<PAGE>1
As filed with the U.S. Securities and Exchange Commission
on December 24, 1996
Securities Act File No. 333-16193
Investment Company Act File No. 811-07929
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. 2 [x]
Post-Effective Amendment No. __ [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [x]
Amendment No. 2 [x]
(Check appropriate box or boxes)
Warburg, Pincus Strategic Value Fund, Inc.
(formerly Warburg, Pincus Special Equity Fund, Inc.)
.......................................
(Exact Name of Registrant as Specified in Charter)
466 Lexington Avenue
New York, New York 10017-3147
........................................................
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 878-0600
Mr. Eugene P. Grace
Warburg, Pincus Strategic Value Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
......................................
(Name and Address of Agent for Service)
Copy to:
Rose F. DiMartino, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
<PAGE>2
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Securities Amount Being Offering Price per Aggregate Amount of
Being Registered Registered Unit Offering Price Registration Fee
------------------------ ------------------------ --------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Shares of Common
Stock, $.001 par value
per share Indefinite* Indefinite* Indefinite* None
<FN>
- ----------------------
* An indefinite number of shares of common stock of the Registrant is
being registered by this Registration Statement pursuant to Rule 24f-2
under the Investment Company Act of 1940, as amended (the "1940 Act").
</TABLE>
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended (the "1933 Act"), or
until the Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>3
WARBURG, PINCUS STRATEGIC VALUE FUND, INC.
FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Part A
Item No. Prospectus Heading
- -------- ------------------
<S> <C>
1. Cover Page.................................................... Cover Page
2. Synopsis...................................................... The Fund's Expenses
3. Condensed Financial Information............................... Financial Highlights
4. General Description of
Registrant.................................................... Cover Page; Investment Objectives
and Policies; Special Risk
Considerations and Certain Investment
Strategies; Investment Guidelines;
Additional Information
5. Management of the Fund........................................ Management of the Fund
6. Capital Stock and Other
Securities.................................................... Additional Information
7. Purchase of Securities Being
Offered....................................................... How to Open an Account; How to
Purchase Shares; Management of the
Fund; Net Asset Value
8. Redemption or Repurchase...................................... How to Redeem and Exchange Shares
9. Pending Legal Proceedings..................................... Not applicable
</TABLE>
<PAGE>4
<TABLE>
<CAPTION>
Part B Statement of Additional
Item No. Information Heading
- -------- -----------------------
<S> <C>
10. Cover Page.................................................... Cover Page
11. Table of Contents............................................. Contents
12. General Information and History............................... Management of the Fund
13. Investment Objectives
and Policies.................................................. Investment Objective; Investment
Policies
14. Management of the Registrant.................................. Management of the Fund
15. Control Persons and Principal
Holders of Securities......................................... Management of the Fund; See
Prospectus-- "Management of the Fund"
16. Investment Advisory and
Other Services................................................ Management of the Fund; See
Prospectus-- "Management of the Fund"
17. Brokerage Allocation
and Other Practices........................................... Investment Policies --
Portfolio Transactions See
Prospectus-- "Portfolio Transactions
and Turnover Rate"
18. Capital Stock and Other
Securities.................................................... Management of the
Fund--Organization of the Fund; See
Prospectus-"General Information"
19. Purchase, Redemption and Pricing
of Securities Being Offered................................... Additional Purchase and Redemption
Information; See Prospectus-"How to
Open an Account," "How to Purchase
Shares," "How to Redeem and
Exchange Shares," "Net Asset Value"
</TABLE>
<PAGE>5
<TABLE>
<CAPTION>
Part B Statement of Additional
Item No. Information Heading
- -------- -----------------------
<S> <C>
20. Tax Status.................................................... Additional Information Concerning
Taxes; See Prospectus--"Dividend,
Distributions and Taxes"
21. Underwriters.................................................. Investment Policies-- Portfolio
Transactions; See Prospectus--
"Management of the Fund"
22. Calculation of Performance Data............................... Determination of Performance
23. Financial Statements.......................................... Report of Independent Accountants;
Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth after the appropriate
item, so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
December 31, 1996
WARBURG PINCUS
STRATEGIC VALUE FUND
[Logo]
<PAGE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 24, 1996
PROSPECTUS December 31, 1996
Warburg Pincus Funds are a family of open-end mutual funds that offer investors
a variety of investment opportunities. One fund is described in this Prospectus:
WARBURG PINCUS STRATEGIC VALUE FUND seeks capital appreciation. The
Fund will pursue its investment objective by investing in companies and market
sectors that are considered to be relatively undervalued.
NO LOAD CLASS OF COMMON SHARES
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Warburg Pincus Strategic Value Fund offers two classes of shares, one of which,
the Common Shares, is offered by this Prospectus (i) directly from the Fund's
distributor, Counsellors Securities Inc., and (ii) through various brokerage
firms including Charles Schwab & Company, Inc. Mutual Fund OneSource'tm'
Program; Fidelity Brokerage Services, Inc. FundsNetwork'tm' Program; Jack White
& Company, Inc.; and Waterhouse Securities, Inc. The Advisor Shares of the Fund
are offered by a separate prospectus.
LOW MINIMUM INVESTMENT
- --------------------------------------------------------------------------------
The minimum initial investment in the Fund is $2,500 ($500 for an IRA or Uniform
Gifts to Minors Act account) and the minimum subsequent investment is $100.
Through the Automatic Monthly Investment Plan, subsequent investment minimums
may be as low as $50. See 'How to Purchase Shares.'
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in a Statement of Additional Information, has been filed with
the Securities and Exchange Commission (the 'SEC') and is available for
reference, along with other related materials, on the SEC Internet Web site
(http://www.sec.gov). The Statement of Additional Information is also available
to investors without charge by calling Warburg Pincus Funds at (800) 927-2874.
Information regarding the status of shareholder accounts may also be obtained by
calling Warburg Pincus Funds at the same number. The Statement of Additional
Information, as amended or supplemented from time to time, bears the same date
as this Prospectus and is incorporated by reference in its entirety into this
Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY ANY BANK AND SHARES ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENTS IN SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
THE FUND'S EXPENSES
- --------------------------------------------------------------------------------
Warburg Pincus Strategic Value Fund (the 'Fund') currently offers two
separate classes of shares: Common Shares and Advisor Shares. For a
description of Advisor Shares see 'General Information.' Common Shares pay the
Fund's distributor a 12b-1 fee. See 'Management of the Funds -- Distributor.'
<TABLE>
<S> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).......................................... 0
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees................................................................ .49%
12b-1 Fees..................................................................... .25%
Other Expenses................................................................. .71%
---
Total Fund Operating Expenses*................................................. 1.45%
EXAMPLE
You would pay the following expenses
on a $1,000 investment, assuming (1) 5% annual return
and (2) redemption at the end of each time period:
1 year......................................................................... $ 15
3 years........................................................................ $ 46
</TABLE>
- --------------------------------------------------------------------------------
* Absent the waiver of fees by the Fund's investment adviser and
co-administrator, Management Fees would equal 1.00%, Other Expenses would
equal .81% and Total Fund Operating Expenses would equal 2.06%. Other Expenses
for the Fund are based on annualized estimates of expenses for the fiscal year
ending October 31, 1997, net of any fee waivers or expense reimbursements. The
investment adviser and co-administrator are under no obligation to continue
these waivers.
---------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a Common Shareholder of the Fund. Certain broker-
dealers and financial institutions also may charge their clients fees in
connection with investments in the Fund's Common Shares, which fees are not
reflected in the table. The Example should not be considered a representation of
past or future expenses; actual Fund expenses may be greater or less than those
shown. Moreover, while the Example assumes a 5% annual return, the Fund's actual
performance will vary and may result in a return greater or less than 5%.
2
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<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund seeks capital appreciation. The Fund will pursue its
investment objective by investing in companies and market sectors that Warburg,
Pincus Counsellors, Inc., the Fund's investment adviser ('Warburg'), considers
to be relatively undervalued. The Fund's investment objective is a fundamental
policy and may not be amended without first obtaining the approval of a majority
of the outstanding shares of the Fund. Any investment involves risk and,
therefore, there can be no assurance that the Fund will achieve its investment
objective. See 'Portfolio Investments' and 'Certain Investment Strategies' for
descriptions of certain types of investments the Fund may make.
The Fund is a diversified management investment company that pursues
its objective by investing, under normal market conditions, at least 65%
of its total assets in equity securities, including common stock, preferred
stock, warrants and securities convertible into or exchangeable for common
stock. Warburg will seek to identify and invest in companies which, in its
opinion, are (i) undervalued or (ii) which may themselves not be undervalued
but which are in sectors which are undervalued as a whole. In implementing its
investment strategy, the Fund may take positions that are different from or
inconsistent with those taken by other mutual funds.
Warburg will determine whether a company or a market sector is undervalued
based on a variety of measures, including price/earnings ratio, price/book
ratio, price/cash flow ratio, earnings growth, debt/capital ratio and absolute
and relative price history in relation to its peer group and to the market.
Other relevant factors, including a company's asset value, franchise value and
quality of management, will also be considered.
The Fund may hold securities of companies of any size, including
securities of companies with market capitalizations of less than $500
million, and may invest without limit in the securities of issuers which have
been in continuous operation for less than three years. The Fund may hold
from time to time various foreign currencies pending investment in
foreign securities or conversion into U.S. dollars, but does not currently
intend to invest more than 20% of its assets in securities of foreign issuers.
The Fund may also purchase without limit dollar-denominated American Depository
Receipts ('ADRs'). ADRs are issued by domestic banks and evidence ownership of
underlying foreign securities.
PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
DEBT. The Fund may invest up to 20% of its assets in debt securities (other
than money market obligations) for the purpose of seeking capital appreciation.
The interest income to be derived may be considered as one factor in selecting
debt securities for investment by Warburg. Because the market value of debt
obligations can be expected to vary inversely to changes in prevailing interest
rates, investing in debt obligations may provide an opportunity for capital
growth when interest rates are expected to decline.
3
<PAGE>
<PAGE>
The success of such a strategy is dependent upon Warburg's ability to accurately
forecast changes in interest rates. The market value of debt obligations may be
expected to vary depending upon, among other factors, interest rates, the
ability of the issuer to repay principal and interest, any change in investment
rating and general economic conditions. The Fund's debt securities holdings may
be rated below investment grade and as low as C by Moody's Investors Service,
Inc. ('Moody's') or D by Standard & Poor's Ratings Group ('S&P') and the Fund
may also invest in unrated issues that are believed by Warburg to be of
comparable quality. Securities in these rating categories are in payment default
or have extremely poor prospects of attaining any investment standing.
There are certain risk factors associated with lower-rated securities.
Securities rated in the fourth highest grade have speculative characteristics,
and securities rated B have speculative elements and a greater vulnerability to
default than higher-rated securities. Investors should be aware that ratings are
relative and subjective and are not absolute standards of quality. Subsequent to
its purchase by a Fund, an issue of securities may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require sale of such securities by the Fund, although Warburg
will consider such event in its determination of whether the Fund should
continue to hold the securities.
Lower-rated and comparable unrated securities (commonly referred to as 'junk
bonds'), which the Fund may hold (i) will likely have some quality and
protective characteristics that, in the judgment of the rating organization, are
outweighed by large uncertainties or major risk exposures to adverse conditions
and (ii) are predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. The market values of certain of these securities also tend to be
more sensitive to individual corporate developments and changes in economic
conditions than higher-quality securities. In addition, medium- and lower-rated
securities and comparable unrated securities generally present a higher degree
of credit risk. The risk of loss due to default by such issuers is significantly
greater because medium- and lower-rated securities and unrated securities
generally are unsecured and frequently are subordinated to the prior payment of
senior indebtedness.
The market value of securities in lower-rated categories is more volatile
than that of higher quality securities. In addition, the Fund may have
difficulty disposing of certain of these securities because there may be a thin
trading market, which may also make it more difficult for the Fund to obtain
accurate market quotations for purposes of calculating the Fund's net asset
value.
MONEY MARKET OBLIGATIONS. The Fund is authorized to invest, under normal
market conditions, up to 20% of its total assets in domestic and foreign
short-term (one year or less) and medium-term (five years or less remaining to
maturity) money market obligations and for temporary
4
<PAGE>
<PAGE>
defensive purposes may invest in these securities without limit. These
instruments consist of obligations issued or guaranteed by the U.S. government
or a foreign government, its agencies or instrumentalities; bank obligations
(including certificates of deposit, time deposits and bankers' acceptances of
domestic or foreign banks, domestic savings and loans and similar institutions)
that are high quality investments or, if unrated, deemed by Warburg to be high
quality investments; commercial paper rated no lower than A-2 by S&P or Prime-2
by Moody's or the equivalent from another major rating service or, if unrated,
of an issuer having an outstanding, unsecured debt issue then rated within the
three highest rating categories; and repurchase agreements with respect to the
foregoing.
Repurchase Agreements. The Fund may invest in repurchase agreement
transactions with member banks of the Federal Reserve System and certain
non-bank dealers. Repurchase agreements are contracts under which the buyer of a
security simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Under the terms of a typical repurchase agreement,
the Fund would acquire any underlying security for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying
securities will at all times be at least equal to the total amount of the
purchase obligation, including interest. The Fund bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its obligations
or becomes bankrupt and the Fund is delayed or prevented from exercising its
right to dispose of the collateral securities, including the risk of a possible
decline in the value of the underlying securities during the period while the
Fund seeks to assert this right. Warburg, acting under the supervision of the
Fund's Board of Directors (the 'Board'), monitors the creditworthiness of those
bank and non-bank dealers with which the Fund enters into repurchase agreements
to evaluate this risk. A repurchase agreement is considered to be a loan under
the Investment Company Act of 1940, as amended (the '1940 Act').
Money Market Mutual Funds. Where Warburg believes that it would be beneficial
to the Fund and appropriate considering the factors of return and liquidity, the
Fund may invest up to 5% of its assets in securities of money market mutual
funds that are unaffiliated with the Fund, Warburg or the Fund's
co-administrator, PFPC Inc. ('PFPC'). As a shareholder in any mutual fund, the
Fund will bear its ratable share of the mutual fund's expenses, including
management fees, and will remain subject to payment of the Fund's administration
fees and other expenses with respect to assets so invested.
U.S. GOVERNMENT OBLIGATIONS. The obligations issued or guaranteed by the U.S.
government in which the Fund may invest include: direct obligations of the U.S.
Treasury and obligations issued by U.S. government agencies and
5
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instrumentalities including instruments that are supported by the full faith and
credit of the United States, instruments that are supported by the right of the
issuer to borrow from the U.S. Treasury and instruments that are supported by
the credit of the instrumentality.
CONVERTIBLE SECURITIES. Convertible securities in which the Fund may invest,
including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. The value of convertible securities fluctuates in relation to
changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock.
WARRANTS. The Fund may invest up to 15% of its total assets in warrants.
Warrants are securities that give the holder the right, but not the obligation,
to purchase newly created equity issues of the company issuing the warrants, or
a related company, at a fixed price either on a date certain or during a set
period.
TEMPORARY DEFENSIVE MEASURES. When Warburg believes that a defensive posture
is warranted, the Fund may invest temporarily without limit in U.S.
dollar-denominated money market obligations, including repurchase agreements.
RISK FACTORS AND SPECIAL CONSIDERATIONS
- --------------------------------------------------------------------------------
Investing in common stocks and securities convertible into common stocks is
subject to the inherent risk of fluctuations in the prices of such securities.
For certain additional risks relating to the Fund's investments, including with
respect to foreign securities and lower-rated securities, see 'Portfolio
Investments' beginning at page 3 and 'Certain Investment Strategies' beginning
at page 8.
EMERGING GROWTH AND SMALL COMPANIES; UNSEASONED ISSUERS. The Fund may invest
in securities of emerging growth and small- and medium-sized companies, as well
as companies with continuous operations of less than three years ('unseasoned
issuers'), which may involve greater risks since these securities may have
limited marketability and, thus, may be more volatile than securities of larger,
more established companies or the market in general. Because small- and
medium-sized companies and unseasoned issuers normally have fewer shares
outstanding than larger companies, it may be more difficult for the Fund to buy
or sell significant amounts of such shares without an unfavorable impact on
prevailing prices. Small-sized companies and unseasoned issuers may have limited
product lines, markets or financial resources and may lack management depth. In
addition, small-and medium-sized companies and unseasoned issuers are typically
subject to a greater degree of changes in earnings and business prospects than
are
6
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larger, more established companies. There is typically less publicly available
information concerning these companies than for larger, more established ones.
Although investing in securities of emerging growth companies offers potential
for above-average returns if the companies are successful, the risk exists that
the companies will not succeed and the prices of the companies' shares could
significantly decline in value. Therefore, an investment in the Fund may involve
a greater degree of risk than an investment in other mutual funds which invest
in better-known, larger companies.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Fund may purchase
securities that are not registered under the Securities Act of 1933, as amended
(the '1933 Act'), but that can be sold to 'qualified institutional buyers' in
accordance with Rule 144A under the 1933 Act ('Rule 144A Securities'). An
investment in Rule 144A Securities will be considered illiquid and therefore
subject to the Fund's limitation on the purchase of illiquid securities, unless
the Fund's Board determines on an ongoing basis that an adequate trading market
exists for the security. In addition to an adequate trading market, the Board
will also consider factors such as trading activity, availability of reliable
price information and other relevant information in determining whether a Rule
144A Security is liquid. This investment practice could have the effect of
increasing the level of illiquidity in the Fund to the extent that qualified
institutional buyers become uninterested for a time in purchasing Rule 144A
Securities. The Board will carefully monitor any investments by the Fund in Rule
144A Securities. The Board may adopt guidelines and delegate to Warburg the
daily function of determining and monitoring the liquidity of Rule 144A
Securities, although the Board will retain ultimate responsibility for any
determination regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities) may involve a
high degree of business and financial risk and may result in substantial losses.
These securities may be less liquid than publicly traded securities, and the
Fund may take longer to liquidate these positions than would be the case for
publicly traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized on such sales could be less than
those originally paid by the Fund. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to companies whose securities are publicly
traded. The Fund's investment in illiquid securities is subject to the risk that
should the Fund desire to sell any of these securities when a ready buyer is not
available at a price that is deemed to be representative of their value, the
value of the Fund's net assets could be adversely affected.
SECTOR CONCENTRATION. At times the Fund may invest more than 25% of its
assets in securities of issuers in one or more market sectors such as, for
example, the financial services sector. A market sector may be made up of
companies in a number of related industries. The Fund will only concentrate its
investments in a particular market sector if Warburg believes the
7
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investment return available from concentration in that sector justifies any
additional risk associated with concentration in that sector. When the Fund
concentrates its investments in a market sector, financial, economic, business
and other developments affecting issuers in that sector will have a greater
effect on the Fund than if it had not concentrated its assets in that sector.
WARRANTS. At the time of issue, the cost of a warrant is substantially less
than the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This leveraging effect enables the investor to gain exposure to the
underlying security with a relatively low capital investment. This leveraging
increases an investor's risk, however, in the event of a decline in the value of
the underlying security and can result in a complete loss of the amount invested
in the warrant. In addition, the price of a warrant tends to be more volatile
than, and may not correlate exactly to, the price of the underlying security. If
the market price of the underlying security is below the exercise price of the
warrant on its expiration date, the warrant will generally expire without value.
PORTFOLIO TRANSACTIONS AND TURNOVER RATE
- --------------------------------------------------------------------------------
The Fund will attempt to purchase securities with the intent of holding them
for investment but may purchase and sell portfolio securities whenever Warburg
believes it to be in the best interests of the Fund. The Fund will not consider
portfolio turnover rate a limiting factor in making investment decisions
consistent with its investment objective and policies. It is not possible to
predict the Fund's portfolio turnover rate. However, it is anticipated that the
Fund's annual turnover rate should not exceed 150%. High portfolio turnover
rates (100% or more) may result in dealer markups or underwriting commissions as
well as other transaction costs, including correspondingly higher brokerage
commissions. In addition, short-term gains realized from portfolio turnover may
be taxable to shareholders as ordinary income. See 'Dividends, Distributions and
Taxes -- Taxes' below and 'Investment Policies -- Portfolio Transactions' in the
Fund's Statement of Additional Information.
All orders for transactions in securities or options on behalf of the Fund
are placed by Warburg with broker-dealers that it selects, including Counsellors
Securities Inc., the Fund's distributor ('Counsellors Securities'). The Fund
may utilize Counsellors Securities in connection with a purchase or
sale of securities when Warburg believes that the charge for the
transaction does not exceed usual and customary levels and when doing so
is consistent with guidelines adopted by the Board.
CERTAIN INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
Although there is no current intention of doing so during the coming year,
the Fund is authorized to engage in the following investment strategies: (i)
lending portfolio securities, (ii) entering into forward currency transactions
and (iii) entering into reverse repurchase agreements and dollar rolls.
8
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Detailed information concerning the Fund's strategies and related risks is
contained below and in the Fund's Statement of Additional Information.
FOREIGN SECURITIES. There are certain risks involved in investing in
securities of companies and governments of foreign nations which are in addition
to the usual risks inherent in U.S. investments. These risks include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future adverse political and economic developments and the possible
imposition of currency exchange blockages or other foreign governmental laws or
restrictions, reduced availability of public information concerning issuers, the
lack of uniform accounting, auditing and financial reporting standards and other
regulatory practices and requirements that are often generally less rigorous
than those applied in the United States. Moreover, securities of many foreign
companies may be less liquid and their prices more volatile than those of
securities of comparable U.S. companies. Certain foreign countries are known to
experience long delays between the trade and settlement dates of securities
purchased or sold. In addition, with respect to certain foreign countries, there
is the possibility of expropriation, nationalization, confiscatory taxation and
limitations on the use or removal of funds or other assets of the Fund,
including the withholding of dividends. Foreign securities may be subject to
foreign government taxes that would reduce the net yield on such securities.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments positions. Investment in foreign securities will also result in higher
operating expenses due to the cost of converting foreign currency into U.S.
dollars, the payment of fixed brokerage commissions on foreign exchanges, which
generally are higher than commissions on U.S. exchanges, higher valuation and
communications costs and the expense of maintaining securities with foreign
custodians.
OPTIONS AND FUTURES TRANSACTIONS. At the discretion of Warburg, the Fund may,
but is not required to, engage in a number of strategies involving options and
futures contracts. These strategies, commonly referred to as 'derivatives,' may
be used (i) for the purpose of hedging against a decline in value of a Fund's
current or anticipated portfolio holdings or (ii) as a substitute for purchasing
or selling portfolio securities or (iii) to seek to generate income to offset
expenses or increase return. TRANSACTIONS THAT ARE NOT CONSIDERED HEDGING SHOULD
BE CONSIDERED SPECULATIVE AND MAY SERVE TO INCREASE THE FUND'S INVESTMENT RISK.
Transaction costs and any premiums associated with these strategies, and any
losses incurred, will affect the Fund's net asset value and performance.
Therefore, an investment in the Fund may involve a greater risk than an
investment in other mutual funds that do not utilize these strategies. The
Fund's use of these strategies may be limited by position and exercise limits
established by securities and
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commodities exchanges and the NASD and by the Internal Revenue Code of 1986, as
amended (the 'Code').
Securities and Stock Index Options. The Fund may write covered call options
and put options and purchase put and call options on securities and stock
indexes and will realize fees (referred to as 'premiums') for granting the
rights evidenced by the options. Such options may be traded on an exchange or
may trade over-the-counter ('OTC'). The purchaser of a put option on a security
has the right to compel the purchase by the writer of the underlying security,
while the purchaser of a call option has the right to purchase the underlying
security from the writer. In addition to purchasing and writing options on
securities, the Fund may also utilize up to 10% of its total assets to purchase
exchange-listed and OTC put and call options on stock indices, and may also
write such options. A stock index measures the movement of a certain group of
stocks by assigning relative values to the stocks included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or at
less advantageous prices, limit the amount of appreciation the Fund could
realize on its investments or require the Fund to hold securities it would
otherwise sell.
Futures Contracts and Related Options. The Fund may enter into interest rate
and stock index futures contracts and purchase and write (sell) related options
that are traded on an exchange designated by the Commodity Futures Trading
Commission (the 'CFTC') or, if consistent with CFTC regulations, on foreign
exchanges. These futures contracts are standardized contracts for the future
delivery of an interest rate sensitive security or, in the case of stock index
and certain other futures contracts, are settled in cash with reference to a
specified multiplier times the change in the specified index or interest rate.
An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be 'bona fide hedging' will not exceed 5%
of the Fund's net asset value, after taking into account unrealized profits and
unrealized losses on any such contracts. Although the Fund is limited in the
amount of assets that may be invested in futures transactions, there is no
overall limit on the percentage of Fund assets that may be at risk with respect
to futures activities. However, the Fund may not write put options or purchase
or sell futures contracts or options on futures contracts to hedge more than its
total assets unless immediately after any such transaction the aggregate amount
of premiums paid on put options and the amount of
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margin deposits on its existing futures positions do not exceed 5% of its total
assets.
Hedging Considerations. The Fund may engage in options and futures
transactions for, among other reasons, hedging purposes. A hedge is designed to
offset a loss on a portfolio position with a gain in the hedge position; at the
same time, however, a properly correlated hedge will result in a gain in the
portfolio position being offset by a loss in the hedge position. As a result,
the use of options and futures contracts for hedging purposes could limit any
potential gain from an increase in value of the position hedged. In addition,
the movement in the portfolio position hedged may not be of the same magnitude
as movement in the hedge. The Fund will engage in hedging transactions only when
deemed advisable by Warburg, and successful use of hedging transactions will
depend on Warburg's ability to correctly predict movements in the hedge and the
hedged position and the correlation between them, which could prove to be
inaccurate. Even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior or trends.
