstruction I of Form 10-K, the information required by Item 13 isomitted.

***Item 14:****                  PrincipalAccountant Fees and Services*

Thefollowing table presents fees billed to the Company by KPMG LLP for the yearsended December 31, 2005 and 2004:

| ** **                   | ** ** | **December 31, 2005** | ** ** | **December 31, 2004** | ** ** |
|------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                   | ** ** | **(In thousands)**         | ** ** |
| Audit fees(1)                |       |                            | $          | 3,531                           |       |   |   | $ | 3,511 |   |   |
| Audit-related fees(2)        |       |                            | 1,268      |                            |       |   | 235 |   |   |
| Audit and audit-related fees |       |                            | 4,799      |                            |       |   | 3,746 |   |   |
| Tax fees(3)                  |       |                            | 915        |                            |       |   | 1,746 |   |   |
| All other fees(4)            |       |                            | 329        |                            |       |   | 153 |   |   |
| Total fees                   |       |                            | $          | 6,043                           |       |   |   | $ | 5,645 |   |   |

----

(1)                 Includes: (i) theaudit of our consolidated financial statements included in our Annual Report onForm 10-K and services pursuant to, or required by, statute orregulation; (ii) reviews of the condensed interim consolidated financialstatements included in our Quarterly Reports on Form 10-Q; (iii) comfortletters, consents and other services related to SEC and other regulatoryfilings; and (iv) accounting consultations relating to the audit. Auditfees include an amount allocated to the Company as part of the audit of CSG.

(2)                 Includes: (i) auditsof private equity funds and employee benefit plans; (ii) certainagreed-upon procedures engagements; (iii) accounting advice; and (iv) assessmentand testing of internal controls.

(3)                 Includes fees fortax consultation, tax compliance services and the termination of a prior periodfindings-based fee arrangement for tax account review which was restructuredinto a fixed fee arrangement in 2004. A fee of $551,000 was paid in 2004 inaccordance with the new fee arrangement.

(4)                 Includesfees for non-audit-related accounting consultations.

**Pre-approval Policy**

We are not subject to a requirement to maintain anaudit committee. CSG’s audit committee has adopted a pre-approval policy thatapplies to all of its subsidiaries, including the Company. The audit committee’spolicy limits the scope of services that may be provided to the Company by KPMGLLP, its independent auditor, to pre-approved audit and certain permissiblenon-audit services, including audit-related services, tax services and otherservices. The CSG audit committee may also approve particular services on acase-by-case basis. The independent auditor and management are required toperiodically report to the audit committee regarding the extent of servicesprovided by the independent auditor and the fees for the services performed todate.

70

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**PART IV**

***Item 15:****                  Exhibitsand Financial Statement Schedule*

(a)    Documentsfiled as part of this Report

1.     ConsolidatedFinancial Statements

The consolidated financial statements required to befiled in this Annual Report are listed on page F-1 hereof.

2.     FinancialStatement Schedule

The financial statement schedule required to be filedin this Annual Report is listed on page F-1 hereof. The required scheduleappears on pages F-54 through F-58 hereof.

3.     Exhibits

An exhibit list has been filed as part of this AnnualReport beginning on page E-1 and is incorporated herein by reference.

71

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**INDEXTO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE**

|                                                                                         | ** **                                                       | **Page** |
|-----------------------------------------------------------------------------------------|------------------------------------------------------------------|----------|
| **CONSOLIDATED FINANCIAL STATEMENTS**                                                   |                                                             |     |
| **Credit Suisse (USA), Inc. and Subsidiaries**                                     |                                                             |     |
|                                                                                    | Report  of Independent Registered Public Accounting Firm         |     | F-2 |
|                                                                                    | Consolidated  Statements of Financial Condition                  |     | F-3 |
|                                                                                    | Consolidated  Statements of Income                               |     | F-5 |
|                                                                                    | Consolidated  Statements of Changes in Stockholder’s Equity |     | F-6 |
|                                                                                    | Consolidated  Statements of Cash Flows                           |     | F-7 |
|                                                                                    | Notes to Consolidated Financial  Statements                      |     |   |
|                                                                                    | 1.                                                               |     | Summary of Significant Accounting  Policies |   | F-8 |
|                                                                                    | 2.                                                               |     | Discontinued Operations |   | F-17 |
|                                                                                    | 3.                                                               |     | Related Party Transactions |   | F-17 |
|                                                                                    | 4.                                                               |     | Transfers and Servicing of  Financial Assets |   | F-20 |
|                                                                                    | 5.                                                               |     | Private Equity and Other Long-Term  Investments |   | F-24 |
|                                                                                    | 6.                                                               |     | Derivatives Contracts |   | F-25 |
|                                                                                    | 7.                                                               |     | Goodwill and Identifiable  Intangible Assets |   | F-28 |
|                                                                                    | 8.                                                               |     | Borrowings |   | F-29 |
|                                                                                    | 9.                                                               |     | Leases and Commitments |   | F-31 |
|                                                                                    | 10.                                                              |     | Guarantees |   | F-32 |
|                                                                                    | 11.                                                              |     | Concentrations of Credit  Risk |   | F-36 |
|                                                                                    | 12.                                                              |     | Net Capital Requirements |   | F-36 |
|                                                                                    | 13.                                                              |     | Cash and Securities Segregated Under  Federal and Other Regulations |   | F-37 |
|                                                                                    | 14.                                                              |     | Stockholder’s Equity |   | F-37 |
|                                                                                    | 15.                                                              |     | Share-Based Compensation |   | F-38 |
|                                                                                    | 16.                                                              |     | Employee Benefit Plans |   | F-41 |
|                                                                                    | 17.                                                              |     | Income Taxes |   | F-47 |
|                                                                                    | 18.                                                              |     | Legal Proceedings |   | F-49 |
|                                                                                    | 19.                                                              |     | Industry Segment and Geographic  Data |   | F-49 |
|                                                                                    | 20.                                                              |     | Quarterly Data (Unaudited) |   | F-52 |
| **FINANCIAL STATEMENT SCHEDULE**                                                        |                                                             |     |
| **Schedule 1—Condensed  Financial Statements of Registrant (Parent Company only)** |                                                             |     |
|                                                                                    | Condensed  Statements of Financial Condition                     |     | F-54 |
|                                                                                    | Condensed  Statements of Income                                  |     | F-55 |
|                                                                                    | Condensed  Statements of Cash Flows                              |     | F-56 |
|                                                                                    | Notes to Condensed Financial  Statements                         |     | F-57 |
|                                                                                         |                                                                  |          |  |  |  |  |

 

F-1

----

**Report of Independent Registered Public AccountingFirm**

The Board of Directors and StockholderCredit Suisse (USA), Inc.:(formerly known as Credit Suisse First Boston (USA), Inc.)

We have audited the accompanying consolidatedstatements of financial condition of Credit Suisse (USA), Inc., formerlyknown as Credit Suisse First Boston (USA), Inc., and subsidiaries (the “Company”)as of December 31, 2005 and 2004, and the related consolidated statementsof income, changes in stockholder’s equity, and cash flows for each of theyears in the three-year period ended December 31, 2005, and the relatedfinancial statement schedule. These consolidated financial statements andrelated financial statement schedule are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these consolidatedfinancial statements and related financial statement schedule based on ouraudits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the financialposition of the Company as of December 31, 2005 and 2004, and the resultsof its operations and its cash flows for each of the years in the three-yearperiod ended December 31, 2005, in conformity with U.S. generally acceptedaccounting principles. Also in our opinion, the related financial statementschedule, when considered in relation to the basic consolidated financialstatements taken as a whole, presents fairly, in all material respects, theinformation set forth therein.

As discussed in Note 1 tothe consolidated financial statements, in 2005 the Company changed its methodof accounting for share-based compensation when it adopted statement SFAS 123R “Share-BasedPayment” and in 2003 the Company changed its method of accounting for variableinterest entities when it adopted FIN 46 “Consolidation of VariableInterest Entities” and share-based compensation when it adopted statement SFAS123 “Accounting for Stock-Based Compensation”.

| /s/ KPMG LLP         |
|----------------------|
| New York, New  York  |
| March 20,  2006 |

 

F-2

----

**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Consolidated Statements of Financial Condition (In millions)**

 

| ** **                                                                                                      | ** ** | **December 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                      | ** ** |                        | ** ** | ** **                  |       |   | ** ** | ** ** |   |
| Cash and cash equivalents                                                                                       |       |                        | $          | 884                         | ** ** |   |   | $ | 727 | ** ** |   |
| Collateralized  short-term financings:                                                                          |       |                        |       | ** **                  |       |   |   | ** ** |   |
| Securities purchased under agreements to resell                                                                 |       |                        | 54,454     | ** **                  |       |   | 48,887 | ** ** |   |
| Securities borrowed                                                                                             |       |                        | 82,802     | ** **                  |       |   | 82,912 | ** ** |   |
| Receivables:                                                                                                    |       |                        |       | ** **                  |       |   |   | ** ** |   |
| Customers                                                                                                       |       |                        | 3,299      | ** **                  |       |   | 3,307 | ** ** |   |
| Brokers, dealers and other                                                                                      |       |                        | 8,128      | ** **                  |       |   | 11,094 | ** ** |   |
| Financial instruments  owned (includes securities pledged as collateral of $73,043 and $54,663,  respectively): |       |                        |       | ** **                  |       |   |   | ** ** |   |
| U.S. government and agencies                                                                                    |       |                        | 31,366     | ** **                  |       |   | 32,841 | ** ** |   |
| Corporate debt                                                                                                  |       |                        | 20,561     | ** **                  |       |   | 14,721 | ** ** |   |
| Mortgage whole loans                                                                                            |       |                        | 17,817     | ** **                  |       |   | 14,987 | ** ** |   |
| Equities                                                                                                        |       |                        | 35,244     | ** **                  |       |   | 28,712 | ** ** |   |
| Commercial paper                                                                                                |       |                        | 1,523      | ** **                  |       |   | 1,171 | ** ** |   |
| Private equity and other long-term investments                                                                  |       |                        | 3,641      | ** **                  |       |   | 3,127 | ** ** |   |
| Derivatives contracts                                                                                           |       |                        | 5,085      | ** **                  |       |   | 3,663 | ** ** |   |
| Other                                                                                                           |       |                        | 3,929      | ** **                  |       |   | 3,665 | ** ** |   |
| Net deferred tax  asset                                                                                         |       |                        | 1,202      | ** **                  |       |   | 1,103 | ** ** |   |
| Office facilities  at cost (net of accumulated depreciation and amortization of $852 and $913,  respectively)   |       |                        | 453        | ** **                  |       |   | 420 | ** ** |   |
| Goodwill                                                                                                        |       |                        | 562        | ** **                  |       |   | 527 | ** ** |   |
| Loans receivable  from parent and affiliates                                                                    |       |                        | 25,225     | ** **                  |       |   | 22,692 | ** ** |   |
| Other assets and  deferred amounts                                                                              |       |                        | 1,579      | ** **                  |       |   | 1,257 | ** ** |   |
| Total assets                                                                                                    |       |                        | $          | 297,754                     | ** ** |   |   | $ | 275,813 | ** ** |   |

 

See accompanying notes to consolidated financial statements.

F-3

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Consolidated Statements of Financial Condition (Continued) (In millions, except share data)**

 

| ** **                                                                                           | ** ** | **December 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| **LIABILITIES  AND STOCKHOLDER’S EQUITY**                                                       |       |                        |       |                        |       |   |   |   |   |
| Commercial paper  and short-term borrowings                                                          |       |                        | $          | 13,654                      |       |   |   | $ | 21,684 |   |   |
| Collateralized  short-term financings:                                                               |       |                        |       |                        |       |   |   |   |   |
| Securities sold under agreements to repurchase                                                       |       |                        | 126,323    |                        |       |   | 108,407 |   |   |
| Securities loaned                                                                                    |       |                        | 45,956     |                        |       |   | 45,148 |   |   |
| Payables:                                                                                            |       |                        |       |                        |       |   |   |   |   |
| Customers                                                                                            |       |                        | 10,129     |                        |       |   | 6,767 |   |   |
| Brokers, dealers and other                                                                           |       |                        | 3,884      |                        |       |   | 10,277 |   |   |
| Financial instruments  sold not yet purchased:                                                       |       |                        |       |                        |       |   |   |   |   |
| U.S. government and agencies                                                                         |       |                        | 20,078     |                        |       |   | 20,154 |   |   |
| Corporate debt                                                                                       |       |                        | 3,696      |                        |       |   | 2,842 |   |   |
| Equities                                                                                             |       |                        | 12,402     |                        |       |   | 5,245 |   |   |
| Derivatives contracts                                                                                |       |                        | 2,262      |                        |       |   | 2,295 |   |   |
| Other                                                                                                |       |                        | 155        |                        |       |   | 161 |   |   |
| Obligation to  return securities received as collateral                                              |       |                        | 3,077      |                        |       |   | 4,980 |   |   |
| Accounts payable  and accrued expenses                                                               |       |                        | 3,152      |                        |       |   | 3,327 |   |   |
| Other liabilities                                                                                    |       |                        | 7,049      |                        |       |   | 4,521 |   |   |
| Long-term  borrowings                                                                                |       |                        | 33,926     |                        |       |   | 28,941 |   |   |
| Total liabilities                                                                                    |       |                        | 285,743    |                        |       |   | 264,749 |   |   |
| Stockholder’s  Equity:                                                                          |       |                        |       |                        |       |   |   |   |   |
| Common stock  ($0.10 par value; 50,000 shares authorized; 1,100 shares issued and  outstanding) |       |                        | —     |                        |       |   | — |   |   |
| Paid-in capital                                                                                      |       |                        | 9,530      |                        |       |   | 8,538 |   |   |
| Retained earnings                                                                                    |       |                        | 2,661      |                        |       |   | 2,534 |   |   |
| Accumulated other  comprehensive loss                                                                |       |                        | (180       | )                           |       |   | (8 | ) |   |
| Total stockholder’s equity                                                                      |       |                        | 12,011     |                        |       |   | 11,064 |   |   |
| Total liabilities  and stockholder’s equity                                                     |       |                        | $          | 297,754                     |       |   |   | $ | 275,813 |   |   |

 

See accompanying notes to consolidated financial statements.

F-4

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIESConsolidated Statements ofIncome(In millions)**

| ** **                                                                                                                                                                         | ** ** | **For the Year Ended December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                                                                                                                                         | ** ** | **   2005   **                 | ** ** | **   2004   ** | ** ** | **   2003   ** | ** ** |
| Revenues:                                                                                                                                                                          |       |                                                         |       |   |   |   |   |   |   |   |   |
| Principal transactions—net                                                                                                                                                    |       | $                                                            | 1,864      |   |   | $ | 657 |   |   |   | $ | (642 | ) |   |
| Investment banking and advisory                                                                                                                                                    |       | 1,826                                                        |       |   | 1,771 |   |   |   | 1,753 |   |   |
| Commissions and fees                                                                                                                                                               |       | 1,319                                                        |       |   | 1,342 |   |   |   | 1,293 |   |   |
| Other                                                                                                                                                                              |       | 82                                                           |       |   | 88 |   |   |   | 201 |   |   |
|                                                                                                                                                                               |       | 5,091                                                        |       |   | 3,858 |   |   |   | 2,605 |   |   |
| Interest and dividends                                                                                                                                                             |       | 12,930                                                       |       |   | 8,214 |   |   |   | 6,839 |   |   |
| Interest expense                                                                                                                                                                   |       | 10,996                                                       |       |   | 5,731 |   |   |   | 4,447 |   |   |
| Net interest and dividends                                                                                                                                                         |       | 1,934                                                        |       |   | 2,483 |   |   |   | 2,392 |   |   |
| Total net revenues                                                                                                                                                                 |       | 7,025                                                        |       |   | 6,341 |   |   |   | 4,997 |   |   |
| Expenses:                                                                                                                                                                          |       |                                                         |       |   |   |   |   |   |   |   |   |
| Employee compensation and benefits                                                                                                                                                 |       | 3,807                                                        |       |   | 3,335 |   |   |   | 2,740 |   |   |
| Occupancy and equipment rental                                                                                                                                                     |       | 504                                                          |       |   | 483 |   |   |   | 478 |   |   |
| Brokerage, clearing and exchange fees                                                                                                                                              |       | 338                                                          |       |   | 298 |   |   |   | 289 |   |   |
| Communications                                                                                                                                                                     |       | 150                                                          |       |   | 129 |   |   |   | 119 |   |   |
| Professional fees                                                                                                                                                                  |       | 351                                                          |       |   | 304 |   |   |   | 276 |   |   |
| Merger-related costs                                                                                                                                                               |       | —                                                       |       |   | 8 |   |   |   | 122 |   |   |
| Other operating expenses                                                                                                                                                           |       | 734                                                          |       |   | (42 | ) |   |   | 404 |   |   |
| Total expenses                                                                                                                                                                     |       | 5,884                                                        |       |   | 4,515 |   |   |   | 4,428 |   |   |
| Income from  continuing operations before provision for income taxes, minority interests,  discontinued operations and cumulative effect of a change in accounting  principle |       | 1,141                                                        |       |   | 1,826 |   |   |   | 569 |   |   |
| Provision for  income taxes                                                                                                                                                        |       | 61                                                           |       |   | 397 |   |   |   | 244 |   |   |
| Minority  interests                                                                                                                                                                |       | 959                                                          |       |   | 642 |   |   |   | — |   |   |
| Income from  continuing operations before discontinued operations and cumulative  effect of a change in accounting principle                                                  |       | 121                                                          |       |   | 787 |   |   |   | 325 |   |   |
| Discontinued operations:                                                                                                                                                           |       |                                                         |       |   |   |   |   |   |   |   |   |
| Income from discontinued operations                                                                                                                                                |       | —                                                       |       |   | — |   |   |   | 1,361 |   |   |
| Provision for income taxes                                                                                                                                                         |       | —                                                       |       |   | — |   |   |   | 485 |   |   |
| Income from discontinued operations, net of income  taxes                                                                                                                          |       | —                                                       |       |   | — |   |   |   | 876 |   |   |
| Income before  cumulative effect of a change in accounting principle                                                                                                               |       | 121                                                          |       |   | 787 |   |   |   | 1,201 |   |   |
| Cumulative effect  of a change in accounting principle, net of income tax expense of $3 in 2005  and income tax benefit of $5 in 2003                                              |       | 6                                                            |       |   | — |   |   |   | (9 | ) |   |
| Net income                                                                                                                                                                         |       | $                                                            | 127        |   |   | $ | 787 |   |   |   | $ | 1,192 |   |   |

 

See accompanying notes to consolidated financial statements.

F-5

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIESConsolidated Statementsof Changes in Stockholder’s EquityFor the Years Ended December 31, 2005, 2004 and 2003(In millions)**

| ** **                                                                                  | ** ** | **Preferred  Stock** | ** ** | **Common  Stock** | ** ** | **Paid-in  Capital** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** | **Total** | ** ** |
|---------------------------------------------------------------------------------------------|------------|----------------------|------------|-------------------|------------|----------------------|------------|------------------------|------------|-----------------------------------------------------------|------------|-----------|------------|
| Balances as of  December 31, 2002                                                      |       |                 | $          | 4                 |       |                 |       | $                      | —     |                                                      |       | $         | 7,646      |   |   | $ | 595 |   |   |   | $ | (156 | ) |   | $ | 8,089 |   |
| Net income                                                                                  |       |                 |       |              |       |                 | —     |                   |       |                                                      |       |      | 1,192      |   |   |   | — |   |   | 1,192 |   |
| Foreign currency  translation adjustment                                                    |       |                 | —     |              |       |                 | —     |                   |       | —                                                    |       |      | —     |   |   |   | 2 |   |   | 2 |   |
| Minimum pension liability  adjustments, net of income tax benefits of $2               |       |                 | —     |              |       |                 | —     |                   |       | —                                                    |       |      | —     |   |   |   | (4 | ) |   | (4 | ) |
| Total comprehensive income                                                                  |       |                 |       |              |       |                 |       |                   |       |                                                      |       |      |       |   |   |   |   |   |   | 1,190 |   |
| Capital  contribution by CS Holdings                                                        |       |                 | —     |              |       |                 | —     |                   |       | 75                                                        |       |      | —     |   |   |   | — |   |   | 75 |   |
| Redemption of  Series B preferred stock                                                |       |                 | (4         | )                 |       |                 | —     |                   |       | —                                                    |       |      | —     |   |   |   | — |   |   | (4 | ) |
| CSG share plan  activity, including tax charge of $27                                       |       |                 | —     |              |       |                 | —     |                   |       | 325                                                       |       |      | —     |   |   |   | — |   |   | 325 |   |
| Tax charge  associated with an investment previously recorded through equity and other |       |                 | —     |              |       |                 | —     |                   |       | (34                                                       | )          |      | —     |   |   |   | — |   |   | (34 | ) |
| Balances as of  December 31, 2003                                                      |       |                 | —     |              |       |                 | —     |                   |       | 8,012                                                     |       |      | 1,787      |   |   |   | (158 | ) |   | 9,641 |   |
| Net income                                                                                  |       |                 | —     |              |       |                 | —     |                   |       | —                                                    |       |      | 787        |   |   |   | — |   |   | 787 |   |
| Minimum pension  liability adjustments, net of income tax charges of $80               |       |                 | —     |              |       |                 | —     |                   |       | —                                                    |       |      | —     |   |   |   | 150 |   |   | 150 |   |
| Total comprehensive income                                                                  |       |                 |       |              |       |                 |       |                   |       |                                                      |       |      |       |   |   |   |   |   |   | 937 |   |
| CSG share plan activity, including tax benefit of  $131                                     |       |                 | —     |              |       |                 | —     |                   |       | 526                                                       |       |      | —     |   |   |   | — |   |   | 526 |   |
| Common stock  dividend                                                                      |       |                 | —     |              |       |                 | —     |                   |       | —                                                    |       |      | (40        | ) |   |   | — |   |   | (40 | ) |
| Balances as of  December 31, 2004                                                      |       |                 | —     |              |       |                 | —     |                   |       | 8,538                                                     |       |      | 2,534      |   |   |   | (8 | ) |   | 11,064 |   |
| Net income                                                                                  |       |                 | —     |              |       |                 | —     |                   |       | —                                                    |       |      | 127        |   |   |   | — |   |   | 127 |   |
| Minimum pension  liability adjustments, net of income tax benefits of $93              |       |                 | —     |              |       |                 | —     |                   |       | —                                                    |       |      | —     |   |   |   | (172 | ) |   | (172 | ) |
| Total comprehensive loss                                                                    |       |                 |       |              |       |                 |       |                   |       |                                                      |       |      |       |   |   |   |   |   |   | (45 | ) |
| CSG share plan  activity, including tax benefit of $163                                     |       |                 | —     |              |       |                 | —     |                   |       | 992                                                       |       |      | —     |   |   |   | — |   |   | 992 |   |
| Balances as of  December 31, 2005                                                      |       |                 | $          | —            |       |                 |       | $                      | —     |                                                      |       | $         | 9,530      |   |   | $ | 2,661 |   |   |   | $ | (180 | ) |   | $ | 12,011 |   |

 

See accompanying notes to consolidated financial statements.