Additional Considerations. To the extent that the Fund engages in the
strategies described above, the Fund may experience losses greater than if these
strategies had not been utilized. In addition to the risks described above,
these instruments may be illiquid and/or subject to trading limits, and the Fund
may be unable to close out an option or futures position without incurring
substantial losses, if at all. The Fund is also subject to the risk of a default
by a counterparty to an off-exchange transaction.
Asset Coverage. The Fund will comply with applicable regulatory requirements
designed to eliminate any potential for leverage with respect to options written
by the Fund on securities and indexes and interest rate and stock index futures
contracts and options on these futures contracts. The use of these strategies
may require that the Fund maintain cash or certain liquid securities in a
segregated account with its custodian or a designated sub-custodian to the
extent the Fund's obligations with respect to these strategies are not otherwise
'covered' through ownership of the underlying security or financial instrument
or by other portfolio positions or by other means consistent with applicable
regulatory policies. Segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer necessary to
segregate them. As a result, there is a possibility that segregation of a large
percentage of the Fund's assets could impede portfolio management or the Fund's
ability to meet redemption requests or other current obligations.
SHORT SELLING. The Fund may from time to time sell securities short. A short
sale is a transaction in which the Fund sells borrowed securities in
anticipation of a decline in the market price of the securities. Possible losses
from short sales differ from losses that could be incurred from a purchase of a
security, because losses from short sales may be unlimited, whereas losses from
purchases can equal only the total amount invested. The current market
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value of the securities sold short (excluding short sales 'against the box')
will not exceed 10% of the Fund's assets.
When the Fund makes a short sale, the proceeds it receives from the sale are
retained by a broker until the Fund replaces the borrowed securities. To deliver
the securities to the buyer, the Fund must arrange through a broker to borrow
the securities and, in so doing, the Fund becomes obligated to replace the
securities borrowed at their market price at the time of replacement, whatever
that price may be. The Fund may have to pay a premium to borrow the securities
and must pay any dividends or interest payable on the securities until they are
replaced.
The Fund's obligation to replace the securities borrowed in connection with a
short sale will be secured by cash or certain liquid securities deposited as
collateral with the broker. In addition, the Fund will place in a segregated
account with its custodian or a qualified subcustodian an amount of cash or
liquid securities equal to the difference, if any, between (i) the market value
of the securities sold at the time they were sold short and (ii) any cash or
U.S. government securities deposited as collateral with the broker in connection
with the short sale (not including the proceeds of the short sale). Until it
replaces the borrowed securities, the Fund will maintain the segregated account
daily at a level so that (a) the amount deposited in the account plus the amount
deposited with the broker (not including the proceeds from the short sale) will
equal the current market value of the securities sold short and (b) the amount
deposited in the account plus the amount deposited with the broker (not
including the proceeds from the short sale) will not be less than the market
value of the securities at the time they were sold short.
Short Sales Against the Box. The Fund may, in addition to engaging in short
sales as described above, enter into a short sale of securities such that when
the short position is open the Fund owns an equal amount of the securities sold
short or owns preferred stocks or debt securities, convertible or exchangeable
without payment of further consideration, into an equal number of securities
sold short. This kind of short sale, which is referred to as one 'against the
box,' will be entered into by the Fund for the purpose of receiving a portion of
the interest earned by the executing broker from the proceeds of the sale. The
proceeds of the sale will generally be held by the broker until the settlement
date when the Fund delivers securities to close out its short position. Although
prior to delivery the Fund will have to pay an amount equal to any dividends
paid on the securities sold short, the Fund will receive the dividends from the
securities sold short or the dividends from the preferred stock or interest from
the debt securities convertible or exchangeable into the securities sold short,
plus a portion of the interest earned from the proceeds of the short sale. The
Fund will deposit, in a segregated account with its custodian or a qualified
subcustodian, the securities sold short or convertible or exchangeable preferred
stocks or debt securities in connection with short sales against the box. The
Fund will endeavor to offset transaction costs associated with short sales
against the box
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with the income from the investment of the cash proceeds. Not more than 10% of
the Fund's net assets (taken at current value) may be held as collateral for
short sales against the box at any one time.
The extent to which the Fund may make short sales may be limited by
requirements of the Code for qualification as a regulated investment company.
See 'Dividends, Distributions and Taxes' for other tax considerations applicable
to short sales.
ZERO COUPON SECURITIES. The Fund may invest without limit in 'zero coupon
securities.' Zero coupon securities pay no cash income to their holders until
they mature and are issued at substantial discounts from their value at
maturity. When held to maturity, their entire return comes from the difference
between their purchase price and their maturity value. Because interest on zero
coupon securities is not paid on a current basis, the values of securities of
this type are subject to greater fluctuations than are the values of securities
that distribute income regularly and may be more speculative than such other
securities. Accordingly, the values of these securities may be highly volatile
as interest rates rise or fall. Redemption of shares of the Fund that require it
to sell zero coupon securities prior to maturity may result in capital gains or
losses that may be substantial. In addition, the Fund's investments in zero
coupon securities will result in special tax consequences, which are described
below under 'Dividends, Distributions and Taxes -- Taxes.'
INVESTMENT GUIDELINES
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The Fund may invest up to 15% of its net assets in securities with
contractual or other restrictions on resale and other instruments that are not
readily marketable ('illiquid securities'), including (i) securities issued as
part of a privately negotiated transaction between an issuer and one or more
purchasers; (ii) time deposits maturing in more than seven calendar days; (iii)
certain Rule 144A Securities and (iv) repurchase agreements with maturities
greater than seven days. The Fund may borrow from banks for temporary or
emergency purposes, such as meeting anticipated redemption requests, provided
that reverse repurchase agreements and any other borrowing by the Fund may not
exceed 30% of its total assets at the time of borrowing and may pledge its
assets to the extent necessary to secure permitted borrowings. Whenever
borrowings (including reverse repurchase agreements) exceed 5% of the value of
the Fund's total assets, the Fund will not make any investments (including
roll-overs). Except for the limitations on borrowing, the investment guidelines
set forth in this paragraph may be changed at any time without shareholder
consent by vote of the Board, subject to the limitations contained in the 1940
Act. A complete list of investment restrictions that the Fund has adopted
identifying additional restrictions that cannot be changed without the approval
of the majority of the Fund's outstanding shares is contained in the Fund's
Statement of Additional Information.
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MANAGEMENT OF THE FUND
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INVESTMENT ADVISER. The Fund employs Warburg as its investment adviser.
Warburg, subject to the control of the Fund's officers and the Board, manages
the investment and reinvestment of the assets of the Fund in accordance with the
Fund's investment objective and stated investment policies. Warburg makes
investment decisions for the Fund and places orders to purchase or sell
securities on behalf of the Fund. Warburg also employs a support staff of
management personnel to provide services to the Fund and furnishes the Fund with
office space, furnishings and equipment.
For the services provided by Warburg, the Fund pays Warburg a fee calculated
at an annual rate of 1.00% of the Fund's average daily net assets. Warburg and
the Fund's co-administrators may voluntarily waive a portion of their fees from
time to time and temporarily limit the expenses to be paid by the Fund.
Warburg is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of October 31,
1996, Warburg managed approximately $18.4 billion of assets, including
approximately $9.8 billion of investment company assets. Incorporated in
1970, Warburg is a wholly owned subsidiary of Warburg, Pincus Counsellors G.P.
('Warburg G.P.'), a New York general partnership. E.M. Warburg, Pincus & Co.,
Inc. ('EMW') controls Warburg through its ownership of a class of voting
preferred stock of Warburg. Warburg G.P. has no business other than being a
holding company of Warburg and its subsidiaries. Warburg's address is 466
Lexington Avenue, New York, New York 10017-3147.
PORTFOLIO MANAGERS. Anthony G. Orphanos, a managing director of EMW, is the
portfolio manager of the Fund. Mr. Orphanos has been with Warburg since 1977.
CO-ADMINISTRATORS. The Fund employs Counsellors Funds Service, Inc.
('Counsellors Service'), a wholly owned subsidiary of Warburg, as a co-
administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Fund including responding to shareholder inquiries and
providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Fund and its various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the Board, preparing proxy statements and
annual, semiannual and quarterly reports, assisting in other regulatory filings
as necessary and monitoring and developing compliance procedures for the Fund.
As compensation, the Fund pays Counsellors Service a fee calculated at an annual
rate of .10% of the Fund's average daily net assets.
The Fund employs PFPC, an indirect, wholly owned subsidiary of PNC Bank
Corp., as a co-administrator. As a co-administrator, PFPC calculates the
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Fund's net asset value, provides all accounting services for the Fund and
assists in related aspects of the Fund's operations. As compensation, the Fund
pays PFPC a fee calculated at an annual rate of .10% of the Fund's first $500
million in average daily net assets, .075% of the next $1 billion in average
daily net assets, and .05% on average daily net assets over $1.5 billion. PFPC
has its principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.
CUSTODIANS. PNC Bank, National Association ('PNC') serves as custodian of the
U.S. assets of the Fund and Fiduciary Trust Company International ('Fiduciary')
serves as custodian of the Fund's non-U.S. assets. Like PFPC, PNC is a
subsidiary of PNC Bank Corp. and its principal business address is Broad and
Chestnut Streets, Philadelphia, Pennsylvania 19101. Fiduciary's principal
business address is Two World Trade Center, New York, New York 10048.
TRANSFER AGENT. State Street Bank and Trust Company ('State Street') also
serves as shareholder servicing agent, transfer agent and dividend disbursing
agent for the Funds. State Street has delegated to Boston Financial Data
Services, Inc., a 50% owned subsidiary ('BFDS'), responsibility for most
shareholder servicing functions. State Street's principal business address is
225 Franklin Street, Boston, Massachusetts 02110. BFDS's principal business
address is 2 Heritage Drive, North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves as distributor of the shares of
the Funds. Counsellors Securities is a wholly owned subsidiary of Warburg and is
located at 466 Lexington Avenue, New York, New York 10017-3147. Counsellors
Securities receives a fee at an annual rate equal to .25% of the average daily
net assets of the Fund's Common Shares for distribution services, pursuant to a
shareholder servicing and distribution plan (the '12b-1 Plan') adopted by the
Fund pursuant to Rule 12b-1 under the 1940 Act. Amounts paid to Counsellors
Securities under the 12b-1 Plan may be used by Counsellors Securities to cover
expenses that are primarily intended to result in, or that are primarily
attributable to, (i) the sale of the Common Shares, (ii) ongoing servicing
and/or maintenance of the accounts of Common Shareholders of the Fund and (iii)
sub-transfer agency services, subaccounting services or administrative services
related to the sale of the Common Shares, all as set forth in the 12b-1 Plan.
Payments under the 12b-1 Plan are not tied exclusively to the distribution
expenses actually incurred by Counsellors Securities and the payments may exceed
distribution expenses actually incurred. The Board evaluates the appropriateness
of the 12b-1 Plan on a continuing basis and in doing so considers all relevant
factors, including expenses borne by Counsellors Securities and amounts received
under the 12b-1 Plan.
Warburg or its affiliates may, at their own expense, provide promotional
incentives to parties who support the sale of shares of the Fund, consisting of
securities dealers who have sold Fund shares or others, including banks and
other financial institutions, under special arrangements. In some instances,
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these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Fund shares.
DIRECTORS AND OFFICERS. The officers of the Fund manage its day-to-day
operations and are directly responsible to its Board. The Board sets broad
policies for the Fund and choose its officers. A list of the Directors and
officers of the Fund and a brief statement of their present positions and
principal occupations during the past five years are set forth in the
Statement of Additional Information of the Fund.
HOW TO OPEN AN ACCOUNT
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In order to invest in the Fund, an investor must first complete and sign an
account application. To obtain an application, an investor may telephone Warburg
Pincus Funds at (800) 927-2874. An investor may also obtain an account
application by writing to:
Warburg Pincus Funds
P.O. Box 9030
Boston, Massachusetts 02205-9030
Completed and signed account applications should be mailed to Warburg Pincus
Funds at the above address.
RETIREMENT PLANS AND UGMA ACCOUNTS. For information (i) about investing in
the Fund through a tax-deferred retirement plan, such as an Individual
Retirement Account ('IRA') or a Simplified Employee Pension IRA ('SEP-IRA'), or
(ii) about opening a Uniform Gifts to Minors Act or Uniform Transfers to Minors
Act ('UGMA') account, an investor should telephone Warburg Pincus Funds at (800)
927-2874 or write to Warburg Pincus Funds at the address set forth above.
Investors should consult their own tax advisers about the establishment of
retirement plans and UGMA accounts.
CHANGES TO ACCOUNT. For information on how to make changes to an account, an
investor should telephone Warburg Pincus Funds at (800) 927-2874.
HOW TO PURCHASE SHARES
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Common Shares of the Fund may be purchased either by mail or, with special
advance instructions, by wire. The minimum initial investment in the Fund is
$2,500 and the minimum subsequent investment is $100, except that subsequent
minimum investments can be as low as $50 under the Automatic Monthly Investment
Plan described below. For retirement plans and UGMA accounts, the minimum
initial investment is $500. The Fund reserves the right to change the initial
and subsequent investment minimum requirements at any time. In addition, the
Fund may, in its sole discretion, waive the initial and subsequent investment
minimum requirements with respect to investors who are employees of EMW or its
affiliates or persons with whom Warburg has entered into an investment advisory
agreement. Existing investors will be
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given 15 days' notice by mail of any increase in investment minimum
requirements.
After an investor has made his initial investment, additional shares may
be purchased at any time by mail or by wire in the manner outlined below.
Wire payments for initial and subsequent investments should be preceded by an
order placed with the Fund and should clearly indicate the investor's account
number and the name of the Fund in which shares are being purchased. In the
interest of economy and convenience, physical certificates representing
shares in the Fund are not normally issued.
BY MAIL. If the investor desires to purchase Common Shares by mail, a check
or money order made payable to the Fund or Warburg Pincus Funds (in U.S.
currency) should be sent along with the completed account application to Warburg
Pincus Funds through its distributor, Counsellors Securities, at the
address set forth above. Checks payable to the investor and endorsed to the
order of the Fund or Warburg Pincus Funds will not be accepted as payment and
will be returned to the sender. If payment is received in proper form by the
close of regular trading on the New York Stock Exchange (the 'NYSE') (currently
4:00 p.m., Eastern time) on a day that the Fund calculates its net asset value
(a 'business day'), the purchase will be made at the Fund's net asset value
calculated at the end of that day. If payment is received after the close of
regular trading on the NYSE, the purchase will be effected at the Fund's net
asset value determined for the next business day after payment has been
received. Checks or money orders that are not in proper form or that are not
accompanied or preceded by a complete account application will be returned to
the sender. Shares purchased by check or money order are entitled to receive
dividends and distributions beginning on the day after payment has been
received. Checks or money orders in payment for shares of more than one Warburg
Pincus Fund should be made payable to Warburg Pincus Funds and should be
accompanied by a breakdown of amounts to be invested in each fund. If a check
used for purchase does not clear, the Fund will cancel the purchase and the
investor may be liable for losses or fees incurred. For a description of the
manner of calculating the Fund's net asset value, see 'Net Asset Value' below.
BY WIRE. Investors may also purchase Common Shares in the Fund by wiring
funds from their banks. Telephone orders by wire will not be accepted until a
completed account application in proper form has been received and an account
number has been established. Investors should place an order with the Fund prior
to wiring funds by telephoning (800) 927-2874. Federal funds may be wired to
Counsellors Securities using the following wire address:
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State Street Bank and Trust Co.
225 Franklin St.
Boston, MA 02101
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
Warburg Pincus Strategic Value Fund
DDA# 9904-649-2
[Shareowner name]
[Shareowner account number]
If a telephone order is received by the close of regular trading on the NYSE
and payment by wire is received on the same day in proper form in accordance
with instructions set forth above, the shares will be priced according to the
net asset value of the Fund on that day and are entitled to dividends and
distributions beginning on that day. If payment by wire is received in proper
form by the close of the NYSE without a prior telephone order, the purchase will
be priced according to the net asset value of the Fund on that day and is
entitled to dividends and distributions beginning on that day. However, if a
wire in proper form that is not preceded by a telephone order is received after
the close of regular trading on the NYSE, the payment will be held uninvested
until the order is effected at the close of business on the next business day.
Payment for orders that are not accepted will be returned to the prospective
investor after prompt inquiry. If a telephone order is placed and payment by
wire is not received on the same day, the Fund will cancel the purchase and the
investor may be liable for losses or fees incurred.
PURCHASES THROUGH INTERMEDIARIES. Common Shares of the Fund are available
through the Charles Schwab & Company, Inc. Mutual Fund OneSource'tm' Program;
Fidelity Brokerage Services, Inc. FundsNetwork'tm' Program; Jack White &
Company, Inc.; and Waterhouse Securities, Inc. Generally, these programs do not
require customers to pay a transaction fee in connection with purchases. The
Fund is also available through certain broker-dealers, financial institutions
and other industry professionals (including the programs described above,
collectively, 'Service Organizations'). Certain features of the Fund, such as
the initial and subsequent investment minimums, redemption fees and certain
trading restrictions, may be modified or waived by Service Organizations.
Service Organizations may impose transaction or administrative charges or other
direct fees, which charges and fees would not be imposed if Fund shares are
purchased directly from the Fund. Therefore, a client or customer should contact
the Service Organization acting on his behalf concerning the fees (if any)
charged in connection with a purchase or redemption of Fund shares and should
read this Prospectus in light of the terms governing his accounts with the
Service Organization. Service Organizations will be responsible for promptly
transmitting client or customer purchase and redemption orders to
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the Funds in accordance with their agreements with the Fund and with clients or
customers. Service Organizations that have entered into agreements with the Fund
or its agent may enter confirmed purchase orders on behalf of clients and
customers, with payment to follow no later than the Fund's pricing on the
following business day. If payment is not received by such time, the Service
Organization could be held liable for resulting fees or losses.
For administration, subaccounting, transfer agency and/or other services,
Warburg, Counsellors Securities or their affiliates may pay Service
Organizations and certain recordkeeping organizations a fee up to .35% (the
'Service Fee') of the average annual value of accounts with the Fund maintained
by such Service Organizations or recordkeepers. A portion of the Service Fee may
be borne by the Fund as a transfer agency fee. In addition, a Service
Organization or recordkeeper may directly or indirectly pay a portion of its
Service Fee to the Fund's custodian or transfer agent for costs related to
accounts of its clients or customers. The Service Fee payable to any one Service
Organization or recordkeeper is determined based upon a number of factors,
including the nature and quality of services provided, the operations processing
requirements of the relationship and the standardized fee schedule of the
Service Organization or recordkeeper.
AUTOMATIC MONTHLY INVESTING. Automatic monthly investing allows shareholders
to authorize the Fund to debit their bank account monthly ($50 minimum) for the
purchase of Fund shares on or about either the tenth or twentieth calendar day
of each month. To establish the automatic monthly investing option, obtain a
separate application or complete the 'Automatic Investment Program' section of
the account applications and include a voided, unsigned check from the bank
account to be debited. Only an account maintained at a domestic financial
institution which is an automated clearing house member may be used.
Shareholders using this service must satisfy the initial investment minimum for
the Fund prior to or concurrent with the start of any Automatic Investment
Program. Please refer to an account application for further information, or
contact Warburg Pincus Funds at (800) 927-2874 for information or to modify or
terminate the program. Investors should allow a period of up to 30 days in order
to implement an automatic investment program. The failure to provide complete
information could result in further delays.
General. The Fund reserves the right to reject any specific purchase order.
The Fund may discontinue sales of its shares if management believes that a
substantial further increase in assets may adversely affect the Fund's ability
to achieve its investment objective. In such event, however, it is anticipated
that existing shareholders would be permitted to continue to authorize
investment in the Fund and to reinvest any dividends or capital gain
distributions.
HOW TO REDEEM AND EXCHANGE SHARES
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REDEMPTION OF SHARES. An investor in the Fund may redeem (sell) his shares on
any day that the Fund's net asset value is calculated (see 'Net Asset Value'
below).
Common Shares of the Funds may either be redeemed by mail or by telephone.
Investors should realize that in using the telephone redemption and exchange
option, you may be giving up a measure of security that you may have if you were
to redeem or exchange your shares in writing. If an investor desires to redeem
his shares by mail, a written request for
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redemption should be sent to Warburg Pincus Funds at the address indicated above
under 'How to Open an Account.' An investor should be sure that the redemption
request identifies the Fund, the number of shares to be redeemed and the
investor's account number. In order to change the bank account or address
designated to receive the redemption proceeds, the investor must send a written
request (with signature guarantee of all investors listed on the account when
such a change is made in conjunction with a redemption request) to Warburg
Pincus Funds. Each mail redemption request must be signed by the registered
owner(s) (or his legal representative(s)) exactly as the shares are registered.
If an investor has applied for the telephone redemption feature on his account
application, he may redeem his shares by calling Warburg Pincus Funds at (800)
927-2874 between 9:00 a.m. and 4:00 p.m. (Eastern time) on any business day. An
investor making a telephone withdrawal should state (i) the name of the Fund,
(ii) the account number of the Fund, (iii) the name of the investor(s) appearing
on the Fund's records, (iv) the amount to be withdrawn and (v) the name of the
person requesting the redemption.
After receipt of the redemption request by mail or by telephone, the
redemption proceeds will, at the option of the investor, be paid by check and
mailed to the investor of record or be wired to the investor's bank as indicated
in the account application previously filled out by the investor. No Fund
currently imposes a service charge for effecting wire transfers but each Fund
reserves the right to do so in the future. During periods of significant
economic or market change, telephone redemptions may be difficult to implement.
If an investor is unable to contact Warburg Pincus Funds by telephone, an
investor may deliver the redemption request to Warburg Pincus Funds by mail at
the address shown above under 'How to Open an Account.' Although the Fund will
redeem shares purchased by check or through the Automatic Investment Program
before the funds or check clear, payments of the redemption proceeds will be
delayed for five days (for funds received through the Automatic Investment
Program) or ten days (for check purchases) from the date of purchase. Investors
should consider purchasing shares using a certified or bank check or money order
if they anticipate an immediate need for redemption proceeds.
If a redemption order is received by the Fund or its agent, prior to the
close of regular trading on the NYSE, the redemption order will be effected at
the net asset value per share as determined on that day. If a redemption order
is received after the close of regular trading on the NYSE, the redemption order
will be effected at the net asset value as next determined. Except as noted
above, redemption proceeds will normally be mailed or wired to an investor on
the next business day following the date a redemption order is effected. If,
however, in the judgment of Warburg, immediate payment would adversely affect
the Fund, the Fund reserves the right to pay the redemption proceeds within
seven days after the redemption order is effected. Furthermore, the Fund may
suspend the right of redemption or postpone the date of payment
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upon redemption (as well as suspend or postpone the recordation of an exchange
of shares) for such periods as are permitted under the 1940 Act.
The proceeds paid upon redemption may be more or less than the amount
invested depending upon a share's net asset value at the time of redemption. If
an investor redeems all the shares in his account, all dividends and
distributions declared up to and including the date of redemption are paid along
with the proceeds of the redemption.
If, due to redemptions, the value of an investor's account drops to less than
$2,000 ($250 in the case of a retirement plan or UGMA account), the Fund
reserves the right to redeem the shares in that account at net asset value.
Prior to any redemption, the Fund will notify an investor in writing that this
account has a value of less than the minimum. The investor will then have 60
days to make an additional investment before a redemption will be processed by
the Fund.
TELEPHONE TRANSACTIONS. In order to request redemptions by telephone,
investors must have completed and returned to Warburg Pincus Funds an account
application containing a telephone election. Unless contrary instructions are
elected, an investor will be entitled to make exchanges by telephone. Neither
the Fund nor its agents will be liable for following instructions communicated
by telephone that it reasonably believes to be genuine. Reasonable procedures
will be employed on behalf of the Fund to confirm that instructions communicated
by telephone are genuine. Such procedures include providing written confirmation
of telephone transactions, tape recording telephone instructions and requiring
specific personal information prior to acting upon telephone instructions.
AUTOMATIC CASH WITHDRAWAL PLAN. The Fund offers investors an automatic cash
withdrawal plan under which investors may elect to receive periodic cash
payments of at least $250 monthly or quarterly. To establish this service,
complete the 'Automatic Withdrawal Plan' section of the account application and
attach a voided check from the bank account to be credited. For further
information regarding the automatic cash withdrawal plan or to modify or
terminate the plan, investors should contact Warburg Pincus Funds at (800)
927-2874.