F-6

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIESConsolidated Statementsof Cash FlowsFor the Years Ended December 31, 2005, 2004 and 2003(In millions)**

| ** **                                                                                                    | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Cash flows from operating activities:                                                                         |       |     |       |     |       |     |       |
| Net income                                                                                                    |       | $        | 127        |     | $          | 787      |       | $ | 1,192 |   |
| Adjustments to reconcile  net income to net cash used in operating activities:                                |       |     |       |     |       |     |       |
| Pre-tax gain on  sale of Pershing                                                                             |       | —   |       | —   |       | (1,324   | )          |
| Pre-tax gain on  sale of DLJ*direct* SFG  Securities Inc.                                                     |       | —   |       | —   |       | (115     | )          |
| Depreciation and  amortization                                                                                |       | 170      |       | 196      |       | 234      |       |
| Write-down of  intangible assets                                                                              |       | —   |       | —   |       | 200      |       |
| Non-cash CSG share  plan activity                                                                             |       | 887      |       | 415      |       | 352      |       |
| Tax benefit on CSG  share plan activity                                                                       |       | 163      |       | 131      |       | —   |       |
| Deferred taxes                                                                                                |       | 2        |       | 71       |       | 244      |       |
| Other, net                                                                                                    |       | 47       |       | 150      |       | (63      | )          |
| Change in operating  assets and operating liabilities:                                                        |       |     |       |     |       |     |       |
| Securities  borrowed                                                                                          |       | 110      |       | (4,913   | )          | (6,703   | )          |
| Receivables from  customers                                                                                   |       | 231      |       | (436     | )          | (1,753   | )          |
| Receivables from  brokers, dealers and other                                                                  |       | 2,969    |       | (4,433   | )          | 337      |       |
| Financial  instruments owned                                                                                  |       | (14,293  | )          | (21,190  | )          | (8,107   | )          |
| Other assets and deferred  amounts and Other liabilities, net                                                 |       | (413     | )          | 52       |       | 1,105    |       |
| Securities loaned                                                                                             |       | 808      |       | 17,440   |       | 3,530    |       |
| Payables to  customers                                                                                        |       | 3,362    |       | 1,165    |       | 1,777    |       |
| Payables to  brokers, dealers and other                                                                       |       | (6,393   | )          | 6,191    |       | (3,706   | )          |
| Financial  instruments sold not yet purchased                                                                 |       | 7,896    |       | (5,048   | )          | 3,371    |       |
| Obligation to  return securities received as collateral                                                       |       | (1,903   | )          | 3,025    |       | 1,059    |       |
| Accounts payable  and accrued expenses                                                                        |       | (223     | )          | 491      |       | (397     | )          |
| Net cash used in  operating activities                                                                        |       | (6,453   | )          | (5,906   | )          | (8,767   | )          |
| Cash flows from investing activities:                                                                         |       |     |       |     |       |     |       |
| Net (payments for)  proceeds from:                                                                            |       |     |       |     |       |     |       |
| Loans receivable  from parent and affiliates                                                                  |       | (2,533   | )          | (3,211   | )          | (3,538   | )          |
| Sale of Pershing                                                                                              |       | —   |       | —   |       | 2,000    |       |
| Sale of DLJ  International Group Limited                                                                      |       | —   |       | —   |       | 500      |       |
| Sale of DLJ*direct* SFG Securities Inc.                                                                       |       | —   |       | —   |       | 170      |       |
| Office facilities,  net                                                                                       |       | (208     | )          | (106     | )          | (178     | )          |
| Purchase of ING  Finance LLC, net of cash                                                                     |       | (6       | )          | —   |       | —   |       |
| Purchase of SPS  Holding Corp, net of cash                                                                    |       | (120     | )          | —   |       | —   |       |
| Purchase of Holt  Value Associates, LP, net of cash                                                           |       | —   |       | —   |       | (8       | )          |
| Purchase of  Volaris Advisors, net of cash                                                                    |       | —   |       | —   |       | (16      | )          |
| Purchase of  Investment Property Mortgage, LLC and related assets, net of cash                                |       | —   |       | —   |       | (34      | )          |
| Net cash used in  investing activities                                                                        |       | (2,867   | )          | (3,317   | )          | (1,104   | )          |
| Cash flows from financing activities:                                                                         |       |     |       |     |       |     |       |
| Net proceeds from  (payments for):                                                                            |       |     |       |     |       |     |       |
| Commercial paper  and short-term borrowings                                                                   |       | (8,160   | )          | 5,700    |       | 4,051    |       |
| Redemption of  Series B preferred stock                                                                  |       | —   |       | —   |       | (4       | )          |
| Capital  contribution by CS Holdings                                                                          |       | —   |       | —   |       | 75       |       |
| Securities sold  under agreements to repurchase, net of securities purchased under agreements to  resell |       | 12,349   |       | (759     | )          | 4,139    |       |
| Dividend  equivalents on CSG share plan activity                                                              |       | (58      | )          | (20      | )          | —   |       |
| Cash dividends                                                                                                |       | —   |       | (40      | )          | —   |       |
| Issuances of  long-term borrowings                                                                            |       | 8,518    |       | 6,974    |       | 5,029    |       |
| Redemptions and  maturities of long-term borrowings                                                           |       | (3,172   | )          | (2,239   | )          | (3,565   | )          |
| Net cash provided  by financing activities                                                                    |       | 9,477    |       | 9,616    |       | 9,725    |       |
| Increase  (decrease) in cash and cash equivalents                                                             |       | 157      |       | 393      |       | (146     | )          |
| Cash and cash  equivalents as of the beginning of year                                                        |       | 727      |       | 334      |       | 480      |       |
| Cash and cash  equivalents as of the end of year                                                              |       | $        | 884        |     | $          | 727      |       | $ | 334 |   |
| SUPPLEMENTAL DISCLOSURES                                                                                      |       |     |       |     |       |     |       |
| Cash payments for  interest                                                                                   |       | $        | 10,720     |     | $          | 5,686    |       | $ | 4,741 |   |
| Cash payments for  income taxes, net of refunds                                                               |       | $        | 24         |     | $          | 76       |       | $ | 161 |   |

 

See accompanying notes to consolidated financial statements.

F-7

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2005**

**1. Summary of Significant Accounting Policies**

**The Company**

The consolidated financial statements include CreditSuisse (USA), Inc., and its subsidiaries (the “Company”). The Companyis an integrated investment bank serving institutional, corporate, governmentand high-net-worth individual clients. The Company’s products and servicesinclude securities underwriting, sales and trading, financial advisoryservices, private equity investments, full service brokerage services,derivatives and risk management products, asset management and investmentresearch. The Company is an indirect wholly owned subsidiary of Credit Suisse,a Swiss bank, and Credit Suisse Group (“CSG”). Effective January 16, 2006,the Company changed its name from Credit Suisse First Boston (USA), Inc.to Credit Suisse (USA), Inc.

On May 1, 2003, the Company sold its Pershingunit (“Pershing”) to The Bank of New York Company, Inc. and recorded apre-tax gain of approximately $1.3 billion and an after-tax gain of$852 million in the second quarter of 2003. The Pershing operations arepresented as discontinued operations in the consolidated statements of incomefor the year ended December 31, 2003. Pershing’s assets and liabilitieswere classified as assets held for sale and liabilities held for sale as of December 31,2002. The consolidated statements of cash flows present the Company’s cashflows as if the assets and liabilities of Pershing were not assets held forsale and liabilities held for sale. Therefore, the cash flows pertaining todiscontinued operations have not been reported separately in the consolidatedstatements of cash flows.

***Basis of financialinformation.******  ***To prepare consolidated financialstatements in accordance with accounting principles generally accepted in theUnited States of America, management must make estimates and assumptions. Thereported amounts of assets and liabilities and revenues and expenses areaffected by these estimates and assumptions, the most significant of which arediscussed in the notes to the consolidated financial statements. Estimates, bytheir nature, are based on judgment and available information. Therefore,actual results could differ materially from these estimates.

The Company consolidates all entities in which it hasa controlling financial interest, which is typically all, or a majority of, thevoting interests. The Company alsoconsolidates entities that are variable interest entities (“VIEs”) when it isdetermined to be the primary beneficiary under Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 46,“Consolidation of Variable Interest Entities” (“FIN 46”) and the subsequentmodifications of FIN 46 (“FIN 46R”). See Notes 4 and 5 for more information. Entitiesin which the Company holds 20% to 50% of the voting rights or has the abilityto exercise significant influence, other than private equity investments whichare consolidated primarily under FIN 46R, are accounted for under AccountingPrinciples Board (“APB”) Opinion No. 18, “The Equity Method of Accountingfor Investments in Common Stock.” In cases where the Company has a votinginterest of less than 20% and does not have significant influence, theinvestment is carried at cost. Where an investment is treated as financialinstruments owned in its broker-dealers, the Company does not apply the cost orequity method and carries the investment at fair value.

Certain reclassifications have been made to prior yearconsolidated financial statements to conform to the 2005 presentation.

All significantintercompany balances and transactions have been eliminated.

F-8

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**1. Summaryof Significant Accounting Policies (Continued)**

**SignificantAccounting Policies**

***Cash and cashequivalents.******  ***Cash and cash equivalents include alldemand deposits held in banks and certain highly liquid investments withoriginal maturities of 90 days or less, other than those held for sale inthe ordinary course of business.

***Collateralizedshort-term financings.******  ***The Companyenters into transactions involving securities sold under agreements torepurchase (“repurchase agreements”) and securities purchased under agreementsto resell (“resale agreements”) and securities borrowed and securities loanedtransactions as part of the Company’s matched-book activities to accommodateclients, finance the Company’s trading inventory, obtain securities forsettlement and earn interest spreads.

Repurchase agreements and resale agreements arecollateralized financing arrangements and are carried at contract amounts thatreflect the amounts at which the securities will be subsequently repurchased orresold. Interest on such contract amounts is accrued and is included in theconsolidated statements of financial condition in receivables from and payablesto brokers, dealers and other. The Company takes possession of the securitiespurchased under resale agreements and obtains additional collateral when themarket value falls below the contract value. The Company nets certain repurchaseagreements and resale agreements with the same counterparty in the consolidatedstatements of financial condition when the requirements of FIN No. 41, “Offsettingof Amounts Relating to Certain Repurchase and Reverse Repurchase Agreements,”are satisfied.

The Company uses derivatives to mitigate the interestrate exposure associated with certain resale and repurchase agreements. Thesederivatives are carried at fair value, with the change in fair value recordedin the consolidated statements of income, while the resale and repurchaseagreements are carried at contract amounts, with interest income (expense)accruing over the term of the agreement in receivables from and payables tobrokers, dealers and other in the consolidated statements of financial condition.As a result, increases and decreases in the value of the derivatives are notoffset by decreases and increases in the value of the resale and repurchaseagreements until the securities are repurchased or sold. Therefore, the Company’snet revenues are subject to volatility from period to period.

Securities borrowed and securities loaned transactionsare recorded at the amount of cash collateral advanced or received. Forsecurities borrowed, the Company deposits cash, letters of credit or othercollateral with the lender. For securities loaned, the Company receives cash orother collateral from the borrower generally in excess of the market value ofsecurities loaned. Interest on such transactions is accrued and is included inthe consolidated statements of financial condition in receivables from andpayables to brokers, dealers and other. The Company monitors the market valueof securities borrowed and loaned daily and obtains or refunds collateral asnecessary.

***Receivables fromcustomers/Payables to customers.***   Receivablesfrom and payables to customers include amounts due on regular-way securitiestransactions, margin transactions and commodities futures. Securities owned bycustomers, including those that collateralize margin or similar transactions arenot reflected in the consolidated statements of financial condition.

***Receivables frombrokers, dealers and other/Payables to brokers, dealers and other.*****  **Receivables from brokers, dealersand other include amounts receivable for securities not delivered by theCompany to a 

F-9

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**1. Summaryof Significant Accounting Policies (Continued)**

purchaser by thesettlement date (“fails to deliver”), accrued dividends and interest, margindue on futures contracts and omnibus receivables. Payables to brokers, dealersand other include amounts payable for securities not received by the Companyfrom a seller by the settlement date (“fails to receive”) and accrued dividendsand interest. In addition, the net receivable or payable arising from unsettledregular-way trades is included in receivables from brokers, dealers and otheror payables to brokers, dealers and other.

***Fair value offinancial instruments.******  ***Substantiallyall of the Company’s financial instruments, as well as financial instrumentswith off-balance sheet risk (with the exception of commercial mortgage loansand certain residential mortgages that are held for sale), are carried at fairvalue. Fair value is estimated as of the date of the statement of financialcondition, based on relevant market information or where no relevant marketinformation is available on management’s best estimate. Financial instrumentsare recorded on a trade date basis, with the exception of mortgage whole loanswhich are recorded on a settlement date basis.

The determination of fair value is fundamental to theCompany’s financial condition and results of operations and, in certaincircumstances, requires management to make complex judgments. Fair value isbased generally on listed market prices or broker or dealer price quotations.If prices are not readily determinable or if liquidating the Company’spositions is reasonably expected to affect market prices, fair value is basedon either internal valuation models or management’s estimate of amounts thatcould be realized under current market conditions. Certain financialinstruments, including over-the-counter (“OTC”) derivatives contracts, arevalued using pricing models that consider, among other factors, contractual andmarket prices, correlations, time value, credit, yield curve, volatilityfactors and/or prepayment rates of the underlying positions. The use ofdifferent pricing models and assumptions could produce materially differentestimates of fair value.

***Mortgage wholeloans.******  ***Residential mortgage whole loans aregenerally carried at fair value with the changes in fair value included inprincipal transactions-net in the consolidated statements of income with theexception of residential mortgage whole loans that are originated by theCompany and commercial mortgage whole loans, which are carried at the lower ofcost or fair value. The amount by which cost exceeds fair value is reflected inprincipal transactions-net in the consolidated statements of income. Managementdetermines fair value using pricing factors specific to loan level attributes,such as loan-to-value ratios, current balances and liens. Purchases and salesof mortgage whole loans are recorded on a settlement date basis. Interest isaccrued on all mortgage whole loans with the exception of those that aredelinquent 90 days or more, as reported by the servicer.

***Securitization.******  ***The Companysecuritizes commercial and residential mortgages, which it originates and purchases, as well as loans and other debt obligations,which it purchases from third parties. The Company accounts for thetransfers of financial assets in accordance with Statement of FinancialAccounting Standards (“SFAS”) No. 140, “Accounting for Transfers andServicing of Financial Assets and Extinguishments of Liabilities” (“SFAS 140”).The Company records a loan securitization as a sale when the accountingcriteria for a sale are met. The Company mayretain interests in these securitized assets in connection with itsunderwriting and market-making activities. Retained interests in securitizedfinancial assets are included at fair value in financial instruments owned inthe consolidated statements of financial condition. Any changes in the fairvalue of these retained interests are recognized in the consolidated statementsof income. The fair values of retained interests are determined using presentvalue of estimated 

F-10

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**1. Summaryof Significant Accounting Policies (Continued)**

futurecash flows valuation techniques that incorporate assumptions that marketparticipants customarily use in their estimates of values including paymentspeeds, credit losses and discount rates. See Note 4 for more information.

***Derivativescontracts—trading.******  ***All trading derivatives contractsare carried at fair value with realized and unrealized gains and losses andinterest flows included in principal transactions-net in the consolidatedstatements of income. Cash flows from these derivatives contracts are includedas operating activities in the consolidated statements of cash flows. See Note6 for more information.

***Derivativescontracts—nontrading.******  ***The Company manages its interestrate exposure on its long-term fixed rate debt by using interest rate swapsthat qualify for hedge accounting under SFAS No. 133, “Accounting forDerivative Instruments and Hedging Activities” as amended (“SFAS 133”).These financial instruments are accounted for as fair value hedges, withchanges in the fair value of both the derivative and the hedged item includedin principal transactions—net in the consolidated statements of income.Interest flows on both the Company’s borrowings and the related fair valuehedges are included in interest income (expense) in the consolidated statementsof income. Other derivatives contracts used for hedging purposes that do notqualify as hedges under SFAS 133 are carried at fair value with realizedand unrealized gains and losses and interest flows included in principaltransactions-net in the consolidated statements of income. Cash flows fromthese derivatives instruments are included in operating activities in theconsolidated statements of cash flows. See Note 6 for more information.

***Variable prepaidforwards.******  ***Variable prepaid forward contracts (“VPFs”)are a form of OTC hybrid transaction pursuant to which the Company purchases avariable number of shares of common stock from a customer on a forward basis.At inception, the Company pays the customer a dollar amount based on theunderlying value of the common stock. At the maturity of the transaction, theCompany receives a variable number of shares (or an amount in cash equal to thevalue of such variable number of shares, with a maximum share cap) from the customerbased on the market price of the shares at maturity. VPFs allow customers tomonetize their stock position and provide market risk protection through anequity collar that, among other things, protects the customer against decreasesin the value of the underlying common stock. The VPFs are generally long-datedand have maturities of three to ten years. In accordance with SFAS No. 149,“Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS 149”),all VPFs entered into prior to July 1, 2003 and VPFs entered into after June 30,2003 that do not meet the definition of a derivative are included in otherfinancial instruments owned in the consolidated statements of financialcondition and had a fair value of $1.6 billion and $2.4 billion as of December 31,2005 and 2004, respectively. VPFs entered into after June 30, 2003 thatmeet the definition of a derivative are reported as derivative contracts in theconsolidated statements of financial condition and had a fair value of $2.0 billionand $757 million as of December 31, 2005 and 2004, respectively. AllVPFs are carried at fair value.

***Private equity andother long-term investments.******  ***Private equityand other long-term investments generally have no readily available market ormay be otherwise restricted as to resale under the Securities Act of 1933 (the “SecuritiesAct”); therefore, these investments are carried at fair value. Fair value forprivate equity and other long-term investments is based upon a number offactors, including readily available market quotes with appropriate adjustmentsfor liquidity due to holding large blocks and/or trading restrictions, the mostrecent round of financings, earnings-multiple analyses using comparable 

F-11

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**1. Summaryof Significant Accounting Policies (Continued)**

companies, discounted cashflow analysis or valuations received from the general partner of a third-partymanaged fund. Changes in net unrealized appreciation/depreciation arising fromchanges in fair value and gains and losses realized upon sale and carriedinterest are reflected in principal transactions-net in the consolidatedstatements of income. The Company’s subsidiaries manage many private equitypartnerships. When the investment performance on Credit Suisse-managed privateequity partnerships exceeds specific thresholds, the Company may be entitled toreceive a carried interest distribution. Carried interest gains are based onthe cumulative investment performance over the life of each partnership and arerecognized in the consolidated statements of income when the underlyinginvestments are sold. The Company may be required to return all or a portion ofthe carried interest previously distributed by the partnership if thepartnership underperforms following the distribution of such carried interest.See Notes 5 and 10 for more information.

***Office facilities.******  ***Officefacilities are carried at cost and are depreciated on a straight-line basisover their estimated useful life of two to seven years. Leasehold improvementsare amortized over the lesser of the useful life of the improvement or term ofthe lease.

***Goodwill andidentifiable intangible assets.*****  **Goodwill represents the amount bywhich the purchase price exceeds the fair value of the net tangible andintangible assets of an acquired company on the date of acquisition. Goodwilland indefinite-lived intangible assets are reviewed annually for impairment.Based on the results of the Company’s annual review it was determined that noimpairment charge was required. Intangible assets that do not have indefinitelives, principally software and customer lists, are amortized over their usefullives and reviewed for impairment. Intangible assets are included in otherassets and deferred amounts in the consolidated statements of financialcondition. See Note 7 for more information.

***Principaltransactions—net.******  ***Principal securities transactionsare recorded on a trade date basis. Realized and unrealized gains and losses ontrading in financial instruments, including securities, private equityinvestments, derivatives contracts, carried interest from private equityinvestments and interest flows on the Company’s trading derivatives contractsare reflected in principal transactions-net in the consolidated statements ofincome.

***Loan originationfees.******  ***Mortgage whole loan origination feesand direct origination costs are deferred until the time of sale and areincluded in principal transactions-net in the consolidated statements ofincome.

***Investment bankingunderwriting revenues and fees.******  ***Investmentbanking underwriting revenues and fees, net of syndicate expenses, arising fromsecurities offerings in which the Company acts as an underwriter or agent, arerecorded in investment banking and advisory in the consolidated statements ofincome. Investment banking revenues from fees earned for providing merger andacquisition and other advisory services are also recorded in investment bankingand advisory in the consolidated statements of income. In addition, placementfees earned by the Company’s private funds group are included in investmentbanking and advisory revenues. Investment banking and advisory revenues arerecorded at the time the transactions are completed or the services have beenperformed.

***Commissions.******  ***Commissionsprimarily include fees from executing and clearing customer transactions onstock, options and futures markets. Commissionsare recorded in the consolidated statements of income 

F-12

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**1. Summaryof Significant Accounting Policies (Continued)**

on atrade date basis. Commissions also include management fees earned by theCompany from managing private equity funds and are recorded in the consolidatedstatements of income when earned.

***Interest income(expense).****  *Interestincome (expense) includes interest income (expense) on the Company’s financialinstruments owned and financial instruments sold not yet purchased, exceptinterest flows on the Company’s trading derivatives, and interest income(expense) on short-term and long-term borrowings, including interest income(expense) on resale and repurchase agreements and securities borrowed andsecurities loaned transactions.

Interest income (expense) is accrued at the statedcoupon rate for coupon-bearing financial instruments, and fornon-coupon-bearing financial instruments, interest income is recognized byaccreting the discount over the life of the instrument. For coupon-bearingfinancial instruments purchased at a discount or premium, the differencebetween interest income (expense) accrued at the stated coupon rate andinterest income (expense) determined on an effective yield basis is included inprincipal transactions-net in the consolidated statements of income.

***Merger-relatedcosts.******  ***Merger-related costs representretention awards related to the DLJ acquisition. These costs were expensed overthe vesting period, which ended in 2004.

***Share-basedcompensation.****  *InAugust 2003, the Company adopted the fair value recognition provisions ofSFAS No. 123, “Accounting for Stock-Based Compensation”, as amended bySFAS No. 148, “Accounting for Stock-Based Compensation—Transitionand Disclosure” (“SFAS 123”), using the prospective method. Under theprospective method, the Company recognizes compensation expense over the vestingperiod for all share option and share awards granted under the Credit SuisseGroup International Share Plan (the “Plan”) for services provided after January 1,2003. Effective January 1, 2005, the Company early adopted the fair valuerecognition provisions of SFAS No. 123 (Revised 2004) “Share-Based Payment”(“SFAS 123R”) using the modified prospective method and recorded an after-taxgain of $6 million in the consolidated statements of income as a cumulativeeffect of a change in accounting principle to reverse the expense previouslyrecognized on all outstanding unvested awards that are expected to be forfeited.For additional information on share-based compensation, see *“Recently Adopted Accounting Standards—Share-basedCompensation”* and Note 15.

***Income taxes.******  ***The Company isincluded in the consolidated federal income tax return and certain state andlocal income tax returns filed by the Company’s immediate parent Credit SuisseHoldings (USA), Inc. (“CS Holdings”), formerly known as Credit Suisse FirstBoston, Inc. CS Holdings allocates federal income taxes to itssubsidiaries on a separate return basis, and any state and local income taxeson a *pro rata* basis, pursuant toa tax sharing arrangement.

The Company uses the assetand liability method in providing for income taxes, which requires thatdeferred income taxes be recorded and adjusted for the future tax consequencesof events that have been recognized in the financial statements or tax returns,based upon enacted tax laws and rates. Deferred tax assets are recognizedsubject to management’s judgment that realization is more likely than not. SeeNote 17 for more information.

F-13

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**1. Summaryof Significant Accounting Policies (Continued)**

**RECENTLY ADOPTED ACCOUNTINGSTANDARDS**

**Consolidation**

In June 2005, the FASB ratified Emerging IssuesTask Force (“EITF”) Issue No. 04-5, “Determining Whether a GeneralPartner, or the General Partners as a Group, Controls a Limited Partnership orSimilar Entity When the Limited Partners Have Certain Rights” (“EITF 04-5”).EITF 04-5 provides a framework for evaluating whether a general partneror a group of general partners controls a limited partnership and thereforeshould consolidate it. EITF 04-5 states that the presumption of generalpartner control would be overcome only when the limited partners havesubstantive “kick-out rights” or “participating rights.” These rights wouldallow a simple majority of the limited partners to dissolve or liquidate thepartnership or otherwise remove the general partner “without cause” oreffectively participate in significant decisions made in the ordinary course ofthe partnership business. EITF 04-5 was effective upon ratification forall newly formed limited partnerships and for existing limited partnershipagreements that are modified after the effective date. The guidance iseffective for existing unmodified partnerships no later than the beginning ofthe first reporting period in fiscal years beginning after December 15,2005. The provisions of EITF 04-5 in effect during 2005 did not have amaterial impact on the Company’s financial position, results of operations orcash flows.

As a result of the ratification of EITF 04-5,EITF Issue No. 96-16, “Investor’s Accounting for an Investee Whenthe Investor Has a Majority of the Voting Interest but the Minority Shareholderor Shareholders Have Certain Approval or Veto Rights” (“EITF 96-16”) wasupdated and FASB Staff Position (“FSP”) No. SOP 78-9-1, “Interactionof AICPA Statement of Position 78-9 and EITF Issue No. 04-5” (“FSPSOP 78-9-1”) was issued. The amendments to EITF 96-16 wereeffective on a prospective basis upon issuance, whereas, similar to EITF 04-5,FSP SOP 78-9-1 was effective upon issuance for all new partnershipsformed and for existing partnership agreements modified after June 29,2005, and is effective for existing unmodified partnerships no later than thebeginning of the first reporting period in fiscal years beginning after December 15,2005. The changes to EITF 96-16 and the provisions of FSP SOP 78-9-1in effect during 2005 did not have a material impact on the Company’s financialposition, results of operations or cash flows.

Beginning in 2006, the Company expects an increase ofapproximately $6.7 billion to the Company’s assets and liabilities, primarilydue to the consolidation of certain unmodified private equity partnershipswhich existed prior to June 2005 as a result of adopting EITF 04-5and FSP SOP 78-9-1.

In January 2003, theFASB issued FIN 46 which requires the Company to consolidate all VIEs for whichit is the primary beneficiary, defined as the entity that will absorb amajority of expected losses, receive a majority of the expected residualreturns, or both. In December 2003, the FASB modified FIN 46, throughthe issuance of FIN 46R, to provide companies with the option of deferring theadoption of FIN 46 to periods ending after March 15, 2004, for certainVIEs. As of December 31, 2003, with the exception of certain privateequity investment companies, the Company consolidated all VIEs under FIN 46for which it is the primary beneficiary. The cumulative effect of the Company’sadoption of FIN 46 was an after-tax loss of $9 million reported separately inthe consolidated statement of income as the cumulative effect of a change inaccounting principle, net of tax. The cumulative effect was determined byrecording the assets, liabilities and non-controlling interests in the VIE attheir carrying amounts as of the 

F-14

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**1. Summaryof Significant Accounting Policies (Continued)**

date ofconsolidation. The difference between the net amount added to the consolidatedstatement of financial condition and the amount of previously recognizedinterest represents the cumulative effect. As a result of the adoption of FIN46R as of March 31, 2004, the Company consolidated certain private equityfunds with third party and employee investors, resulting in an increase inassets and liabilities of $1.2 billion and $973 million, respectively. See note4 for additional information regarding VIEs.

**Share-basedCompensation**

In December 2004, the FASB issued SFAS 123R. SFAS123R is effective for annual reporting periods beginning after June 15,2005. The Company had previously adopted the recognition provisions of SFAS 123.The Company early adopted SFAS 123R as of January 1, 2005, applying themodified prospective method. The most significant accounting implications ofthe adoption of SFAS 123R for the Company were as follows: (i) inclusionof forfeitures in the estimate of compensation expense determined at the grantdate rather than as they occur. The Company recorded a cumulative adjustment ofapproximately $6 million, net of tax during the first quarter of 2005 toreverse the expense previously recognized on all outstanding unvested awardsexpected to be forfeited. For new grants after January 1, 2005,forfeitures are included in the initial estimation of the compensation expenseat the grant date; (ii) recognition of compensation cost for all outstandingunvested awards as of January 1, 2005, that were previously accounted forunder APB 25 and for which no expense was previously recognized, based on theoriginal grant-date fair value of each award over the remaining requisiteservice period of the respective award. The recognition of this expense was notmaterial; and (iii) adoption of changes to the presentation of thestatement of cash flows in accordance with the revised standard.

In a December 2005 speech, the Securities andExchange Commission (“SEC”) staff provided further guidance on SFAS 123R,relating to accounting for share-based compensation awards subject to anon-competition provision that have scheduled vesting beyond an employee’seligibility for early retirement. The SEC staff noted that such share-basedawards should generally be expensed over the period from grant date to the datean employee becomes eligible for early retirement, rather than over the entirevesting, or stated service, period, unless the non-competition provision andother factors establish an in-substance requisite service period that extendsbeyond the early retirement date. Based on a review of relevant share-basedawards granted during 2005, the Company had previously concluded that the mostappropriate service period to be used for expensing those awards is the vestingperiod. As a result of the December 2005 guidance and based on subsequentdiscussions with the SEC staff, the Company recorded in the fourth quarter of2005 an incremental expense to reflect the full-year cost of its 2005share-based awards to early-retirement eligible employees. This incrementalexpense reflects the attribution of the total cost of these awards over theperiod from the grant date to the date the employee becomes eligible for earlyretirement rather than over the vesting period that ranged from three to fiveyears.

The impact of the Company’schange in accounting was to increase fourth quarter and full year 2005compensation and benefits by $296 million ($12 million of which was chargedto CSG affiliates outside of the Company and reflected as a reduction in otheroperating expenses), and to decrease fourth quarter and full year 2005 netincome by $185 million. This non-cash charge, recorded in Elimination &Other, represents the recognition of compensation expense for share-basedawards granted in 2005 to early-

F-15

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**1. Summaryof Significant Accounting Policies (Continued)**

retirementeligible employees that otherwise would have been recorded generally overvesting periods of three to five years.

**Derivatives**

In April 2003, theFASB issued SFAS 149, which amended and clarified the accounting for derivativeinstruments, including certain derivative instruments embedded in othercontracts, and for hedging activities under SFAS No. 133, “Accounting forDerivatives and Hedging Activities” (“SFAS 133”). Specifically, SFAS 149clarified the circumstances under which a contract with an initial netinvestment meets the characteristics of a derivative and when a derivativecontains a financing component that warrants special reporting in theconsolidated statement of cash flows. Certain derivative instruments enteredinto or modified after June 30, 2003, that the Company determined tocontain a financing element at inception and where the Company was deemed theborrower, have been included as a separate component within cash flows fromfinancing activities. Prior to July 1, 2003, these derivative instrumentswere included within cash flows from operating activities. The adoption of SFAS149 did not have a material impact on the Company’s financial position, resultsof operations or cash flows.

**Pensions**

In December 2003, theFASB revised SFAS No. 132, “Employers’ Disclosures about Pensions andOther Postretirement Benefits” (“SFAS 132R”). SFAS 132R retained the disclosurerequirements from the original statement and requires additional disclosures.SFAS 132R was effective for financial statements with fiscal years ending afterDecember 15, 2003, and the interim disclosures have been required forperiods beginning after December 15, 2003. The Company has adopted the newdisclosure requirements of SFAS 132R. See Note 16 for additional information.

**STANDARDS TO BEADOPTED IN FUTURE PERIODS**

In May 2005, the FASB issued SFAS No. 154, “AccountingChanges and Error Corrections—a replacement of APB Opinion No. 20 and FASBStatement No. 3” (“SFAS 154”). SFAS 154 requires retrospectiveapplication, unless impracticable, to prior period financial statements forvoluntary changes in accounting principles and changes required by anaccounting 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 aretrospective application). The guidance for reporting the correction of anerror in previously issued financial statements and the change of an accountingestimate will not change from APB 20. SFAS 154 is effective for accountingchanges and corrections of errors made in fiscal years beginning after December 15,2005. The Company expects no immediate impact on the Company’s financialcondition, results of operations or cash flows upon adoption of SFAS 154.

In February 2006, theFASB issued SFAS No. 155, “Accounting for Certain Hybrid FinancialInstruments” (“SFAS 155”), which amends SFAS 133 and SFAS No. 140, “Accountingfor Transfers and Servicing of Financial Assets and Extinguishments ofLiabilities” (“SFAS 140”). Under SFAS 155, hybrid financial instruments thatcontain embedded derivatives that would otherwise require bifurcation may be 

F-16

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**1. Summaryof Significant Accounting Policies (Continued)**

accountedfor at fair value, with changes in fair value recognized in the incomestatement. The fair value designation may be applied on aninstrument-by-instrument basis; however, the election to apply fair valueaccounting is irrevocable. SFAS 155 will be effective for those instrumentsacquired or issued on or after an entity’s fiscal year beginning after September 30,2006, but early adoption is permitted as of the beginning of a fiscal year forwhich an entity has not previously issued interim financial statements. SFAS 155will allow limited retrospective application for existing bifurcated hybridfinancial instruments. The Company is currently evaluating the potential impactof adopting SFAS 155.

**2. DiscontinuedOperations**

On May 1, 2003, the Company sold Pershing to TheBank of New York Company, Inc. and recorded a pre-tax gain ofapproximately $1.3 billion and an after-tax gain of $852 million inthe second quarter of 2003. The operating results of Pershing, including thegain on the sale, are presented as discontinued operations in the consolidatedstatements of income.

Thefollowing table summarizes the results of operations of Pershing, excluding thegain on the sale, for the year ended December 31, 2003:

| ** **                                               | ** ** | **For the Year Ended  December 31,** | ** ** |
|----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                               | ** ** | **2003**                                                 | ** ** |
| ** **                                               | ** ** | **(In millions)**                                   | ** ** |
| Total net  revenues                                      |       |                                                     | $          | 256 |   |   |
| Total expenses                                           |       |                                                     | 219        |   |   |
| Income from  discontinued operations before income taxes |       |                                                     | $          | 37 |   |   |

 

**3.Related Party Transactions**

CSG, through CS Holdings, owns all of the Company’soutstanding voting common stock. The Company is involved in significantfinancing and other transactions, and has significant related party balances,with CSG affiliates, primarily Credit Suisse, and certain of its subsidiariesand affiliates. The Company generally enters into these transactions in theordinary course of business and believes that these transactions are generallyon market terms that could be obtained from unrelated third parties.

F-17

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**3. Related PartyTransactions (Continued)**

Thefollowing table sets forth the Company’s related party assets and liabilitiesas of December 31, 2005 and 2004:

| ** **                                              | ** ** | **December 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|---------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                              | ** ** | **(In millions)**      | ** ** |
| **ASSETS**                                              |       |                        |       |                        |       |   |   |   |   |
| Securities  purchased under agreements to resell        |       |                        | $          | 5,163                       |       |   |   | $ | 6,685 |   |   |
| Securities  borrowed                                    |       |                        | 4,323      |                        |       |   | 1,861 |   |   |
| Receivables from  customers                             |       |                        | —     |                        |       |   | 379 |   |   |
| Receivables from  brokers, dealers and other            |       |                        | 2,247      |                        |       |   | 1,893 |   |   |
| Derivatives  contracts                                  |       |                        | 842        |                        |       |   | 1,400 |   |   |
| Net deferred tax  asset                                 |       |                        | 1,202      |                        |       |   | 1,103 |   |   |
| Loans receivable  from parent and affiliates            |       |                        | 25,225     |                        |       |   | 22,692 |   |   |
| Total assets                                            |       |                        | $          | 39,002                      |       |   |   | $ | 36,013 |   |   |
| **LIABILITIES**                                         |       |                        |       |                        |       |   |   |   |   |
| Short-term  borrowings                                  |       |                        | $          | 12,093                      |       |   |   | $ | 20,085 |   |   |
| Securities sold  under agreements to repurchase         |       |                        | 25,634     |                        |       |   | 22,317 |   |   |
| Securities loaned                                       |       |                        | 33,976     |                        |       |   | 34,056 |   |   |
| Payables to  customers                                  |       |                        | 2,853      |                        |       |   | 1,054 |   |   |
| Payables to  brokers, dealers and other                 |       |                        | 2,036      |                        |       |   | 1,300 |   |   |
| Derivatives  contracts                                  |       |                        | 489        |                        |       |   | 695 |   |   |
| Obligation to  return securities received as collateral |       |                        | 1,242      |                        |       |   | 1,252 |   |   |
| Taxes payable  (included in Other liabilities)          |       |                        | 350        |                        |       |   | 484 |   |   |
| Intercompany  payables (included in Other liabilities)  |       |                        | 626        |                        |       |   | 191 |   |   |
| Total liabilities                                       |       |                        | $          | 79,299                      |       |   |   | $ | 81,434 |   |   |

 

Included in the consolidated statements of income arerevenues and expenses resulting from various securities trading and financingactivities with certain affiliates, as well as fees for administrative servicesperformed by the Company under the terms of various agreements. The Companyearns commission revenues and incurs commission expenses during the normalcourse of business for securities transactions conducted with affiliates. Otheroperating expenses include affiliate service fees that are treated as areduction in other operating expenses in the consolidated statements of income.These fees include compensation and benefits expense relating to businessactivities conducted by Company employees on behalf of CSG affiliates outsidethe Company.

F-18

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**3. RelatedParty Transactions (Continued)**

The following table setsforth the Company’s related party revenues and expenses, excluding transactionswith Pershing, for the years ended December 31, 2005, 2004 and 2003:

| ** **                                               | ** ** | **For the Year Ended  December 31,** | ** ** |
|----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                               | ** ** | **2005**                                                 | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                               | ** ** | **(In millions)**                                   | ** ** |
| Principal  transactions—net (derivatives contracts) |       | $                                                        | 845        |   | $ | 360 |   | $ | 515 |   |
| Commissions and  fees, net                               |       | (59                                                      | )          | (13 | ) | (44 | ) |
| Interest and  dividend revenues                          |       | 1,255                                                    |       | 515 |   | 374 |   |
| Interest expense                                         |       | (2,306                                                   | )          | (960 | ) | (485 | ) |
| Total net revenues                                       |       | $                                                        | (265       | ) | $ | (98 | ) | $ | 360 |   |
| Other operating expenses                                 |       | $                                                        | (320       | ) | $ | (394 | ) | $ | (229 | ) |
| Total expenses                                           |       | $                                                        | (320       | ) | $ | (394 | ) | $ | (229 | ) |

 

The operating results of Pershing for the year ended December 31,2003 are presented as discontinued operations in the consolidated statements ofincome. For the year ended December 31, 2003, Pershing had no revenues orexpenses with respect to related party transactions with CSG, its subsidiariesand affiliates outside the Company. The revenues and expenses of Pershing withrespect to related party transactions with the Company for the year ended December 31,2003 were not significant.

From time to time, the Company sells at cost to CSHoldings the right, title and interest in certain assets. Once the assets aresold, the Company continues to service these assets on behalf of CS Holdings.For the year ended December 31, 2005, the value of the assets sold, net ofcollections applied, was not material.

As of December 31, 2005, certain private equityfunds of funds and certain hedge funds of funds and VIEs that issuecollateralized debt obligations (“CDOs”), with aggregate assets undermanagement of approximately $20.1 billion, of CS Alternative Capital, Inc.,an indirect wholly owned subsidiary of CS Holdings, are managed by the Company’sAlternative Capital division. CS Alternative Capital, Inc. reimburses theCompany for all expenses incurred by the Company in connection with managingthese assets. The Company treats these reimbursements as a reduction in otheroperating expenses in the consolidated statements of income.

In December 2003, as part of the continuingeffort to rationalize the organizational structure, the Company sold DLJInternational Group Limited, an indirect subsidiary of the Company, to CreditSuisse (International) Holding AG, formerly known as Credit Suisse First Boston(International) Holding AG, at a fair market value of $500 million.

The Credit Suisse Group International Share Planprovides for the grant of equity-based awards to Company employees based on CSGshares pursuant to which employees of the Company may be granted, ascompensation, shares or other equity-based awards as compensation for servicesperformed. CS Holdings purchases shares from CSG to satisfy these awards, butCS Holdings does not require reimbursement from the Company; therefore, amountsassociated with these awards are considered a capital contribution to theCompany and credited to paid-in-capital. Amounts contributed by CS Holdings 

F-19

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**3. RelatedParty Transactions (Continued)**

relating to compensationexpense for the years ended December 31, 2005, 2004 and 2003 were$992 million, $526 million and $325 million, respectively, including taxeffects. See Notes 1 and 15 for further information on the Company’sshare-based compensation.

Certain of the Company’s directors, officers andemployees and those of its affiliates and their subsidiaries maintain marginaccounts with the Company’s principal broker-dealer subsidiary, CS Securities(USA) LLC (“CS Securities”), formerly known as Credit Suisse First Boston LLC,and other affiliated broker-dealers in the ordinary course of business.In addition, certain of such directors, officers and employees have investmentsor commitments to invest in various private equity funds. The Company makesloans to directors and executive officers on the same terms as are generallyavailable to third parties or otherwise pursuant to widely available employeebenefit plans. CS Securities and other affiliated broker-dealers, fromtime to time and in the ordinary course of business, enter into, as principal,transactions involving the purchase or sale of securities from or to suchdirectors, officers and employees and members of their immediate families. SeeNote 16 for more information.

The Company issues guarantees to customers withrespect to certain obligations of its affiliates in the ordinary course ofbusiness, including, but not limited to, certain derivatives transactions.Failure to perform by an affiliate would require the Company to perform underthe guarantee. See Note 10 for more information.

The Company is included inthe consolidated federal income tax return and certain state and local incometax returns filed by CS Holdings. See Note 17 for more information.

**4. Transfersand Servicing of Financial Assets**

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

As of December 31, 2005 and 2004, the fair valueof assets that the Company pledged to counterparties was $212.5 billionand $199.3 billion, respectively, of which $73.0 billion and$54.7 billion, respectively, was included in financial instruments ownedin the consolidated statements of financial condition.

The Company has alsoreceived similar assets as collateral that the Company has the right tore-pledge or sell. The Company routinely re-pledges or sells these assets tothird parties. As of December 31, 2005 and 2004, the fair value of theassets pledged to the Company was $184.6 billion and $182.3 billion,respectively, of which $178.1 billion and $180.6 billion,respectively, was re-pledged or sold.

F-20

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**4. Transfersand Servicing of Financial Assets (Continued)**

**SecuritizationActivities**

The Companyoriginates and purchases residential mortgages and originates commercial loansfor the purpose of securitization. The Company sells these mortgage loans toQSPEs or other VIEs. The QSPEs issue securities that are backed by the assetstransferred to the QSPEs and pay a return based on the returns on those assets.Investors in these mortgage-backed securities typically have recourse to theassets in the QSPE. The investors and the QSPEs have no recourse to the Company’sassets. CS Securities is an underwriter of, and makes a market in, thesesecurities.