EXCHANGE OF SHARES. An investor may exchange Common Shares of a Fund for
Common Shares of another Warburg Pincus Fund at their respective net asset
values. Exchanges may be effected by mail or by telephone in the manner
described under 'Redemption of Shares' above. If an exchange request is received
by Warburg Pincus Funds or their agent prior to the close of regular trading on
the NYSE, the exchange will be made at each Fund's net asset value determined at
the end of that business day. Exchanges may be effected without a sales charge
but must satisfy the minimum dollar amount necessary for new purchases. Due to
the costs involved in effecting exchanges, the Fund reserves the right to refuse
to honor more than three exchange requests by a shareholder in any 30-day
period. The exchange privilege may be modified or terminated at any time upon 60
days' notice to
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shareholders. Currently, exchanges may be made with the following other funds:
WARBURG PINCUS CASH RESERVE FUND -- a money market fund investing in
short-term, high quality money market instruments;
WARBURG PINCUS NEW YORK TAX EXEMPT FUND -- a money market fund investing in
short-term, high quality municipal obligations designed for New York investors
seeking income exempt from federal, New York State and New York City income
tax;
WARBURG PINCUS NEW YORK INTERMEDIATE MUNICIPAL FUND -- an intermediate-term
municipal bond fund designed for New York investors seeking income exempt from
federal, New York State and New York City income tax;
WARBURG PINCUS TAX FREE FUND -- a bond fund seeking maximum current income
exempt from federal income taxes, consistent with preservation of capital;
WARBURG PINCUS INTERMEDIATE MATURITY GOVERNMENT FUND -- an intermediate-term
bond fund investing in obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities;
WARBURG PINCUS FIXED INCOME FUND -- a bond fund seeking current income and,
secondarily, capital appreciation by investing in a diversified portfolio of
fixed-income securities;
WARBURG PINCUS GLOBAL FIXED INCOME FUND -- a bond fund investing in a
portfolio consisting of investment grade fixed-income securities of
governmental and corporate issuers denominated in various currencies, including
U.S. dollars;
WARBURG PINCUS BALANCED FUND -- a fund seeking maximum total return through a
combination of long-term growth of capital and current income consistent with
preservation of capital through diversified investments in equity and debt
securities;
WARBURG PINCUS GROWTH & INCOME FUND -- an equity fund seeking long-term
growth of capital and income and a reasonable current return;
WARBURG PINCUS CAPITAL APPRECIATION FUND -- an equity fund seeking long-term
capital appreciation by investing principally in equity securities of
medium-sized domestic companies;
WARBURG PINCUS EMERGING GROWTH FUND -- an equity fund seeking maximum capital
appreciation by investing in emerging growth companies;
WARBURG PINCUS SMALL COMPANY VALUE FUND -- an equity fund seeking long-term
capital appreciation by investing primarily in equity securities of small
companies;
WARBURG PINCUS SMALL COMPANY GROWTH FUND -- an equity fund seeking capital
growth by investing in equity securities of small sized domestic companies;
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WARBURG PINCUS HEALTH SCIENCES FUND -- an equity fund seeking capital
appreciation by investing primarily in equity and debt securities of health
sciences companies;
WARBURG PINCUS POST-VENTURE CAPITAL FUND -- an equity fund seeking long-term
growth of capital by investing principally in equity securities of issuers in
their post-venture capital stage of development;
WARBURG PINCUS GLOBAL POST-VENTURE CAPITAL FUND -- an equity fund seeking
long-term growth of capital by investing primarily in equity securities of U.S.
and foreign issuers in their post-venture capital stage of development;
WARBURG PINCUS INTERNATIONAL EQUITY FUND -- an equity fund seeking long-term
capital appreciation by investing primarily in equity securities of non-United
States issuers;
WARBURG PINCUS EMERGING MARKETS FUND -- an equity fund seeking growth of
capital by investing primarily in securities of non-United States issuers
consisting of companies in emerging securities markets;
WARBURG PINCUS JAPAN GROWTH FUND -- an equity fund seeking long-term growth
of capital by investing primarily in equity securities of Japanese issuers; and
WARBURG PINCUS JAPAN OTC FUND -- an equity fund seeking long-term capital
appreciation by investing in a portfolio of securities traded in the Japanese
over-the-counter market.
The exchange privilege is available to shareholders residing in any state in
which the Common Shares being acquired may legally be sold. When an investor
effects an exchange of shares, the exchange is treated for federal income tax
purposes as a redemption. Therefore, the investor may realize a taxable gain or
loss in connection with the exchange. Investors wishing to exchange Common
Shares of a Fund for Common Shares in another Warburg Pincus Fund should review
the prospectus of the other fund prior to making an exchange. For further
information regarding the exchange privilege or to obtain a current prospectus
for another Warburg Pincus Fund, an investor should contact Warburg Pincus Funds
at (800) 927-2874.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Fund's portfolio securities for the applicable period (which
includes amortization of market discounts) less amortization of market premiums
and applicable expenses. The Fund declares its dividends from its net investment
income and its net realized short-term and long-term capital gains annually and
pays them in the calendar year in which they are declared, generally in November
or December. Net investment income earned on weekends and when the NYSE is not
open will be computed as of the next business day. Unless an investor instructs
the Fund to pay dividends or distributions in cash, dividends and distributions
will automatically be
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reinvested in additional Common Shares of the Fund at net asset value. The
election to receive dividends in cash may be made on the account application or,
subsequently, by writing to Warburg Pincus Funds at the address set forth under
'How to Open an Account' or by calling Warburg Pincus Funds at (800) 927-2874.
The Fund may be required to withhold for U.S. federal income taxes 31% of all
distributions payable to shareholders who fail to provide the Fund with their
correct taxpayer identification number or to make required certifications, or
who have been notified by the U.S. Internal Revenue Service that they are
subject to backup withholding.
TAXES. The Fund intends to qualify each year as a 'regulated investment
company' within the meaning of the Code. The Fund, if it qualifies as a
regulated investment company, will be subject to a 4% non-deductible excise tax
measured with respect to certain undistributed amounts of ordinary income and
capital gain. The Fund expects to pay such additional dividends and to make such
additional distributions as are necessary to avoid the application of this tax.
Dividends paid from net investment income and distributions of net realized
short-term capital gains are taxable to investors as ordinary income, and
distributions derived from net realized long-term capital gains ('capital gain
dividends') are taxable to investors as long-term capital gains, in each case
regardless of how long the shareholder has held Fund shares and whether received
in cash or reinvested in additional Fund shares. As a general rule, an
investor's gain or loss on a sale or redemption of his Fund shares will be a
long-term capital gain or loss if he has held his shares for more than one year
and will be a short-term capital gain or loss if he has held his shares for one
year or less. However, any loss realized upon the sale or redemption of shares
within six months from the date of their purchase will be treated as a long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain during such six-month period with respect to such shares. Investors
may be proportionately liable for taxes on income and gains of the Fund, but
investors not subject to tax on their income will not be required to pay tax on
amounts distributed to them. The Fund's investment activities, including short
sales of securities, should not result in unrelated business taxable income to a
tax exempt investor. The Fund's dividends, to the extent not derived from
dividends attributable to certain types of stock issued by U.S. domestic
corporations, will not qualify for the dividends received deduction for
corporations.
The investments by the Fund in zero coupon securities may create special tax
consequences. Zero coupon securities do not make interest payments, although a
portion of the difference between a zero coupon security's face value and its
purchase price is imputed as income to the Fund each year even though the Fund
receives no cash distribution until maturity. Under the U.S. federal tax laws,
the Fund will not be subject to tax on this income if it pays dividends to its
shareholders substantially equal to all the income received
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from, or imputed with respect to, its investments during the year, including its
zero coupon securities. These dividends ordinarily will constitute taxable
income to the shareholders of the Fund.
Dividends and interest received by the Fund may be subject to withholding and
other taxes imposed by foreign countries. However, tax conventions between
certain countries and the U.S. may reduce or eliminate such taxes. If the Fund
qualifies as a regulated investment company, if certain asset and distribution
requirements are satisfied and if more than 50% of the Fund's total assets at
the close of its fiscal year consist of stock or securities of foreign
corporations, the Fund may elect for U.S. income tax purposes to treat foreign
income taxes paid by it as paid by its shareholders. The Fund may qualify for
and make this election in some, but not necessarily all, of its taxable years.
If the Fund were to make an election, shareholders of the Fund would be required
to take into account an amount equal to their pro rata portions of such foreign
taxes in computing their taxable income and then treat an amount equal to those
foreign taxes as a U.S. federal income tax deduction or as a foreign tax credit
against their U.S. federal income taxes. Shortly after any year for which it
makes such an election, the Fund will report to its shareholders the amount per
share of such foreign tax that must be included in each shareholder's gross
income and the amount which will be available for the deduction or credit. No
deduction for foreign taxes may be claimed by a shareholder who does not itemize
deductions. Certain limitations will be imposed on the extent to which the
credit (but not the deduction) for foreign taxes may be claimed.
Certain provisions of the Code may require that a gain recognized by the Fund
upon the closing of a short sale be treated as a short-term capital gain, and
that a loss recognized by the Fund upon the closing of a short sale be treated
as a long-term capital loss, regardless of the amount of time that the Fund held
the securities used to close the short sale. The Fund's use of short sales may
also affect the holding periods of certain securities held by the Fund if such
securities are 'substantially identical' to securities used by the Fund to close
the short sale. The Fund's short selling activities will not result in unrelated
business taxable income to a tax-exempt investor.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. Each investor will also receive, if
applicable, various written notices after the close of a Fund's prior taxable
year with respect to certain dividends and distributions which were received
from the Fund during the Fund's prior taxable year. Investors should consult
their own tax advisers with specific reference to their own tax situations,
including their state and local tax liabilities.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share is calculated as of the close of regular
trading on the NYSE (currently 4:00 p.m., Eastern time) on each business day,
Monday through Friday, except on days when the NYSE is closed. The NYSE
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is currently scheduled to be closed on New Year's Day, Washington's Birthday,
Good Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving
Day and Christmas Day, and on the preceding Friday or subsequent Monday when one
of these holidays falls on a Saturday or Sunday, respectively. The net asset
value per share of each Fund generally changes each day.
The net asset value per Common Share of the Fund is computed by adding the
Common Shares' pro rata share of the value of the Fund's assets, deducting the
Common Shares' pro rata share of the Fund's liabilities and the liabilities
specifically allocated to Common Shares and then dividing the result by the
total number of outstanding Common Shares.
Securities listed on a U.S. securities exchange (including securities traded
through the NASDAQ National Market System) or foreign securities exchange or
traded in an over-the-counter market will be valued at the most recent sale
price when the valuation is made. Options and futures contracts will be valued
similarly. Debt obligations that mature in 60 days or less from the valuation
date are valued on the basis of amortized cost, unless the Board determines that
using this valuation method would not reflect the investments' value.
Securities, options and futures contracts for which market quotations are not
readily available and other assets will be valued at their fair value as
determined in good faith pursuant to consistently applied procedures established
by the Board. Further information regarding valuation policies is contained in
the Statement of Additional Information.
PERFORMANCE
- --------------------------------------------------------------------------------
The Fund quotes the performance of Common Shares separately from Advisor
Shares. The net asset value of Common Shares is listed in The Wall Street
Journal each business day under the heading 'Warburg Pincus Funds.' From time to
time, the Fund may advertise yield and average annual total return of its Common
Shares over various periods of time. The yield refers to net investment income
generated by the Common Shares over a specified thirty-day period, which is then
annualized. These total return figures show the average percentage change in
value of an investment in the Common Shares from the beginning of the measuring
period to the end of the measuring period. The figures reflect changes in the
price of the Common Shares assuming that any income dividends and/or capital
gain distributions made by the Fund during the period were reinvested in Common
Shares of the Fund. Total return will be shown for recent one-, five- and
ten-year periods, and may be shown for other periods as well (such as from
commencement of the Fund's operations or on a year-by-year, quarterly or current
year-to-date basis).
When considering average total return figures for periods longer than one
year, it is important to note that the annual total return for one year in the
period might have been greater or less than the average for the entire period.
When considering total return figures for periods shorter than one year,
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investors should bear in mind that the Fund seeks long-term appreciation and
that such return may not be representative of the Fund's return over a longer
market cycle. The Fund may also advertise aggregate total return figures of its
Common Shares for various periods, representing the cumulative change in value
of an investment in the Common Shares for the specific period (again reflecting
changes in share prices and assuming reinvestment of dividends and
distributions). Aggregate and average total returns may be shown by means of
schedules, charts or graphs and may indicate various components of total return
(i.e., change in value of initial investment, income dividends and capital gain
distributions).
Investors should note that yield and total return figures are based on
historical earnings and are not intended to indicate future performance. The
Fund's Statement of Additional Information describes the method used to
determine the yield, tax-equivalent yield and total return. Current performance
figures may be obtained by calling Warburg Pincus Funds at (800) 927-2874.
In reports or other communications to investors or in advertising material,
the Fund may describe general economic and market conditions affecting the Fund.
The Fund may compare its performance (i) with that of other mutual funds as
listed in the rankings prepared by Lipper Analytical Services, Inc. or similar
investment services that monitor the performance of mutual funds or as set forth
in the publications listed below; (ii) the Russell 2000 Small Stock Index and
the S&P 500 Index; or (iii) with other appropriate indexes of investment
securities or with data developed by Warburg derived from such indexes. The Fund
may include evaluations of the Fund published by nationally recognized ranking
services and by financial publications that are nationally recognized, such as
Barron's, Business Week, Financial Times, Forbes, Fortune, Inc., Institutional
Investor, Investor's Busness Daily, Money, Morningstar, Inc., Mutual Fund
Magazine, Smart Money and The Wall Street Journal.
In reports or other communications to investors or in advertising, the Fund
may also describe the general biography or work experience of the portfolio
managers of the Fund and may include quotations attributable to the portfolio
managers describing approaches taken in managing the Fund's investments,
research methodology underlying stock selection or the Fund's investment
objective. In addition, the Fund and its portfolio managers may render periodic
updates of Fund activity, which may include a discussion of significant
portfolio holdings and analysis of holdings by industry, country, credit quality
and other characteristics. The Fund may also discuss measures of risk, the
continuum of risk and return relating to different investments and the potential
impact of foreign securities on a portfolio otherwise composed of domestic
securities. Morningstar, Inc. rates funds in broad categories based on
risk/reward analyses over various time periods. In addition, the Fund may from
time to time compare the expense ratio of its Common Shares to that of
investment companies with similar objectives and policies, based on
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data generated by Lipper Analytical Services, Inc. or similar investment
services that monitor mutual funds.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
ORGANIZATION. The Fund was incorporated on November 12, 1996 under the laws
of the State of Maryland. On December 4, 1996, the Fund changed its name from
'Warburg, Pincus Special Equity Fund, Inc.' to 'Warburg, Pincus Strategic Value
Fund, Inc.' The charter of the Fund authorizes the Board to issue three billion
full and fractional shares of capital stock, $.001 par value per share, of which
two billion shares are designated Common Shares and one billion shares are
designated Advisor Shares. Under the Fund's charter documents, the Board has the
power to classify or reclassify any unissued shares of the Fund into one or more
additional classes by setting or changing in any one or more respects their
relative rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption. The Board may similarly
classify or reclassify any class of the Fund's shares into one or more
series and, without shareholder approval, may increase the number of
authorized shares of the Fund.
MULTI-CLASS STRUCTURE. The Fund offers a separate class of shares, the
Advisor Shares, pursuant to a separate prospectus. Individual investors may
only purchase Advisor Shares through institutional shareholders of
record, broker-dealers, financial institutions, depository institutions,
retirement plans and financial intermediaries. Shares of each class
represent equal pro rata interests in the Fund and accrue dividends and
calculate net asset value and performance quotations in the same manner.
Because of the higher fees paid by the Advisor Shares, the total return on
such shares can be expected to be lower than the total return on Common
Shares. Investors may obtain information concerning the Advisor Shares from
their investment professional or by calling Counsellors Securities at (800)
369-2728.
VOTING RIGHTS. Investors in the Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of the
Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the Board unless
and until such time as less than a majority of the members holding office have
been elected by investors. Any Director of the Fund may be removed from office
upon the vote of shareholders holding at least a majority of the Fund's
outstanding shares, at a meeting called for that purpose. A meeting will be
called for the purpose of voting on the removal of a Board member at the written
request of holders of 10% of the outstanding shares of the Fund.
SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement
of his account, as well as a statement of his account after any transaction that
affects his share balance or share registration (other than the
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reinvestment of dividends or distributions or investment made through the
Automatic Investment Program). The Fund will also send to its investors a
semiannual report and an audited annual report, each of which includes a list of
the investment securities held by the Fund and a statement of the performance of
the Fund. Periodic listings of the investment securities held by the Fund, as
well as certain statistical characteristics of the Fund, may be obtained by
calling Warburg Pincus Funds at (800) 927-2874.
------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE FUND'S
STATEMENT OF ADDITIONAL INFORMATION OR THE FUND'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE FUND, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
COMMON SHARES OF THE FUND IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFER MAY NOT LAWFULLY BE MADE.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
The Fund's Expenses..................................................... 2
Investment Objective and Policies....................................... 3
Portfolio Investments................................................... 3
Risk Factors and Special Considerations................................. 6
Portfolio Transactions and Turnover Rate................................ 8
Certain Investment Strategies........................................... 8
Investment Guidelines................................................... 13
Management of the Fund.................................................. 14
How to Open an Account.................................................. 16
How to Purchase Shares.................................................. 16
How to Redeem and Exchange Shares....................................... 19
Dividends, Distributions and Taxes...................................... 23
Net Asset Value......................................................... 25
Performance............................................................. 26
General Information..................................................... 28
</TABLE>
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P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874)
WPSPE-1-1296
[Logo]
Statement of Differences
The trademark symbol shall be expressed as .............................. 'tm'
<PAGE>
PROSPECTUS
WARBURG PINCUS ADVISOR
STRATEGIC
VALUE
FUND
December 31, 1996
[LOGO]
<PAGE>
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 24, 1996
WARBURG PINCUS ADVISOR FUNDS
P.O. BOX 9030
BOSTON, MASSACHUSETTS 02205-9030
TELEPHONE NUMBER: (800) 369-2728
December 31, 1996
PROSPECTUS
Warburg Pincus Advisor Funds are a family of open-end mutual funds that are
offered to investors who wish to buy shares through an investment professional,
to financial institutions investing on behalf of their customers and to
retirement plans that elect to make one or more Advisor Funds an investment
option for participants in the plans. One Advisor Fund is described in this
Prospectus:
WARBURG PINCUS STRATEGIC VALUE FUND seeks capital appreciation. The
Fund will pursue its investment objective by investing in companies and market
sectors that are considered to be relatively undervalued.
The Fund currently offers two classes of shares, one of which, the Advisor
Shares, is offered pursuant to this Prospectus. The Advisor Shares of the Fund,
as well as Advisor Shares of certain other Warburg Pincus-advised funds, are
sold under the name 'Warburg Pincus Advisor Funds.' Individual investors may
purchase Advisor Shares only through institutional shareholders of record,
broker-dealers, financial institutions, depository institutions, retirement
plans and other financial intermediaries ('Institutions'). The Advisor Shares
impose a 12b-1 fee of .50% per annum, which is the economic equivalent of
a sales charge. The Fund's Common Shares are available for purchase by
individuals directly and are offered by a separate prospectus.
NO MINIMUM INVESTMENT
There is no minimum amount of initial or subsequent purchases of shares imposed
on Institutions. See 'How to Purchase Shares.'
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund contained in a Statement of Additional Information, has been filed with the
Securities and Exchange Commission (the 'SEC') and is available for reference,
along with other related materials, on the SEC Internet Web site
(http://www.sec.gov). The Statement of Additional Information is also available
to investors without charge by calling Warburg Pincus Advisor Funds at (800)
369-2728. Information regarding the status of shareholder accounts may also be
obtained by calling Warburg Pincus Advisor Funds at the same number. The
Statement of Additional Information, as amended or supplemented from time to
time, bears the same date as this Prospectus and is incorporated by reference in
its entirety into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY ANY BANK, AND SHARES ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENTS IN SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- --------------------------------------------------------------------------------
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
<PAGE>
THE FUND'S EXPENSES
Warburg Pincus Strategic Value Fund (the 'Fund') currently offers two
separate classes of shares: Common Shares and Advisor Shares. See 'General
Information.' Because of the higher fees paid by Advisor Shares, the total
return on such shares can be expected to be lower than the total return on
Common Shares.
<TABLE>
<S> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)...................... 0
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees.................................................................................. .49%
12b-1 Fees....................................................................................... .50%`D'
Other Expenses................................................................................... .71%
Total Fund Operating Expenses*................................................................... 1.70%
EXAMPLE
You would pay the following expenses
on a $1,000 investment, assuming (1) 5% annual return
and (2) redemption at the end of each time period:
1 year.......................................................................................... $ 18
3 years......................................................................................... $ 54
</TABLE>
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`D' Current 12b-1 fees are .50% out of a maximum .75% authorized under the
Advisor Shares' Distribution Plan. At least a portion of these fees should
be considered by the investor to be the economic equivalent of a sales
charge.
* Absent the waiver of fees by the Fund's investment adviser and
co-administrator, Management Fees would equal 1.00%, Other Expenses would
equal .81% and Total Fund Operating Expenses would equal 2.31%. Other
Expenses for the Fund are based on annualized estimates of expenses for the
fiscal year ending October 31, 1997, net of any fee waivers or expense
reimbursements. The investment adviser and co-administrator are under no
obligation to continue these waivers.
------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as an Advisor Shareholder of the Fund. Institutions also
may charge their clients fees in connection with investments in Advisor Shares,
which fees are not reflected in the table. The Example should not be considered
a representation of past or future expenses; actual Fund expenses may be greater
or less than those shown. Moreover, while the Example assumes a 5% annual
return, the Fund's actual performance will vary and may result in a return
greater or less than 5%. Long-term shareholders of Advisor Shares may pay more
than the economic equivalent of the maximum front-end sales charges permitted by
the National Association of Securities Dealers, Inc. (the 'NASD').
2
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INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks capital appreciation. The Fund will pursue its
investment objective by investing in companies and market sectors that Warburg,
Pincus Counsellors, Inc., the Fund's investment adviser ('Warburg'), considers
to be relatively undervalued. The Fund's objective is a fundamental policy and
may not be amended without first obtaining the approval of a majority of the
outstanding shares of the Fund. Any investment involves risk and, therefore,
there can be no assurance that the Fund will achieve its investment objective.
See 'Portfolio Investments' and 'Certain Investment Strategies' for descriptions
of certain types of investments the Fund may make.
The Fund is a diversified management investment company that pursues
its objective by investing, under normal market conditions, at least 65%
of its total assets in equity securities, including common stock, preferred
stock, warrants and securities convertible into or exchangeable for common
stock. Warburg will seek to identify and invest in companies which, in its
opinion, are (i) undervalued or (ii) which may not themselves be undervalued
but which are in sectors which are undervalued as a whole. In implementing its
investment strategy, the Fund may take positions that are different from or
inconsistent with those taken by other mutual funds.
Warburg will determine whether a company or a market sector is undervalued
based on a variety of measures, including price/earnings ratio, price/book
ratio, price/cash flow ratio, earnings growth, debt/capital ratio and absolute
and relative price history in relation to its peer group and to the market.
Other relevant factors, including a company's asset value, franchise value and
quality of management, will also be considered.
The Fund may hold securities of companies of any size, including
securities of companies with market capitalizations of less than $500
million, and may invest without limit in the securities of issuers which have
been in continuous operation for less than three years. The Fund may hold
from time to time various foreign currencies pending investment in
foreign securities or conversion into U.S. dollars, but does not
currently intend to invest more than 20% of its assets in securities of foreign
issuers. The Fund may also purchase without limit dollar-denominated
American Depository Receipts ('ADRs'). ADRs are issued by domestic banks and
evidence ownership of underlying foreign securities.
PORTFOLIO INVESTMENTS
DEBT. The Fund may invest up to 20% of its assets in debt securities (other than
money market obligations) for the purpose of seeking capital appreciation. The
interest income to be derived may be considered as one factor in selecting debt
securities for investment by Warburg. Because the market value of debt
obligations can be expected to vary inversely to changes in prevailing interest
rates, investing in debt obligations may provide an opportunity for capital
growth when interest rates are expected to decline. The success of such a
strategy is dependent upon Warburg's ability to accurately forecast changes in
interest rates. The market value of debt obligations may be expected to vary
depending upon, among other factors, interest rates, the ability of the issuer
to repay principal and interest, any change in investment rating and general
economic conditions. The Fund's debt securities holdings may be rated below
investment grade and as low as C by Moody's Investors Service, Inc. ('Moody's')
or D by Standard & Poor's Ratings Group ('S&P') and the Fund may also invest
in unrated issues that are believed by Warburg to be of comparable quality.
Securities in these rating categories are in payment default or have
extremely poor prospects of attaining any investment standing.
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There are certain risk factors associated with lower-rated securities.
Securities rated in the fourth highest grade have speculative characteristics,
and securities rated B have speculative elements and a greater vulnerability to
default than higher-rated securities. Investors should be aware that ratings are
relative and subjective and are not absolute standards of quality. Subsequent to
its purchase by a Fund, an issue of securities may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require sale of such securities by the Fund, although Warburg
will consider such event in its determination of whether the Fund should
continue to hold the securities.
Lower-rated and comparable unrated securities (commonly referred to as
'junk bonds'), which the Fund may hold (i) will likely have some quality and
protective characteristics that, in the judgment of the rating organization, are
outweighed by large uncertainties or major risk exposures to adverse conditions
and (ii) are predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. The market values of certain of these securities also tend to be
more sensitive to individual corporate developments and changes in economic
conditions than higher-quality securities. In addition, medium- and lower-rated
securities and comparable unrated securities generally present a higher degree
of credit risk. The risk of loss due to default by such issuers is significantly
greater because medium- and lower-rated securities and unrated securities
generally are unsecured and frequently are subordinated to the prior payment of
senior indebtedness.
The market value of securities in lower-rated categories is more volatile
than that of higher quality securities. In addition, the Fund may have
difficulty disposing of certain of these securities because there may be a thin
trading market, which may also make it more difficult for the Fund to obtain
accurate market quotations for purposes of calculating the Fund's net asset
value.
MONEY MARKET OBLIGATIONS. The Fund is authorized to invest, under normal market
conditions, up to 20% of its total assets in domestic and foreign short-term
(one year or less) and medium-term (five years or less remaining to maturity)
money market obligations and for temporary defensive purposes may invest in
these securities without limit. These instruments consist of obligations issued
or guaranteed by the U.S. government or a foreign government, its agencies or
instrumentalities; bank obligations (including certificates of deposit, time
deposits and bankers' acceptances of domestic or foreign banks, domestic savings
and loans and similar institutions) that are high quality investments or, if
unrated, deemed by Warburg to be high quality investments; commercial paper
rated no lower than A-2 by S&P or Prime-2 by Moody's or the equivalent from
another major rating service or, if unrated, of an issuer having an outstanding,
unsecured debt issue then rated within the three highest rating categories; and
repurchase agreements with respect to the foregoing.