The followingtable presents the proceeds and gains (losses) related to the securitization ofcommercial mortgage loans, residential mortgage loans and other asset-backedloans for the years ended December 31, 2005, 2004 and 2003. The gain onsecuritizations includes underwriting revenues, deferred origination fees,gains or losses on the sale of the collateral to the QSPE or VIE and gains orlosses on the sale of the newly issued securities to third parties but excludesnet interest revenues earned on assets prior to securitization.

| ** **                                        | ** ** | **Commercial  mortgage  loans** | ** ** | **Residential  mortgage  loans**(2) | ** ** | **Other  asset-backed  loans**(1)(2) | ** ** |
|---------------------------------------------------|------------|---------------------------------|------------|-------------------------------------|------------|--------------------------------------|------------|
| ** **                                        | ** ** | **(In millions)**          | ** ** |
| **For the  Year Ended****December 31, 2005** |       |                            |       |                                |       |                                 |       |   |   |   |   |   |   |
| Proceeds from  securitizations                    |       |                            | $          | 13,258                              |       |                                 |       | $ | 55,900 |   |   |   | $ | 8,406 |   |   |
| Gain on  securitizations                          |       |                            | $          | 341                                 | (3)        |                                 |       | $ | 44 |   |   |   | $ | 7 |   |   |
| **For the Year Ended****December 31,  2004** |       |                            |       |                                |       |                                 |       |   |   |   |   |   |   |
| Proceeds from  securitizations                    |       |                            | $          | 8,712                               |       |                                 |       | $ | 43,383 |   |   |   | $ | 7,883 |   |   |
| Gain on  securitizations                          |       |                            | $          | 284                                 | (2)        |                                 |       | $ | 58 |   |   |   | $ | 4 |   |   |
| **For the Year Ended****December 31,  2003** |       |                            |       |                                |       |                                 |       |   |   |   |   |   |   |
| Proceeds from  securitizations                    |       |                            | $          | 7,024                               |       |                                 |       | $ | 67,427 |   |   |   | $ | 5,220 |   |   |
| Gain (loss) on  securitizations                   |       |                            | $          | 281                                 | (2)        |                                 |       | $ | (90 | ) |   |   | $ | 41 |   |   |

----

(1)                 Includes homeequity loans and other securities collateralized by residential mortgage loans.

(2)                 The gains orlosses on the sale of the collateral to the QSPE or VIE is the differencebetween the fair value on the day prior to securitization pricing date and theselling price of the mortgage whole loans to the QSPE or VIE.

(3)                 The gains orlosses on the sale of the collateral to the QSPE or VIE is the differencebetween the carrying value (the lower of cost or fair value) and the sellingprice of the mortgage whole loans to the QSPE or VIE on the securitizationpricing date. If the Company had determined the gains or losses on the sale ofthe collateral to the QSPE or VIE using the difference between the fair valueon the day prior to securitization pricing date and the selling price of themortgage whole loans to the QSPE or VIE, the gain on securitization for theyear ended December 31, 2005 would have been $305 million.

The Company may retain interests in these securitizedassets in connection with its underwriting and market-making activities. TheCompany’s primary exposure in its securitization activities is limited to itsretained interests. Retained interests in securitized financial assets areincluded at fair value in corporate debt in financial instruments owned in theconsolidated statements of financial condition. Any changes in the fair valueof these retained interests are recognized in the consolidated statements ofincome. The fair values of retained interests are determined using marketquotes where available or present value of estimated future cash flowsvaluation techniques that incorporate assumptions that market participants 

F-21

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**4. Transfersand Servicing of Financial Assets (Continued)**

customarily use in theirestimates of values. As of December 31, 2005 and 2004, the fair value ofthe interests retained by the Company was $5.1 billion and$1.8 billion, respectively.

Key economic assumptionsused in measuring, at the date of securitization, the fair value of theretained interests resulting from securitizations completed during the yearsended December 31, 2005 and 2004 were as follows:

| ** **                                     | ** ** | **For the Year Ended  December 31, 2005** | ** ** | **For the Year Ended  December 31, 2004** | ** ** |
|------------------------------------------------|------------|--------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                     | ** ** | **Commercial  mortgage  loans**(1)                                 | ** ** | **Residential  mortgage  loans**                                   | ** ** | **Other  asset-backed  loans** | ** ** | **Commercial  mortgage  loans**(1) | ** ** | **Residential  mortgage  loans** | ** ** | **Other  asset-backed  loans** | ** ** |
| Weighted-average life (in years)               |       |                                                               | 1.7        |                                                               |       |   | 5.1 |   |   |   | 5.4 |   |   |   | 4.0 |   |   | 3.6 |   | 2.2 |   |
| Prepayment rate (in rate per annum)(2)         |       |                                                               | N/A        |                                                               |       |   | 0%-56.2 | % |   |   | 25 | % |   |   | N/A |   |   | 11.2% to 30.0 | % | 25.0% to 30.0 | % |
| Cash flow discount rate (in rate per annum)(3) |       |                                                               | 5.4%-11.5  | %                                                                  |       |   | 0%-39.5 | % |   |   | 3.6%-16.6 | % |   |   | 7.3 | % |   | 2.8-39.5 | % | 11.1-15.0 | % |
| Expected credit  losses (in rate per annum)    |       |                                                               | 1.0%-7.0   | %                                                                  |       |   | 0%-35.3 | % |   |   | 0.7%-12.3 | % |   |   | 0.2-19.3 | % |   | 0.1-39.9 | % | 0.4-11.6 | % |

 

Thefollowing table sets forth the fair value of retained interests fromsecuritizations as of December 31, 2005, key economic assumptions used todetermine the fair value and the sensitivity of the fair value to immediateadverse changes in those assumptions:

| ** **                                      | ** ** | **As of December 31, 2005** | ** ** |
|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                      | ** ** | **Commercial  mortgage  loans**(1)              | ** ** | **Residential  mortgage  loans** | ** ** | **Other  asset-backed** | ** ** |
| ** **                                      | ** ** | **(Dollars in millions)**             | ** ** |
| Fair value of  retained interests               |       |                                            | $          | 111 |   |   | $ | 4,828 |   | $ | 122 |   |
| Weighted-average  life (in years)               |       |                                            | 2.8        |   |   | 4.2 |   | 7.4 |   |
| Prepayment rate  (in rate per annum)(2)         |       |                                            | N/A        |   |   | 0.2%-84.8 | % | 11.5%-47.0 | % |
| Impact on fair value of 10% adverse change      |       |                                            | N/A        |   |   | $ | (16 | ) | $ | — |   |
| Impact on fair value of 20% adverse change      |       |                                            | N/A        |   |   | $ | (31 | ) | $ | — |   |
| Cash flow  discount rate (in rate per annum)(3) |       |                                            | 6.8        | % |   | 6.4 | % | 14.0 | % |
| Impact on fair value of 10% adverse change      |       |                                            | $          | (2 | ) |   | $ | (77 | ) | $ | (2 | ) |
| Impact on fair value of 20% adverse change      |       |                                            | $          | (3 | ) |   | $ | (154 | ) | $ | (4 | ) |
| Expected credit  losses (in rate per annum)     |       |                                            | 2.4        | % |   | 2.1 | % | 9.6 | % |
| Impact on fair value of 10% adverse change      |       |                                            | $          | (1 | ) |   | $ | (24 | ) | $ | (1 | ) |
| Impact on fair  value of 20% adverse change     |       |                                            | $          | (1 | ) |   | $ | (48 | ) | $ | (2 | ) |

----

(1)                 To deterprepayment, commercial mortgage loans typically have prepayment protection inthe form of prepayment lockouts and yield maintenances.

(2)                 The Companyutilizes the Constant Prepayment Rate assumptions.

(3)                 The rate is basedon the weighted average yield on the retained interest.

These sensitivities arehypothetical and do not reflect the benefits of hedging activities. Changes infair value based on a 10% or 20% variation in assumptions generally cannot beextrapolated because the relationship of the change in assumption to the changein fair value may not be linear. Also, the effect of a variation in aparticular assumption on the fair value of the retained interests is calculatedwithout changing any other assumption. In practice, changes in one assumptionmay result in changes in other 

F-22

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**4. Transfersand Servicing of Financial Assets (Continued)**

assumptions(for example, increases in market interest rates may result in lowerprepayments and increased credit losses), which may magnify or counteract thesensitivities.

**Variable InterestEntities**

The Company has variable interests in several CDO VIEs.As described under “—Securitization Activities,” in the normal course of itsbusiness, the Company purchases loans and other debt obligations from and onbehalf of clients primarily for the purpose of securitization. These assets aresold to and warehoused by affiliates and, at the end of a warehousing period,the assets are sold to CDO VIEs or QSPEs for securitization. The Companyengages in these transactions to meet the needs of clients, to earn fees and tosell financial assets. The purpose of these CDO VIEs and QSPEs is to provide investorsa return based on the underlying debt instruments of the CDO VIEs and QSPEs. Inconnection with its underwriting and market-making activities, the Company mayretain interests in the CDO VIEs and QSPEs. The CDO entities may have activelymanaged (“open”) portfolios or static or unmanaged (“closed”) portfolios. Theclosed CDO transactions are typically structured to use QSPEs, which are notconsolidated in the Company’s financial statements.

The Company has consolidated all CDO VIEs and otherVIEs for which it is the primary beneficiary. As of December 31, 2005 and2004, the Company recorded $673 million and $291 million,respectively, representing the carrying amount of the consolidated assets ofthese CDO VIEs and other VIEs that are collateral for the VIE obligations. Thebeneficial interests of these consolidated CDO VIEs and other VIEs are payablesolely from the cash flows of the related collateral, and the creditors ofthese CDO VIEs do not have recourse to the Company in the event of default.

The Company holds significant debt and equityinterests in CDO VIEs that are not consolidated because the Company is not theprimary beneficiary. The total assets in these CDO VIEs as of December 31,2005 and 2004 were $5.4 billion and $4.5 billion, respectively. TheCompany’s maximum exposure to loss on significant debt and equity interests inCDO VIEs as of December 31, 2005 and 2004 was $127 million and$62 million, respectively, which was the amount carried at fair value infinancial instruments owned.

F-23

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**4. Transfersand Servicing of Financial Assets (Continued)**

Certain of the Company’sprivate equity funds are subject to FIN 46R. In the normal course of itsprivate equity activities, the Company is typically the general partner andinvestment adviser to private equity funds. Limited partners of these fundstypically have recourse to the fund’s assets but have no recourse to theCompany’s assets. Beginning in 2004, the Company consolidated certain privateequity funds that are managed by the Company. The following table presents theimpact on the consolidated statements of financial condition of the Company’sconsolidation of private equity funds and other long-term investments primarilyunder FIN 46R as of December 31, 2005 and 2004:

| ** **                                                 | ** ** | **December 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                 | ** ** | **(In millions)**      | ** ** |
| Private equity  and other long-term investments            |       |                        | $          | 2,562                       |       |   |   | $ | 1,947 |   |   |
| All other assets,  net                                     |       |                        | 177        |                        |       |   | 2 |   |   |
| Total assets                                               |       |                        | $          | 2,739                       |       |   |   | $ | 1,949 |   |   |
| Minority interests (included in other liabilities)         |       |                        | $          | 2,549                       |       |   |   | $ | 1,978 |   |   |
| All other  liabilities, net (excluding minority interests) |       |                        | 190        |                        |       |   | (29 | ) |   |
| Total liabilities                                          |       |                        | $          | 2,739                       |       |   |   | $ | 1,949 |   |   |

 

Thefollowing table presents the impact on the consolidated statements of income ofthe Company’s consolidation of private equity funds and other long-terminvestments primarily under FIN 46R, for the years ended December 31,2005 and 2004:

| ** **         | ** ** | **For the Year Ended  December 31,**             | ** ** |
|--------------------|------------|----------------------------------------------------------------------|------------|
| ** **         | ** ** | **     2005     ** | ** ** | **     2004     ** | ** ** |
| ** **         | ** ** | **(In millions)**                                               | ** ** |
| Net revenues       |       |                                                                 | $          | 975 |   |   |   | $ | 649 |   |   |
| Expenses           |       |                                                                 | 15         |   |   |   | 7 |   |   |
| Minority interests |       |                                                                 | $          | 960 |   |   |   | $ | 642 |   |   |

 

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

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

F-24

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**5. Private Equity andOther Long-Term Investments (Continued)**

As of December 31, 2005 and 2004, the Company hadinvestments in private equity and other long-term investments of$3.6 billion and $3.1 billion, respectively, including$2.6 billion and $1.9 billion, respectively, in private equity investmentsconsolidated primarily under FIN 46R. Changes in net unrealizedappreciation/depreciation arising from changes in fair value and the gain orloss realized upon sale are reflected in principal transactions-net in theconsolidated statements of income. See Notes 1 and 4 for more information. Theoriginal cost of these investments, excluding the private equity investmentsconsolidated primarily under FIN 46R, was $1.4 billion as of December 31,2005 and $1.5 billion as of December 31, 2004. As of December 31,2005 the Company had commitments to invest up to an additional $726 million innon-consolidated private equity funds and $924 million in consolidatedprivate equity funds.

The Company’s subsidiaries managemany private equity partnerships (the “Funds”). When the investment performanceon Credit Suisse-managed Funds exceeds specific thresholds, the Company andcertain other partners, most of which are current and former employeesof the Company (collectively the “GPs”), may beentitled 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 December 31, 2005 and 2004, the maximum amount of such contingentobligations was $620 million and $439 million, respectively, assumingthe Funds’ remaining investments were worthless. Assuming the Funds’ remaining investmentswere sold at their current carrying values as of December 31, 2005 and2004, the contingent obligations would have been $18 million and$9 million, respectively. As of December 31, 2005 and 2004, theCompany withheld cash from distributions on prior realizations to the partners,and recorded corresponding liabilities of $126 million and$75 million, respectively, in connection with the Company’s guarantee toreturn prior carried interest distributions to third party investors in theFunds.

In addition, pursuant tocertain contractual arrangements, the Company is obligated to make cashpayments to certain investors in certain Funds if specified performancethresholds are not met. As of December 31, 2005 and 2004, the maximumamount of such contingent obligations was $45 million and$65 million, respectively, assuming the Funds’ remaining investments wereworthless. Assuming the Funds’ remaining investments were sold at their currentcarrying values as of December 31, 2005 and 2004, there would have been nocontingent obligation.

**6.Derivatives Contracts**

The Company usesderivatives contracts for trading and hedging purposes and to provide productsfor clients. These derivatives include options, forwards, futures and swaps.

**Non-tradingDerivatives**

The Company hedges its fixed rate debt by usinginterest rate swaps. These swaps are considered hedging instruments and qualifyas fair value hedges under SFAS 133. For qualifying fair value hedges, thechanges in fair value of both the hedging instrument and the underlying debtare included in principal 

F-25

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**6. DerivativesContracts (Continued)**

transactions-net and theinterest flows are included in net interest and dividends in the consolidatedstatements of income.

The Company assesses the effectiveness of hedgingrelationships both prospectively and retrospectively. The prospectiveassessment is made both at the inception of a hedging relationship and on anongoing basis and requires the Company to justify its expectation that therelationship will be highly effective over future periods. The retrospectiveassessment is also performed on an ongoing basis and requires the Company todetermine whether or not the hedging relationship has actually been effective.If the Company concludes, through a retrospective evaluation that hedgeaccounting is appropriate for the current period then it measures the amount ofhedge ineffectiveness to be recognized in earnings.

The effectiveness of a qualifying hedging relationshipis evaluated using quantitative measures of correlation. If a hedgerelationship is not found to be highly effective, the hedge relationship nolonger qualifies for hedge accounting under SFAS 133. As such, any subsequentgains or losses attributable to the hedged item cease to be recognized, whilethe subsequent changes in the derivatives instrument’s fair value arerecognized in earnings, in each reporting period. In addition, the fair valueadjustment of the debt due to hedge accounting is amortized over the remaininglife of the debt as a yield adjustment.

The gains related to the ineffective component of thefair value hedges was $19 million for the year ended December 31,2005. The gains and losses related to the ineffective component of the fairvalue hedges were not significant for the years ended December 31, 2004and 2003.

Other derivatives used tohedge the Company’s long-term borrowings that do not qualify as hedges underSFAS 133 are carried at fair value with changes in value and interestflows included in principal transactions-net in the consolidated statements ofincome. For the years ended December 31, 2005, 2004 and 2003, the Companyrecognized a pre-tax loss of less than $1 million, a pre-tax gain of$6 million and a pre-tax gain of $1 million, respectively, related tothe ineffective component of these hedges.

**Trading Derivatives**

The Company enters intovarious transactions using derivatives for trading purposes, to hedge tradingexposures or to provide products to its clients. These derivatives includeoptions, forwards, futures and swaps. Trading derivative contracts are carriedat fair value with unrealized and realized gains and losses and interest flowsincluded in principal transactions-net in the consolidated statements ofincome.

***Options***

The Company writes option contracts specificallydesigned to meet customer needs, for trading purposes or for hedging purposes.The options do not expose the Company to credit risk because the Company, notits counterparty, is obligated to perform. At the beginning of the contractperiod, the Company receives a cash premium. During the contract period, theCompany bears the risk of unfavorable changes in the value of the financialinstruments underlying the options. To manage this market risk, the Companypurchases or sells cash or derivative financial instruments on a proprietarybasis. Such purchases and sales may include debt and equity securities, forwardand futures contracts, swaps and options.

F-26

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**6. DerivativesContracts (Continued)**

The Company also purchasesoptions to meet customer needs, for trading purposes or for hedging purposes.With purchased options, the Company gets the right, for a fee, to buy or sellthe underlying instrument at a fixed price on or before a specified date. Theunderlying instruments for these options include fixed income securities,equities, foreign currencies and interest rate instruments or indices. Thecounterparties to OTC option contracts are reviewed to determine whether theyare creditworthy.

***Forwards and Futures***

In the normal course of business, the Company’scustomer and trading activities include executing, settling and financingvarious securities and financial instrument transactions. To execute thesetransactions, the Company purchases and sells (including “short sales”)securities, and purchases and sells forward contracts primarily for U.S.Government and agency securities, corporate debt, mortgage-backed securitiesand foreign currencies. The Company also enters into VPF transactions whichmeet the definition of a derivative and are classified as forward contracts.See Note 1 for more information. In addition, the Company enters into futurescontracts on equity-based indices and other financial instruments, as well asoptions on futures contracts.

Because forward contracts are subject to the financialreliability of the counterparty, the Company is exposed to credit risk. Tomitigate this credit risk, the Company limits transactions with specificcounterparties, reviews credit limits, requirescertain customers and counterparties to maintain margin collateral andadheres to internally established credit extension policies.

For futures contracts andoptions on futures contracts, the change in the market value is settled with anexchange or a clearing broker in cash each day. As a result, the credit riskwith the clearing broker is limited to the net positive change in the marketvalue for a single day, which is recorded in receivables (payables) from (to)brokers, dealers and others in the consolidated statements of financialcondition.

***Swaps***

The Company’s swapagreements consist primarily of interest rate, equity and credit default swaps.Interest rate swaps are contractual agreements to exchange interest ratepayments based on agreed notional amounts and maturity. Equity swaps arecontractual agreements to receive the appreciation or depreciation in valuebased on a specific strike price on an equity instrument in exchange for payinganother rate, which is usually based on index or interest rate movements.Credit default swaps are contractual agreements in which one counterparty paysa periodic fee in return for a contingent payment by the other counterpartyfollowing a credit event of a reference entity. A credit event is commonlydefined as bankruptcy, insolvency, receivership, material adverse restructuringof debt, or failure to meet payment obligations when due. Swaps are reported atfair value.

F-27

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**6. DerivativesContracts (Continued)**

**QuantitativeDisclosures for All Derivatives**

Thefair values of all derivatives contracts outstanding as of December 31,2005 and 2004 were as follows:

| ** **        | ** ** | **December 31, 2005** | ** ** | **December 31, 2004** | ** ** |
|-------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **        | ** ** | **Assets**                      | ** ** | **Liabilities**                 | ** ** | **Assets** | ** ** | **Liabilities** | ** ** |
| ** **        | ** ** | **(In millions)**          | ** ** |
| Options           |       | $                               | 1,167      |                            |       | $ | 728 |   |   | $ | 1,001 |   |   | $ | 879 |   |   |
| Forward contracts |       | 3,049                           |       |                            | 1,076      |   |   | 1,206 |   |   | 355 |   |   |
| Swaps             |       | 869                             |       |                            | 458        |   |   | 1,456 |   |   | 1,061 |   |   |
| Total             |       | $                               | 5,085      |                            |       | $ | 2,262 |   |   | $ | 3,663 |   |   | $ | 2,295 |   |   |

 

These assets andliabilities are included as derivatives contracts in financial instrumentsowned/sold not yet purchased, respectively, in the consolidated statements offinancial condition.

**7.Goodwill and Identifiable Intangible Assets**

The Company allocates goodwill to its reporting units.Goodwill impairment testing showed no impairment and had no effect on theCompany’s consolidated financial condition or results of operations as of December 31,2005 and 2004. There have been no events or circumstances occurring subsequentto these impairment tests that would more likely than not have resulted in thefair values of the Company’s reporting units being below the carrying values.As of December 31, 2005 and 2004, the Company had $562 million and$527 million, respectively, of goodwill.

In 2005, the Company recorded an additional $1 millionin goodwill related to its acquisition of ING Finance LLC, an additional $1million in goodwill related to earn-out payments for its 2003 acquisition ofVolaris Advisors and an additional $33 million related to earn-out payments forits 2002 acquisition of Holt Value Associates, L.P.

For the year ended December 31, 2005 and 2004,the reported goodwill includes $194 million related to the transfer by CSHoldings of the high-net-worth business (the “HNW business”) of Credit Suisse AssetManagement, LLC (“CSAM”), a wholly owned subsidiary of CS Holdings, on March 31,2004.

In 2004, the Company reduced its interest in PM RealtyGroup, LP, a real estate management company, resulting in a decrease ingoodwill of $5 million.

As of December 31,2005 and 2004, the Company had identifiable intangible assets of$38 million and $39 million, respectively, net of accumulatedamortization of $59 million and $53 million, respectively, which areincluded in other assets and deferred amounts in the consolidated statements offinancial condition. Intangible assets included $16 million ofindefinite-lived intangible assets for the years ended December 31, 2005and 2004. For the years ended December 31, 2005 and 2004, the reportedintangible assets included $7 million and $8 million, respectively,related to the transfer by CS Holdings of the HNW business.Identifiableintangible assets consisted primarily of internally developed software andcustomer lists which are amortized over useful lives ranging from 3 to 21years. Intangible amortization expense for the years ended December 31,2005, 2004 and 2003 was $6 million, $5 million and $5 million,respectively. 

F-28

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**7. Goodwilland Identifiable Intangible Assets (Continued)**

In December 2003, CSAM wrote down the value ofcertain intangible assets transferred to the Company on March 31, 2004,resulting in a pre-tax loss of $200 million and an after-tax loss of $130million to the Company.

**8.Borrowings**

Short-term borrowings are generally demand obligationswith interest approximating the federal funds rate, the London InterbankOffered Rate (“LIBOR”) or other money market indices. Such borrowings aregenerally used to facilitate the securities settlement process, financefinancial instruments owned and finance securities purchased by customers onmargin. As of December 31, 2005 and 2004, there were no short-termborrowings secured by Company-owned securities.

Thefollowing table sets forth the Company’s short-term borrowings and theirweighted average interest rates:

| ** **                                            | ** ** | **Short-term borrowings**          | ** ** | **Weighted average interest rates** | ** ** |
|-------------------------------------------------------|------------|-----------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                            | ** ** | **As of  December 31,  2005** | ** ** | **As of  December 31,  2004**            | ** ** | **As of    December 31,    2005** | ** ** | **As of    December 31,    2004** | ** ** |
| ** **                                            | ** ** | **(In millions)**                  | ** ** | ** **                                         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Bank loans,  including loans from affiliates (1) |       |                                    | $          | 12,356                                             |       |   |   | $ | 20,435 |   |   |   | 4.32 | % |   |   | 2.65 | % |   |
| Commercial paper                                      |       |                                    | 1,298      |                                               |       |   | 1,249 |   |   |   | 4.19 | % |   |   | 2.11 | % |   |
| Total short-term  borrowings                          |       |                                    | $          | 13,654                                             |       |   |   | $ | 21,684 |   |   |   |   |   |   |   |   |   |   |

----

(1)                 Includes$12.1 billion and $20.1 billion in loans from affiliates as of December 31,2005 and December 31, 2004, respectively.

The Company has a commercial paper program exempt fromregistration under the Securities Act of 1933 that allows the Company to issueup to $5.0 billion in commercial paper. As of December 31, 2005 and2004, $1.3 billion and $1.2 billion, respectively, of commercialpaper was outstanding under this program. The Company terminated one of itsexempt commercial paper programs in the third quarter of 2005.

In February 2006, the Company filed with the SECan automatic shelf registration statement that allows the Company to issue fromtime to time senior and subordinated debt securities, and warrants to purchasesuch 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 March 17,2006 approximately $1.2 billion available for issuance.

F-29

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**8. Borrowings(Continued)**

The following table setsforth the Company’s long-term borrowings as of December 31, 2005 and 2004:

| ** **                                                              | ** ** | **December 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|-------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                              | ** ** | **(In millions)**      | ** ** |
| Senior notes 3.9%-7.1%,  due various dates through 2032            |       |                        | $          | 29,214                      |       |   |   | $ | 22,485 |   |   |
| Medium-term notes  2.8%-7.5%, due various dates through 2032       |       |                        | 4,223      |                        |       |   | 6,387 |   |   |
| Structured  borrowings 4.5% -16.1%, due various dates through 2009 |       |                        | 489        |                        |       |   | 69 |   |   |
| Total long-term borrowings                                              |       |                        | $          | 33,926                      |       |   |   | $ | 28,941 |   |   |
| Current maturities of  long-term borrowings                             |       |                        | $          | 3,692                       |       |   |   | $ | 3,137 |   |   |

 

As of December 31, 2005 and 2004, long-termborrowings included upward fair value adjustments of approximately$52 million and $624 million, respectively, associated with fairvalue hedges under SFAS 133. As of December 31, 2005 and 2004, theCompany had entered into interest rate swaps, with a notional amount of$23.6 billion and $21.8 billion, respectively, on the Company’slong-term borrowings for hedging purposes. Substantially all of these swapsqualified as fair value hedges under SFAS 133. See Note 6 for moreinformation.

Thefollowing table sets forth scheduled maturities of all long-term borrowings asof December 31, 2005 and 2004:

| ** ** | ** ** | **December 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** ** | ** ** | **(In millions)**      | ** ** |
| 2005       |       |                        | $          | —                      |       |   |   | $ | 3,137 |   |   |
| 2006       |       |                        | 3,692      |                        |       |   | 3,723 |   |   |
| 2007       |       |                        | 3,153      |                        |       |   | 3,227 |   |   |
| 2008       |       |                        | 7,892      |                        |       |   | 3,442 |   |   |
| 2009       |       |                        | 2,327      |                        |       |   | 2,359 |   |   |
| 2010       |       |                        | 3,705      |                        |       |   | 1,480 |   |   |
| 2011-2032  |       |                        | 13,157     |                        |       |   | 11,573 |   |   |
| Total      |       |                        | $          | 33,926                      |       |   |   | $ | 28,941 |   |   |

 

The following table setsforth scheduled maturities of the current portion of long-term borrowings as ofDecember 31, 2005:

| **Three Months Ending** | ** ** | ** ** | ** ** | **(In millions)** | ** ** |
|-----------------------------------|------------|------------|------------|------------------------|------------|
| March 31,  2006              |       |       | $          | 94                     |       |   |
| June 30,  2006               |       |       | 1,362      |                   |       |
| September 30,  2006          |       |       | 2,236      |                   |       |
| December 31,  2006           |       |       | —     |                   |       |
| Total                             |       |       | $          | 3,692                  |       |   |

 

F-30

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**8. Borrowings(Continued)**

As of December 31,2005, CS Securities maintained with third parties five 364-day committedsecured revolving credit facilities totaling $2.2 billion, with onefacility for $500 million maturing in July 2006, one facility for $200million maturing in August 2006, one facility for $500 million maturing inNovember 2006, one facility for $500 million maturing in February 2007and one facility for $500 million maturing in March 2007. The Companyexpects to renew these facilities as they mature. These facilities require CSSecurities to pledge unencumbered marketable securities to secure anyborrowings. Borrowings under each facility would bear interest at short-termrates related to either the Federal Funds rate or LIBOR and can be used forgeneral corporate purposes. The facilities contain customary covenants that theCompany believes will not impair its ability to obtain funding. As of December 31,2005, no borrowings were outstanding under any of the facilities.

**2005 Financings**

During the year ended December 31,2005, the Company issued $8.3 billion of senior notes and $217 million instructured notes and repaid approximately $2.1 billion of medium-termnotes, $1.0 billion of senior notes and $56 million of structured notes.

**2004 Financings**

In the year ended December 31,2004, the Company issued longer-dated fixed income securities to extend thematurity profile of the Company’s debt. For the year ended December 31,2004, the Company issued $1.1 billion in medium-term notes and$5.9 billion in senior notes and repaid approximately $2.2 billion ofmedium-term notes and $68 million of structured notes.

**9. Leases andCommitments**

Thefollowing table sets forth the Company’s minimum operating lease commitments asof December 31, 2005:

| ** ** | ** ** | **Twelve Months  Ending  December 31,** | ** ** |
|------------|------------|---------------------------------------------------|------------|
| ** ** | ** ** | **(In millions)**                            | ** ** |
| 2006       |       |                                              | $          | 154 |   |   |
| 2007       |       |                                              | 148        |   |   |
| 2008       |       |                                              | 142        |   |   |
| 2009       |       |                                              | 138        |   |   |
| 2010       |       |                                              | 133        |   |   |
| 2011-2025  |       |                                              | 982        |   |   |
| Total(1)   |       |                                              | $          | 1,697 |   |   |

----

(1)      Excludessublease revenue of $310 million and executory costs such as insurance,maintenance and taxes of $560 million.

F-31

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

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

Thefollowing table sets forth the Company’s commitments, including the currentportion as of December 31, 2005:

| ** **                           | ** ** | **Commitment Expiration Per Period** | ** ** |
|--------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                           | ** ** | **Less than  1 year**                          | ** ** | **1-3  years** | ** ** | **4-5  years** | ** ** | **Over  5 years** | ** ** | **Total  commitments** | ** ** |
| ** **                           | ** ** | **(In millions)**                              | ** ** |
| Standby resale  agreements(1)        |       |                                                | $          | 25 |   |   | $ | 125 |   | $ | — |   |   | $ | — |   |   |   | $ | 150 |   |   |
| Private equity(2)                    |       |                                                | 174        |   |   | 93 |   | 58 |   |   | 401 |   |   |   | 726 |   |   |
| Forward  agreements(3)               |       |                                                | 9,677      |   |   | — |   | — |   |   | — |   |   |   | 9,677 |   |   |
| Unfunded lending  commitments(4)     |       |                                                | 97         |   |   | 178 |   | 236 |   |   | 219 |   |   |   | 730 |   |   |
| Unfunded  warehousing commitments(5) |       |                                                | 1,168      |   |   | — |   | — |   |   | — |   |   |   | 1,168 |   |   |
| Total commitments                    |       |                                                | $          | 11,141 |   |   | $ | 396 |   | $ | 294 |   |   | $ | 620 |   |   |   | $ | 12,451 |   |   |

----

(1)                 In the ordinarycourse of business, the Company maintains certain standby resale agreementfacilities that commit the Company to enter into securities purchased underagreements to resell with customers at current market rates.

(2)                 As of December 31,2005, the Company had commitments to invest up to an additional $726 million innon-consolidated private equity funds and $924 million in consolidated privateequity funds.

(3)                 Representscommitments to enter into securities purchased under agreements to resell andagreements to borrow securities.

(4)                 The Companyenters into commitments to extend credit in connection with certain premiumfinance, leveraged finance and other activities.

(5)                 The Companyenters into commitments to warehouse commercial mortgage whole loans.

Excluded from the table above are certain commitmentsto originate and purchase mortgage whole loans that qualify as derivatives.These commitments are reflected in derivatives contracts in the consolidatedstatements of financial condition. For more information on the Company’sderivatives contracts see Note 6.

As of December 31, 2005, the Company used$100 million in outstanding standby letters of credit to satisfycounterparty collateral requirements.

The Company had nomaterial capital lease obligations as of December 31, 2005. Forinformation about certain of the Company’s additional commitments, see Notes 5and 10.

**10.** Guarantees

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

F-32

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**10. Guarantees(Continued)**

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

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

Thefollowing table sets forth the maximum quantifiable contingent liabilities andcarrying amounts associated with guarantees covered by FIN 45 as of December 31,2005 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         |       |                                                                   | $          | —         |       |   | $ | 40 |   | $ | 69 |   |   | $ | 368 |   |   |   | $ | 477 |   |   |   | $ | 10 |   |   |
| Performance  guarantees   |       |                                                                   | 78         |           |       | 392 |   | — |   |   | — |   |   |   | 470 |   |   |   | 8 |   |   |
| Derivatives               |       |                                                                   | 131        |           |       | 1,992 |   | 182 |   |   | 478 |   |   |   | 2,783 |   |   |   | 67 |   |   |
| Related party  guarantees |       |                                                                   | —     |           |       | — |   | — |   |   | 1 |   |   |   | 1 |   |   |   | — |   |   |
| Total guarantees          |       |                                                                   | $          | 209            |       |   | $ | 2,424 |   | $ | 251 |   |   | $ | 847 |   |   |   | $ | 3,731 |   |   |   | $ | 85 |   |   |

 

**Credit Guarantees**

In the ordinary course of business the Company entersinto contracts that would require it, as the guarantor, to make payments to theguaranteed party if a third party fails to pay under a credit obligation. As ofDecember 31, 2005, the Company recorded liabilities of $10 millionand had a maximum contingent liability of $477 million under credit guarantees.These credit guarantees are described below.

As part of the Company’s residential mortgageactivities, the Company previously sold to the Federal National MortgageAssociation (“FNMA”) certain residential mortgages that it had purchased andagreed to bear a percentage of any losses should the borrowers fail to perform.In accordance with FIN 45, the Company did not recognize a liability for theseguarantees because they were issued prior to December 31, 2002 and havenot been modified. The Company’s maximum potential exposure related to theseguarantees, assuming all the borrowers failed to perform, was $147 millionas of December 31, 2005.

As part of the Company’scommercial mortgage activities, the Company sells to FNMA certain commercialmortgages that it has originated and agrees to bear a percentage of the lossesshould the borrowers fail to perform. As of December 31, 2005, inaccordance with FIN 45, the Company recorded liabilities of $10 millionrelated to these guarantees. The Company’s maximum potential exposure relatedto these guarantees, assuming all the borrowers failed to perform, was$330 million as of December 31, 2005.

F-33

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**10. Guarantees(Continued)**

**PerformanceGuarantees**

In the ordinary course of business, the Company entersinto contracts that would require it, as the guarantor, to make payments to theguaranteed party based on a third party’s failure to perform under an agreement.As of December 31, 2005, the Company had a maximum contingent liability of$470 million under performance guarantees.

As part of the Company’s residential mortgage andasset-backed securitization activities, the Company at times guarantees thecollection by the servicer and remittance to the securitization trust ofprepayment penalties. As of December 31, 2005, the Company recordedliabilities of $8 million related to these guarantees. As of December 31,2005, the Company’s maximum exposure under the guarantees, assuming that everymortgage holder prepays and the servicers fail to collect and remit theprepayment penalties, was $470 million; however, the Company has recourseagainst the servicer.

In addition, the Companyat times guarantees any increases in servicing fees in connection with thereplacement of the existing servicer that would otherwise be borne by thesecuritization trust. The Company did not record a liability because it hasdetermined that is it not possible to estimate the fair value and the maximumamount of its obligations under these guarantees as of December 31, 2005.

**Derivatives**

In the ordinary course of business, the Company entersinto OTC contracts that meet the definition of a guarantee under FIN 45.Included in this category are certain written OTC put option contracts,pursuant to which the counterparty can potentially force the Company to acquirethe underlying financial instrument or require the Company to make a cashpayment in an amount equal to the decline in value of the financial instrumentunderlying the OTC put option. Also included in this category are creditderivatives that may subject the Company to credit spread or issuer defaultrisk because the change in credit spreads or the credit quality of theunderlying financial instrument may obligate the Company to make a payment. TheCompany seeks to manage these OTC derivatives exposures by engaging in varioushedging strategies to reduce its exposure.

Derivative contracts that may be cash settled, andwhich the Company has no basis for concluding that it is probable that thecounterparties held the underlying instruments at the inception of thecontracts, are not considered guarantees under FIN 45.

As of December 31,2005, the Company recorded $67 million in derivatives that met thedefinition of a guarantee under FIN 45. These are reflected as derivativescontracts in the consolidated statements of financial condition. The maximumgross contingent liability was $2.8 billion, of which $2.3 billionwas with CSG affiliates. These amounts were determined by using notional valuesand represent the obligations of the Company in the event that all theunderlying financial instruments are worthless, the likelihood of which theCompany believes is remote. For more information on derivatives, see Note 6.

**Related PartyGuarantees**

For purposes of FIN 45, related party guarantees referto any guarantees issued by the Company for obligations of any company (“affiliates”)controlled by CSG, the Company’s ultimate parent, unless it is 

F-34

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**10. Guarantees(Continued)**

one of the Company’sconsolidated subsidiaries. Guarantees issued by the Company for the obligationsof its consolidated subsidiaries are excluded because they do not create anyincremental liability.

The Company issuesguarantees to customers with respect to certain obligations of its affiliatesin the ordinary course of business, including, but not limited to, certainderivatives transactions. Failure to perform by an affiliate would require theCompany to perform under the guarantee. The maximum contingent liability offuture payments of guarantees issued to counterparties of affiliates as of December 31,2005 was $1 million. Excluded from the maximum contingent liability arecertain guarantees for which an estimate cannot be made because the exposure isunlimited and therefore impossible to estimate. While the maximum contingentliability represents possible future payments under the guarantees, the Companybelieves that the likelihood of nonperformance by these affiliates is remote.

**Guarantees Relatedto Private Equity Activities**

As part of its privateequity activities, the Company provides guarantees related to carried interestand performance thresholds. The amounts of such guarantees are included in thecontingent obligations disclosed in Note 5.

**Other Guarantees**

The Company has certainguarantees for which its maximum contingent liability cannot be quantified.These guarantees are not reflected in the table above and are discussed below.

***Indemnifications Issued in Connection with Asset Sales***

In connection with salesof certain assets or businesses, the Company has provided purchasers customaryindemnification provisions based on changes in an underlying asset or liabilityrelating to the assets sold. These indemnification provisions are negotiatedwith the purchaser of the assets or businesses and vary in their scope andduration. These indemnification provisions generally shift the risk of certainunquantifiable and unknowable loss contingencies (*e.g.*,relating to litigation, tax and intellectual property matters) from thepurchaser to the seller, as known or quantifiable loss contingencies generallyare reflected in the value of the assets or businesses being sold. The Companyhas determined that it is not possible to make an estimate of the maximumcontingent liability under these indemnification provisions. To date, theCompany’s actual payments arising from these indemnification provisions havebeen in connection with litigation matters and have not been material.

***Tax Gross-up Arrangements***

As a normal part ofissuing its own securities, the Company typically agrees to reimburse holdersfor additional tax withholding charges or assessments resulting from changes inapplicable tax laws or the interpretation of those laws. Securities thatinclude these agreements to pay additional amounts generally also include arelated redemption or call provision if the obligation to pay the additionalamounts results from a change in law or its interpretation and the obligationcannot be avoided by the issuer taking reasonable steps to avoid the payment ofadditional amounts. Since such potential obligations are dependent on futurechanges in tax laws, the related liabilities the Company may incur as a resultof such 

F-35

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**10. Guarantees(Continued)**

changescannot be reasonably estimated. In light of the related call provisions typicallyincluded, the Company does not expect any potential liabilities in respect oftax gross-ups to be material.

***Exchange and Clearinghouse Memberships***

The Company is a member ofnumerous securities exchanges and clearinghouses, and may, as a result of itsmembership arrangements, be required to perform if another member defaults. TheCompany has determined that it is not possible to estimate the maximum amountof these obligations and believes that any potential requirement to makepayments under these arrangements is remote.

**11. Concentrationsof Credit Risk**

The Company is engaged in various securities tradingand brokerage activities servicing a diverse group of domestic and foreigncorporations, governments and institutional and individual investors. Asubstantial portion of the Company’s transactions are executed with and onbehalf of institutional investors, including other brokers and dealers,mortgage brokers, commercial banks, U.S. agencies, mutual funds, hedge fundsand other financial institutions. These transactions are generallycollateralized. Credit risk is the potential for loss resulting from thedefault by a counterparty of its obligations. Exposure to credit risk isgenerated by securities and currency settlements, contracting derivatives andforward transactions with customers and dealers, and the holding in inventoryof bonds and/or loans. The Company uses various means to manage its creditrisk. The creditworthiness of all counterparties is analyzed at the outset of acredit relationship with the Company. These counterparties are subsequentlyreviewed on a periodic basis. The Company sets a maximum exposure limit foreach counterparty, as well as for groups or classes of counterparties.Furthermore, the Company enters into master netting agreements when feasibleand demands collateral from certain counterparties or for certain types ofcredit transactions. As of December 31, 2005, the Company did not have anysignificant concentrations of credit risk.

The Company’s customersecurities activities are transacted either in cash or on a margin basis, inwhich the Company extends credit to the customer. The Company seeks to controlthe risks associated with its customer activities by requiring customers tomaintain margin collateral to comply with various regulatory and internalguidelines. The Company monitors required margin levels each day and requirescustomers to deposit additional collateral, or reduce positions, whennecessary.

**12. Net CapitalRequirements**

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. (“NYSE”). Accordingly, the Company is subject to theminimum net capital requirements of the SEC and the Commodities Futures TradingCommission (“CFTC”). Under the alternative method permitted by Rule 15c3-1under the Securities Exchange Act of 1934 (the “Exchange Act”), the requirednet capital may not be less than the greater of 2% of aggregate debit balancesarising from customer transactions or 4% of the funds required to be segregatedpursuant to the Commodity Exchange Act less the market value of certaincommodity 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 

F-36

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**12. Net CapitalRequirements (Continued)**

non-customer accounts. Asof December 31, 2005, CS Securities’ net capital of approximately$4.5 billion was 59.1% of aggregate debit balances and in excess of theCFTC’s minimum requirement by approximately $4.3 billion.

The Company’s OTC derivatives dealer subsidiary,Credit Suisse Capital LLC (“CS Capital”), formerly known as Credit Suisse FirstBoston Capital LLC, is also subject to the uniform net capital rule, butcomputes its net capital based on value at risk under Appendix F of Rule 15c3-1under the Exchange Act. As of December 31, 2005, CS Capital’s net capitalof $504 million, allowing for market and credit risk exposure of$60 million and $216 million, respectively, was in excess of theminimum net capital requirement by $484 million. CS Capital is incompliance with the exemptive provisions of Rule 15c3-3 under theExchange Act because the Company does not carry securities accounts forcustomers or perform custodial functions relating to customer securities.

As of December 31,2005, the Company and its subsidiaries complied with all applicable regulatorycapital adequacy requirements.

**13. Cash andSecurities Segregated Under Federal and Other Regulations**

In compliance with the Commodity Exchange Act, CSSecurities segregates funds deposited by customers and funds accruing tocustomers as a result of trades or contracts. As of December 31, 2005 and2004, cash and securities aggregating $2.7 billion and $3.1 billion,respectively, were segregated or secured by CS Securities in separate accountsexclusively 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 December 31, 2005 and 2004, CSSecurities segregated securities aggregating $1.9 billion and$1.5 billion, respectively, on behalf of introducing broker-dealers.

In addition, CS Securitiessegregated U.S. Treasury securities with a market value of $3.3 billion and$4.4 billion as of December 31, 2005 and 2004, respectively, in aspecial reserve bank account exclusively for the benefit of customers asrequired by Rule 15c3-3 of the Exchange Act.

**14. Stockholder’sEquity**

The Credit Suisse Group International Share Planprovides for the grant of equity-based awards to Company employees based on CSGshares pursuant to which employees of the Company may be granted, ascompensation, share or other equity-based awards as compensation for servicesperformed. CS Holdings purchases shares from CSG to satisfy these awards, butCS Holdings does not require reimbursement from the Company; therefore, amountsare considered a capital contribution to the Company and credited topaid-in-capital. Amounts contributed by CS Holdings relating to compensationexpense for the years ended December 31, 2005, 2004 and 2003 were$992 million, $526 million and $325 million, respectively, including taxeffects. See Notes 1 and 15 for further information on the Company’sshare-based compensation.

On November 30, 2004, the Company paid a$40 million dividend to CS Holdings.

F-37

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**14. Stockholder’sEquity (Continued)**

In 2005 and 2003, the Company had an unfundedaccumulated benefit obligation in its non-contributory defined benefitpension plan and recorded minimum pension liability adjustments of $175 millionand $4 million, respectively, net of tax, in accumulated other comprehensiveloss in the consolidated statements of financial condition. In 2004, the fairvalue of the plan assets was greater than the accumulated benefit obligation.Accordingly, the Company reversed the previously recorded minimum pensionliability adjustments resulting in an increase in accumulated othercomprehensive income of $150 million, net of tax. See note 16 for moreinformation.