Repurchase Agreements. The Fund may invest in repurchase agreement
transactions with member banks of the Federal Reserve System and certain
non-bank dealers. Repurchase agreements are contracts under which the buyer of a
security simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Under the terms of a typical repurchase agreement,
the Fund would acquire any underlying security for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to
market fluctuations during the Fund's holding period. The value of the
underlying securities
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will at all times be at least equal to the total amount of the purchase
obligation, including interest. The Fund bears a risk of loss in the event that
the other party to a repurchase agreement defaults on its obligations or
becomes bankrupt and the Fund is delayed or prevented from exercising its
right to dispose of the collateral securities, including the risk of a possible
decline in the value of the underlying securities during the period while
the Fund seeks to assert this right. Warburg, acting under the supervision of
the Fund's Board of Directors (the 'Board'), monitors the creditworthiness
of those bank and non-bank dealers with which the Fund enters into repurchase
agreements to evaluate this risk. A repurchase agreement is considered to be a
loan under the Investment Company Act of 1940, as amended (the '1940 Act').
Money Market Mutual Funds. Where Warburg believes that it would be
beneficial to the Fund and appropriate considering the factors of return and
liquidity, the Fund may invest up to 5% of its assets in securities of money
market mutual funds that are unaffiliated with the Fund, Warburg or the Fund's
co-administrator, PFPC Inc. ('PFPC'). As a shareholder in any mutual fund, the
Fund will bear its ratable share of the mutual fund's expenses, including
management fees, and will remain subject to payment of the Fund's administration
fees and other expenses with respect to assets so invested.
U.S. GOVERNMENT OBLIGATIONS. U.S. government securities in which the Fund may
invest include: direct obligations of the U.S. Treasury and obligations issued
by U.S. government agencies and instrumentalities including instruments that are
supported by the full faith and credit of the United States, instruments that
are supported by the right of the issuer to borrow from the U.S. Treasury and
instruments that are supported by the credit of the instrumentality.
CONVERTIBLE SECURITIES. Convertible securities in which the Fund may invest,
including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. The value of convertible securities fluctuates in relation to
changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock.
WARRANTS. The Fund may invest up to 15% of its total assets in warrants.
Warrants are securities that give the holder the right, but not the obligation,
to purchase newly created equity issues of the company issuing the warrants, or
a related company, at a fixed price either on a date certain or during a set
period.
TEMPORARY DEFENSIVE MEASURES. When Warburg believes that a defensive posture is
warranted, the Fund may invest temporarily without limit in U.S.
dollar-denominated money market obligations, including repurchase agreements.
RISK FACTORS AND SPECIAL
CONSIDERATIONS
Investing in common stocks and securities convertible into common stocks is
subject to the inherent risk of fluctuations in the prices of such securities.
For certain additional risks relating to the Fund's investments, including with
respect to foreign securities and lower-rated securities, see 'Portfolio
Investments' beginning at page 3, and 'Certain Investment Strategies' beginning
at page 7.
EMERGING GROWTH AND SMALL COMPANIES; UNSEASONED ISSUERS. The Fund may invest in
securities of emerging growth and small- and medium-sized companies, as well as
companies with continuous operations of less than three years ('unseasoned
issuers'), which may involve greater risks since these securities may have
limited marketability and, thus, may be more volatile than securities of larger,
more established companies or the market
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in general. Because small- and medium-sized companies and unseasoned issuers
normally have fewer shares outstanding than larger companies, it may be more
difficult for the Fund to buy or sell significant amounts of such shares
without an unfavorable impact on prevailing prices. Small-sized companies and
unseasoned issuers may have limited product lines, markets or financial
resources and may lack management depth. In addition, small- and medium-sized
companies and unseasoned issuers are typically subject to a greater degree of
changes in earnings and business prospects than are larger, more established
companies. There is typically less publicly available information concerning
these companies than for larger, more established ones. Although investing in
securities of emerging growth companies offers potential for above-average
returns if the companies are successful, the risk exists that the companies will
not succeed and the prices of the companies' shares could significantly decline
in value. Therefore, an investment in the Fund may involve a greater degree of
risk than an investment in other mutual funds which invest in better-known,
larger companies.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Fund may purchase
securities that are not registered under the Securities Act of 1933, as amended
(the '1933 Act'), but that can be sold to 'qualified institutional buyers' in
accordance with Rule 144A under the 1933 Act ('Rule 144A Securities'). An
investment in Rule 144A Securities will be considered illiquid and therefore
subject to the Fund's limitation on the purchase of illiquid securities, unless
the Board determines on an ongoing basis that an adequate trading market exists
for the security. In addition to an adequate trading market, the Board will also
consider factors such as trading activity, availability of reliable price
information and other relevant information in determining whether a Rule 144A
Security is liquid. This investment practice could have the effect of increasing
the level of illiquidity in the Fund to the extent that qualified institutional
buyers become uninterested for a time in purchasing Rule 144A Securities. The
Board will carefully monitor any investments by the Fund in Rule 144A
Securities. The Board may adopt guidelines and delegate to Warburg the daily
function of determining and monitoring the liquidity of Rule 144A Securities,
although the Board will retain ultimate responsibility for any determination
regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities) may involve
a high degree of business and financial risk and may result in substantial
losses. These securities may be less liquid than publicly traded securities, and
the Fund may take longer to liquidate these positions than would be the case for
publicly traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized on such sales could be less than
those originally paid by the Fund. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to companies whose securities are publicly
traded. The Fund's investment in illiquid securities is subject to the risk that
should the Fund desire to sell any of these securities when a ready buyer is not
available at a price that is deemed to be representative of their value, the
value of the Fund's net assets could be adversely affected.
SECTOR CONCENTRATION. At times the Fund may invest more than 25% of its assets
in securities of issuers in one or more market sectors such as, for example, the
financial services sector. A market sector may be made up of companies in a
number of related industries. The Fund will only concentrate its investments in
a particular market sector if Warburg believes the investment return available
from concentration in that sector justifies any additional risk associated with
concentration in that sector. When the Fund concentrates its investments in a
market sector, financial, economic, business and other developments affecting
issuers in that sector will have a greater
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effect on the Fund than if it had not concentrated its assets in that sector.
WARRANTS. At the time of issue, the cost of a warrant is substantially less than
the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This leveraging effect enables the investor to gain exposure to the
underlying security with a relatively low capital investment. This leveraging
increases an investor's risk, however, in the event of a decline in the value of
the underlying security and can result in a complete loss of the amount invested
in the warrant. In addition, the price of a warrant tends to be more volatile
than, and may not correlate exactly to, the price of the underlying security. If
the market price of the underlying security is below the exercise price of the
warrant on its expiration date, the warrant will generally expire without value.
PORTFOLIO TRANSACTIONS AND
TURNOVER RATE
The Fund will attempt to purchase securities with the intent of holding
them for investment but may purchase and sell portfolio securities whenever
Warburg believes it to be in the best interests of the Fund. The Fund will not
consider portfolio turnover rate a limiting factor in making investment
decisions consistent with its investment objective and policies. It is not
possible to predict the Fund's portfolio turnover rates. However, it is
anticipated that the Fund's annual turnover rate should not exceed 150%. High
portfolio turnover rates (100% or more) may result in dealer markups or
underwriting commissions as well as other transaction costs, including
correspondingly higher brokerage commissions. In addition, short-term gains
realized from portfolio turnover may be taxable to shareholders as ordinary
income. See 'Dividends, Distributions and Taxes -- Taxes' below and 'Investment
Policies -- Portfolio Transactions' in the Statement of Additional Information.
All orders for transactions in securities or options on behalf of the Fund
are placed by Warburg with broker-dealers that it selects, including Counsellors
Securities Inc., the Fund's distributor ('Counsellors Securities'). The Fund may
utilize Counsellors Securities in connection with a purchase or sale of
securities when Warburg believes that the charge for the transaction does not
exceed usual and customary levels and when doing so is consistent with
guidelines adopted by the Board.
CERTAIN INVESTMENT STRATEGIES
Although there is no current intention of doing so during the coming year,
the Fund is authorized to engage in the following investment strategies: (i)
lending portfolio securities, (ii) entering into forward currency transactions
and (iii) entering into reverse repurchase agreements and dollar rolls. Detailed
information concerning the Fund's strategies and related risks is contained
below and in the Statement of Additional Information.
FOREIGN SECURITIES. There are certain risks involved in investing in securities
of companies and governments of foreign nations which are in addition to the
usual risks inherent in U.S. investments. These risks include those resulting
from fluctuations in currency exchange rates, revaluation of currencies, future
adverse political and economic developments and the possible imposition of
currency exchange blockages or other foreign governmental laws or restrictions,
reduced availability of public information concerning issuers, the lack of
uniform accounting, auditing and financial reporting standards and other
regulatory practices and requirements that are often generally less rigorous
than those applied in the United States. Moreover, securities of many foreign
companies may be less liquid and their prices more volatile than those of
securities of comparable U.S. companies. Certain foreign countries are known to
experience long delays between the trade and
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settlement dates of securities purchased or sold. In addition, with respect to
certain foreign countries, there is the possibility of expropriation,
nationalization, confiscatory taxation and limitations on the use or removal of
funds or other assets of the Fund, including the withholding of dividends.
Foreign securities may be subject to foreign government taxes that would reduce
the net yield on such securities. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments positions. Investment in foreign
securities will also result in higher operating expenses due to the cost of
converting foreign currency into U.S. dollars, the payment of fixed brokerage
commissions on foreign exchanges, which generally are higher than commissions on
U.S. exchanges, higher valuation and communications costs and the expense of
maintaining securities with foreign custodians.
OPTIONS AND FUTURES TRANSACTIONS. At the discretion of Warburg, the Fund may,
but is not required to, engage in a number of strategies involving options and
futures contracts. These strategies, commonly referred to as 'derivatives,' may
be used (i) for the purpose of hedging against a decline in value of the Fund's
current or anticipated portfolio holdings or (ii) as a substitute for purchasing
or selling portfolio securities, or (iii) to seek to generate income to offset
expenses or increase return. TRANSACTIONS THAT ARE NOT CONSIDERED HEDGING SHOULD
BE CONSIDERED SPECULATIVE AND MAY SERVE TO INCREASE THE FUND'S INVESTMENT RISK.
Transaction costs and any premiums associated with these strategies, and any
losses incurred, will affect the Fund's net asset value and performance.
Therefore, an investment in the Fund may involve a greater risk than an
investment in other mutual funds that do not utilize these strategies. The
Fund's use of these strategies may be limited by position and exercise limits
established by securities and commodities exchanges and the NASD and by the
Internal Revenue Code of 1986, as amended (the 'Code').
Securities and Stock Index Options. The Fund may write covered call options
and put options and purchase put and call options on securities and stock
indexes and will realize fees (referred to as 'premiums') for granting the
rights evidenced by the options. Such options may be traded on an exchange or
may trade over-the-counter ('OTC'). The purchaser of a put option on a security
has the right to compel the purchase by the writer of the underlying security,
while the purchaser of a call option has the right to purchase the underlying
security from the writer. In addition to purchasing and writing options on
securities, the Fund may also utilize up to 10% of its total assets to purchase
exchange-listed and OTC put and call options on stock indexes, and may also
write such options. A stock index measures the movement of a certain group of
stocks by assigning relative values to the stocks included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or at
less advantageous prices, limit the amount of appreciation the Fund could
realize on its investments or require the Fund to hold securities it would
otherwise sell.
Futures Contracts and Related Options. The Fund may enter into interest
rate and stock index futures contracts and purchase and write (sell) related
options that are traded on an exchange designated by the Commodity Futures
Trading Commission (the 'CFTC') or, if consistent with CFTC regulations, on
foreign
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exchanges. These futures contracts are standardized contracts for the future
delivery of an interest rate sensitive security or, in the case of stock index
and certain other futures contracts, are settled in cash with reference to a
specified multiplier times the change in the specified index or interest rate.
An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be 'bona fide hedging' will not exceed 5%
of the Fund's net asset value, after taking into account unrealized profits and
unrealized losses on any such contracts. Although the Fund is limited in the
amount of assets that may be invested in futures transactions, there is no
overall limit on the percentage of Fund assets that may be at risk with respect
to futures activities. However, the Fund may not write put options or purchase
or sell futures contracts or options on futures contracts to hedge more than its
total assets unless immediately after any such transaction the aggregate amount
of premiums paid on put options and the amount of margin deposits on its
existing futures positions do not exceed 5% of its total assets.
Hedging Considerations. The Fund may engage in options and futures
transactions for, among other reasons, hedging purposes. A hedge is designed to
offset a loss on a portfolio position with a gain in the hedge position; at the
same time, however, a properly correlated hedge will result in a gain in the
portfolio position being offset by a loss in the hedge position. As a result,
the use of options and futures contracts for hedging purposes could limit any
potential gain from an increase in value of the position hedged. In addition,
the movement in the portfolio position hedged may not be of the same magnitude
as movement in the hedge. The Fund will engage in hedging transactions only when
deemed advisable by Warburg, and successful use of hedging transactions will
depend on Warburg's ability to correctly predict movements in the hedge and the
hedged position and the correlation between them, which could prove to be
inaccurate. Even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior or trends.
Additional Considerations. To the extent that the Fund engages in the
strategies described above, the Fund may experience losses greater than if these
strategies had not been utilized. In addition to the risks described above,
these instruments may be illiquid and/or subject to trading limits, and the Fund
may be unable to close out an option or futures position without incurring
substantial losses, if at all. The Fund is also subject to the risk of a default
by a counterparty to an off-exchange transaction.
Asset Coverage. The Fund will comply with applicable regulatory
requirements designed to eliminate any potential for leverage with respect to
options written by the Fund on securities and indexes and interest rate and
stock index futures contracts and options on these futures contracts. The use of
these strategies may require that the Fund maintain cash or certain liquid
securities in a segregated account with its custodian or a designated
sub-custodian to the extent the Fund's obligations with respect to these
strategies are not otherwise 'covered' through ownership of the underlying
security or financial instrument or by other portfolio positions or by other
means consistent with applicable regulatory policies. Segregated assets cannot
be sold or transferred unless equivalent assets are substituted in their place
or it is no longer necessary to segregate them. As a result, there is a
possibility that segregation of a large percentage of the Fund's assets could
impede portfolio management or the Fund's ability to meet redemption requests or
other current obligations.
SHORT SELLING. The Fund may from time to time sell securities short. A short
sale is a transaction in which the Fund sells borrowed securities in
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anticipation of a decline in the market price of the securities. Possible losses
from short sales differ from losses that could be incurred from a purchase of a
security, because losses from short sales may be unlimited, whereas losses from
purchases can equal only the total amount invested. The current market value of
the securities sold short (excluding short sales 'against the box') will not
exceed 10% of the Fund's assets.
When the Fund makes a short sale, the proceeds it receives from the sale
are retained by a broker until the Fund replaces the borrowed securities. To
deliver the securities to the buyer, the Fund must arrange through a broker to
borrow the securities and, in so doing, the Fund becomes obligated to replace
the securities borrowed at their market price at the time of replacement,
whatever that price may be. The Fund may have to pay a premium to borrow the
securities and must pay any dividends or interest payable on the securities
until they are replaced.
The Fund's obligation to replace the securities borrowed in connection with
a short sale will be secured by cash or certain liquid securities deposited as
collateral with the broker. In addition, the Fund will place in a segregated
account with its custodian or a qualified subcustodian an amount of cash or
liquid securities equal to the difference, if any, between (i) the market value
of the securities sold at the time they were sold short and (ii) any cash or
U.S. government securities deposited as collateral with the broker in connection
with the short sale (not including the proceeds of the sort sale). Until it
replaces the borrowed securities, the Fund will maintain the segregated account
daily at a level so that (a) the amount deposited in the account plus the amount
deposited with the broker (not including the proceeds from the short sale) will
equal the current market value of the securities sold short and (b) the amount
deposited in the account plus the amount deposited with the broker (not
including the proceeds from the short sale) will not be less than the market
value of the securities at the time they were sold short.
Short Sales Against the Box. The Fund may, in addition to engaging in short
sales as described above, enter into a short sale of securities such that when
the short position is open the Fund owns an equal amount of the securities sold
short or owns preferred stocks or debt securities, convertible or exchangeable
without payment of further consideration, into an equal number of securities
sold short. This kind of short sale, which is referred to as one 'against the
box,' will be entered into by the Fund for the purpose of receiving a portion of
the interest earned by the executing broker from the proceeds of the sale. The
proceeds of the sale will generally be held by the broker until the settlement
date when the Fund delivers securities to close out its short position. Although
prior to delivery the Fund will have to pay an amount equal to any dividends
paid on the securities sold short, the Fund will receive the dividends from the
securities sold short or the dividends from the preferred stock or interest from
the debt securities convertible or exchangeable into the securities sold short,
plus a portion of the interest earned from the proceeds of the short sale. The
Fund will deposit, in a segregated account with its custodian or a qualified
subcustodian, the securities sold short or convertible or exchangeable preferred
stocks or debt securities in connection with short sales against the box. The
Fund will endeavor to offset transaction costs associated with short sales
against the box with the income from the investment of the cash proceeds. Not
more than 10% of the Fund's net assets (taken at current value) may be held as
collateral for short sales against the box at any one time.
The extent to which the Fund may make short sales may be limited by
requirements of the Code for qualification as a regulated investment company.
See 'Dividends, Distributions and Taxes' for other tax considerations applicable
to short sales.
ZERO COUPON SECURITIES. The Fund may invest without limit in 'zero coupon
securities.' Zero
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coupon securities pay no cash income to their holders until they mature and
are issued at substantial discounts from their value at maturity. When held
to maturity, their entire return comes from the difference between their
purchase price and their maturity value. Because interest on zero coupon
securities is not paid on a current basis, the values of securities of this
type are subject to greater fluctuations than are the values of securities
that distribute income regularly and may be more speculative than such other
securities. Accordingly, the values of these securities may be highly volatile
as interest rates rise or fall. Redemption of shares of the Fund that require it
to sell zero coupon securities prior to maturity may result in capital gains or
losses that may be substantial. In addition, the Fund's investments in zero
coupon securities will result in special tax consequences, which are described
below under 'Dividends, Distributions and Taxes -- Taxes.'
INVESTMENT GUIDELINES
The Fund may invest up to 15% of its net assets in securities with
contractual or other restrictions on resale and other instruments that are not
readily marketable ('illiquid securities'), including (i) securities issued as
part of a privately negotiated transaction between an issuer and one or more
purchasers; (ii) time deposits maturing in more than seven calendar days; (iii)
certain Rule 144A Securities and (iv) repurchase agreements with maturities
greater than seven days. The Fund may borrow from banks for temporary or
emergency purposes, such as meeting anticipated redemption requests, provided
that reverse repurchase agreements and any other borrowing by the Fund may not
exceed 30% of its total assets at the time of borrowing, and may pledge its
assets to the extent necessary to secure permitted borrowings. Whenever
borrowings (including reverse repurchase agreements) exceed 5% of the value of
the Fund's total assets, the Fund will not make any investments (including
roll-overs). Except for the limitations on borrowing, the investment guidelines
set forth in this paragraph may be changed at any time without shareholder
consent by vote of the Board, subject to the limitations contained in the 1940
Act. A complete list of investment restrictions that the Fund has adopted
identifying additional restrictions that cannot be changed without the approval
of the majority of the Fund's outstanding shares is contained in the Statement
of Additional Information.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER. The Fund employs Warburg as its investment adviser. Warburg,
subject to the control of the Fund's officers and the Board, manages the
investment and reinvestment of the assets of the Fund in accordance with the
Fund's investment objective and stated investment policies. Warburg makes
investment decisions for the Fund and places orders to purchase or sell
securities on behalf of the Fund. Warburg also employs a support staff of
management personnel to provide services to the Fund and furnishes the Fund with
office space, furnishings and equipment.
For the services provided by Warburg, the Fund pays Warburg a fee
calculated at an annual rate of 1.00% of the Fund's average daily net assets.
Warburg and the Fund's co-administrators may voluntarily waive a portion of
their fees from time to time and temporarily limit the expenses to be paid by
the Fund.
Warburg is a professional investment counselling firm which
provides investment services to investment companies, employee benefit plans,
endowment funds, foundations and other institutions and individuals. As of
October 31, 1996, Warburg managed approximately $18.4 billion of assets,
including approximately $9.8 billion of investment company assets.
Incorporated in 1970, Warburg is a wholly owned subsidiary of Warburg, Pincus
Counsellors G.P. ('Warburg G.P.'), a New York general partnership. E.M.
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Warburg, Pincus & Co., Inc. ('EMW') controls Warburg through its ownership of a
class of voting preferred stock of Warburg. Warburg G.P. has no business other
than being a holding company of Warburg and its subsidiaries. Warburg's address
is 466 Lexington Avenue, New York, New York 10017-3147.
PORTFOLIO MANAGERS. Anthony G. Orphanos, a managing director of EMW, is the
portfolio manager of the Fund. Mr. Orphanos has been with Warburg since 1977.
CO-ADMINISTRATORS. The Fund employs Counsellors Funds Service, Inc.
('Counsellors Service'), a wholly owned subsidiary of Warburg, as a co-
administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Fund including responding to shareholder inquiries and
providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Fund and its various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the Board, preparing proxy statements and
annual, semiannual and quarterly reports, assisting in other regulatory filings
as necessary and monitoring and developing compliance procedures for the Fund.
As compensation, the Fund pays Counsellors Service a fee calculated at an annual
rate of .10% of the Fund's average daily net assets.
The Fund employs PFPC, an indirect, wholly owned subsidiary of PNC Bank
Corp., as a co-administrator. As a co-administrator, PFPC calculates the Fund's
net asset value, provides all accounting services for the Fund and assists in
related aspects of the Fund's operations. As compensation, the Fund pays PFPC a
fee calculated at an annual rate of .10% of the Fund's first $500 million in
average daily net assets, .075% of the next $1 billion in average daily net
assets, and .05% on average daily net assets over $1.5 billion. PFPC has its
principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.
CUSTODIANS. PNC Bank, National Association ('PNC') serves as custodian of the
U.S. assets of the Fund and Fiduciary Trust Company International ('Fiduciary')
serves as custodian of the Fund's non-U.S. assets. Like PFPC, PNC is a
subsidiary of PNC Bank Corp. and its principal business address is Broad and
Chestnut Streets, Philadelphia, Pennsylvania 19101. Fiduciary's principal
business address is Two World Trade Center, New York, New York 10048.
TRANSFER AGENT. State Street Bank and Trust Company ('State Street') also serves
as shareholder servicing agent, transfer agent and dividend disbursing agent for
the Fund. State Street has delegated to Boston Financial Data Services, Inc., a
50% owned subsidiary ('BFDS'), responsibility for most shareholder servicing
functions. State Street's principal business address is 225 Franklin Street,
Boston, Massachusetts 02110. BFDS's principal business address is 2 Heritage
Drive, North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves as distributor of the shares of the
Fund. Counsellors Securities is a wholly owned subsidiary of Warburg and is
located at 466 Lexington Avenue, New York, New York 10017-3147. No compensation
is payable by the Fund to Counsellors Securities for distribution services.
Warburg or its affiliates may, at their own expense, provide promotional
incentives to parties who support the sale of shares of the Fund, consisting of
securities dealers who have sold Fund shares or others, including banks and
other financial institutions, under special arrangements. In some instances,
these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Fund shares.
DIRECTORS AND OFFICERS. The officers of the Fund manage its day-to-day
operations and are directly responsible to the Board. The Board sets broad
policies for the Fund and chooses its officers. A list of the Directors and
officers of the Fund and a brief statement of their present
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positions and principal occupations during the past five years are set forth
in the Statement of Additional Information.
HOW TO PURCHASE SHARES
Individual investors may only purchase Warburg Pincus Advisor Fund shares
through Institutions. The Fund reserves the right to make Advisor Shares
available to other investors in the future. The Fund also reserves the right to
suspend the offering of Advisor Shares for a period of time or to reject any
specific purchase order. References in this Prospectus to shareholders or
investors also include Institutions which may act as record holders of the
Advisor Shares.
Each Institution separately determines the rules applicable to its
customers investing in the Fund, including minimum initial and subsequent
investment requirements and the procedures to be followed to effect purchases,
redemptions and exchanges of Advisor Shares. There is no minimum amount of
initial or subsequent purchases of Advisor Shares imposed on Institutions,
although the Fund reserves the right to impose minimums in the future.
Orders for the purchase of Advisor Shares are placed with an Institution by
its customers. The Institution is responsible for the prompt transmission of the
order to the Fund or its agent.
Institutions may purchase Advisor Shares by telephoning the Fund and
sending payment by wire. After telephoning (800) 369-2728 for instructions, an
Institution should then wire federal funds to Counsellors Securities Inc. using
the following wire address:
State Street Bank and Trust Co.
225 Franklin St.
Boston, MA 02101
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
Warburg Pincus Advisor Strategic Value
Fund
DDA# 9904-649-2
[Shareowner name]
[Shareowner account number]
Orders by wire will not be accepted until a completed account application
has been received in proper form, and an account number has been established. If
a telephone order is received by the close of regular trading on the New York
Stock Exchange (the 'NYSE') (currently 4:00 p.m., Eastern time) and payment by
wire is received on the same day in proper form in accordance with instructions
set forth above, the shares will be priced according to the net asset value of
the Fund on that day and are entitled to dividends and distributions beginning
on that day. If payment by wire is received in proper form by the close of the
NYSE without a prior telephone order, the purchase will be priced according to
the net asset value of the Fund on that day and is entitled to dividends and
distributions beginning on that day. However, if a wire in proper form that is
not preceded by a telephone order is received after the close of regular trading
on the NYSE, the payment will be held uninvested until the order is effected at
the close of business on the next business day. Payment for orders that are not
accepted will be returned after prompt inquiry. Certain organizations or
Institutions that have entered into agreements with the Fund or its agent may
enter confirmed purchase orders on behalf of customers, with payment to follow
no later than three business days following the day the order is effected. If
payment is not received by such time, the organization could be held liable for
resulting fees or losses.
After an investor has made his initial investment, additional shares may be
purchased at any time by mail or by wire in the manner outlined above. Wire
payments for initial and subsequent investments should be preceded by an order
placed with the Fund or its agent and should clearly indicate the investor's
account number. In the interest of economy and convenience, physical
certificates representing shares in the Fund are not normally issued.
The Fund understands that some broker-dealers (other than Counsellors
Securities), financial institutions, securities dealers and other
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industry professionals may impose certain conditions on their clients or
customers that invest in the Fund, which are in addition to or different than
those described in this Prospectus, and may charge their clients or customers
direct fees. Certain features of the Fund, such as the initial and subsequent
investment minimums, redemption fees and certain trading restrictions, may be
modified or waived in these programs, and administrative charges may be
imposed for the services rendered. Therefore, a client or customer should
contact the organization acting on his behalf concerning the fees (if any)
charged in connection with a purchase or redemption of Fund shares and should
read this Prospectus in light of the terms governing his account with the
organization.
HOW TO REDEEM AND EXCHANGE
SHARES
REDEMPTION OF SHARES. An investor of the Fund may redeem (sell) shares on any
day that the Fund's net asset value is calculated (see 'Net Asset Value' below).
Requests for the redemption (or exchange) of Advisor Shares are placed with an
Institution by its customers, which is then responsible for the prompt
transmission of the request to the Fund or its agent.
Institutions may redeem Advisor Shares by calling Warburg Pincus Advisor
Funds at (800) 369-2728 between 9:00 a.m. and 4:00 p.m. (Eastern time) on any
business day. An investor making a telephone withdrawal should state (i) the
name of the Fund, (ii) the account number of the Fund, (iii) the name of the
investor(s) appearing on the Fund's records, (iv) the amount to be withdrawn and
(v) the name of the person requesting the redemption.
After receipt of the redemption request the redemption proceeds will be
wired to the investor's bank as indicated in the account application previously
filled out by the investor. The Fund does not currently impose a service charge
for effecting wire transfers but reserves the right to do so in the future.
During periods of significant economic or market change, telephone redemptions
may be difficult to implement. If an investor is unable to contact Warburg
Pincus Advisor Funds by telephone, an investor may deliver the redemption
request to Warburg Pincus Advisor Funds by mail at Warburg Pincus Advisor Funds,
P.O. Box 9030, Boston, Massachusetts 02205-9030.
If a redemption order is received by the Fund or its agent prior to the
close of regular trading on the NYSE, the redemption order will be effected at
the net asset value per share as determined on that day. If a redemption order
is received after the close of regular trading on the NYSE, the redemption order
will be effected at the net asset value as next determined. Except as noted
above, redemption proceeds will normally be wired to an investor on the next
business day following the date a redemption order is effected. If, however, in
the judgment of Warburg, immediate payment would adversely affect the Fund, the
Fund reserves the right to pay the redemption proceeds within seven days after
the redemption order is effected. Furthermore, the Fund may suspend the right of
redemption or postpone the date of payment upon redemption (as well as suspend
or postpone the recordation of an exchange of shares) for such periods as are
permitted under the 1940 Act.
The proceeds paid upon redemption may be more or less than the amount
invested depending upon a share's net asset value at the time of redemption. If
an investor redeems all the shares in his account, all dividends and
distributions declared up to and including the date of redemption are paid along
with the proceeds of the redemption.
EXCHANGE OF SHARES. An Institution may exchange Advisor Shares of the Fund for
Advisor Shares of the other Warburg Pincus Advisor Funds at their respective net
asset values. Exchanges may be effected in the manner described under
'Redemption of Shares' above. If an exchange request is received by Warburg
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Pincus Advisor Funds or their agent prior to the close of regular trading on the
NYSE, the exchange will be made at each fund's net asset value determined at the
end of that business day. Exchanges may be effected without a sales charge. The
exchange privilege may be modified or terminated at any time upon 60 days'
notice to shareholders.
The exchange privilege is available to shareholders residing in any state
in which the Advisor Shares being acquired may legally be sold. When an investor
effects an exchange of shares, the exchange is treated for federal income tax
purposes as a redemption. Therefore, the investor may realize a taxable gain or
loss in connection with the exchange. Investors wishing to exchange Advisor
Shares of the Fund for shares in another Warburg Pincus Advisor Fund should
review the prospectus of the other fund prior to making an exchange. For further
information regarding the exchange privilege or to obtain a current prospectus
for another Warburg Pincus Advisor Fund, an investor should contact Warburg
Pincus Advisor Funds at (800) 369-2728.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. The Fund calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Fund's portfolio securities for the applicable period (which
includes amortization of market discounts) less amortization of market premiums
and applicable expenses. The Fund declares dividends from its net investment
income and net realized short-term and long-term capital gains annually and pays
them in the calendar year in which they are declared, generally in November or
December. Net investment income earned on weekends and when the NYSE is not open
will be computed as of the next business day. Unless an investor instructs the
Fund to pay dividends or distributions in cash, dividends and distributions will
automatically be reinvested in additional Advisor Shares of the Fund at net
asset value. The election to receive dividends in cash may be made on the
account application or, subsequently, by writing to Warburg Pincus Advisor Funds
at the address set forth under 'How to Purchase Shares' or by calling Warburg
Pincus Advisor Funds at (800) 369-2728.
The Fund may be required to withhold for U.S. federal income taxes 31% of
all distributions payable to shareholders who fail to provide the Fund with
their correct taxpayer identification number or to make required certifications,
or who have been notified by the U.S. Internal Revenue Service that they are
subject to backup withholding.
TAXES. The Fund intends to qualify each year as a 'regulated investment company'
within the meaning of the Code. The Fund, if it qualifies as a regulated
investment company, will be subject to a 4% non-deductible excise tax measured
with respect to certain undistributed amounts of ordinary income and capital
gain. The Fund expects to pay such additional dividends and to make such
additional distributions as are necessary to avoid the application of this tax.
Dividends paid from net investment income and distributions of net realized
short-term capital gains are taxable to investors as ordinary income, and
distributions derived from net realized long-term capital gains are taxable to
investors as long-term capital gains, in each case regardless of how long the
shareholder has held Fund shares and whether received in cash or reinvested in
additional Fund shares. As a general rule, an investor's gain or loss on a sale
or redemption of his Fund shares will be a long-term capital gain or loss if
he has held his shares for more than one year and will be a short-term capital
gain or loss if he has held his shares for one year or less. However, any loss
realized upon the sale or redemption of shares within six months from the date
of their purchase will be treated as a long-term capital loss to the extent
of any amounts treated as distributions of long-
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term capital gain during such six-month period with respect to such shares.
Investors may be proportionately liable for taxes on income and gains of the
Fund, but investors not subject to tax on their income will not be required to
pay tax on amounts distributed to them. The Fund's investment activities,
including short sales of securities, should not result in unrelated business
taxable income to a tax exempt investor. The Fund's dividends, to the
extent not derived from dividends attributable to certain types of stock issued
by U.S. domestic corporations, will not qualify for the dividends received
deduction for corporations.
The investments by the Fund in zero coupon securities may create special
tax consequences. Zero coupon securities do not make interest payments, although
a portion of the difference between a zero coupon security's face value and its
purchase price is imputed as income to the Fund each year even though the Fund
receives no cash distribution until maturity. Under the U.S. federal tax laws,
the Fund will not be subject to tax on this income if it pays dividends to its
shareholders substantially equal to all the income received from, or imputed
with respect to, its investments during the year, including its zero coupon
securities. These dividends ordinarily will constitute taxable income to the
shareholders of the Fund.
Dividends and interest received by the Fund may be subject to withholding
and other taxes imposed by foreign countries. However, tax conventions between
certain countries and the U.S. may reduce or eliminate such taxes. If the Fund
qualifies as a regulated investment company, if certain asset and distribution
requirements are satisfied and if more than 50% of the Fund's total assets at
the close of its fiscal year consist of stock or securities of foreign
corporations, the Fund may elect for U.S. income tax purposes to treat foreign
income taxes paid by it as paid by its shareholders. The Fund may qualify for
and make this election in some, but not necessarily all, of its taxable years.
If the Fund were to make an election, shareholders of the Fund would be required
to take into account an amount equal to their pro rata portions of such foreign
taxes in computing their taxable income and then treat an amount equal to those
foreign taxes as a U.S. federal income tax deduction or as a foreign tax credit
against their U.S. federal income taxes. Shortly after any year for which it
makes such an election, the Fund will report to its shareholders the amount per
share of such foreign tax that must be included in each shareholder's gross
income and the amount which will be available for the deduction or credit. No
deduction for foreign taxes may be claimed by a shareholder who does not itemize
deductions. Certain limitations will be imposed on the extent to which the
credit (but not the deduction) for foreign taxes may be claimed.
Certain provisions of the Code may require that a gain recognized by the
Fund upon the closing of a short sale be treated as a short-term capital gain,
and that a loss recognized by the Fund upon the closing of a short sale be
treated as a long-term capital loss, regardless of the amount of time that the
Fund held the securities used to close the short sale. The Fund's use of short
sales may also affect the holding periods of certain securities held by the Fund
if such securities are 'substantially identical' to securities used by the Fund
to close the short sale. The Fund's short selling activities will not result in
unrelated business taxable income to a tax-exempt investor.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. Each investor will also receive, if
applicable, various written notices after the close of the Fund's prior taxable
year with respect to certain dividends and distributions which were received
from the Fund during the Fund's prior taxable year. Investors should consult
their own tax advisers with specific reference to their own tax situations,
including their state and local tax liabilities. Individuals investing in the
Fund through Institutions should consult those Institu-
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tions or their own tax advisers regarding the tax consequences of investing
in the Fund.
NET ASSET VALUE
The Fund's net asset value per share is calculated as of the close of
regular trading on the NYSE (currently 4:00 p.m., Eastern time) on each business
day, Monday through Friday, except on days when the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, Washington's Birthday, Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively. The net asset value
per share of the Fund generally changes each day.
The net asset value per Advisor Share of the Fund is computed by adding the
Advisor Shares' pro rata share of the value of the Fund's assets, deducting the
Advisor Shares' pro rata share of the Fund's liabilities and the liabilities
specifically allocated to Advisor Shares and then dividing the result by the
total number of outstanding Advisor Shares.
Securities listed on a U.S. securities exchange (including securities
traded through the NASDAQ National Market System) or foreign securities exchange
or traded in an over-the-counter market will be valued at the most recent sale
price when the valuation is made. Options and futures contracts will be valued
similarly. Debt obligations that mature in 60 days or less from the valuation
date are valued on the basis of amortized cost, unless the Board determines that
using this valuation method would not reflect the investments' value.
Securities, options and futures contracts for which market quotations are not
readily available and other assets will be valued at their fair value as
determined in good faith pursuant to consistently applied procedures established
by the Board. Further information regarding valuation policies is contained in
the Statement of Additional Information.
PERFORMANCE
The Fund quotes the performance of Advisor Shares separately from Common
Shares. The net asset value of the Advisor Shares is listed in The Wall Street
Journal each business day under the heading 'Warburg Pincus Advisor Funds.' From
time to time, the Fund may advertise yield and average annual total return of
its Advisor Shares over various periods of time. The yield refers to the net
investment income generated by the Advisor Shares over a specified thirty-day
period, which is then annualized. These total return figures show the average
percentage change in value of an investment in the Advisor Shares from the
beginning of the measuring period to the end of the measuring period. The
figures reflect changes in the price of the Advisor Shares assuming that any
income dividends and/or capital gain distributions made by the Fund during the
period were reinvested in Advisor Shares of the Fund. Total return will be shown
for recent one-, five- and ten-year periods, and may be shown for other periods
as well (such as from commencement of the Fund's operations or on a
year-by-year, quarterly or current year-to-date basis).
When considering average total return figures for periods longer than one
year, it is important to note that the annual total return for one year in the
period might have been greater or less than the average for the entire period.
When considering total return figures for periods shorter than one year,
investors should bear in mind that the Fund seeks long-term appreciation
and that such return may not be representative of the Fund's return over a
longer market cycle. The Fund may also advertise aggregate total return figures
of Advisor Shares for various periods, representing the cumulative change in
value of an investment in the Advisor Shares for the specific period (again
reflecting changes in
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share prices and assuming reinvestment of dividends and distributions).
Aggregate and average total returns may be shown by means of schedules, charts
or graphs and may indicate various components of total return (i.e., change in
value of initial investment, income dividends and capital gain distributions).
Investors should note that total return figures are based on historical
earnings and are not intended to indicate future performance. The Statement of
Additional Information describes the method used to determine the total return.
Current total return figures may be obtained by calling Warburg Pincus Advisor
Funds at (800) 369-2728.
In reports or other communications to investors or in advertising
material, the Fund may describe general economic and market conditions
affecting the Fund and may compare its performance (i) with that of other
mutual funds as listed in the rankings prepared by Lipper Analytical Services,
Inc. or similar investment services that monitor the performance of mutual
funds or as set forth in the publications listed below; (ii) the Russell
2000 Small Stock Index and the S&P 500 Index, which are unmanaged indexes of
common stocks; or (iii) with other appropriate indexes of investment
securities or with data developed by Warburg derived from such indexes. The
Fund may include evaluations of the Fund published by nationally
recognized ranking services and by financial publications that are
nationally recognized, such as Barron's, Business Week, Financial Times,
Forbes, Fortune, Inc., Institutional Investor, Investor's Busness Daily, Money,
Morningstar, Inc., Mutual Fund Magazine, Smart Money and The Wall Street
Journal.
In reports or other communications to investors or in advertising, the Fund
may also describe the general biography or work experience of the portfolio
managers of the Fund and may include quotations attributable to the portfolio
managers describing approaches taken in managing the Fund's investments,
research methodology underlying stock selection or the Fund's investment
objectives. In addition, the Fund and its portfolio managers may render periodic
updates of Fund activity, which may include a discussion of significant
portfolio holdings and analysis of holdings by industry, country, credit quality
and other characteristics. The Fund may also discuss measures of risk, the
continuum of risk and return relating to different investments and the potential
impact of foreign securities on a portfolio otherwise composed of domestic
securities. Morningstar, Inc. rates funds in broad categories based on
risk/reward analyses over various time periods. In addition, the Fund may from
time to time compare the expense ratio of Advisor Shares to that of investment
companies with similar objectives and policies, based on data generated by
Lipper Analytical Services, Inc. or similar investment services that monitor
mutual funds.
GENERAL INFORMATION
ORGANIZATION. The Fund was incorporated on November 12, 1996 under the laws of
the State of Maryland. On December 4, 1996, the Fund changed its name from
'Warburg, Pincus Special Equity Fund, Inc.' to 'Warburg, Pincus Strategic Value
Fund, Inc.' The charter of the Fund authorizes the Board to issue three billion
full and fractional shares of capital stock, $.001 par value per share, of which
two billion shares are designated Common Shares and one billion shares are
designated Advisor Shares. Under the Fund's charter documents, the Board has the
power to classify or reclassify any unissued shares of the Fund into one or more
additional classes by setting or changing in any one or more respects their
relative rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption. The Board may similarly
classify or reclassify any class of the Fund's shares into one or more
series and,
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without shareholder approval, may increase the number of authorized shares of
the Fund.
MULTI-CLASS STRUCTURE. The Fund offers a separate class of shares, the Common
Shares, directly to individuals pursuant to a separate prospectus. Shares of
each class represent equal pro rata interests in the Fund and accrue dividends
and calculate net asset value and performance quotations in the same manner,
except that Advisor Shares bear fees payable by the Fund to Institutions for
services they provide to the beneficial owners of such shares and enjoy certain
exclusive voting rights on matters relating to these fees. Because of the higher
fees paid by the Advisor Shares, the total return on such shares can be expected
to be lower than the total return on Common Shares. Investors may obtain
information concerning the Common Shares from their investment professional or
by calling Counsellors Securities at (800) 927-2874.
VOTING RIGHTS. Investors in the Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of the
Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the Board unless
and until such time as less than a majority of the members holding office have
been elected by investors. Any Director of the Fund may be removed from office
upon the vote of shareholders holding at least a majority of the Fund's
outstanding shares, at a meeting called for that purpose. A meeting will be
called for the purpose of voting on the removal of a Board member at the written
request of holders of 10% of the outstanding shares of the Fund.
SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement of
his account, as well as a statement of his account after any transaction that
affects his share balance or share registration (other than the reinvestment of
dividends or distributions). The Fund will also send to its investors a
semiannual report and an audited annual report, each of which includes a list of
the investment securities held by the Fund and a statement of the performance of
the Fund. Periodic listings of the investment securities held by the Fund, as
well as certain statistical characteristics of the Fund, may be obtained by
calling Warburg Pincus Advisor Funds at (800) 369-2728. Each Institution that is
the record owner of Advisor Shares on behalf of its customers will send a
statement to those customers periodically showing their indirect interest in
Advisor Shares, as well as providing other information about the Fund. See
'Shareholder Servicing.'
SHAREHOLDER SERVICING
The Fund is authorized to offer Advisor Shares exclusively through
Institutions whose clients or customers (or participants in the case of
retirement plans) ('Customers') are owners of Advisor Shares. Either those
Institutions or companies providing certain services to Customers (together,
'Service Organizations') will enter into agreements ('Agreements') with the Fund
and/or Counsellors Securities pursuant to a Distribution Plan as described
below. Such entities may provide certain distribution, shareholder servicing,
administrative and/or accounting services for its Customers. Distribution
services would be marketing or other services in connection with the promotion
and sale of Advisor Shares. Shareholder services that may be provided include
responding to Customer inquiries, providing information on Customer investments
and providing other shareholder liaison services. Administrative and accounting
services related to the sale of Advisor Shares may include (i) aggregating
and processing purchase and redemption requests from Customers and placing
net purchase and redemption orders with the Fund's transfer agent, (ii)
processing dividend payments from the Fund on behalf of Customers
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and (iii) providing sub-accounting related to the sale of Advisor Shares
beneficially owned by Customers or the information to the Fund necessary for
sub-accounting. The Board has approved a Distribution Plan (the 'Plan') pursuant
to Rule 12b-1 under the 1940 Act under which each participating Service
Organization will be paid, out of the assets of the Fund (either directly or by
Counsellors Securities on behalf of the Fund), a negotiated fee on an annual
basis not to exceed .75% (up to a .25% annual service fee and a .50% annual
distribution fee) of the value of the average daily net assets of its Customers
invested in Advisor Shares. The current 12b-1 fee is .50% per annum. The Board
evaluates the appropriateness of the Plan on a continuing basis and in doing so
considers all relevant factors.
To offset start-up costs and expenses associated with certain qualified
retirement plans making Advisor Shares available to plan participants,
Counsellors Securities pays CIGNA Financial Advisors, Inc., a registered
broker-dealer which is the broker of record for Connecticut General Life
Insurance Company, a one-time fee of .25% of the average aggregate account
balances of plan participants during the first year of implementation.
Warburg, Counsellors Securities or their affiliates may, from time to time,
at their own expense, provide compensation to Service Organizations. To the
extent they do so, such compensation does not represent an additional expense to
the Fund or its shareholders. In addition Warburg, Counsellors Securities or
their affiliates may, from time to time, at their own expense, pay certain Fund
transfer agent fees and expenses related to accounts of Customers. A Service
Organization may directly or indirectly pay a portion of the fees paid pursuant
to the Plan to the Fund's custodian or transfer agent for costs related to
accounts of its Customers.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE FUND'S
STATEMENT OF ADDITIONAL INFORMATION OR THE FUND'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE FUND, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
ADVISOR SHARES IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY
NOT LAWFULLY BE MADE.
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Warburg Pincus Advisor Funds
Counsellors Securities Inc., distributor
Table of Contents
<TABLE>
<C> <S>
2 THE FUND'S EXPENSES
3 INVESTMENT OBJECTIVE AND POLICIES
3 PORTFOLIO INVESTMENTS
5 RISK FACTORS AND SPECIAL CONSIDERATIONS
7 PORTFOLIO TRANSACTIONS AND TURNOVER RATE
7 CERTAIN INVESTMENT STRATEGIES
11 INVESTMENT GUIDELINES
11 MANAGEMENT OF THE FUND
13 HOW TO PURCHASE SHARES
14 HOW TO REDEEM AND EXCHANGE SHARES
15 DIVIDENDS, DISTRIBUTIONS AND TAXES
17 NET ASSET VALUE
17 PERFORMANCE
18 GENERAL INFORMATION
19 SHAREHOLDER SERVICING
</TABLE>
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
<PAGE>1
Subject to Completion, dated December 24, 1996
STATEMENT OF ADDITIONAL INFORMATION
December 31, 1996
WARBURG PINCUS STRATEGIC VALUE FUND
P.O. Box 9030, Boston, Massachusetts 02205-9030
For information, call 800-WARBURG
Contents
Page
----
Investment Objective.........................................................2
Investment Policies..........................................................2
Management of the Fund......................................................26
Additional Purchase and Redemption Information..............................33
Exchange Privilege..........................................................34
Additional Information Concerning Taxes.....................................34
Determination of Performance................................................38
Independent Accountants and Counsel.........................................39
Financial Statement.........................................................39
Appendix-- Description of Ratings..........................................A-1
Report of Coopers & Lybrand L.L.P., Independent Accountants................A-5
This Statement of Additional Information is meant to be read
in conjunction with the Prospectus for the Common Shares and the Prospectus for
the Advisor Shares of Warburg Pincus Strategic Value Fund (the "Fund"), each
dated December 31, 1996, as amended or supplemented from time to time, and is
incorporated by reference in its entirety into those Prospectuses. Because this
Statement of Additional Information is not itself a prospectus, no investment in
shares of the Fund should be made solely upon the information contained herein.
Copies of the Fund's Prospectuses and information regarding the Fund's current
performance may be obtained by calling the Fund at (800) 927-2874. Information
regarding the status of shareholder accounts may also be obtained by calling the
Fund at the same number or by writing to the Fund, P.O. Box 9030, Boston,
Massachusetts 02205-9030.
<PAGE>2
INVESTMENT OBJECTIVE
The investment objective of the Fund is capital appreciation.
INVESTMENT POLICIES
The following policies supplement the descriptions of the
Fund's investment objective and policies in the Prospectuses.
Options, Futures and Currency Exchange Transactions
Securities Options. The Fund may write covered call options
and put options on securities, and may purchase such options, that are traded
on foreign and U.S. exchanges, as well as over-the-counter ("OTC").
The Fund realizes fees (referred to as "premiums") for
granting the rights evidenced by the options it has written. A put option
embodies the right of its purchaser to compel the writer of the option to
purchase from the option holder an underlying security at a specified price for
a specified time period or at a specified time. In contrast, a call option
embodies the right of its purchaser to compel the writer of the option to sell
to the option holder an underlying security at a specified price for a specified
time period or at a specified time.
The principal reason for writing covered options on a security
is to attempt to realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. In return for a premium, the Fund as
the writer of a covered call option forfeits the right to any appreciation in
the value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). Nevertheless,
the Fund as a put or call writer retains the risk of a decline in the price of
the underlying security. The size of the premiums that the Fund may receive may
be adversely affected as new or existing institutions, including other
investment companies, engage in or increase their option-writing activities.
If security prices rise, a put writer would generally expect
to profit, although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that the
writer will also profit, because it should be able to close out the option at a
lower price. If security prices fall, the put writer would expect to suffer a
loss. This loss should be less than the loss from purchasing the underlying
instrument directly, however, because the premium received for writing the
option should mitigate the effects of the decline.
In the case of options written by the Fund that are deemed
covered by virtue of the Fund's holding convertible or exchangeable preferred
stock or debt securities, the time required to convert or exchange and obtain
physical delivery of the underlying common stock
<PAGE>3
with respect to which the Fund has written options may exceed the time within
which the Fund must make delivery in accordance with an exercise notice. In
these instances, the Fund may purchase or temporarily borrow the underlying
securities for purposes of physical delivery. By so doing, the Fund will not
bear any market risk, since the Fund will have the absolute right to receive
from the issuer of the underlying security an equal number of shares to replace
the borrowed securities, but the Fund may incur additional transaction costs or
interest expenses in connection with any such purchase or borrowing.
Additional risks exist with respect to certain of the
securities for which the Fund may write covered call options. For example, if
the Fund writes covered call options on mortgage-backed securities, the
mortgage-backed securities that it holds as cover may, because of scheduled
amortization or unscheduled prepayments, cease to be sufficient cover. If this
occurs, the Fund will compensate for the decline in the value of the cover by
purchasing an appropriate additional amount of mortgage-backed securities.
Options written by the Fund will normally have expiration
dates between one and nine months from the date written. The exercise price of
the options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. The Fund may write (i) in-the-money call
options when Warburg, Pincus Counsellors, Inc., the Fund's investment adviser
("Warburg"), expects that the price of the underlying security will remain flat
or decline moderately during the option period, (ii) at-the-money call options
when Warburg expects that the price of the underlying security will remain flat
or advance moderately during the option period and (iii) out-of-the-money call
options when Warburg expects that the premiums received from writing the call
option plus the appreciation in market price of the underlying security up to
the exercise price will be greater than the appreciation in the price of the
underlying security alone. In any of the preceding situations, if the market
price of the underlying security declines and the security is sold at this lower
price, the amount of any realized loss will be offset wholly or in part by the
premium received. Out-of-the-money, at-the-money and in-the-money put options
(the reverse of call options as to the relation of exercise price to market
price) may be used in the same market environments that such call options are
used in equivalent transactions. To secure its obligation to deliver the
underlying security when it writes a call option, the Fund will be required to
deposit in escrow the underlying security or other assets in accordance with the
rules of the Options Clearing Corporation (the "Clearing Corporation") and of
the securities exchange on which the option is written.