On March 31, 2004, the Company’s immediate parentcompany, CS Holdings, transferred the HNW Business of CSAM, a wholly ownedsubsidiary of CS Holdings, to the Company as a capital contribution of$221 million. The transfer of this business was accounted for athistorical cost in a manner similar to pooling-of-interest accounting becauseCSAM and the Company were under the common control of CS Holdings at the timeof transfer.

On March 20, 2003, the Company’s immediate parentcompany, CS Holdings, transferred Management LLC to the Company as a capitalcontribution of $75 million. The transfer of Management LLC has beenaccounted for at historical cost in a manner similar to pooling-of-interestaccounting because Management LLC and the Company were under the common controlof CS Holdings at the time of the transfer.

On February 28, 2003,the Company redeemed the remaining 88,500 shares of its Fixed/Adjustable RateCumulative Preferred Stock, Series B (liquidation preference of $50.00 pershare) at par plus accrued and unpaid dividends.

**15. Share-BasedCompensation**

The Company participates in the Credit Suisse GroupInternational Share Plan (the “Plan”). The Plan provides for share, share unitand share option awards to be granted to certain employees based on the fairmarket value of CSG shares at the time of grant.

In August 2003, theCompany adopted the fair value recognition provisions of SFAS 123 to accountfor its share-based compensation with an effective date of January 1,2003. Effective January 1, 2005, the Company early adopted the fair valuerecognition provisions of SFAS 123R to account for its share-basedcompensation. For additional information see Note 1.

**Option ReductionProgram**

In September 2003,CSG completed its option reduction program, which entitled employees toexchange on a value-for-value basis certain existing share option awards fornew share option or share awards. In accordance with SFAS 123, the Companydid not recognize any compensation expense as a result of that exchange. Thenew share option and share awards have a one-year service period and theoptions expire seven years from the grant date.

F-38

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**15. Share-BasedCompensation (Continued)**

**Share Awards**

In September 2003, CSG amended the Plan andintroduced three-year vesting for share awards granted as part of incentivecompensation. Compensation expense is recognized over the vesting period exceptfor awards granted in 2005 after the Company’s adoption of SFAS 123R as itapplies to employees eligible for early or normal retirement. For share awardsnot granted as part of incentive compensation, compensation expense isrecognized over a vesting period of one to five years. Share awards granted inor before January 2003 for services provided in prior years were expensedduring the year services were provided if there were no vesting requirements. Foradditional information, see Note 1.

Thefollowing table reflects the weighted-average fair value of share awards at thegrant date during 2005, 2004 and 2003:

| ** **                                 | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Weighted-average  fair value at grant date |       | $        | 40.35      |     | $          | 37.26    |       | $ | 28.00 |   |
|                                            |            |          |            |          |            |          |            |  |  |  |

 

The number of share awardsgranted during the years ended December 31, 2005, 2004 and 2003 was17 million, 21 million and 28 million, respectively, of which11 million were granted as part of the option reduction program in 2003.The number of share awards outstanding as of December 31, 2005, 2004 and2003 was 27 million, 46 million and 48 million, respectively.

**Share Unit Awards**

In January 2005, CSGgranted 12.7 million share units with a fair value of $43.75 per unit on thegrant date to certain employees. These share units vest over five years and arelinked to the earnings and share price of CSG. Total compensation expense isdetermined based on the fair value of the share units multiplied by the totalnumber of share units that ultimately vest. The total number of share unitsthat ultimately vest depends on the final outcome of the underlying service andperformance conditions over the course of the contractual term. Each share unithas the potential to convert into between 0 and 3 share units depending on theoutcome of the performance condition. Except with respect to employees eligiblefor early or normal retirement, compensation expense is recognized over thevesting period based on management’s estimate of the number of share units thatwill vest, which is contingent upon the projected outcome of the underlyingservice and performance conditions and is updated on a periodic basis.

**Share Option Awards**

In September 2003, CSG also amended the Plan andintroduced three-year vesting for share option awards granted as part ofincentive compensation. For share option awards that are not part of incentivecompensation, compensation expense is recognized over the service period, whichranges from two to four years. These awards expire ten years from the grantdate.

Share option awards issued prior to January 2003for service provided in prior years were accounted for under the provisions ofAPB 25, therefore no compensation expense was recognized for these awards. Theseshare option awards have a service period of one to four years and expire fromseven to ten years from the grant date. Upon adoption of SFAS 123R,compensation expense for these options that have future vesting requirementswas recognized in the consolidated statements of income.

F-39

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**15. Share-BasedCompensation (Continued)**

If the Company had applied the fair-value based methodunder SFAS 123 to recognize expense over the relevant serviceperiod for share options that had future vesting requirements granted in orbefore January 2003, net income would have decreased for the years ended December 31,2004 and 2003.For the year ended December 31, 2005, there was no *pro forma* impact as compensation expense includes the fairvalue as of the grant date of all outstanding unvested share option awardsgranted as a result of the Company’s adoption of SFAS 123R. The following tablereflects this *pro forma* effect: 

| ** **                                                                                                                                   | ** ** | **For the Year Ended  December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                                                                                   | ** ** | **2004**(1)                                              | ** ** | **2003**(1) | ** ** |
| ** **                                                                                                                                   | ** ** | **(In millions)**                                   | ** ** |
| Net income, as  reported                                                                                                                     |       |                                                     | $          | 787 |   |   | $ | 1,192 |   |
| Add: Share-based  employee compensation expense, net of related tax effects, included in  reported net income                                |       |                                                     | 264        |   |   | 208 |   |
| Deduct: Share-based  employee compensation expense, net of related tax effects, determined under  the fair-value based method for all awards |       |                                                     | 269        |   |   | 228 |   |
| *Pro forma* net  income                                                                                                                      |       |                                                     | $          | 782 |   |   | $ | 1,172 |   |

----

(1)                 Compensationexpense for the years ended December 31, 2004 and 2003 reflected thechange in vesting discussed above.

The Company did not grant any share option awardsduring 2005 and 2004. The number of share option awards granted for the yearended December 31, 2003 was 172,000. The number of share option awardsoutstanding as of December 31, 2005, 2004 and 2003 was 24 million,28 million and 33 million, of which 1 million relate to theoption reduction program in 2003. The number of share option awards exercisableas of December 31, 2005, 2004 and 2003 was 24 million,20 million and 21 million, respectively.

The following tablereflects the weighted-average fair values of share option awards at the grantdate, including options granted as part of the option reduction program in2003:

| ** **                                                 | ** ** | **2005**(1) | ** ** | **2004**(1) | ** ** | **2003** | ** ** |
|------------------------------------------------------------|------------|-------------|------------|-------------|------------|----------|------------|
| Weighted-average  fair values of options at the grant date |       |        | $          | —      |       |     |       | $ | — |   |   | $ | 10.44 |   |
|                                                            |            |             |            |             |            |          |            |  |  |  |  |  |  |  |

----

(1)                 The Company didnot grant any share option awards during 2005 and 2004.

Thefair value of share option awards was estimated using the Black-Scholes optionpricing model. The following table reflects the weighted-average assumptionsfor the calculation of the fair value of the share option awards granted,including share option awards granted as part of the option reduction programin 2003:

| ** **                | ** ** | **2005**(1) | ** ** | **2004**(1) | ** ** | **2003** | ** ** |
|---------------------------|------------|-------------|------------|-------------|------------|----------|------------|
| Expected dividend  yield  |       |        | —     |        |       |     | —     |   |   | 0.54 | % |
| Expected life of  options |       |        | —     |        |       |     | —     |   |   | 4 years |   |
| Expected  volatility      |       |        | —     |        |       |     | —     |   |   | 48.00 | % |
| Risk-free interest rate   |       |        | —     |        |       |     | —     |   |   | 1.28 | % |

----

(1)                 TheCompany did not grant any share option awards during 2005 and 2004. The numberof share option awards granted for the year ended December 31, 2003 was172 thousand.

F-40

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**16. EmployeeBenefit Plans**

The Company providesretirement and post-retirement benefits to its U.S. and certain non-U.S.employees through participation in a defined benefit pension plan, a definedcontribution savings and retirement plan and other plans. The Company’smeasurement date is September 30 for its pension and other plans.

**Pension Plans**

The Company participates in a non-contributory definedbenefit pension plan (the “Qualified Plan”) available to individuals employedbefore January 1, 2000. Effective January 1, 2004, compensation andcredited service for benefit purposes were frozen for certain participants.Employees who no longer accrue benefits in the Qualified Plan participate in asavings and retirement plan similar to employees hired on or after January 1,2000.

CSG applies sponsor accounting for accounting andreporting for defined benefit pensionplans. The Company and other CSG entities participate in and contribute to thesame plan and the assets held by the plan are not restricted or segregated andcan be used to provide benefits to employees of any of the participating CSGentities. The Company has been designated to be the sponsor of the plan andrecords all liabilities and expenses and allocates a portion of the expenses toaffiliates for employees outside of the Company. The disclosures that followpresent the plans in their entirety.

Contributions to the Qualified Plan are made asrequired by the Internal Revenue Code and applicable law but not in excess ofthe amounts deductible by the Company for income tax purposes. The Company didnot make any contributions to the Qualified Plan during the year ended December 31,2005. Company contributions to the Qualified Plan were $225 million and$40 million for the years ended December 31, 2004 and 2003,respectively.

The Company also sponsors a savings and retirementplan, which is a defined contribution plan, with both a savings and aretirement component. All employees are eligible to participate in the savingscomponent whereby the Company matches a portion of the employee’s contributionsin accordance with the Company’s guidelines. In addition, individuals employedbefore January 1, 2000 who do not accrue benefits under the Qualified Planand employees hired on or after January 1, 2000 participate in theretirement component and receive a retirement contribution that was previouslylinked to the return on equity of Institutional Securities and Wealth &Asset Management. The Company has contributed $83 million, $32 million and$55 million to the defined contribution plan for the years ended December 31,2005, 2004 and 2003, respectively.

The Company also providesa non-contributory, non-qualified, unfunded plan (the “Supplemental Plan”),which provides benefits to certain senior employees and Qualified Planparticipants whose benefits may be limited by tax regulations. Benefits underthese pension plans are based on years of service and employee compensation.

F-41

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**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

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

**OtherPostretirement Plans**

In addition, the Companyprovides certain subsidized unfunded health-care benefits for eligible retiredemployees (the “Other Plans”). Employees hired prior to July 1, 1988become eligible for these benefits if they meet minimum age and servicerequirements. The plan sponsor has the right to modify or terminate thesebenefits. As of December 31, 2005 and2004, the aggregate accumulated postretirement benefit obligation was $128million and $62 million, respectively.

**Net PeriodicBenefit Cost**

Thefollowing table presents the pension expense by component for the QualifiedPlan for the years ended September 30, 2005, 2004 and 2003:

| ** **                                     | ** ** | **For the Year Ended  September 30,** | ** ** |
|------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                     | ** ** | **2005**                                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                     | ** ** | **(In millions)**                                    | ** ** |
| **Components of Net Periodic  Benefit Cost:**  |       |                                                      |       |   |   |   |   |
| Service cost                                   |       | $                                                         | 19         |   | $ | 20 |   | $ | 27 |   |
| Interest cost                                  |       | 37                                                        |       | 34 |   | 32 |   |
| Expected return  on plan assets                |       | (56                                                       | )          | (48 | ) | (37 | ) |
| Amortization of  unrecognized transition asset |       | —                                                    |       | (2 | ) | (2 | ) |
| Amortization of  prior service cost            |       | 1                                                         |       | 1 |   | 1 |   |
| Recognized net  actuarial loss                 |       | 20                                                        |       | 17 |   | 9 |   |
| Recognized  curtailment loss                   |       | —                                                    |       | 4 |   | — |   |
| Net periodic  benefit cost                     |       | $                                                         | 21         |   | $ | 26 |   | $ | 30 |   |

 

The following tablepresents the pension expense for the Supplemental Plan and postretirement health-careexpense for the Other Plans by component for the years ended September 30,2005, 2004 and 2003:

| ** **                                           | ** ** | **For the Year Ended  September 30,** | ** ** |
|------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                           | ** ** | **2005**                                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                           | ** ** | **(In millions)**                                    | ** ** |
| **Components  of Net Periodic Benefit Cost:**        |       |                                                      |       |   |   |   |   |   |   |   |   |   |   |
| Service cost                                         |       |                                                      | $          | 3 |   |   |   | $ | 3 |   |   |   | $ | 3 |   |   |
| Interest cost                                        |       |                                                      | 8          |   |   |   | 6 |   |   |   | 6 |   |   |
| Amortization of  unrecognized transition obligations |       |                                                      | 1          |   |   |   | 1 |   |   |   | 1 |   |   |
| Amortization of  prior service cost                  |       |                                                      | (1         | ) |   |   | (1 | ) |   |   | (1 | ) |   |
| Recognized net  actuarial loss                       |       |                                                      | 7          |   |   |   | 2 |   |   |   | 3 |   |   |
| Net periodic  benefit cost                           |       |                                                      | $          | 18 |   |   |   | $ | 11 |   |   |   | $ | 12 |   |   |

** **

F-42

----

**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**16. EmployeeBenefit Plans (Continued)**

**Benefit Obligationand Plan Assets**

Thefollowing table reconciles the changes in the projected benefit obligation andthe fair value of the plan assets and summarizes the funded status for theQualified Plan, the Supplemental Plan and the Other Plans. Amounts shown are asof the measurement date, which is September 30, 2005 and 2004:

| ** **                                              | ** ** | **Qualified**          | ** ** | **Supplemental  and Other** | ** ** |
|---------------------------------------------------------|------------|------------------------|------------|----------------------------------|------------|
| ** **                                              | ** ** | **2005**               | ** ** | **2004**                         | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                              | ** ** | **(In millions)** | ** ** |
| **Change  in Benefit Obligation**                       |       |                   |       |                             |       |   |   |   |   |
| Projected benefit  obligation as of beginning of period |       | $                      | 606        |                             | $          | 589 |   | $ | 106 |   | $ | 105 |   |
| Service cost                                            |       | 19                     |       | 20                               |       | 3 |   | 3 |   |
| Interest cost                                           |       | 37                     |       | 34                               |       | 9 |   | 5 |   |
| Participant  contributions                              |       | —                 |       | —                           |       | — |   | 1 |   |
| Amendments                                              |       | —                 |       | 2                                |       | — |   | — |   |
| Assumption change                                       |       | 76                     |       | —                           |       | 2 |   | — |   |
| Actuarial  loss/(gain)                                  |       | 16                     |       | (7                               | )          | 53 |   | 8 |   |
| Benefits paid                                           |       | (17                    | )          | (17                              | )          | (6 | ) | (5 | ) |
| Curtailments                                            |       | —                 |       | (15                              | )          | — |   | — |   |
| Adoption of  FSP106-2                                   |       | —                 |       | —                           |       | — |   | (11 | ) |
| Projected benefit  obligation as of the end of period   |       | $                      | 737        |                             | $          | 606 |   | $ | 167 |   | $ | 106 |   |
| **Change in Plan Assets**                               |       |                   |       |                             |       |   |   |   |   |
| Fair value of  assets as of the beginning of period     |       | $                      | 635        |                             | $          | 389 |   | $ | — |   | $ | — |   |
| Actual return on  plan assets                           |       | 78                     |       | 38                               |       | — |   | — |   |
| Participant  contributions                              |       | —                 |       | —                           |       | — |   | — |   |
| Employer  contributions                                 |       | —                 |       | 225                              |       | 6 |   | 4 |   |
| Benefits paid                                           |       | (17                    | )          | (17                              | )          | (6 | ) | (4 | ) |
| Fair value of  assets as of the end of period           |       | $                      | 696        |                             | $          | 635 |   | $ | — |   | $ | — |   |
| **Funded Status**                                       |       |                   |       |                             |       |   |   |   |   |
| Funded  status—funded (underfunded)                |       | $                      | (41        | )                                | $          | 29 |   | $ | (167 | ) | $ | (106 | ) |
| Unrecognized  transition obligation                     |       | —                 |       | —                           |       | 7 |   | 1 |   |
| Unrecognized  prior service cost                        |       | 4                      |       | 5                                |       | 2 |   | — |   |
| Unrecognized net  actuarial loss                        |       | 296                    |       | 245                              |       | 70 |   | 28 |   |
| Net amount recognized                                   |       | $                      | 259        |                             | $          | 279 |   | $ | (88 | ) | $ | (77 | ) |

 

F-43

----

**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**16. EmployeeBenefit Plans (Continued)**

Amounts recognized in theconsolidated statements of financial condition as of December 31, 2005 and2004 were as follows: 

| ** **                            | ** ** | **Qualified**          | ** ** |
|---------------------------------------|------------|------------------------|------------|
| ** **                            | ** ** | **2005**               | ** ** | **2004** | ** ** |
| ** **                            | ** ** | **(In millions)** | ** ** |
| Prepaid asset                         |       | $                      | —     |   | $ | 279 |   |
| Intangible asset                      |       | 4                      |       | — |   |
| Accrued benefit  liability            |       | (15                    | )          | — |   |
| Accumulated other  comprehensive loss |       | 270                    |       | — |   |
| Net amount recognized                 |       | $                      | 259        |   | $ | 279 |   |

 

As of December 31, 2005 and 2004, the Company hadrecognized liabilities of $88 million and $77 million, respectively,for the Supplemental and Other Plans in the consolidated statements offinancial condition.

The Company had an unfunded accumulated benefitobligation of $15 million in the Qualified Plan as of the valuation datein 2005. Accordingly, the Company recorded pre-tax and after-tax minimumpension liability adjustments of $270 million and $175 million,respectively, for the year ended December 31, 2005 in accumulated othercomprehensive loss in the consolidated statements of financial condition. TheCompany had a fully funded accumulated benefit obligation in the Qualified Planas of the valuation date in 2004 and reversed the previously recorded minimumpension liability adjustments applicable to the Qualified Plan resulting in anafter-tax increase in accumulated other comprehensive income of $150 million,net of tax.

The accumulated benefitobligation for the Qualified Plan was $711 million and $578 million as of September 30,2005 and 2004, respectively. The accumulated benefit obligation for theSupplemental and Other Plans was $167 million and $106 million as of September 30,2005 and 2004, respectively.

**Estimated FutureBenefit Payments**

Theestimated future benefit payments expected to be made by the Qualified Plan,Supplemental Plan and Other Plans are as follows: 

| ** **      | ** ** | **Qualified**          | ** ** | **Supplemental  and Other** | ** ** |
|-----------------|------------|------------------------|------------|----------------------------------|------------|
| ** **      | ** ** | **(In millions)** | ** ** |
| 2006            |       |                   | $          | 28                               |       |   |   | $ | 7 |   |   |
| 2007            |       |                   | 31         |                             |       |   | 7 |   |   |
| 2008            |       |                   | 33         |                             |       |   | 8 |   |   |
| 2009            |       |                   | 35         |                             |       |   | 9 |   |   |
| 2010            |       |                   | 36         |                             |       |   | 9 |   |   |
| Years 2011-2015 |       |                   | 185        |                             |       |   | 50 |   |   |

 

F-44

----

**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**16. EmployeeBenefit Plans (Continued)**

**Assumptions Used inDetermining Costs and Obligations**

The following tablepresents on a weighted average basis the assumptions used in determining thenet periodic benefit costs for the Qualified Plan, the Supplemental Plan andthe Other Plans for the years ended September 30, 2005, 2004 and 2003:

| ** **                                | ** ** | **For the Year Ended  September 30,** | ** ** |
|-------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                | ** ** | **2005**                                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Qualified Plan and Supplemental  Plan** |       |                                                      |       |   |   |   |   |
| Discount rate                             |       | 6.00                                                      | %          | 6.00 | % | 6.25 | % |
| Rate of compensation  increase            |       | 4.00                                                      | %          | 4.00 | % | 4.00 | % |
| Expected rate of return(1)                |       | 8.25                                                      | %          | 8.50 | % | 8.50 | % |
| **Other Plans**                           |       |                                                      |       |   |   |   |   |
| Discount rate                             |       | 6.00                                                      | %          | 6.00 | % | 6.25 | % |
| Rate of compensation  increase            |       | N/A                                                       |       | N/A |   | N/A |   |
| Expected rate of return(1)                |       | N/A                                                       |       | N/A |   | N/A |   |

----

(1)                 The expectedlong-term rate of return on plan assets assumption is based on historical realrates of return of the various asset classes, weighted based on the targetasset allocation percentages for each major category of plan assets. Theanticipated inflation rate is added to these historical real rates of return toarrive at the expected long-term rate of return on plan assets assumption.

Theassumptions used in determining the projected benefit obligation for theQualified Plan and Supplemental Plan and the projected health-carepostretirement benefit obligation for the Other Plans as of September 30,2005 and 2004 were:

| ** **                                                   | ** ** | **2005**   | ** ** | **2004** | ** ** |
|--------------------------------------------------------------|------------|------------|------------|----------|------------|
| **Projected  benefit obligation**                            | ** ** | ** ** |       |     |       |
| Discount rate                                                |       | 5.50       | %          | 6.00     | %          |
| Rate of  compensation increase                               |       | 4.25       | %          | 3.75     | %          |
| **Projected  health-care postretirement benefit obligation** |       |       |       |     |       |
| Discount rate                                                |       | 5.50       | %          | 6.00     | %          |
| Rate of compensation  increase                               |       | N/A        |       | N/A      |       |

 

Indetermining the accumulated postretirement health-care benefit obligation andthe net periodic postretirement costs for 2005, the Company assumed thefollowing:

| ** **                              | ** ** | ** ** | ** ** | **Obligation**       | ** ** |
|-----------------------------------------|------------|------------|------------|----------------------|------------|
| ** **                              | ** ** | **Cost**   | ** ** | **Pre-65  Retirees** | ** ** | **Post-65  Retirees** | ** ** | **Medicare  Part D** | ** ** |
| Health-care rate  increases             | ** ** | ** ** | ** ** |                 | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| 2005                                    |       | 8.00       | %          |                 | N/A        |   |   |   | N/A |   |   |   | N/A |   |   |
| 2006                                    |       | 7.00       | %          |                 | 9.00       | % |   |   | 9.75 | % |   |   | 11.50 | % |   |
| Ultimate trend  rate increase           |       | 4.75       | %          |                 | 4.50       | % |   |   | 4.50 | % |   |   | 5.50 | % |   |
| Ultimate trend expected  to be achieved |       | 2010       |       |                 | 2011       |   |   |   | 2011 |   |   |   | 2011 |   |   |

 

F-45

----

**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

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

Assumedhealth-care cost trend rates have a significant effect on the amounts reportedfor the health-care benefits. A 1% change in assumed health-care cost trendrates would have the following effects:

| ** **                                              | ** ** | **1% increase**   | ** ** | **1% decrease** | ** ** |
|---------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                              | ** ** | **(In millions)** | ** ** |
| Effect on benefit  obligation at end of year            |       |                   | $          | 8                    |       |   |   | $ | (7 | ) |   |
| Effect on total of  service and interest costs for year |       |                   | $          | 1                    |       |   |   | $ | (1 | ) |   |

 

**Investments**

The investment policies and strategies of theQualified Plan are determined by a committee made up of the Company’s seniormanagement. The policy is based on long-term goals and is therefore notfrequently revised.****The investmentgoal is to create an asset mix that is adequate for future benefit obligationsby creating a diversified investment portfolio, while managing various riskfactors and maximizing the Qualified Plan’s investment returns through use ofrelated party and external fund managers and clearly defined strategies. Seniormanagement regularly monitors actual allocation compared to the policy. Thecurrent asset allocation goal is to achieve an asset mix of approximately 30%in domestic equities; 20% in international equities; 24% in fixed incomesecurities; 10% in real estate; 15% in alternate investments (primarily hedgefunds); and 1% in cash.