Prior to their expirations, put and call options may be sold
in closing sale or purchase transactions (sales or purchases by the Fund prior
to the exercise of options that it has purchased or written, respectively, of
options of the same series) in which the Fund may realize a profit or loss from
the sale. An option position may be closed out only where there exists a
secondary market for an option of the same series on a recognized securities
exchange or in the over-the-counter market. When the Fund has purchased an
option and engages in a
<PAGE>4
closing sale transaction, whether the Fund realizes a profit or loss will
depend upon whether the amount received in the closing sale transaction is more
or less than the premium the Fund initially paid for the original option plus
the related transaction costs. Similarly, in cases where the Fund has written
an option, it will realize a profit if the cost of the closing purchase
transaction is less than the premium received upon writing the original option
and will incur a loss if the cost of the closing purchase transaction exceeds
the premium received upon writing the original option. The Fund may engage in a
closing purchase transaction to realize a profit, to prevent an underlying
security with respect to which it has written an option from being called or
put or, in the case of a call option, to unfreeze an underlying security
(thereby permitting its sale or the writing of a new option on the security
prior to the outstanding option's expiration). The obligation of the Fund under
an option it has written would be terminated by a closing purchase transaction,
but the Fund would not be deemed to own an option as a result of the
transaction. So long as the obligation of the Fund as the writer of an option
continues, the Fund may be assigned an exercise notice by the broker-dealer
through which the option was sold, requiring the Fund to deliver the underlying
security against payment of the exercise price. This obligation terminates when
the option expires or the Fund effects a closing purchase transaction. The Fund
can no longer effect a closing purchase transaction with respect to an option
once it has been assigned an exercise notice.
There is no assurance that sufficient trading interest will
exist to create a liquid secondary market on a securities exchange for any
particular option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an option may cease to
exist for a variety of reasons. In the past, for example, higher than
anticipated trading activity or order flow or other unforeseen events have at
times rendered certain of the facilities of the Clearing Corporation and various
securities exchanges inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. Moreover,
the Fund's ability to terminate options positions established in the
over-the-counter market may be more limited than for exchange-traded options and
may also involve the risk that securities dealers participating in
over-the-counter transactions would fail to meet their obligations to the Fund.
The Fund, however, intends to purchase over-the-counter options only from
dealers whose debt securities, as determined by Warburg, are considered to be
investment grade. If, as a covered call option writer, the Fund is unable to
effect a closing purchase transaction in a secondary market, it will not be able
to sell the underlying security until the option expires or it delivers the
underlying security upon exercise. In either case, the Fund would continue to be
at market risk on the security and could face higher transaction costs,
including brokerage commissions.
Securities exchanges generally have established limitations
governing the maximum number of calls and puts of each class which may be held
or written, or exercised within certain time periods by an investor or group of
investors acting in concert (regardless of whether the options are written on
the same or different securities exchanges or are held,
<PAGE>5
written or exercised in one or more accounts or through one or more brokers).
It is possible that the Fund and other clients of Warburg and certain of its
affiliates may be considered to be such a group. A securities exchange may
order the liquidation of positions found to be in violation of these limits and
it may impose certain other sanctions. These limits may restrict the number of
options the Fund will be able to purchase on a particular security.
Stock Index Options. The Fund may purchase and write
exchange-listed and OTC put and call options on stock indexes. A stock index
measures the movement of a certain group of stocks by assigning relative values
to the stocks included in the index, fluctuating with changes in the market
values of the stocks included in the index. Some stock index options are based
on a broad market index, such as the New York Stock Exchange ("NYSE") Composite
Index, or a narrower market index such as the Standard & Poor's 100. Indexes may
also be based on a particular industry or market segment.
Options on stock indexes are similar to options on securities
except that (i) the expiration cycles of stock index options are monthly, while
those of stock options are currently quarterly, and (ii) the delivery
requirements are different. Instead of giving the right to take or make delivery
of stock at a specified price, an option on a stock index gives the holder the
right to receive a cash "exercise settlement amount" equal to (a) the amount, if
any, by which the fixed exercise price of the option exceeds (in the case of a
put) or is less than (in the case of a call) the closing value of the underlying
index on the date of exercise, multiplied by (b) a fixed "index multiplier."
Receipt of this cash amount will depend upon the closing level of the stock
index upon which the option is based being greater than, in the case of a call,
or less than, in the case of a put, the exercise price of the index and the
exercise price of the option times a specified multiple. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount. Stock index options may be offset by entering into closing
transactions as described above for securities options.
OTC Options. The Fund may purchase OTC or dealer options or
sell covered OTC options. Unlike exchange-listed options where an intermediary
or clearing corporation, such as the Clearing Corporation, assures that all
transactions in such options are properly executed, the responsibility for
performing all transactions with respect to OTC options rests solely with the
writer and the holder of those options. A listed call option writer, for
example, is obligated to deliver the underlying stock to the clearing
organization if the option is exercised, and the clearing organization is then
obligated to pay the writer the exercise price of the option. If the Fund were
to purchase a dealer option, however, it would rely on the dealer from whom it
purchased the option to perform if the option were exercised. If the dealer
fails to honor the exercise of the option by the Fund, the Fund would lose the
premium it paid for the option and the expected benefit of the transaction.
Listed options generally have a continuous liquid market while
dealer options have none. Consequently, the Fund will generally be able to
realize the value of a dealer option it has purchased only by exercising it or
reselling it to the dealer who issued it. Similarly, when the Fund writes a
dealer option, it generally will be able to close out the
<PAGE>6
option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Fund originally wrote the option.
Although the Fund will seek to enter into dealer options only with dealers who
will agree to and that are expected to be capable of entering into closing
transactions with the Fund, there can be no assurance that the Fund will be
able to liquidate a dealer option at a favorable price at any time prior to
expiration. The inability to enter into a closing transaction may result in
material losses to the Fund. Until the Fund, as a covered OTC call option
writer, is able to effect a closing purchase transaction, it will not be able
to liquidate securities (or other assets) used to cover the written option
until the option expires or is exercised. This requirement may impair the
Fund's ability to sell portfolio securities or, with respect to currency
options, currencies at a time when such sale might be advantageous. In the
event of insolvency of the other party, the Fund may be unable to liquidate a
dealer option.
Futures Activities. The Fund may enter into foreign currency,
interest rate and stock index futures contracts and purchase and write (sell)
related options traded on exchanges designated by the Commodity Futures Trading
Commission (the "CFTC") or consistent with CFTC regulations on foreign
exchanges. These transactions may be entered into for "bona fide hedging"
purposes as defined in CFTC regulations and other permissible purposes including
hedging against changes in the value of portfolio securities due to anticipated
changes in currency values, interest rates and/or market conditions and
increasing return.
The Fund will not enter into futures contracts and related
options for which the aggregate initial margin and premiums (discussed below)
required to establish positions other than those considered to be "bona fide
hedging" by the CFTC exceed 5% of the Fund's net asset value after taking into
account unrealized profits and unrealized losses on any such contracts it has
entered into. The ability of the Fund to trade in futures contracts and options
on futures contracts may be limited by the requirements of the Internal Revenue
Code of 1986, as amended (the "Code"), applicable to a regulated investment
company.
Futures Contracts. A foreign currency futures contract
provides for the future sale by one party and the purchase by the other party of
a certain amount of a specified non-U.S. currency at a specified price, date,
time and place. An interest rate futures contract provides for the future sale
by one party and the purchase by the other party of a certain amount of a
specific interest rate sensitive financial instrument (debt security) at a
specified price, date, time and place. Securities indexes are capitalization
weighted indexes which reflect the market value of the securities listed on the
indexes. An index futures contract is an agreement to be settled by delivery of
an amount of cash equal to a specified multiplier times the difference between
the value of the index at the close of the last trading day on the contract and
the price at which the agreement is made.
No consideration is paid or received by the Fund upon entering
into a futures contract. Instead, the Fund is required to deposit in a
segregated account with its custodian an amount of cash or cash equivalents,
such as U.S. government securities or other liquid high-grade debt obligations,
equal to approximately 1% to 10% of the contract amount (this
<PAGE>7
amount is subject to change by the exchange on which the contract is traded,
and brokers may charge a higher amount). This amount is known as "initial
margin" and is in the nature of a performance bond or good faith deposit on the
contract which is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied. The broker
will have access to amounts in the margin account if the Fund fails to meet its
contractual obligations. Subsequent payments, known as "variation margin," to
and from the broker, will be made daily as the currency, financial instrument
or stock index underlying the futures contract fluctuates, making the long and
short positions in the futures contract more or less valuable, a process known
as "marking-to-market." The Fund will also incur brokerage costs in connection
with entering into futures transactions.
At any time prior to the expiration of a futures contract, the
Fund may elect to close the position by taking an opposite position, which will
operate to terminate the Fund's existing position in the contract. Positions in
futures contracts and options on futures contracts (described below) may be
closed out only on the exchange on which they were entered into (or through a
linked exchange). No secondary market for such contracts exists. Although the
Fund intends to enter into futures contracts only if there is an active market
for such contracts, there is no assurance that an active market will exist at
any particular time. Most futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit or trading may be suspended for specified periods
during the day. It is possible that futures contract prices could move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions at an advantageous
price and subjecting the Fund to substantial losses. In such event, and in the
event of adverse price movements, the Fund would be required to make daily cash
payments of variation margin. In such situations, if the fund had insufficient
cash, it might have to sell securities to meet daily variation margin
requirements at a time when it would be disadvantageous to do so. In addition,
if the transaction is entered into for hedging purposes, in such circumstances
the Fund may realize a loss on a futures contract or option that is not offset
by an increase in the value of the hedged position. Losses incurred in futures
transactions and the costs of these transactions will affect the Fund's
performance.
Options on Futures Contracts. The Fund may purchase and write
put and call options on foreign currency, interest rate and stock index futures
contracts and may enter into closing transactions with respect to such options
to terminate existing positions. There is no guarantee that such closing
transactions can be effected; the ability to establish and close out positions
on such options will be subject to the existence of a liquid market.
An option on a currency, interest rate or stock index futures
contract, as contrasted with the direct investment in such a contract, gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract at a specified exercise price at any time prior to the
expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is
<PAGE>8
a call and a long position if the option is a put). Upon exercise of an option,
the delivery of the futures position by the writer of the option to the holder
of the option will be accompanied by delivery of the accumulated balance in the
writer's futures margin account, which represents the amount by which the
market price of the futures contract exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on the futures
contract. The potential loss related to the purchase of an option on futures
contracts is limited to the premium paid for the option (plus transaction
costs). Because the value of the option is fixed at the point of sale, there
are no daily cash payments by the purchaser to reflect changes in the value of
the underlying contract; however, the value of the option does change daily and
that change would be reflected in the net asset value of the Fund.
Currency Exchange Transactions. The value in U.S. dollars of
the assets of the Fund that are invested in foreign securities may be affected
favorably or unfavorably by changes in exchange control regulations, and the
Fund may incur costs in connection with conversion between various currencies.
Currency exchange transactions may be from any non-U.S. currency into U.S.
dollars or into other appropriate currencies. The Fund will conduct its currency
exchange transactions (i) on a spot (i.e., cash) basis at the rate prevailing in
the currency exchange market, (ii) through entering into futures contracts or
options on such contracts (as described above), (iii) through entering into
forward contracts to purchase or sell currency or (iv) by purchasing
exchange-traded currency options.
Forward Currency Contracts. A forward currency contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract as agreed
upon by the parties, at a price set at the time of the contract. These contracts
are entered into in the interbank market conducted directly between currency
traders (usually large commercial banks and brokers) and their customers.
Forward currency contracts are similar to currency futures contracts, except
that futures contracts are traded on commodities exchanges and are standardized
as to contract size and delivery date.
At or before the maturity of a forward contract, the Fund may
either sell a portfolio security and make delivery of the currency, or retain
the security and fully or partially offset its contractual obligation to deliver
the currency by negotiating with its trading partner to purchase a second,
offsetting contract. If the Fund retains the portfolio security and engages in
an offsetting transaction, the Fund, at the time of execution of the offsetting
transaction, will incur a gain or a loss to the extent that movement has
occurred in forward contract prices.
Currency Options. The Fund may purchase exchange-traded put
and call options on foreign currencies. Put options convey the right to sell the
underlying currency at a price which is anticipated to be higher than the spot
price of the currency at the time the option is exercised. Call options convey
the right to buy the underlying currency at a price which is expected to be
lower than the spot price of the currency at the time the option is exercised.
<PAGE>9
Currency Hedging. The Fund's currency hedging will be limited
to hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward currency with respect to
specific receivables or payables of the Fund generally accruing in connection
with the purchase or sale of its portfolio securities. Position hedging is the
sale of forward currency with respect to portfolio security positions. The Fund
may not position hedge to an extent greater than the aggregate market value (at
the time of entering into the hedge) of the hedged securities.
A decline in the U.S. dollar value of a foreign currency in
which the Fund's securities are denominated will reduce the U.S. dollar value of
the securities, even if their value in the foreign currency remains constant.
The use of currency hedges does not eliminate fluctuations in the underlying
prices of the securities, but it does establish a rate of exchange that can be
achieved in the future. For example, in order to protect against diminutions in
the U.S. dollar value of securities it holds, the Fund may purchase currency put
options. If the value of the currency does decline, the Fund will have the right
to sell the currency for a fixed amount in dollars and will thereby offset, in
whole or in part, the adverse effect on the U.S. dollar value of its securities
that otherwise would have resulted. Conversely, if a rise in the U.S. dollar
value of a currency in which securities to be acquired are denominated is
projected, thereby potentially increasing the cost of the securities, the Fund
may purchase call options on the particular currency. The purchase of these
options could offset, at least partially, the effects of the adverse movements
in exchange rates. The benefit to the Fund derived from purchases of currency
options, like the benefit derived from other types of options, will be reduced
by premiums and other transaction costs. Because transactions in currency
exchange are generally conducted on a principal basis, no fees or commissions
are generally involved. Currency hedging involves some of the same risks and
considerations as other transactions with similar instruments. Although currency
hedges limit the risk of loss due to a decline in the value of a hedged
currency, at the same time, they also limit any potential gain that might result
should the value of the currency increase. If a devaluation is generally
anticipated, the Fund may not be able to contract to sell a currency at a price
above the devaluation level it anticipates.
While the values of currency futures and options on futures,
forward currency contracts and currency options may be expected to correlate
with exchange rates, they will not reflect other factors that may affect the
value of the Fund's investments and a currency hedge may not be entirely
successful in mitigating changes in the value of the Fund's investments
denominated in that currency. A currency hedge, for example, should protect a
Yen-denominated bond against a decline in the Yen, but will not protect the Fund
against a price decline if the issuer's creditworthiness deteriorates.
Hedging. In addition to entering into options, futures
contracts and currency exchange transactions for other purposes, including
generating current income to offset expenses or increase return, the Fund may
enter into these transactions as hedges to reduce investment risk, generally by
making an investment expected to move in the opposite direction
<PAGE>10
of a portfolio position. A hedge is designed to offset a loss in a portfolio
position with a gain in the hedged position; at the same time, however, a
properly correlated hedge will result in a gain in the portfolio position being
offset by a loss in the hedged position. As a result, the use of options,
futures contracts and currency exchange transactions for hedging purposes could
limit any potential gain from an increase in the value of the position hedged.
In addition, the movement in the portfolio position hedged may not be of the
same magnitude as movement in the hedge. With respect to futures contracts,
since the value of portfolio securities will far exceed the value of the
futures contracts sold by the Fund, an increase in the value of the futures
contracts could only mitigate, but not totally offset, the decline in the value
of the Fund's assets.
In hedging transactions based on an index, whether the Fund
will realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market segment,
rather than movements in the price of a particular stock. The risk of imperfect
correlation increases as the composition of the Fund's portfolio varies from the
composition of the index. In an effort to compensate for imperfect correlation
of relative movements in the hedged position and the hedge, the Fund's hedge
positions may be in a greater or lesser dollar amount than the dollar amount of
the hedged position. Such "over hedging" or "under hedging" may adversely affect
the Fund's net investment results if market movements are not as anticipated
when the hedge is established. Stock index futures transactions may be subject
to additional correlation risks. First, all participants in the futures market
are subject to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through offsetting transactions which would distort the normal relationship
between the stock index and futures markets. Secondly, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market also may cause temporary
price distortions. Because of the possibility of price distortions in the
futures market and the imperfect correlation between movements in the stock
index and movements in the price of stock index futures, a correct forecast of
general market trends by Warburg still may not result in a successful hedging
transaction.
The Fund will engage in hedging transactions only when deemed
advisable by Warburg, and successful use by the Fund of hedging transactions
will be subject to Warburg's ability to predict trends in currency, interest
rates or securities markets, as the case may be, and to correctly predict
movements in the directions of the hedge and the hedged position and the
correlation between them, which predictions could prove to be inaccurate. This
requires different skills and techniques than predicting changes in the price of
individual securities, and there can be no assurance that the use of these
strategies will be successful. Even a well-conceived hedge may be unsuccessful
to some degree because of unexpected market behavior or trends. Losses incurred
in hedging transactions and the costs of these transactions will affect the
Fund's performance.
<PAGE>11
Asset Coverage for Forward Contracts, Options, Futures and
Options on Futures. As described in the Prospectuses, the Fund will comply with
guidelines established by the Securities and Exchange Commission (the "SEC")
with respect to coverage of forward currency contracts; options written by the
Fund on currencies, securities and indexes; and currency, interest rate and
index futures contracts and options on these futures contracts. These guidelines
may, in certain instances, require segregation by the Fund of cash or certain
liquid securities that are acceptable as collateral to the appropriate
regulatory authority.
For example, a call option written by the Fund on securities
may require the Fund to hold the securities subject to the call (or securities
convertible into the securities without additional consideration) or to
segregate assets (as described above) sufficient to purchase and deliver the
securities if the call is exercised. A call option written by the Fund on an
index may require the Fund to own portfolio securities that correlate with the
index or to segregate assets (as described above) equal to the excess of the
index value over the exercise price on a current basis. A put option written by
the Fund may require the Fund to segregate assets (as described above) equal to
the exercise price. The Fund could purchase a put option if the strike price of
that option is the same or higher than the strike price of a put option sold by
the Fund. If the Fund holds a futures or forward contract, the Fund could
purchase a put option on the same futures or forward contract with a strike
price as high or higher than the price of the contract held. The Fund may enter
into fully or partially offsetting transactions so that its net position,
coupled with any segregated assets (equal to any remaining obligation), equals
its net obligation. Asset coverage may be achieved by other means when
consistent with applicable regulatory policies.
Additional Information on Other Investment Practices
Foreign Investments. Investors should recognize that investing
in foreign companies involves certain risks, including those discussed below,
which are not typically associated with investing in U.S. issuers. Since the
Fund may invest in securities denominated in currencies other than the U.S.
dollar, and since the Fund may temporarily hold funds in bank deposits or other
money market investments denominated in foreign currencies, the Fund may be
affected favorably or unfavorably by exchange control regulations or changes in
the exchange rate between such currencies and the dollar. A change in the value
of a foreign currency relative to the U.S. dollar will result in a corresponding
change in the dollar value of the Fund's assets denominated in that foreign
currency. Changes in foreign currency exchange rates may also affect the value
of dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Fund. The rate of exchange between the U.S. dollar and other
currencies is determined by the forces of supply and demand in the foreign
exchange markets. Changes in the exchange rate may result over time from the
interaction of many factors directly or indirectly affecting economic and
political conditions in the United States and a particular foreign country,
including economic and political developments in other countries. Of particular
importance are rates of inflation, interest rate levels, the balance of payments
and the extent of government surpluses or deficits in the United States and the
particular
<PAGE>12
foreign country, all of which are in turn sensitive to the monetary, fiscal and
trade policies pursued by the governments of the United States and foreign
countries important to international trade and finance. Governmental
intervention may also play a significant role. National governments rarely
voluntarily allow their currencies to float freely in response to economic
forces. Sovereign governments use a variety of techniques, such as intervention
by a country's central bank or imposition of regulatory controls or taxes, to
affect the exchange rates of their currencies. The Fund may use hedging
techniques with the objective of protecting against loss through the
fluctuation of the value of foreign currencies against the U.S. dollar,
particularly the forward market in foreign exchange, currency options and
currency futures. See "Currency Transactions" and "Futures Activities" above.
Many of the foreign securities held by the Fund will not be
registered with, nor the issuers thereof be subject to reporting requirements
of, the SEC. Accordingly, there may be less publicly available information about
the securities and about the foreign company or government issuing them than is
available about a domestic company or government entity. Foreign companies are
generally not subject to uniform financial reporting standards, practices and
requirements comparable to those applicable to U.S. companies. In addition, with
respect to some foreign countries, there is the possibility of expropriation or
confiscatory taxation, limitations on the removal of funds or other assets of
the Fund, political or social instability, or domestic developments which could
affect U.S. investments in those countries. Moreover, individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, and balance of payments positions. The
Fund may invest in securities of foreign governments (or agencies or
instrumentalities thereof), and many, if not all, of the foregoing
considerations apply to such investments as well.
Securities of some foreign companies are less liquid and their
prices are more volatile than securities of comparable U.S. companies. Certain
foreign countries are known to experience long delays between the trade and
settlement dates of securities purchased or sold. Due to the increased exposure
of the Fund to market and foreign exchange fluctuations brought about by such
delays, and due to the corresponding negative impact on Fund liquidity, the Fund
will avoid investing in countries which are known to experience settlement
delays which may expose the Fund to unreasonable risk of loss.
Dollar-Denominated Debt Securities of Foreign Issuers. The
returns on foreign debt securities reflect interest rates and other market
conditions prevailing in those countries. The relative performance of various
countries' fixed income markets historically has reflected wide variations
relating to the unique characteristics of each country's economy. Year-to-year
fluctuations in certain markets have been significant, and negative returns have
been experienced in various markets from time to time.
U.S. Government Securities. The Fund may invest in debt
obligations of varying maturities issued or guaranteed by the United States
government, its agencies or instrumentalities ("U.S. government securities").
Direct obligations of the U.S. Treasury
<PAGE>13
include a variety of securities that differ in their interest rates, maturities
and dates of issuance. U.S. government securities also include securities
issued or guaranteed by the Federal Housing Administration, Farmers Home Loan
Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association ("GNMA"), General
Services Administration, Central Bank for Cooperatives, Federal Farm Credit
Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation
("FHLMC"), Federal Intermediate Credit Banks, Federal Land Banks, Federal
National Mortgage Association ("FNMA"), Maritime Administration, Tennessee
Valley Authority, District of Columbia Armory Board and Student Loan Marketing
Association. The Fund may also invest in instruments that are supported by the
right of the issuer to borrow from the U.S. Treasury and instruments that are
supported by the credit of the instrumentality. Because the U.S. government is
not obligated by law to provide support to an instrumentality it sponsors, the
Fund will invest in obligations issued by such an instrumentality only if
Warburg determines that the credit risk with respect to the instrumentality
does not make its securities unsuitable for investment by the Fund.
Below Investment Grade Securities. While the market values
of medium- and lower-rated securities and unrated securities of comparable
quality tend to react less to fluctuations in interest rate levels than do
those of higher-rated securities, the market values of certain of these
securities also tend to be more sensitive to individual corporate developments
and changes in economic conditions than higher-quality securities. In addition,
medium- and lower-rated securities and comparable unrated securities generally
present a higher degree of credit risk. Issuers of medium- and lower-rated
securities and unrated securities are often highly leveraged and may not have
more traditional methods of financing available to them so that their ability
to service their obligations during an economic downturn or during sustained
periods of rising interest rates may be impaired. The risk of loss due to
default by such issuers is significantly greater because medium- and
lower-rated securities and unrated securities generally are unsecured and
frequently are subordinated to the prior payment of senior indebtedness.
The market for medium- and lower-rated and unrated securities
is relatively new and has not weathered a major economic recession. Any such
recession could disrupt severely the market for such securities and may
adversely affect the value of such securities and the ability of the issuers of
such securities to repay principal and pay interest thereon.
Certain of these securities may be difficult to dispose of
because there may be a thin trading market. Because there is no established
retail secondary market for many of these securities, it is anticipated that
these securities could be sold only to a limited number of dealers or
institutional investors. To the extent a secondary trading market for these
securities does exist, it generally is not as liquid as the secondary market for
higher-rated securities. The lack of a liquid secondary market, as well as
adverse publicity and investor perception with respect to these securities, may
have an adverse impact on market price and the Fund's ability to dispose of
particular issues when necessary to meet the Fund's liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the
<PAGE>14
issuer. The lack of a liquid secondary market for certain securities also may
make it more difficult for the Fund to obtain accurate market quotations for
purposes of valuation and calculation of net asset value.
The market value of securities in medium- and lower-rated
categories is more volatile than that of higher quality securities. Factors
adversely impacting the market value of these securities will adversely impact
the Fund's net asset value. Normally, medium- and lower-rated and comparable
unrated securities are not intended for short-term investment. Additional
expenses may be incurred to the extent required to seek recovery upon a default
in the payment of principal or interest on its portfolio holdings of such
securities. Recent adverse publicity regarding lower-rated securities may have
depressed the prices for such securities to some extent. Whether investor
perceptions will continue to have a negative effect on the price of such
securities is uncertain.
Securities of Other Investment Companies. The Fund may invest
in securities of other investment companies to the extent permitted under the
Investment Company Act of 1940, as amended (the "1940 Act"). Presently, under
the 1940 Act, the Fund may hold securities of another investment company in
amounts which (i) do not exceed 3% of the total outstanding voting stock of such
company, (ii) do not exceed 5% of the value of the Fund's total assets and (iii)
when added to all other investment company securities held by the Fund, do not
exceed 10% of the value of the Fund's total assets.
Lending of Portfolio Securities. The Fund may lend portfolio
securities to brokers, dealers and other financial organizations that meet
capital and other credit requirements or other criteria established by the
Fund's Board of Directors (the "Board"). These loans, if and when made, may not
exceed 33-1/3% of the Fund's net assets taken at value. The Fund will not lend
portfolio securities to affiliates of Warburg unless it has applied for and
received specific authority to do so from the SEC. Loans of portfolio securities
will be collateralized by cash, letters of credit or U.S. government securities,
which are maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. Any gain or loss in the market
price of the securities loaned that might occur during the term of the loan
would be for the account of the Fund. From time to time, the Fund may return a
part of the interest earned from the investment of collateral received for
securities loaned to the borrower and/or a third party that is unaffiliated with
the Fund and that is acting as a "finder."
By lending its securities, the Fund can increase its income by
continuing to receive interest and any dividends on the loaned securities as
well as by either investing the collateral received for securities loaned in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. government securities are used as collateral. Although the
generation of income is not an investment objective of the Fund, income received
could be used to pay the Fund's expenses and would increase an investor's total
return. The Fund will adhere to the following conditions whenever its portfolio
securities are loaned: (i) the Fund must receive at least 100% cash collateral
or equivalent securities of the
<PAGE>15
type discussed in the preceding paragraph from the borrower; (ii) the borrower
must increase such collateral whenever the market value of the securities rises
above the level of such collateral; (iii) the Fund must be able to terminate
the loan at any time; (iv) the Fund must receive reasonable interest on the
loan, as well as any dividends, interest or other distributions on the loaned
securities and any increase in market value; (v) the Fund may pay only
reasonable custodian fees in connection with the loan; and (vi) voting rights
on the loaned securities may pass to the borrower, provided, however, that if a
material event adversely affecting the investment occurs, the Board must
terminate the loan and regain the right to vote the securities. Loan agreements
involve certain risks in the event of default or insolvency of the other party
including possible delays or restrictions upon the Fund's ability to recover
the loaned securities or dispose of the collateral for the loan.
Short Sales. In a short sale, the Fund sells a borrowed
security and has a corresponding obligation to the lender to return the
identical security. The seller does not immediately deliver the securities sold
and is said to have a short position in those securities until delivery occurs.
If the Fund engages in a short sale, the collateral for the short position will
be maintained by the Fund's custodian or qualified sub-custodian. While the
short sale is open, the Fund will maintain in a segregated account an amount of
securities equal in value to the securities sold short.
While a short sale is made by selling a security the Fund does
not own, a short sale is "against the box" to the extent that the Fund
contemporaneously owns or has the right to obtain, at no added cost, securities
identical to those sold short. The Fund does not intend to engage in short sales
against the box for investment purposes. The Fund may, however, make a short
sale as a hedge, when it believes that the price of a security may decline,
causing a decline in the value of a security owned by the Fund (or a security
convertible or exchangeable for such security), or when the Fund wants to sell
the security at an attractive current price, but also wishes to defer
recognition of gain or loss for U.S. federal income tax purposes and for
purposes of satisfying certain tests applicable to regulated investment
companies under the Code. In such case, any future losses in the Fund's long
position should be offset by a gain in the short position and, conversely, any
gain in the long position should be reduced by a loss in the short position. The
extent to which such gains or losses are reduced will depend upon the amount of
the security sold short relative to the amount the Fund owns. There will be
certain additional transaction costs associated with short sales against the
box, but the Fund will endeavor to offset these costs with the income from the
investment of the cash proceeds of short sales.
American, European and Continental Depositary Receipts. The
assets of the Fund may be invested in the securities of foreign issuers in the
form of American Depositary Receipts ("ADRs") and European Depositary Receipts
("EDRs"). These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs are receipts
typically issued by a U.S. bank or trust company which
<PAGE>16
evidence ownership of underlying securities issued by a foreign corporation.
EDRs, which are sometimes referred to as Continental Depositary Receipts
("CDRs"), are receipts issued in Europe typically by non-U.S. banks and trust
companies that evidence ownership of either foreign or domestic securities.
Generally, ADRs in registered form are designed for use in U.S. securities
markets and EDRs and CDRs in bearer form are designed for use in European
securities markets.
Convertible Securities. Convertible securities in which the
Fund may invest, including both convertible debt and convertible preferred
stock, may be converted at either a stated price or stated rate into underlying
shares of common stock. Because of this feature, convertible securities enable
an investor to benefit from increases in the market price of the underlying
common stock. Convertible securities provide higher yields than the underlying
equity securities, but generally offer lower yields than non-convertible
securities of similar quality. Like bonds, the value of convertible securities
fluctuates in relation to changes in interest rates and, in addition, also
fluctuates in relation to the underlying common stock.
Warrants. The Fund may purchase warrants issued by domestic
and foreign companies to purchase newly created equity securities consisting of
common and preferred stock. The equity security underlying a warrant is
outstanding at the time the warrant is issued or is issued together with the
warrant.
Investing in warrants can provide a greater potential for
profit or loss than an equivalent investment in the underlying security, and,
thus, can be a speculative investment. The value of a warrant may decline
because of a decline in the value of the underlying security, the passage of
time, changes in interest rates or in the dividend or other policies of the
company whose equity underlies the warrant or a change in the perception as to
the future price of the underlying security, or any combination thereof.
Warrants generally pay no dividends and confer no voting or other rights other
than to purchase the underlying security.
Non-Publicly Traded and Illiquid Securities. The Fund may not
invest more than 15% of its net assets in non-publicly traded and illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market, time deposits maturing in more than seven days,
certain Rule 144A Securities (as defined below) and repurchase agreements which
have a maturity of longer than seven days. Securities that have legal or
contractual restrictions on resale but have a readily available market are not
considered illiquid for purposes of this limitation. Repurchase agreements
subject to demand are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market.
<PAGE>17
Mutual funds do not typically hold a significant amount of these restricted or
other illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.
In recent years, however, a large institutional market has
developed for certain securities that are not registered under the Securities
Act including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.
Rule 144A Securities. Rule 144A under the Securities Act
adopted by the SEC allows for a broader institutional trading market for
securities otherwise subject to restriction on resale to the general public.
Rule 144A establishes a "safe harbor" from the registration requirements of the
Securities Act for resales of certain securities to qualified institutional
buyers. Warburg anticipates that the market for certain restricted securities
such as institutional commercial paper will expand further as a result of this
regulation and use of automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc.
An investment in Rule 144A Securities will be considered
illiquid and therefore subject to the Fund's limit on the purchase of illiquid
securities unless the Board or its delegates determines that the Rule 144A
Securities are liquid. In reaching liquidity decisions, the Board and its
delegates may consider, inter alia, the following factors: (i) the unregistered
nature of the security; (ii) the frequency of trades and quotes for the
security; (iii) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (iv) dealer undertakings to make a
market in the security and (v) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer).
When-Issued Securities and Delayed-Delivery Transactions. The
Fund may utilize up to 20% of its total assets to purchase securities on a
"when-issued" basis or purchase or sell securities for delayed delivery (i.e.,
payment or delivery occur beyond the normal settlement date at a stated price
and yield). When-issued transactions normally settle within 30-45 days. The Fund
will enter into a when-issued transaction for the purpose of acquiring portfolio
securities and not for the purpose of leverage, but may sell the securities
before the settlement date if Warburg deems it advantageous to do so. The
payment obligation and the
<PAGE>18
interest rate that will be received on when-issued securities are fixed at the
time the buyer enters into the commitment. Due to fluctuations in the value of
securities purchased or sold on a when-issued or delayed-delivery basis, the
yields obtained on such securities may be higher or lower than the yields
available in the market on the dates when the investments are actually
delivered to the buyers.
When the Fund agrees to purchase when-issued or
delayed-delivery securities, its custodian will set aside cash or liquid
securities equal to the amount of the commitment in a segregated account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment, and in such a case the Fund may be required subsequently to
place additional assets in the segregated account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that the Fund's net assets will fluctuate to a greater degree
when it sets aside portfolio securities to cover such purchase commitments than
when it sets aside cash. When the Fund engages in when-issued or
delayed-delivery transactions, it relies on the other party to consummate the
trade. Failure of the seller to do so may result in the Fund's incurring a loss
or missing an opportunity to obtain a price considered to be advantageous.
Borrowing. The Fund may borrow up to 30% of its total assets
for temporary or emergency purposes, including to meet portfolio redemption
requests so as to permit the orderly disposition of portfolio securities or to
facilitate settlement transactions on portfolio securities. Additional
investments (including roll-overs) will not be made when borrowings exceed 5% of
the Fund's total assets. Although the principal of such borrowings will be
fixed, the Fund's assets may change in value during the time the borrowing is
outstanding. The Fund expects that some of its borrowings may be made on a
secured basis. In such situations, either the custodian will segregate the
pledged assets for the benefit of the lender or arrangements will be made with a
suitable subcustodian, which may include the lender.
Reverse Repurchase Agreements and Dollar Rolls. The Fund may
enter into reverse repurchase agreements with the same parties with whom it may
enter into repurchase agreements. Reverse repurchase agreements involve the sale
of securities held by the Fund pursuant to its agreement to repurchase them at a
mutually agreed upon date, price and rate of interest. At the time the Fund
enters into a reverse repurchase agreement, it will establish and maintain a
segregated account with an approved custodian containing cash or liquid
securities having a value not less than the repurchase price (including accrued
interest). The assets contained in the segregated account will be
marked-to-market daily and additional assets will be placed in such account on
any day in which the assets fall below the repurchase price (plus accrued
interest). The Fund's liquidity and ability to manage its assets might be
affected when it sets aside cash or portfolio securities to cover such
commitments. Reverse repurchase agreements involve the risk that the market
value of the securities retained in lieu of sale may decline below the price of
the securities the Fund has sold but is obligated to repurchase. In the event
the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce a Fund's obligation
to repurchase the securities, and the Fund's
<PAGE>19
use of the proceeds of the reverse repurchase agreement may effectively be
restricted pending such decision.
The Fund also may enter into "dollar rolls," in which the Fund
sells fixed-income securities for delivery in the current month and
simultaneously contracts to repurchase similar but not identical (same type,
coupon and maturity) securities on a specified future date. During the roll
period, the Fund would forego principal and interest paid on such securities.
The Fund would be compensated by the difference between the current sales price
and the forward price for the future purchase, as well as by the interest earned
on the cash proceeds of the initial sale. At the time the Fund enters into a
dollar roll transaction, it will place in a segregated account maintained with
an approval custodian cash or other liquid obligations having a value not less
than the repurchase price (including accrued interest) and will subsequently
monitor the account to ensure that its value is maintained. Reverse repurchase
agreements and dollar rolls that are accounted for as financings are considered
to be borrowings under the 1940 Act.
Securities of Emerging Growth and Small Companies; Unseasoned
Issuers. The Fund's investments in emerging growth and small companies, as well
as companies with continuous operations of less than three years ("unseasoned
issuers"), involve considerations that are not applicable to investing in
securities of established, larger-capitalization issuers, including reduced and
less reliable information about issuers and markets, less stringent accounting
standards, illiquidity of securities and markets, higher brokerage commissions
and fees and greater market risk in general. In addition, securities of emerging
growth and small companies and unseasoned issuers may involve greater risks
since these securities may have limited marketability and, thus, may be more
volatile.
Zero Coupon Securities. The Fund may invest in "zero coupon"
U.S. Treasury, foreign government and U.S. and foreign corporate convertible and
nonconvertible debt securities, which are bills, notes and bonds that have been
stripped of their unmatured interest coupons and custodial receipts or
certificates of participation representing interests in such stripped debt
obligations and coupons. A zero coupon security pays no interest to its holder
prior to maturity. Accordingly, such securities usually trade at a deep discount
from their face or par value and will be subject to greater fluctuations of
market value in response to changing interest rates than debt obligations of
comparable maturities that make current distributions of interest. The Fund
anticipates that it will not normally hold zero coupon securities to maturity.
Federal tax law requires that a holder of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year,
even though the holder receives no interest payment on the security during the
year. Such accrued discount will be includible in determining the amount of
dividends the Fund must pay each year and, in order to generate cash necessary
to pay such dividends, the Fund may liquidate portfolio securities at a time
when it would not otherwise have done so.
<PAGE>20
Other Investment Limitations
The investment limitations numbered 1 through 10 may not be
changed without the affirmative vote of the holders of a majority of the Fund's
outstanding shares. Such majority is defined as the lesser of (i) 67% or more of
the shares present at the meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii) more
than 50% of the outstanding shares. Investment limitations 11 through 16 may be
changed by a vote of the Board at any time.
The Fund may not:
1. Borrow money except that the Fund may (a) borrow from banks
for temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar rolls that are
accounted for as financings and any other transactions constituting borrowing by
the Fund may not exceed 30% of the value of the Fund's total assets at the time
of such borrowing. For purposes of this restriction, short sales, the entry into
currency transactions, options, futures contracts, options on futures contracts,
forward commitment transactions and dollar roll transactions that are not
accounted for as financings (and the segregation of assets in connection with
any of the foregoing) shall not constitute borrowing.
2. Make loans, except that the Fund may purchase or hold
fixed-income securities, lend portfolio securities and enter into repurchase
agreements in accordance with its investment objective, policies and
limitations.
3. Purchase any securities which would cause 25% or more of
the value of the Fund's total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business activities in the
same industry; provided that there shall be no limit on the purchase of U.S.
Government Securities.
4. Purchase the securities of any issuer if as a result more
than 5% of the value of the Fund's total assets would be invested in the
securities of such issuer, except that this 5% limitation does not apply to U.S.
Government Securities and except that up to 25% of the value of the Fund's total
assets may be invested without regard to this 5% limitation.
5. Underwrite any securities issued by others except to the
extent that the investment in restricted securities and the sale of securities
or the purchase of securities directly from the issuer in accordance with the
Fund's investment objective, policies and limitations may be deemed to be
underwriting.
6. Purchase or sell real estate, except that the Fund may
invest in (a) securities secured by real estate, mortgages or interests therein
or (b) issued by companies which invest in real estate or interests therein.
<PAGE>21
7. Make short sales of securities or maintain a short
position, except that the Fund may maintain short positions in options on
currencies, securities and stock indexes, futures contracts and options on
futures contracts and enter into short sales or short sales "against the box"
in accordance with the Fund's investment objective, policies and limitations.
8. Purchase securities on margin, except that the Fund may
obtain any short-term credits necessary for the clearance of purchases and
sales of securities. For purposes of this restriction, the deposit or payment
of initial or variation margin in connection with transactions in currencies,
options, futures contracts or related options will not be deemed to be a
purchase of securities on margin.
9. Invest in commodities, except that the Fund may (a)
purchase and sell futures contracts, including those relating to securities,
currencies and indexes, and options on futures contracts, securities,
currencies or indexes, (b) purchase and sell currencies on a forward commitment
or delayed-delivery basis and (c) enter into stand-by commitments.
10. Pledge, mortgage or hypothecate its assets, except (a) to
the extent necessary to secure permitted borrowings and (b) to the extent
related to the deposit of assets in escrow in connection with the purchase of
securities on a forward commitment or delayed-delivery basis and collateral and
initial or variation margin arrangements with respect to currency transactions,
options, futures contracts, and options on futures contracts.
11. Invest more than 15% of the Fund's net assets in
securities which may be illiquid because of legal or contractual restrictions
on resale or securities for which there are no readily available market
quotations. For purposes of this limitation, repurchase agreements with
maturities greater than seven days shall be considered illiquid securities.
12. Make additional investments (including roll-overs) if the
Fund's borrowings exceed 5% of its total assets.
13. Make investments for the purpose of exercising control or
management.
14. Purchase securities of other investment companies except
in connection with a merger, consolidation, acquisition, reorganization or
offer of exchange, or as otherwise permitted under the 1940 Act.
15. Invest in oil, gas or mineral exploration or development
programs, except that the Fund may invest in securities of companies that
invest in or sponsor oil, gas or mineral exploration or development programs.
16. Invest in warrants (other than warrants acquired by the
Fund as part of a unit or attached to securities at the time of purchase) if,
as a result, the investments (valued at the lower of cost or market) would
exceed 15% of the value of the Fund's total assets.
<PAGE>22
If a percentage restriction (other than the percentage
limitation set forth in No. 1 above) is adhered to at the time of an investment,
a later increase or decrease in the percentage of assets resulting from a change
in the values of portfolio securities or in the amount of the Fund's assets will
not constitute a violation of such restriction.
Portfolio Valuation
The Prospectuses discuss the time at which the net asset value
of the Fund is determined for purposes of sales and redemptions. The following
is a description of the procedures used by the Fund in valuing its assets.
Securities listed on a U.S. securities exchange (including
securities traded through the NASDAQ National Market System) or foreign
securities exchange or traded in an over-the-counter market will be valued at
the most recent sale as of the time the valuation is made or, in the absence of
sales, at the mean between the bid and asked quotations. If there are no such
quotations, the value of the securities will be taken to be the highest bid
quotation on the exchange or market. Options and futures contracts will be
valued similarly. A security which is listed or traded on more than one exchange
is valued at the quotation on the exchange determined to be the primary market
for such security. Short-term obligations with maturities of 60 days or less are
valued at amortized cost, which constitutes fair value as determined by the
Board. Amortized cost involves valuing a portfolio instrument at its initial
cost and thereafter assuming a constant amortization to maturity of any discount
or premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. The amortized cost method of valuation may also be used
with respect to other debt obligations with 60 days or less remaining to
maturity. In determining the market value of portfolio investments, the Fund may
employ outside organizations (a "Pricing Service") which may use a matrix,
formula or other objective method that takes into consideration market indexes,
matrices, yield curves and other specific adjustments. The procedures of Pricing
Services are reviewed periodically by the officers of the Fund under the general
supervision and responsibility of the Board, which may replace a Pricing Service
at any time. Securities, options and futures contracts for which market
quotations are not available and certain other assets of the Fund will be valued
at their fair value as determined in good faith pursuant to consistently applied
procedures established by the Board. In addition, the Board or its delegates may
value a security at fair value if it determines that such security's value
determined by the methodology set forth above does not reflect its fair value.
Trading in securities in certain foreign countries is
completed at various times prior to the close of business on each business day
in New York (i.e., a day on which the NYSE is open for trading). In addition,
securities trading in a particular country or countries may not take place on
all business days in New York. Furthermore, trading takes place in various
foreign markets on days which are not business days in New York and days on
which the Fund's net asset value is not calculated. As a result, calculation of
the Fund's net asset value may not take place contemporaneously with the
determination of the prices of certain portfolio securities used in such
calculation. Events affecting the values of portfolio securities
<PAGE>23
that occur between the time their prices are determined and the close of
regular trading on the NYSE will not be reflected in the Fund's calculation of
net asset value unless the Board or its delegates deems that the particular
event would materially affect net asset value, in which case an adjustment may
be made. All assets and liabilities initially expressed in foreign currency
values will be converted into U.S. dollar values at the prevailing rate as
quoted by a Pricing Service. If such quotations are not available, the rate of
exchange will be determined in good faith pursuant to consistently applied
procedures established by the Board.
Portfolio Transactions
Warburg is responsible for establishing, reviewing and, where
necessary, modifying the Fund's investment program to achieve its investment
objective. Purchases and sales of newly issued portfolio securities are usually
principal transactions without brokerage commissions effected directly with the
issuer or with an underwriter acting as principal. Other purchases and sales may
be effected on a securities exchange or over-the-counter, depending on where it
appears that the best price or execution will be obtained. The purchase price
paid by the Fund to underwriters of newly issued securities usually includes a
concession paid by the issuer to the underwriter, and purchases of securities
from dealers, acting as either principals or agents in the after market, are
normally executed at a price between the bid and asked price, which includes a
dealer's mark-up or mark-down. Transactions on U.S. stock exchanges and some
foreign stock exchanges involve the payment of negotiated brokerage commissions.
On exchanges on which commissions are negotiated, the cost of transactions may
vary among different brokers. On most foreign exchanges, commissions are
generally fixed. There is generally no stated commission in the case of
securities traded in domestic or foreign over-the-counter markets, but the price
of securities traded in over-the-counter markets includes an undisclosed
commission or mark-up. U.S. government securities are generally purchased from
underwriters or dealers, although certain newly issued U.S. government
securities may be purchased directly from the U.S. Treasury or from the issuing
agency or instrumentality.
Warburg will select specific portfolio investments and effect
transactions for the Fund and in doing so seeks to obtain the overall best
execution of portfolio transactions. In evaluating prices and executions,
Warburg will consider the factors it deems relevant, which may include the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of a broker or dealer and the reasonableness
of the commission, if any, for the specific transaction and on a continuing
basis. Warburg may, in its discretion, effect transactions in portfolio
securities with dealers who provide brokerage and research services (as those
terms are defined in Section 28(e) of the Securities Exchange Act of 1934) to
the Fund and/or other accounts over which Warburg exercises investment
discretion. Warburg may place portfolio transactions with a broker or dealer
with whom it has negotiated a commission that is in excess of the commission
another broker or dealer would have charged for effecting the transaction if
Warburg determines in good faith that such amount of commission was reasonable
in relation to the value of such brokerage and research services provided by
such broker or dealer viewed in terms of either that particular transaction
<PAGE>24
or of the overall responsibilities of Warburg. Research and other services
received may be useful to Warburg in serving both the Fund and its other
clients and, conversely, research or other services obtained by the placement
of business of other clients may be useful to Warburg in carrying out its
obligations to the Fund. Research may include furnishing advice, either
directly or through publications or writings, as to the value of securities,
the advisability of purchasing or selling specific securities and the
availability of securities or purchasers or sellers of securities; furnishing
seminars, information, analyses and reports concerning issuers, industries,
securities, trading markets and methods, legislative developments, changes in
accounting practices, economic factors and trends and portfolio strategy;
access to research analysts, corporate management personnel, industry experts,
economists and government officials; comparative performance evaluation and
technical measurement services and quotation services; and products and other
services (such as third party publications, reports and analyses, and computer
and electronic access, equipment, software, information and accessories that
deliver, process or otherwise utilize information, including the research
described above) that assist Warburg in carrying out its responsibilities.
Research received from brokers or dealers is supplemental to Warburg's own
research program. The fees to Warburg under its advisory agreement with the
Fund are not reduced by reason of its receiving any brokerage and research
services.
Investment decisions for the Fund concerning specific
portfolio securities are made independently from those for other clients advised
by Warburg. Such other investment clients may invest in the same securities as
the Fund. When purchases or sales of the same security are made at substantially
the same time on behalf of such other clients, transactions are averaged as to
price and available investments allocated as to amount, in a manner which
Warburg believes to be equitable to each client, including the Fund. In some
instances, this investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtained or sold for the Fund.
To the extent permitted by law, securities to be sold or purchased for the Fund
may be aggregated with those to be sold or purchased for such other investment
clients in order to obtain best execution.
Any portfolio transaction for the Fund may be executed through
Counsellors Securities Inc., the Fund's distributor ("Counsellors Securities"),
if, in Warburg's judgment, the use of Counsellors Securities is likely to result
in price and execution at least as favorable as those of other qualified
brokers, and if, in the transaction, Counsellors Securities charges the Fund a
commission rate consistent with those charged by Counsellors Securities to
comparable unaffiliated customers in similar transactions. All transactions with
affiliated brokers will comply with Rule 17e-1 under the 1940 Act.
In no instance will portfolio securities be purchased from or
sold to Warburg or Counsellors Securities or any affiliated person of such
companies. In addition, the Fund will not give preference to any institutions
with whom the Fund enters into distribution or shareholder servicing agreements
concerning the provision of distribution services or support services.
<PAGE>25
Transactions for the Fund may be effected on foreign
securities exchanges. In transactions for securities not actively traded on a
foreign securities exchange, the Fund will deal directly with the dealers who
make a market in the securities involved, except in those circumstances where
better prices and execution are available elsewhere. Such dealers usually are
acting as principal for their own account. On occasion, securities may be
purchased directly from the issuer. Such portfolio securities are generally
traded on a net basis and do not normally involve brokerage commissions.
Securities firms may receive brokerage commissions on certain portfolio
transactions, including options, futures and options on futures transactions and
the purchase and sale of underlying securities upon exercise of options.
The Fund may participate, if and when practicable, in bidding
for the purchase of securities for the Fund's portfolio directly from an issuer
in order to take advantage of the lower purchase price available to members of
such a group. The Fund will engage in this practice, however, only when Warburg,
in its sole discretion, believes such practice to be otherwise in the Fund's
interest.
Portfolio Turnover
The Fund does not intend to seek profits through short-term
trading, but the rate of turnover will not be a limiting factor when the Fund
deems it desirable to sell or purchase securities. The Fund's portfolio turnover
rate is calculated by dividing the lesser of purchases or sales of its portfolio
securities for the year by the monthly average value of the portfolio
securities. Securities with remaining maturities of one year or less at the date
of acquisition are excluded from the calculation.
Certain practices that may be employed by the Fund could
result in high portfolio turnover. For example, options on securities may be
sold in anticipation of a decline in the price of the underlying security
(market decline) or purchased in anticipation of a rise in the price of the
underlying security (market rise) and later sold. To the extent that its
portfolio is traded for the short-term, the Fund will be engaged essentially in
trading activities based on short-term considerations affecting the value of an
issuer's stock instead of long-term investments based on fundamental valuation
of securities. Because of this policy, portfolio securities may be sold without
regard to the length of time for which they have been held.
<PAGE>26
MANAGEMENT OF THE FUND
Officers and Board of Directors
The names (and ages) of the Fund's Directors and officers,
their addresses, present positions and principal occupations during the past
five years and other affiliations are set forth below.
<TABLE>
<CAPTION>
<S> <C>
Richard N. Cooper (62)........................... Director
Harvard University National Intelligence Counsel;
1737 Cambridge Street Professor at Harvard University;
Cambridge, MA 02138 Director or Trustee of Circuit City Stores, Inc.
(retail electronics and appliances) and Phoenix Home
Life Mutual Insurance Company.
Donald J. Donahue (72)........................... Director
27 Signal Road Chairman of Magma Copper from December 1987
Stamford, CT 06902 until December 1995; Chairman and Director of NAC
Holdings from September 1990-June 1993; Director of
Chase Brass Industries, Inc. since December 1994;
Director of Pioneer Companies, Inc. (chlor-alkali
chemicals) and predecessor companies since 1990 and
Vice Chairman since December 1995.