Thefollowing table presents the percentage of the fair value of the Qualified Planassets as of September 30, 2005 and 2004 by type of asset:

| ** **               | ** ** | **Qualified** | ** ** |
|--------------------------|------------|---------------|------------|
| ** **               | ** ** | **2005**      | ** ** | **2004** | ** ** |
| **Asset Allocation:**    |       |          |       |   |   |   |   |   |   |
| Equity securities        |       |          | 50         | % |   |   | 43 | % |   |
| Fixed income  securities |       |          | 25         |   |   |   | 21 |   |   |
| Real estate              |       |          | 10         |   |   |   | 3 |   |   |
| Cash and other           |       |          | 15         |   |   |   | 33 |   |   |
| Total                    |       |          | 100        | % |   |   | 100 | % |   |

 

**Employee Loans andDeferred Compensation Arrangements**

Certain key employees ofthe Company also participate in the following compensation and otherarrangements: investments in selected private equity activities of the Companyfunded by deferred compensation and recourse and non-recourse leveraged loansprovided by the Company; non-qualified deferred compensation plans that includemanaged investments; and other non-qualified plans that are funded by theCompany with insurance contracts. The investments, including the leveragefactor, and the amounts accrued by the Company under these plans are includedin the consolidated statements of financial condition. The employee-relatedassets were $424 million and $549 million as of December 31,2005 and 2004, respectively, and are included in other assets and deferredamounts in the consolidated statements of financial condition. Relatedliabilities for deferred compensation plans were $924 million and $1.2billion, respectively, as of December 31, 2005 and 2004 and are includedin other liabilities in the 

F-46

----

**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**16. EmployeeBenefit Plans (Continued)**

consolidatedstatements of financial condition. Gains and losses on these assets andliabilities are recorded in the consolidated statements of income.

**17. Income Taxes**

The Company is included in the consolidated federalincome tax return and certain state and local income tax returns filed by CSHoldings. CS Holdings allocates federal income taxes to its subsidiaries on aseparate return basis, and any state and local income taxes on a *pro rata* basis, pursuant to a tax sharingarrangement.

Includedin the consolidated statements of income for the years ended December 31,2005, 2004 and 2003 are current and deferred provisions for income taxes fromcontinuing operations that were allocated to the Company by CS Holdings asfollows:

| ** **                                             | ** ** | **For the Year Ended December 31,** | ** ** |
|--------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                             | ** ** | **2005**                                                     | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                             | ** ** | **(In millions)**                                       | ** ** |
| Current:                                               |       |                                                         |       |   |   |   |   |   |   |   |   |   |   |
| U.S. federal taxes                                     | ** ** | ** **                                                   | $          | 43 |   |   |   | $ | 316 |   |   |   | $ | (71 | ) |   |
| State and local taxes                                  |       |                                                         | 10         |   |   |   | 3 |   |   |   | 70 |   |   |
| Foreign taxes                                          |       |                                                         | 6          |   |   |   | 7 |   |   |   | 1 |   |   |
| Total current                                          |       |                                                         | 59         |   |   |   | 326 |   |   |   | — |   |   |
| Deferred:                                              |       |                                                         |       |   |   |   |   |   |   |   |   |   |   |
| U.S. federal taxes                                     |       |                                                         | 2          |   |   |   | 71 |   |   |   | 244 |   |   |
| Total deferred                                         |       |                                                         | 2          |   |   |   | 71 |   |   |   | 244 |   |   |
| Provision for income  taxes from continuing operations |       |                                                         | $          | 61 |   |   |   | $ | 397 |   |   |   | $ | 244 |   |   |

 

Excluded from the table above is a provision forincome taxes for the years ended December 31, 2003 of $485 millionrelated to discontinued operations; a provision for income taxes of $3 millionand an income tax benefit of $5 million for the years ended December 31,2005 and 2003, respectively, related to the cumulative effect of a change inaccounting principle; an income tax benefit of $163 million and $131 millionand an income tax charge of $27 million for the years ended December 31,2005, 2004 and 2003, respectively, related to CSG share plan activity, and anincome tax benefit of $93 million, an income tax charge of $80 million andan income tax benefit of $2 million for the years ended December 31,2005, 2004 and 2003, respectively, related to minimum pension liabilityadjustments.

F-47

----

**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**17. IncomeTaxes (Continued)**

The following tablesummarizes the difference between the federal statutory tax rate and theeffective tax rate related to continuing operations for the years ended December 31,2005, 2004 and 2003:

| ** **                                                | ** ** | **For the Year Ended December 31,** | ** ** |
|-----------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                | ** ** | **2005**                                                     | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                | ** ** | **Amount**                                                   | ** ** | **Percent of  Pre-tax  Income** | ** ** | **Amount** | ** ** | **Percent of  Pre-tax  (Loss)** | ** ** | **Amount** | ** ** | **Percent of  Pre-tax  (Loss)** | ** ** |
| ** **                                                | ** ** | **(In millions)**                                       | ** ** | ** ** | ** ** | **(In millions)** | ** ** | ** ** | ** ** | **(In millions)** | ** ** | ** ** | ** ** |
| U.S. federal  statutory income tax provision              |       |                                                         | $          | 399 |   |   |   | 35.0 | % |   |   | $ | 639 |   |   |   | 35.0 | % |   |   | $ | 199 |   |   |   | 35.0 | % |   |
| Increase (decrease) due to:                               |       |                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Minority interests(1)                                     |       |                                                         | (336       | ) |   |   | (29.5 | ) |   |   | (225 | ) |   |   | (12.3 | ) |   |   | — |   |   |   | — |   |   |
| Dividend exclusion                                        |       |                                                         | (39        | ) |   |   | (3.4 | ) |   |   | (36 | ) |   |   | (2.0 | ) |   |   | (11 | ) |   |   | (2.0 | ) |   |
| Entertainment expense                                     |       |                                                         | 6          |   |   |   | 0.5 |   |   |   | 5 |   |   |   | 0.3 |   |   |   | 4 |   |   |   | 0.8 |   |   |
| State and local taxes, net of federal income tax  effects |       |                                                         | 6          |   |   |   | 0.5 |   |   |   | 2 |   |   |   | 0.1 |   |   |   | 45 |   |   |   | 8.0 |   |   |
| Transfer pricing  adjustments                             |       |                                                         | 32         |   |   |   | 2.8 |   |   |   | (1 | ) |   |   | (0.1 | ) |   |   | (1 | ) |   |   | (0.1 | ) |   |
| Other                                                     |       |                                                         | (7         | ) |   |   | (0.5 | ) |   |   | 13 |   |   |   | 0.8 |   |   |   | 8 |   |   |   | 1.3 |   |   |
| Provision for income  taxes from continuing operations    |       |                                                         | $          | 61 |   |   |   | 5.4 | % |   |   | $ | 397 |   |   |   | 21.8 | % |   |   | $ | 244 |   |   |   | 43.0 | % |   |

----

(1)                 Represents theeffect of non-taxable revenues and expenses from private equity fundsconsolidated primarily under FIN 46R. Net income was unaffected as offsettingminority interests were recorded in the consolidated statements of income. SeeNote 4 for more information.

Deferred tax assets anddeferred tax liabilities are generated by the following temporary differences:

| ** **                                                                   | ** ** | **December 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                   | ** ** | **(In millions)**      | ** ** |
| Deferred tax assets:                                                         |       |                        |       |                        |       |   |   |   |   |
| Inventory                                                                    |       |                        | $          | 137                         |       |   |   | $ | 147 |   |   |
| Investments                                                                  |       |                        | 234        |                        |       |   | 300 |   |   |
| Other liabilities and  accrued expenses, primarily compensation and benefits |       |                        | 1,433      |                        |       |   | 1,094 |   |   |
| State and local taxes                                                        |       |                        | 35         |                        |       |   | 32 |   |   |
| Total deferred tax  assets                                                   |       |                        | 1,839      |                        |       |   | 1,573 |   |   |
| Deferred tax  liabilities:                                                   |       |                        |       |                        |       |   |   |   |   |
| Inventory                                                                    |       |                        | 134        |                        |       |   | 62 |   |   |
| Investments                                                                  |       |                        | 221        |                        |       |   | 285 |   |   |
| Other                                                                        |       |                        | 247        |                        |       |   | 91 |   |   |
| Total deferred tax  liabilities                                              |       |                        | 602        |                        |       |   | 438 |   |   |
| Deferred tax assets net  of deferred tax liabilities                         |       |                        | 1,237      |                        |       |   | 1,135 |   |   |
| Valuation allowance for  state and local taxes                               |       |                        | (35        | )                           |       |   | (32 | ) |   |
| Net deferred tax asset                                                       |       |                        | $          | 1,202                       |       |   |   | $ | 1,103 |   |   |

 

F-48

----

**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**17. IncomeTaxes (Continued)**

Due to uncertaintyconcerning the Company’s ability to generate the necessary amount and mix ofstate and local taxable income in future periods, the Company maintains avaluation allowance against its deferred state and local tax asset in theamount $35 million and $32 million as of December 31, 2005 and 2004,respectively. The Company has determined that the realization of the remainingrecognized deferred tax assets as of December 31, 2005 is more likely thannot based on anticipated future taxable income. In addition, for federal incometax purposes, the Company has planning strategies available that enhance itsability to utilize these tax benefits.

**18. LegalProceedings**

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

Inaccordance with SFAS No. 5, “Accounting for Contingencies,” the Companyrecorded in the second quarter of 2005 a $750 million litigation charge toincrease the reserve for private litigation involving Enron, certain IPOallocation practices, research analyst independence and other relatedlitigation. This charge, coupled with the charge recorded in 2002, brings theCompany’s reserves for these private litigation matters as of December 31,2005 to $1.1 billion after the application of settlements. It isinherently difficult to predict the outcome of many of these matters. Inpresenting the consolidated financial statements, management makes estimatesregarding the outcome of these matters and records a reserve and takes a chargeto income when losses with respect to such matters are probable and can bereasonably estimated. Estimates, by their nature, are based on judgment andcurrently available information and involve a variety of factors, including,but not limited to, the type and nature of the litigation, claim or proceeding,the progress of the matter, the advice of legal counsel, the Company’s defensesand its experience in similar cases or proceedings. Further litigation chargesor releases of litigation reserves may be necessary in the future asdevelopments in such cases or proceedings warrant.

**19.Industry Segment and Geographic Data**

In 2005, the Company operated and managed itsbusinesses through two operating segments: the Institutional Securitiessegment, consisting primarily of Investment Banking, Trading and certainseparately managed private equity and distressed assets; and the Wealth &Asset Management segment, consisting of Alternative Capital, which includes theresults of the private equity and private funds businesses, and Private ClientServices.

The Company’s segments are managed based on types ofproducts and services offered and their related client bases. The Companyevaluates the performance of its segments based primarily on income fromcontinuing operations before provision for income taxes, discontinuedoperations and cumulative effect of a change in accounting principle butexcluding minority interests.

F-49

----

**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**19. IndustrySegment and Geographic Data (Continued)**

The Institutional Securities segment 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 Institutional Securities segment also includes theresults from certain separately managed private equity and distressed assets.

The Wealth &Asset Management segment consists of:

·       AlternativeCapital, which includes the private equity and private funds businesses. Theprivate equity business makes privately negotiated investments and acts as aninvestment advisor for private equity funds. The private funds business raisesprivate capital, primarily from institutional investors, for direct investmentby venture capital, management buyout and other investment firms in a varietyof fund types; and

·       PrivateClient Services, which is a financial advisory business serving high-net-worthindividuals and corporate investors with a wide range of Credit Suisse andthird-party investment management products and services.

The Company allocates to its segments a *pro rata* share of certain centrally managed costs, such asleased facilities and equipment costs, employee benefits and certain generaloverhead expenses based upon specified amounts, usage criteria or agreed rates,and allocates interest expense based upon the type of asset. The segmentallocation of some costs, such as incentive bonuses, is estimated. Any revenuesand expenses not allocated to the Company’s segments appear in Elimination &Other in the table below. For additional information, see Note 1.

F-50

----

**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**19. IndustrySegment and Geographic Data (Continued)**

The following table setsforth the net revenues excluding net interest, net interest and dividendsrevenue, total net revenues, total expenses and income from continuingoperations before provision for income taxes, discontinued operations andcumulative effect of a change in accounting principle and assets of theCompany’s segments.

| ** **                                              | ** ** | **Institutional  Securities** | ** ** | **Wealth & Asset  Management** | ** ** | **Elimination &  Other**(7) | ** ** | **Total**  | ** ** |
|---------------------------------------------------------|------------|-------------------------------|------------|----------------------------------------------|------------|--------------------------------------|------------|------------|------------|
| ** **                                              | ** ** | **(In millions)**        | ** ** |
| **For the year ended December 31, 2005:**          | ** ** |                          | ** ** | ** **                                   |       |                                 | ** ** | ** ** |       |   | ** ** | ** ** |   | ** ** | ** ** |
| Net revenues excluding net  interest                    |       |                          | $          | 3,384                                        | ** ** |                                 |       | $          | 1,707      | ** ** |   |   | $ | — |   |   | $ | 5,091 |   |
| Net interest and dividends  revenue                     |       |                          | 1,917      | ** **                                   |       |                                 | 17         | ** ** |       |   | — |   |   | 1,934 |   |
| Total net revenues(1)                                   |       |                          | 5,301      | ** **                                   |       |                                 | 1,724      | ** ** |       |   | — |   |   | 7,025 |   |
| Total expenses                                          |       |                          | 4,982      | ** **                                   |       |                                 | 618        | ** ** |       |   | 284 |   |   | 5,884 |   |
| Income (loss)(2)                                        |       |                          | 319        | ** **                                   |       |                                 | 1,106      | ** ** |       |   | (284 | ) |   | 1,141 |   |
| Minority interests(3)                                   |       |                          | 237        |                                         |       |                                 | 722        |       |       |   | — |   |   | 959 |   |
| Income (loss) after minority  interests(4)              |       |                          | $          | 82                                           |       |                                 |       | $          | 384        |   |   |   | $ | (284 | ) |   | $ | 182 |   |
| **For the year ended  December 31, 2004:**         | ** ** |                          | ** ** | ** **                                   |       |                                 | ** ** | ** ** |       |   | ** ** | ** ** |   | ** ** | ** ** |
| Net revenues excluding net  interest                    |       |                          | $          | 2,425                                        | ** ** |                                 |       | $          | 1,433      | ** ** |   |   | $ | — |   |   | $ | 3,858 |   |
| Net interest and dividends  revenue                     |       |                          | 2,435      | ** **                                   |       |                                 | 48         | ** ** |       |   | — |   |   | 2,483 |   |
| Total net revenues(1)                                   |       |                          | 4,860      | ** **                                   |       |                                 | 1,481      | ** ** |       |   | — |   |   | 6,341 |   |
| Total expenses                                          |       |                          | 3,970      | ** **                                   |       |                                 | 545        | ** ** |       |   | — |   |   | 4,515 |   |
| Income(2)                                               |       |                          | 890        | ** **                                   |       |                                 | 936        | ** ** |       |   | — |   |   | 1,826 |   |
| Minority interests(3)                                   |       |                          | 79         |                                         |       |                                 | 563        |       |       |   | — |   |   | 642 |   |
| Income after minority  interests(4)                     |       |                          | $          | 811                                          |       |                                 |       | $          | 373        |   |   |   | $ | — |   |   | $ | 1,184 |   |
| **For the year ended  December 31, 2003:**         |       |                          |       | ** **                                   |       |                                 |       | ** ** |       |   |   |   |   |   |   |
| Net revenues excluding net  interest                    |       |                          | $          | 1,894                                        | ** ** |                                 |       | $          | 711        | ** ** |   |   | $ | — |   |   | $ | 2,605 |   |
| Net interest and dividends revenue                      |       |                          | 2,342      | ** **                                   |       |                                 | 50         | ** ** |       |   | — |   |   | 2,392 |   |
| Total net revenues(1)(5)                                |       |                          | 4,236      | ** **                                   |       |                                 | 761        | ** ** |       |   | — |   |   | 4,997 |   |
| Total expenses(6)                                       |       |                          | 3,678      | ** **                                   |       |                                 | 750        | ** ** |       |   | — |   |   | 4,428 |   |
| Income(2)(5)(6)                                         |       |                          | 558        | ** **                                   |       |                                 | 11         | ** ** |       |   | — |   |   | 569 |   |
| Minority interests(3)                                   |       |                          | —     |                                         |       |                                 | —     |       |       |   | — |   |   | — |   |
| Income after minority  interests(4)(5)(6)               |       |                          | $          | 558                                          |       |                                 |       | $          | 11         |   |   |   | $ | — |   |   | $ | 569 |   |
| **Segment assets as of  December 31, 2005****(8)** | ** ** |                          | $          | 292,581                                      | ** ** |                                 |       | $          | 5,173      | ** ** |   |   | $ | — |   |   | $ | 297,754 |   |
| **Segment assets as of  December 31, 2004****(8)** | ** ** |                          | $          | 271,203                                      | ** ** |                                 |       | $          | 4,610      | ** ** |   |   | $ | — |   |   | $ | 275,813 |   |
| **Segment assets as of December 31, 2003**         | ** ** |                          | $          | 239,733                                      | ** ** |                                 |       | $          | 1,833      | ** ** |   |   | $ | — |   |   | $ | 241,566 |   |

----

(1)      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 principaltransactions-net instead of interest and dividends, net, in the Company’sconsolidated statements of income and in net revenues excluding net interest.

F-51

----

**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**19. Industry Segment andGeographic Data (Continued)**

(2)                 Income (loss)from continuing operations before provision for income taxes, minorityinterests, discontinued operations and cumulative effect of a change inaccounting principle.

(3)                 Related to the Company’sconsolidation of certain private equity funds. See Note 4 for more information.

(4)                 Income (loss)from continuing operations before provision for income taxes, discontinuedoperations and cumulative effect of a change in accounting principle. 

(5)                 The results forthe Wealth & Asset Management segment for the year ended December 31,2003 include the results for the Company’s 50% stake in a Japanese onlinebroker, DLJ*direct* SFGSecurities Inc., up to the time of, and the gain resulting from, its salein the fourth quarter of 2003.

(6)                 The Wealth &Asset Management segment results for the year ended December 31, 2003include the pre-tax loss of $210 million of the HNW business, of which$200 million related to a write-down of intangible assets by CSAM in December 2003.

(7)                 Consists of the recognitionof compensation expense in the fourth quarter of 2005 due to a change inaccounting treatment for share-based awards to early-retirement eligibleemployees.

(8)                 The InstitutionalSecurities and Wealth & Asset Management segment assets include$628 million and $2.1 billion, respectively, as of December 31,2005 and $494 million and $1.5 billion, respectively, as of December 31,2004, related to the Company’s consolidation of certain private equity funds.

Thefollowing are net revenues from continuing operations by geographic region: 

| ** **    | ** ** | **For the Year Ended December 31,** | ** ** |
|---------------|------------|--------------------------------------------------------------|------------|
| ** **    | ** ** | **2005**                                                     | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **    | ** ** | **(In millions)**                                       | ** ** |
| United States |       | $                                                            | 7,007      |   | $ | 6,311 |   | $ | 4,983 |   |
| Foreign       |       | 18                                                           |       | 30 |   | 14 |   |
| Total         |       | $                                                            | 7,025      |   | $ | 6,341 |   | $ | 4,997 |   |

                                                                                                                                                                                                                                                                                                                                                                                                

**20. Quarterly Data (Unaudited)**

Thefollowing table presents total net revenues, income (loss) before provision(benefit) for income taxes, and net income (loss):

| ** **                                   | ** ** | ** **                        | ** ** | ** **            | ** ** | ** ** | ** ** | ** **    | ** ** | **For the Year** | ** ** |
|----------------------------------------------|------------|-----------------------------------|------------|-----------------------|------------|------------|------------|---------------|------------|----------------------------|------------|
| ** **                                   | ** ** | ** **                        | ** ** | ** **            | ** ** | ** ** | ** ** | ** **    | ** ** | **Ended**                  | ** ** |
| ** **                                   | ** ** | **2005 Fiscal Quarter** | ** ** | **December 31,** | ** ** |
| ** **                                   | ** ** | **First**                         | ** ** | **Second**(1)         | ** ** | **Third**  | ** ** | **Fourth**(2) | ** ** | **2005**                   | ** ** |
| ** **                                   | ** ** | **(In millions)**            | ** ** |
| Total net  revenues                          |       | $                                 | 1,633      |                  |       | $          | 1,427      |          |       | $                          | 2,080      |   |   | $ | 1,885 |   |   |   | $ | 7,025 |   |   |
| Income (loss)  from continuing operations(3) |       | 391                               |       |                  | (380       | )          |       | 794           |       |                       | 336        |   |   |   | 1,141 |   |   |
| Net income (loss)                            |       | $                                 | 176        |                  |       | $          | (439       | )             |       | $                          | 386        |   |   | $ | 4 |   |   |   | $ | 127 |   |   |

** **

F-52

----

**CREDIT SUISSE (USA), INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2005**

**20. QuarterlyData (Unaudited) (Continued)**

 

| ** **                            | ** ** | ** **                        | ** ** | ** **            | ** ** | ** ** | ** ** | ** ** | ** ** | **For the Year** | ** ** |
|---------------------------------------|------------|-----------------------------------|------------|-----------------------|------------|------------|------------|------------|------------|----------------------------|------------|
| ** **                            | ** ** | ** **                        | ** ** | ** **            | ** ** | ** ** | ** ** | ** ** | ** ** | **Ended**                  | ** ** |
| ** **                            | ** ** | **2004 Fiscal Quarter** | ** ** | **December 31,** | ** ** |
| ** **                            | ** ** | **First**                         | ** ** | **Second**            | ** ** | **Third**  | ** ** | **Fourth** | ** ** | **2004**                   | ** ** |
| ** **                            | ** ** | **(In millions)**            | ** ** |
| Total net  revenues                   |       | $                                 | 1,580      |                  | $          | 1,967      |       | $          | 1,183      |                       | $          | 1,611 |   |   | $ | 6,341 |   |   |
| Income from  continuing operations(3) |       | 327                               |       | 805                   |       | 61         |       | 633        |       |                       | 1,826      |   |   |
| Net income                            |       | $                                 | 167        |                  | $          | 292        |       | $          | 19         |                       | $          | 309 |   |   | $ | 787 |   |   |

----

(1)                 The Companyrecorded in the second quarter of 2005 a $750 million litigation charge toincrease the reserve for private litigation involving Enron, certain IPOallocation practices, research analyst independence and other relatedlitigation.

(2)                 The fourthquarter of 2005 includes the recognition of compensation expense due to achange in accounting treatment for share-based awards to early-retirementeligible employees.

(3)                 Income (loss)from continuing operations before provision (benefit) for income taxes,minority interests, discontinued operations and cumulative effect of a changein accounting principle.

F-53

----

**SCHEDULEICREDIT SUISSE (USA), INC.(Parent Company only)Condensed Statements ofFinancial Condition(In millions, except share data)**

| ** **                                                                                      | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                                      | ** ** | **2005**              | ** ** | **2004**              | ** ** |
| **ASSETS**                                                                                      | ** ** |                  | ** ** | ** **            |       |   | ** ** | ** ** |   |
| Cash and cash equivalents                                                                       |       |                  | $          | 1                     |       |   |   | $ | 1 |   |   |
| Receivables from  brokers, dealers and other                                                    |       |                  | 833        |                  |       |   | 305 |   |   |
| Derivatives  contracts                                                                          |       |                  | 672        |                  |       |   | 1,052 |   |   |
| Private equity  and other long-term investments                                                 |       |                  | 28         |                  |       |   | 33 |   |   |
| Receivables from  parent and affiliates                                                         |       |                  | 26,401     |                  |       |   | 23,970 |   |   |
| Receivables from  subsidiaries                                                                  |       |                  | 13,787     |                  |       |   | 11,324 |   |   |
| Investment in  subsidiaries, at equity                                                          |       |                  | 10,429     |                  |       |   | 8,667 |   |   |
| Net deferred tax  asset                                                                         |       |                  | 283        |                  |       |   | 345 |   |   |
| Goodwill                                                                                        |       |                  | 62         |                  |       |   | 60 |   |   |
| Other assets and  deferred amounts                                                              |       |                  | 405        |                  |       |   | 284 |   |   |
| Total assets                                                                                    |       |                  | $          | 52,901                |       |   |   | $ | 46,041 |   |   |
| **LIABILITIES AND STOCKHOLDER’S EQUITY**                                                   |       |                  |       | ** **            |       |   | ** ** | ** ** |   |
| Commercial paper and short-term borrowings                                                      |       |                  | $          | 4,921                 |       |   |   | $ | 4,192 |   |   |
| Payables to  brokers, dealers and other                                                         |       |                  | 615        |                  |       |   | 411 |   |   |
| Derivatives  contracts                                                                          |       |                  | 201        |                  |       |   | 156 |   |   |
| Accounts payable  and accrued expenses                                                          |       |                  | 849        |                  |       |   | 865 |   |   |
| Other liabilities                                                                               |       |                  | 607        |                  |       |   | 480 |   |   |
| Long-term  borrowings                                                                           |       |                  | 33,697     |                  |       |   | 28,873 |   |   |
| Total liabilities                                                                               |       |                  | 40,890     |                  |       |   | 34,977 |   |   |
| Stockholder’s  Equity:                                                                     |       |                  |       |                  |       |   |   |   |   |
| Common stock  ($0.10 par value; 50,000 shares authorized; 1,100 shares issued and  outstanding) |       |                  | —     |                  |       |   | — |   |   |
| Paid-in capital                                                                                 |       |                  | 9,530      |                  |       |   | 8,538 |   |   |
| Retained earnings                                                                               |       |                  | 2,661      |                  |       |   | 2,534 |   |   |
| Accumulated other  comprehensive loss                                                           |       |                  | (180       | )                     |       |   | (8 | ) |   |
| Total stockholder’s equity                                                                 |       |                  | 12,011     |                  |       |   | 11,064 |   |   |
| Total liabilities  and stockholder’s equity                                                |       |                  | $          | 52,901                |       |   |   | $ | 46,041 |   |   |

 

See accompanying notes to condensed financial statements.

F-54

----

**CREDIT SUISSE (USA), INC.(Parent Company only)Condensed Statements of Income(In millions)**

| ** **                                                                              | ** ** | **For the Year Ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                                              | ** ** | **2005**                                                     | ** ** | **2004** | ** ** | **2003** | ** ** |
| Revenues:                                                                               |       |                                                         |       |   |   |   |   |
| Principal transactions—net                                                         |       | $                                                            | 7          |   | $ | 26 |   | $ | (3 | ) |
| Investment banking and advisory                                                         |       | —                                                       |       | — |   | (5 | ) |
| Interest and dividends                                                                  |       | 1,178                                                        |       | 510 |   | 332 |   |
| Other                                                                                   |       | 20                                                           |       | 18 |   | 29 |   |
| Total revenues                                                                          |       | 1,205                                                        |       | 554 |   | 353 |   |
| Interest expense                                                                        |       | 1,417                                                        |       | 713 |   | 476 |   |
| Total net revenues                                                                      |       | (212                                                         | )          | (159 | ) | (123 | ) |
| Expenses:                                                                               |       |                                                         |       |   |   |   |   |
| Employee compensation and benefits                                                      |       | 22                                                           |       | 22 |   | 93 |   |
| Merger-related costs                                                                    |       | —                                                       |       | — |   | 6 |   |
| Other operating expenses                                                                |       | 10                                                           |       | 49 |   | 3 |   |
| Total expenses                                                                          |       | 32                                                           |       | 71 |   | 102 |   |
| Loss before  income tax benefit and equity in undistributed net income  of subsidiaries |       | (244                                                         | )          | (230 | ) | (225 | ) |
| Income tax  benefit                                                                     |       | (72                                                          | )          | (108 | ) | (111 | ) |
| Loss before equity in undistributed net income of  subsidiaries                         |       | (172                                                         | )          | (122 | ) | (114 | ) |
| Equity in  undistributed net income of subsidiaries                                     |       | 299                                                          |       | 909 |   | 1,306 |   |
| Net income                                                                              |       | $                                                            | 127        |   | $ | 787 |   | $ | 1,192 |   |

 

See accompanying notes to condensed financial statements.

F-55

----

**CREDIT SUISSE (USA), INC.(Parent Company only)Condensed Statements ofCash Flows(In millions)**

| ** **                                             | ** ** | **For the Years Ended December 31,** | ** ** |
|--------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                             | ** ** | **2005**                                                      | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net cash provided  by operating activities             |       | $                                                             | 581        |   | $ | 1,599 |   | $ | 592 |   |
| Cash flows from  investing activities:                 |       |                                                          |       |   |   |   |   |
| Net proceeds from  (payments for):                     |       |                                                          |       |   |   |   |   |
| Receivable from parent and affiliates                  |       | (2,431                                                        | )          | (3,419 | ) | (2,370 | ) |
| Receivables from subsidiaries                          |       | (2,463                                                        | )          | (811 | ) | (1,894 | ) |
| Investment in subsidiaries, at equity                  |       | (1,762                                                        | )          | (2,013 | ) | (400 | ) |
| Net cash used in  investing activities                 |       | (6,656                                                        | )          | (6,243 | ) | (4,664 | ) |
| Cash flows from  financing activities:                 |       |                                                          |       |   |   |   |   |
| Net proceeds from  (payments for):                     |       |                                                          |       |   |   |   |   |
| Commercial paper and short-term borrowings             |       | 729                                                           |       | (51 | ) | 2,161 |   |
| Issuance  (repayments) of:                             |       |                                                          |       |   |   |   |   |
| Series B preferred stock                          |       | —                                                        |       | — |   | (4 | ) |
| Issuance of long-term borrowings                       |       | 8,518                                                         |       | 6,974 |   | 5,029 |   |
| Redemptions/maturities of long-term borrowings         |       | (3,172                                                        | )          | (2,239 | ) | (3,542 | ) |
| Dividends from affiliates                              |       | —                                                        |       | — |   | 350 |   |
| Dividends to CS Holdings                               |       | —                                                        |       | (40 | ) | — |   |
| Capital contribution by CS Holdings                    |       | —                                                        |       | — |   | 75 |   |
| Net cash provided  by financing activities             |       | 6,075                                                         |       | 4,644 |   | 4,069 |   |
| Decrease in cash  and cash equivalents                 |       | —                                                        |       | — |   | (3 | ) |
| Cash and cash  equivalents as of the beginning of year |       | 1                                                             |       | 1 |   | 4 |   |
| Cash and cash  equivalents as of the end of year       |       | $                                                             | 1          |   | $ | 1 |   | $ | 1 |   |

 

See accompanying notes to condensed financial statements.

F-56

----

**CREDIT SUISSE (USA), INC. (Parent Company only) Notes to Condensed Financial Statements December 31, 2004**

**1. Basis of Presentation**

The condensed financialstatements of Credit Suisse (USA), Inc. (the “Parent Company”), formerlyknown as Credit Suisse First Boston (USA), Inc., should be read in conjunctionwith the consolidated financial statements of Credit Suisse (USA), Inc.and subsidiaries (the “Company”) and the notes thereto. Investments insubsidiaries are accounted for under the equity method.

**2. Related PartyTransactions**

As of December 31, 2005 and 2004, the Parent Companyhad receivables from subsidiaries of $13.8 billion and $11.3 billion,respectively. The receivables arose in the ordinary course of business. Changesin this balance are due to changes in the size and timing of transactions.Substantially all receivables from subsidiaries provide for interest based onfederal funds rates.

As of December 31, 2005and 2004, the Parent Company had receivables from its parent (CS Holdings)and affiliates that are outside the Company of $26.4 billion and$24.0 billion, respectively. There were no dividends declared to theParent Company by its consolidated subsidiaries in the years ended December 31,2005 and 2004. There are no restrictions on the payment of dividends, exceptfor those stipulated in certain debt agreements and those applicable to brokersand dealers, which provide for certain minimum amounts of capital to bemaintained to satisfy regulatory requirements in the Parent Company’s broker-dealersubsidiaries. Under certain circumstances, the amount of excess capital thatcan be withdrawn is limited. The regulatory requirements are designed tomeasure the general financial integrity and liquidity of broker-dealersand provide minimum acceptable net capital levels to satisfy commitments tocustomers. Unless an adequate level of capital is maintained, regulated broker-dealersubsidiaries would be prohibited from paying dividends to the Parent Company.

**3. Guarantees**

In the ordinary course of business, the Parent Companyenters into guarantee contracts as guarantor. FIN 45 requires disclosure by a guarantor of its maximum potentialpayment obligations under certain of its guarantees to the extent that it ispossible to estimate them.  FIN 45 alsorequires a guarantor to recognize, at the inception of a guarantee, a liabilityfor the fair value of the obligations undertaken in issuing such guarantee,including its ongoing obligation to stand ready to perform over the term of theguarantee in the event that certain events or conditions occur. With certainexceptions, these liability recognition requirements apply to any newguarantees entered into, or existing guarantees that are modified, afterDecember 31, 2002.

Guaranteesissued by the Parent Company are disclosed in the consolidated financialstatement disclosures (see Note 10 to the consolidated financialstatements) except for guarantees issued by the Parent Company on behalf of itsconsolidated subsidiaries, which are discussed below.

***Related PartyGuarantees***

For purposes ofParent Company only condensed financial statements, related party guaranteesinclude guarantees issued by the Parent Company for obligations of itsconsolidated subsidiaries and 

F-57

----

**CREDIT SUISSE (USA), INC. (Parent Company only) Notes to Condensed Financial Statements (Continued) December 31, 2004**

**3. Guarantees (Continued)**

guarantees issued by theParent Company for the obligations of companies controlled by CSG, the ParentCompany’s ultimate parent.

The Parent Company issues guarantees to customers withrespect to certain obligations of its consolidated subsidiaries in the ordinarycourse of business, including, but not limited to, certain derivativestransactions. Failure to perform by a consolidated subsidiary would require theParent Company to perform under the guarantee. The maximum contingent liabilityof future payments of guarantees issued to counterparties of consolidatedsubsidiaries as of December 31, 2005 was $12.7 billion. While themaximum contingent liability may be indicative of the extent to which suchguarantees are used, the Parent Company believes that the likelihood ofnonperformance by these consolidated subsidiaries is remote. Excluded from themaximum contingent liability are certain guarantees for which an estimatecannot be made because the exposure is unlimited and therefore impossible toestimate.

F-58

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**SIGNATURES**

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the Registrant has duly caused this report to be signed on its behalf bythe undersigned, hereunto duly authorized, on the 20th day of March, 2006.

|        | CREDIT SUISSE  (USA), INC. |
|--------|---------------------------------|
|   | By:                             | /s/ DAVID C. FISHER |
|   |                            | Name: David C. Fisher |
|   |                            | Title: *Chief Financial and  Accounting Officer* |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the registrant and in thecapacities and on the dates indicated.

|                       | **Name** | ** **                                       | ** ** |                          | **Title** | ** ** | ** ** |  | **Date** | ** ** |
|-----------------------|----------|--------------------------------------------------|------------|--------------------------|-----------|------------|------------|--|----------|------------|
| /s/ BRADY W.  DOUGAN  |     | Director,  President and Chief Executive Officer |       |                     |
| Brady  W. Dougan      |     | (Principal Executive Officer)                    |       | March 20, 2006 |
| /s/ DAVID C.  FISHER  |     | Chief Financial  and Accounting Officer          |       | March 20, 2006 |
| David  C. Fisher      |     | (Principal Financial and Accounting Officer)     |       |                     |
| /s/ NEIL MOSKOWITZ    |     | Director                                         |       | March 20, 2006 |
| Neil  Moskowitz       |     |                                             |       |                     |
| /s/ LEWIS H.  WIRSHBA |     | Director                                         |       | March 20, 2006 |
| Lewis H. Wirshba      |     |                                             |       |                     |

 

II-1

----

**INDEX TO EXHIBITS**
| Exhibit Number | ** ** | ** **                                                                                                                                                                                                                                                                                                                                            | ** ** | **Description** |
|---------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|
| 3.1                 |       | Certificate of  Amendment of Restated Certificate of Incorporation of the Registrant.*                                                                                                                                                                                                                                                                |
| 3.2                 |       | Restated  Certificate of Incorporation of the Registrant.*                                                                                                                                                                                                                                                                                            |
| 3.3                 |       | By-laws of  the Registrant.*                                                                                                                                                                                                                                                                                                                          |
| 4                   |       | The instruments  defining the rights of holders of long-term debt securities of the  Registrant and its subsidiaries are omitted pursuant to  Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The  Registrant hereby agrees to furnish copies of these instruments to the  Securities and Exchange Commission upon request.           |
| 10.1                |       | Agreement of  Lease, dated July 28, 1995, between Metropolitan Life Insurance Company  and CS Securities, as tenant, on Eleven Madison Avenue, New York, New York  (incorporated by reference to Exhibit 10.28 of the Registrant’s Annual  Report on Form 10-K for the fiscal year ended December 31,  2000).                |
| 10.2                |       | Amendment of  Lease, dated May 17, 1996, between Metropolitan Life Insurance Company  and CS Securities, as tenant, on Eleven Madison Avenue, New York, New York  (incorporated by reference to Exhibit 10.29 of the Registrant’s Annual  Report on Form 10-K for the fiscal year ended December 31,  2000).            |
| 10.3                |       | Agreement of  Lease, dated September 10, 1997, between Metropolitan Life Insurance  Company and CS Securities, as tenant, on Eleven Madison Avenue, New York, New York  (incorporated by reference to Exhibit 10.30 of the Registrant’s Annual  Report on Form 10-K for the fiscal year ended December 31,  2000).      |
| 10.4                |       | Modification of  Lease, dated February 5, 1998, between Metropolitan Life Insurance  Company and CS Securities, as tenant, on Eleven Madison Avenue, New York, New York  (incorporated by reference to Exhibit 10.31 of the Registrant’s Annual  Report on Form 10-K for the fiscal year ended December 31,  2000).     |
| 10.5                |       | Second  Modification of Lease, dated June 12, 2000, between Metropolitan Life  Insurance Company and CS Securities, as tenant, on Eleven Madison Avenue, New  York, New York (incorporated by reference to Exhibit 10.32 of the  Registrant’s Annual Report on Form 10-K for the fiscal year ended  December 31, 2000). |
| 10.6                |       | Third  Modification of Lease, dated September 18, 2000, between Metropolitan  Life Insurance Company and CS Securities, as tenant, on Eleven Madison Avenue,  New York, New York (incorporated by reference to Exhibit 10.33 of the  Registrant’s Annual Report on Form 10-K for the fiscal year ended  December 31, 2000).  |
| 10.7                |       | Fourth  Modification of Lease, dated November 13, 2000, between Metropolitan  Life Insurance Company and CS Securities, as tenant, on Eleven Madison  Avenue, New York, New York (incorporated by reference to Exhibit 10.34  of the Registrant’s Annual Report on Form 10-K for the fiscal year  ended December 31, 2000).  |
| 10.8                |       | Agreement of  Sublease, dated August 31, 1999 between GFT Apparel Corp. and CS Securities,  as subtenant, on Eleven Madison Avenue, New York, New York (incorporated by  reference to Exhibit 10.35 of the Registrant’s Annual Report on  Form 10-K for the fiscal year ended December 31, 2000).                       |
| 10.9                |       | Lease dated as of  October 30, 2001, between Registrant, as landlord, and The Port  Authority of New York and New Jersey, on One Madison Avenue (incorporated by  reference to Exhibit 10.16 of the Registrant’s Annual Report on  Form 10-K for the fiscal year ended December 31, 2001).                                   |

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| 10.10 |   | Lease dated as of  March 14, 2002, between Registrant, as landlord, and Standard Chartered  Bank, on One Madison Avenue (incorporated by reference to Exhibit 10.15  of the Registrant’s Annual Report on Form 10-K for the fiscal year  ended December 31, 2002).                                                                                                                                                                 |
|-------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.11 |   | Lease dated as of  April 26, 2002, between Registrant, as landlord, and Marsh, Inc.,  on One Madison Avenue (incorporated by reference to Exhibit 10.16 of the  Registrant’s Annual Report on Form 10-K for the fiscal year ended  December 31, 2002).                                                                                                                                                                        |
| 10.12 |   | Amended and  Restated Lease, dated as December 17, 2003, between Metropolitan Life  Insurance Company and the Registrant, as tenant, on One Madison Avenue, New  York, New York (incorporated by reference to Exhibit 10.12 of the  Registrant’s Annual Report on Form 10-K for the fiscal year ended  December 31, 2003).                                                                                                         |
| 10.13 |   | Agreement of  Lease, dated August 15, 2000, between TM Park Avenue Associates and CS  Securities, as tenant, on 315 Park Avenue South, New York, New York  (incorporated by reference to Exhibit 10.63 of the Registrant’s Annual  Report on Form 10-K for the fiscal year ended December 31,  2000).                                                                                                                              |
| 10.14 |   | First Amendment  to the Lease between CS Securities, as tenant, and TM Park Avenue Associates  dated August 16, 2000, on 315 Park Avenue South, New York, New York  (incorporated by reference to Exhibit 10.35 of the Registrant’s Annual  Report on Form 10-K for the fiscal year ended December 31,  2001).                                                                                                                     |
| 10.15 |   | Option Agreement,  dated as of August 12, 2005, by and among the Registrant, SPS Holding  Corp. (“SPS” Holding”), The PMI Group, Inc. (“PMI”), FSA Portfolio  Management Inc. (“FSA”) and Greenrange Partners LLC (“Greenrange”)  (incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly  Report on Form 10-Q for the quarter ended September 30,  2005). |
| 10.16 |   | Contingent  Payment Agreement, dated as of August 12, 2005, among Select Portfolio  Servicing, Inc., the Registrant, Greenrange, PMI and FSA (incorporated  by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on  Form 10-Q for the quarter ended September 30, 2005).                                                                                                                                        |
| 10.17 |   | Exercise Notice,  dated August 12, 2005, from the Registrant to PMI, FSA, Greenrange and  SPS Holding (incorporated by reference to Exhibit 10.3 of the  Registrant’s Quarterly Report on Form 10-Q for the quarter ended  September 30, 2005).                                                                                                                                                                                    |
| 10.18 |   | First Amendment  to the Option Agreement and the Contingent Payment Agreement, made and  entered into as of October 4, 2005, by and among the Registrant, SPS  Holding, PMI, FSA and Greenrange (incorporated by reference to  Exhibit 10.4 of the Registrant’s Quarterly Report on Form 10-Q  for the quarter ended September 30, 2005).                                                                                          |
| 12    |   | Computation of  ratio of earnings to fixed charges.*                                                                                                                                                                                                                                                                                                                                                                                                        |
| 21    |   | Pursuant to  General Instruction I of Form 10-K, the list of subsidiaries of  the Company is omitted.                                                                                                                                                                                                                                                                                                                                                  |
| 23    |   | Consent of KPMG  LLP.*                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 24    |   | Power of  Attorney.*                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 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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*                    Filedherewith.

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