Jack W. Fritz (69)............................... Director
2425 North Fish Creek Road Private investor; Consultant and
P.O. Box 483 Director of Fritz Broadcasting, Inc. and
Wilson, Wyoming 83014 Fritz Communications (developers and operators of radio
stations); Director of Advo, Inc. (direct mail
advertising).
John L. Furth* (65).............................. Chairman of the Board
466 Lexington Avenue Vice Chairman and Director of E.M. Warburg,
New York, New York 10017-3147 Pincus & Co., Inc. ("EMW"); Associated with EMW since
1970; President of The Grant Street Settlement; Trustee
of Blythedale Children's Hospital and Barnard College;
Treasurer of the Foundation for Child Development;
Director and
- ------------------------
* Indicates a Director who is an "interested person" of the Fund as defined in the 1940 Act.
</TABLE>
<PAGE>27
<TABLE>
<CAPTION>
<S> <C>
officer of other investment companies advised by Warburg.
Thomas A. Melfe (64)............................. Director
30 Rockefeller Plaza Partner in the law firm of Donovan Leisure
New York, New York 10112 Newton & Irvine; Chairman of the Board of Municipal
Fund for New York Investors, Inc.
Arnold M. Reichman* (48)......................... President and Director
466 Lexington Avenue Managing Director and Assistant Secretary
New York, New York 10017-3147 of EMW; Associated with EMW since 1984; Senior Vice
President, Secretary and Chief Operating Officer of
Counsellors Securities; Officer of other investment
companies advised by Warburg.
Alexander B. Trowbridge (66)..................... Director
1317 F Street, N.W. President of Trowbridge Partners, Inc.
5th Floor (business consulting) from January 1990-
Washington, DC 20036 November 1996; President of the National Association of
Manufacturers from 1980-1990; Director or Trustee of
New England Mutual Life Insurance Co., ICOS Corporation
(biopharmaceuticals), WMX Technologies Inc. (solid and
hazardous waste collection and disposal), The Rouse
Company (real estate development), Harris Corp.
(electronics and communications equipment), The
Gillette Co. (personal care products) and Sun Company
Inc. (petroleum refining and marketing).
Eugene L. Podsiadlo (39)......................... Senior Vice President
466 Lexington Avenue Managing Director of EMW; Associated with
New York, New York 10017-3147 EMW since 1991; Vice President of Citibank, N.A. from
1987-1991; Senior Vice President of Counsellors
Securities and officer of other investment companies
advised by Warburg.
- ------------------------------
* Indicates a Director who is an "interested person" of the Fund as defined in the 1940 Act.
</TABLE>
<PAGE>28
<TABLE>
<CAPTION>
<S> <C>
Stephen Distler (43)............................. Vice President
466 Lexington Avenue Managing Director, Controller and Assistant
New York, New York 10017-3147 Secretary of EMW; Associated with EMW since 1984;
Treasurer of Counsellors Securities; Treasurer and
Chief Accounting Officer or Vice President and Chief
Financial Officer of other investment companies advised
by Warburg.
Eugene P. Grace (45)............................. Vice President and Secretary
466 Lexington Avenue Associated with EMW since April 1994;
New York, New York 10017-3147 Attorney-at-law from September 1989-April 1994; life
insurance agent, New York Life Insurance Company from
1993-1994; General Counsel and Secretary, Home Unity
Savings Bank from 1991-1992; Vice President, Chief
Compliance Officer and Assistant Secretary of
Counsellors Securities; Vice President and Secretary of
other investment companies advised by Warburg.
Howard Conroy (42)............................... Vice President and Chief Financial Officer
466 Lexington Avenue Associated with EMW since 1992;
New York, New York 10017-3147 Associated with Martin Geller, C.P.A. from 1990- 1992;
Vice President, Finance with Gabelli/ Rosenthal &
Partners, L.P. until 1990; Vice President, Treasurer
and Chief Accounting Officer of other investment
companies advised by Warburg.
Daniel S. Madden, CPA (31)....................... Treasurer and Chief Accounting Officer
466 Lexington Avenue Associated with EMW since 1995;
New York, New York 10017-3147 Associated with BlackRock Financial Management, Inc.
from September 1994 to October 1996; Associated with
BEA Associates from April 1993 to September 1994;
Associated with Ernst & Young LLP from 1990 to 1993.
Treasurer and Chief Accounting Officer of other
investment companies advised by Warburg.
</TABLE>
<PAGE>29
<TABLE>
<CAPTION>
<S> <C>
Janna Manes, Esq. (29)...................... Assistant Secretary
466 Lexington Avenue Associated with EMW since March 1996;
New York, New York 10017-3147 Associated with the law firm of Willkie Farr &
Gallagher from 1993-1996; Assistant Secretary of other
investment companies advised by Warburg.
</TABLE>
No employee of Warburg or PFPC Inc., the Fund's
co-administrator ("PFPC"), or any of their affiliates receives any compensation
from the Fund for acting as an officer or director of the Fund. Each Director
who is not a director, trustee, officer or employee of Warburg, PFPC or any of
their affiliates receives an annual fee of $500, and $250 for each meeting of
the Board attended by him for his services as Director and is reimbursed for
expenses incurred in connection with his attendance at Board meetings.
Directors' Compensation
<TABLE>
<CAPTION>
Total Total Compensation from
Name of Director Compensation from all Investment Companies
Fund+ Managed by Warburg+*
---------------- ----------------- ------------------------
<S> <C> <C>
John L. Furth None** None**
Arnold M. Reichman None** None**
Richard N. Cooper $1,500 $48,500
Donald J. Donahue $1,500 $48,500
Jack W. Fritz $1,500 $48,500
Thomas A. Melfe $1,500 $48,500
Alexander B. Trowbridge $1,500 $48,500
<FN>
- ------------------------
+ Amounts shown are estimates of future payments to be made in the
fiscal year ending October 31, 1997 pursuant to existing arrangements.
* Each Director also serves as a Director or Trustee of 22 other
investment companies advised by Warburg.
** Mr. Furth and Mr. Reichman are considered to be interested persons of
the Fund and Warburg, as defined under Section 2(a)(19) of the 1940
Act, and, accordingly, receive no compensation from the Fund or any
other investment company managed by Warburg.
</TABLE>
<PAGE>30
Portfolio Manager
Mr. Anthony G. Orphanos, portfolio manager of the Fund, is
also the senior portfolio manager of Warburg's institutional value product. He
has 24 years of investment experience. Prior to joining Warburg, Mr. Orphanos
was vice president and investment officer of Dreyfus Leverage Fund, Inc. from
1972 to 1977. He received his A.B. degree from Harvard University and his
M.B.A. from New York University.
Investment Adviser and Co-Administrators
Warburg serves as investment adviser to the Fund, Counsellors
Funds Service, Inc. ("Counsellors Service") and PFPC serve as co-administrators
to the Fund pursuant to separate written agreements (the "Advisory Agreement,"
the "Counsellors Service Co-Administration Agreement" and the "PFPC
Co-Administration Agreement," respectively). The services provided by, and the
fees payable by the Fund to, Warburg under the Advisory Agreement, Counsellors
Service under the Counsellors Service Co-Administration Agreement and PFPC under
the PFPC Co-Administration Agreement are described in the Prospectuses. Each
class of shares of the Fund bears its proportionate share of fees payable to
Warburg, Counsellors Service and PFPC in the proportion that its assets bear to
the aggregate assets of the Fund at the time of calculation. These fees are
calculated at an annual rate based on a percentage of the Fund's average daily
net assets. See the Prospectuses, "Management of the Fund."
Custodians and Transfer Agent
PNC Bank, National Association ("PNC") and Fiduciary Trust
Company International ("Fiduciary") serve as custodians of the Fund's U.S. and
foreign assets, respectively, pursuant to separate custodian agreements (the
"Custodian Agreements"). Under the Custodian Agreements, PNC and Fiduciary each
(i) maintains a separate account or accounts in the name of the Fund, (ii) holds
and transfers portfolio securities on account of the Fund, (iii) makes receipts
and disbursements of money on behalf of the Fund, (iv) collects and receives all
income and other payments and distributions for the account of the Fund's
portfolio securities held by it and (v) makes periodic reports to the Board
concerning the Fund's custodial arrangements. PNC may delegate its duties under
its Custodian Agreement with the Fund to a wholly owned direct or indirect
subsidiary of PNC or PNC Bank Corp. upon notice to the Fund and upon the
satisfaction of certain other conditions. With the approval of the Board,
Fiduciary is authorized to select one or more foreign banking institutions and
foreign securities depositories to serve as sub-custodian on behalf of the Fund.
PNC is an indirect, wholly owned subsidiary of PNC Bank Corp. and its principal
business address is Broad and Chestnut Streets, Philadelphia, Pennsylvania
19101. The principal business address of Fiduciary is Two World Trade Center,
New York, New York 10048.
<PAGE>31
State Street Bank and Trust Company ("State Street") acts as
the shareholder servicing, transfer and dividend disbursing agent of the Fund
pursuant to a Transfer Agency and Service Agreement, under which State Street
(i) issues and redeems shares of the Fund, (ii) addresses and mails all
communications by the Fund to record owners of Fund shares, including reports to
shareholders, dividend and distribution notices and proxy material for its
meetings of shareholders, (iii) maintains shareholder accounts and, if
requested, sub-accounts and (iv) makes periodic reports to the Board concerning
the transfer agent's operations with respect to the Fund. State Street has
delegated to Boston Financial Data Services, Inc., a 50% owned subsidiary
("BFDS"), responsibility for most shareholder servicing functions. State
Street's principal business address is 225 Franklin Street, Boston,
Massachusetts 02110. BFDS's principal business address is 2 Heritage Drive,
Boston, Massachusetts 02171.
Organization of the Fund
The Fund's charter authorizes the Board to issue three billion
full and fractional shares of common stock, $.001 par value per share ("Common
Shares"), of which two billion shares are designated Common Shares and one
billion shares are designated Advisor Shares.
All shareholders of the Fund in each class, upon liquidation,
will participate ratably in the Fund's net assets. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Directors can elect all Directors. Shares are transferable
but have no preemptive, conversion or subscription rights.
Distribution and Shareholder Servicing
Common Shares. The Fund has entered into a Shareholder
Servicing and Distribution Plan (the "12b-1 Plan"), pursuant to Rule 12b-1 under
the 1940 Act, pursuant to which the Fund will pay Counsellors Securities, in
consideration for Services (as defined below), a fee calculated at an annual
rate of .25% of the average daily net assets of the Common Shares of the Fund.
Services performed by Counsellors Securities include (i) the sale of the Common
Shares, as set forth in the 12b-1 Plan ("Selling Services"), (ii) ongoing
servicing and/or maintenance of the accounts of Common Shareholders of the Fund,
as set forth in the 12b-1 Plan ("Shareholder Services"), and (iii) sub-transfer
agency services, subaccounting services or administrative services related to
the sale of the Common Shares, as set forth in the 12b-1 Plan ("Administrative
Services" and collectively with Selling Services and Administrative Services,
"Services") including, without limitation, (a) payments reflecting an allocation
of overhead and other office expenses of Counsellors Securities related to
providing Services; (b) payments made to, and reimbursement of expenses of,
persons who provide support services in connection with the distribution of the
Common Shares including, but not limited to, office space and equipment,
telephone facilities, answering routine inquiries regarding the Fund, and
providing any other Shareholder Services; (c) payments made to compensate
selected dealers or other authorized persons for providing any Services; (d)
costs relating to the formulation and implementation of marketing and
promotional activities for the
<PAGE>32
Common Shares, including, but not limited to, direct mail promotions and
television, radio, newspaper, magazine and other mass media advertising, and
related travel and entertainment expenses; (e) costs of printing and
distributing prospectuses, statements of additional information and reports of
the Fund to prospective shareholders of the Fund; and (f) costs involved in
obtaining whatever information, analyses and reports with respect to marketing
and promotional activities that the Fund may, from time to time, deem
advisable.
Pursuant to the 12b-1 Plan, Counsellors Securities provides
the Board with periodic reports of amounts expended under the 12b-1 Plan and the
purpose for which the expenditures were made.
Advisor Shares. The Fund may, in the future, enter into
agreements ("Agreements") with institutional shareholders of record,
broker-dealers, financial institutions, depository institutions, retirement
plans and financial intermediaries ("Institutions") to provide certain
distribution, shareholder servicing, administrative and/or accounting services
for their clients or customers (or participants in the case of retirement plans)
("Customers") who are beneficial owners of Advisor Shares. See the Advisor
Prospectus, "Shareholder Servicing." Agreements will be governed by a
distribution plan (the "Distribution Plan") pursuant to Rule 12b-1 under the
1940 Act, pursuant to which the Fund will pay in consideration for services, a
fee calculated at an annual rate of .50% of the average daily net assets of the
Advisor Shares of the Fund. The Distribution Plan requires the Board, at least
quarterly, to receive and review written reports of amounts expended under the
Distribution Plan and the purposes for which such expenditures were made.
An Institution with which the Fund has entered into an
Agreement with respect to its Advisor Shares may charge a Customer one or more
of the following types of fees, as agreed upon by the Institution and the
Customer, with respect to the cash management or other services provided by the
Institution: (i) account fees (a fixed amount per month or per year); (ii)
transaction fees (a fixed amount per transaction processed); (iii) compensation
balance requirements (a minimum dollar amount a Customer must maintain in order
to obtain the services offered); or (iv) account maintenance fees (a periodic
charge based upon the percentage of assets in the account or of the dividend
paid on those assets). Services provided by an Institution to Customers are in
addition to, and not duplicative of, the services to be provided under the
Fund's co-administration and distribution and shareholder servicing
arrangements. A Customer of an Institution should read the relevant Prospectus
and this Statement of Additional Information in conjunction with the Agreement
and other literature describing the services and related fees that would be
provided by the Institution to its Customers prior to any purchase of Fund
shares. Prospectuses are available from the Fund's distributor upon request. No
preference will be shown in the selection of Fund portfolio investments for the
instruments of Institutions.
General. The Distribution Plan and the 12b-1 Plan will
continue in effect for so long as their continuance is specifically approved at
least annually by the Board, including a majority of the Directors who are not
interested persons of the Fund and who have no direct
<PAGE>33
or indirect financial interest in the operation of the Distribution Plan or the
12b-1 Plan, as the case may be ("Independent Directors"). Any material
amendment of the Distribution Plan or the 12b-1 Plan would require the approval
of the Board in the manner described above. The Distribution Plan or the 12b-1
Plan may not be amended to increase materially the amount to be spent
thereunder without shareholder approval of the Advisor Shares or the Common
Shares, as the case may be. The Distribution Plan or the 12b-1 Plan may be
terminated at any time, without penalty, by vote of a majority of the
Independent Directors or by a vote of a majority of the outstanding voting
securities of the Advisor Shares or the Common Shares, as the case may be.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of the Fund's shares is equal to the per
share net asset value of the relevant class of shares of the Fund. Information
on how to purchase and redeem Fund shares and how such shares are priced is
included in the Prospectuses under "Net Asset Value."
Under the 1940 Act, the Fund may suspend the right of
redemption or postpone the date of payment upon redemption for any period during
which the NYSE is closed, other than customary weekend and holiday closings, or
during which trading on the NYSE is restricted, or during which (as determined
by the SEC) an emergency exists as a result of which disposal or fair valuation
of portfolio securities is not reasonably practicable, or for such other periods
as the SEC may permit. (The Fund may also suspend or postpone the recordation of
an exchange of its shares upon the occurrence of any of the foregoing
conditions.)
If the Board determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, the Fund
may make payment wholly or partly in securities or other investment instruments
which may not constitute securities as such term is defined in the applicable
securities laws. If a redemption is paid wholly or partly in securities or other
property, a shareholder would incur transaction costs in disposing of the
redemption proceeds. The Fund will comply with Rule 18f-1 promulgated under the
1940 Act with respect to redemptions in kind.
Automatic Cash Withdrawal Plan. An automatic cash withdrawal
plan (the "Plan") is available to shareholders who wish to receive specific
amounts of cash periodically. Withdrawals may be made under the Plan by
redeeming as many shares of the Fund as may be necessary to cover the stipulated
withdrawal payment. To the extent that withdrawals exceed dividends,
distributions and appreciation of a shareholder's investment in the Fund, there
will be a reduction in the value of the shareholder's investment and continued
withdrawal payments may reduce the shareholder's investment and ultimately
exhaust it. Withdrawal payments
<PAGE>34
should not be considered as income from investment in the Fund. All dividends
and distributions on shares in the Plan are automatically reinvested at net
asset value in additional shares of the Fund.
EXCHANGE PRIVILEGE
An exchange privilege with certain other funds advised by
Warburg is available to investors in the Fund. The funds into which exchanges of
Common Shares currently can be made are listed in the Common Share Prospectus.
Exchanges may also be made between certain Warburg Pincus Advisor Funds.
The exchange privilege enables shareholders to acquire shares
in a fund with a different investment objective when they believe that a shift
between funds is an appropriate investment decision. This privilege is available
to shareholders residing in any state in which the Common Shares or Advisor
Shares being acquired, as relevant, may legally be sold. Prior to any exchange,
the investor should obtain and review a copy of the current prospectus of the
relevant class of each fund into which an exchange is being considered.
Shareholders may obtain a prospectus of the relevant class of the fund into
which they are contemplating an exchange from Counsellors Securities.
Upon receipt of proper instructions and all necessary
supporting documents, shares submitted for exchange are redeemed at the
then-current net asset value of the relevant class and the proceeds are invested
on the same day, at a price as described above, in shares of the relevant class
of the fund being acquired. Warburg reserves the right to reject more than three
exchange requests by a shareholder in any 30-day period. The exchange privilege
may be modified or terminated at any time upon 60 days' notice to shareholders.
ADDITIONAL INFORMATION CONCERNING TAXES
The discussion set out below of tax considerations generally
affecting the Fund and its shareholders is intended to be only a summary and is
not intended as a substitute for careful tax planning by prospective
shareholders. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund.
The Fund intends to qualify each year as a "regulated
investment company" under Subchapter M of the Code. If it qualifies as a
regulated investment company, the Fund will pay no federal income taxes on its
taxable net investment income (that is, taxable income other than net realized
capital gains) and its net realized capital gains that are distributed to
shareholders. To qualify under Subchapter M, the Fund must, among other things:
(i) distribute to its shareholders at least 90% of its taxable net investment
income (for this purpose consisting of taxable net investment income and net
realized short-term capital gains); (ii) derive at least 90% of its gross income
from dividends, interest, payments with respect to
<PAGE>35
loans of securities, gains from the sale or other disposition of securities, or
other income (including, but not limited to, gains from options, futures, and
forward contracts) derived with respect to the Fund's business of investing in
securities; (iii) derive less than 30% of its annual gross income from the sale
or other disposition of securities, options, futures or forward contracts held
for less than three months; and (iv) diversify its holdings so that, at the end
of each fiscal quarter of the Fund (a) at least 50% of the market value of the
Fund's assets is represented by cash, U.S. government securities and other
securities, with those other securities limited, with respect to any one
issuer, to an amount no greater in value than 5% of the Fund's total assets and
to not more than 10% of the outstanding voting securities of the issuer, and
(b) not more than 25% of the market value of the Fund's assets is invested in
the securities of any one issuer (other than U.S. government securities or
securities of other regulated investment companies) or of two or more issuers
that the Fund controls and that are determined to be in the same or similar
trades or businesses or related trades or businesses. In meeting these
requirements, the Fund may be restricted in the selling of securities held by
the Fund for less than three months and in the utilization of certain of the
investment techniques described above and in the Fund's Prospectuses. As a
regulated investment company, the Fund will be subject to a 4% non-deductible
excise tax measured with respect to certain undistributed amounts of ordinary
income and capital gain required to be but not distributed under a prescribed
formula. The formula requires payment to shareholders during a calendar year of
distributions representing at least 98% of the Fund's taxable ordinary income
for the calendar year and at least 98% of the excess of its capital gains over
capital losses realized during the one-year period ending October 31 during
such year, together with any undistributed, untaxed amounts of ordinary income
and capital gains from the previous calendar year. The Fund expects to pay the
dividends and make the distributions necessary to avoid the application of this
excise tax.
The Fund's transactions, if any, in foreign currencies,
forward contracts, options and futures contracts (including options and forward
contracts on foreign currencies) will be subject to special provisions of the
Code that, among other things, may affect the character of gains and losses
recognized by the Fund (i.e., may affect whether gains or losses are ordinary or
capital), accelerate recognition of income to the Fund, defer Fund losses and
cause the Fund to be subject to hyperinflationary currency rules. These rules
could therefore affect the character, amount and timing of distributions to
shareholders. These provisions also (i) will require the Fund to mark-to-market
certain types of its positions (i.e., treat them as if they were closed out) and
(ii) may cause the Fund to recognize income without receiving cash with which to
pay dividends or make distributions in amounts necessary to satisfy the
distribution requirements for avoiding income and excise taxes. The Fund will
monitor its transactions, will make the appropriate tax elections and will make
the appropriate entries in its books and records when it acquires any foreign
currency, forward contract, option, futures contract or hedged investment so
that (a) neither the Fund nor its shareholders will be treated as receiving a
materially greater amount of capital gains or distributions than actually
realized or received, (b) the Fund will be able to use substantially all of its
losses for the fiscal years in which the losses actually occur and (c) the Fund
will continue to qualify as a regulated investment company.
<PAGE>36
The Fund's investments in zero coupon securities may create
special tax consequences. Zero coupon securities do not make interest payments,
although a portion of the difference between zero coupon security's face value
and its purchase price is imputed as income to the Fund each year even though
the Fund receives no cash distribution until maturity. Under the U.S. federal
tax laws, the Fund will not be subject to tax on this income if it pays
dividends to its shareholders substantially equal to all the income received
from, or imputed with respect to, its investments during the year, including its
zero coupon securities. These dividends ordinarily will constitute taxable
income to the shareholders of the Fund.
Upon the sale or exchange of shares, a shareholder will
realize a taxable gain or loss depending upon the amount realized and the basis
in the shares. Such gain or loss will be treated as capital gain or loss if the
shares are capital assets in the shareholder's hands, and, as described in the
Prospectuses, will be long-term or short-term depending upon the shareholder's
holding period for the shares. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced, including
replacement through the reinvestment of dividends and capital gains
distributions in the Fund, within a period of 61 days beginning 30 days before
and ending 30 days after the disposition of the shares. In such a case, the
basis of the shares acquired will be increased to reflect the disallowed loss.
A shareholder of the Fund receiving dividends or distributions
in additional shares should be treated for federal income tax purposes as
receiving a distribution in an amount equal to the amount of money that a
shareholder receiving cash dividends or distributions receives, and should have
a cost basis in the shares received equal to that amount. Investors considering
buying shares just prior to a dividend or capital gain distribution should be
aware that, although the price of shares purchased at that time may reflect the
amount of the forthcoming distribution, those who purchase just prior to a
distribution will receive a distribution that will nevertheless be taxable to
them. Proposed legislation would reduce the dividends received deduction
available to corporations (as discussed in the Prospectuses) from 70% to 50% of
dividends received.
Each shareholder will receive an annual statement as to the
federal income tax status of his dividends and distributions from the Fund for
the prior calendar year. Furthermore, shareholders will also receive, if
appropriate, various written notices after the close of the Fund's taxable year
regarding the federal income tax status of certain dividends and distributions
that were paid (or that are treated as having been paid) by the Fund to its
shareholders during the preceding year.
If a shareholder fails to furnish a correct taxpayer
identification number, fails to report fully dividend or interest income, or
fails to certify that he has provided a correct taxpayer identification number
and that he is not subject to "backup withholding," the shareholder may be
subject to a 31% "backup withholding" tax with respect to (i) taxable dividends
and distributions and (ii) the proceeds of any sales or repurchases of shares of
the Fund. An individual's taxpayer identification number is his social security
number.
<PAGE>37
Corporate shareholders and other shareholders specified in the Code are or may
be exempt from backup withholding. The backup withholding tax is not an
additional tax and may be credited against a taxpayer's federal income tax
liability. Dividends and distributions also may be subject to state and local
taxes depending on each shareholder's particular situation.
Investment in Passive Foreign Investment Companies
If the Fund purchases shares in certain foreign entities
classified under the Code as "passive foreign investment companies" ("PFICs"),
the Fund may be subject to federal income tax on a portion of an "excess
distribution" or gain from the disposition of the shares, even though the income
may have to be distributed as a taxable dividend by the Fund to its
shareholders. In addition, gain on the disposition of shares in a PFIC generally
is treated as ordinary income even though the shares are capital assets in the
hands of the Fund. Certain interest charges may be imposed on either the Fund or
its shareholders with respect to any taxes arising from excess distributions or
gains on the disposition of shares in a PFIC.
The Fund may be eligible to elect to include in its gross
income its share of earnings of a PFIC on a current basis. Generally, the
election would eliminate the interest charge and the ordinary income treatment
on the disposition of stock, but such an election may have the effect of
accelerating the recognition of income and gains by the Fund compared to a fund
that did not make the election. In addition, information required to make such
an election may not be available to the Fund.
On April 1, 1992 proposed regulations of the Internal Revenue
Service (the "IRS") were published providing a mark-to-market election for
regulated investment companies. The IRS subsequently issued a notice indicating
that final regulations will provide that regulated investment companies may
elect the mark-to-market election for tax years ending after March 31, 1992 and
before April 1, 1993. Whether and to what extent the notice will apply to
taxable years of the Fund is unclear. If the Fund is not able to make the
foregoing election, it may be able to avoid the interest charge (but not the
ordinary income treatment) on disposition of the stock by electing, under
proposed regulations, each year to mark-to-market the stock (that is, treat it
as if it were sold for fair market value). Such an election could result in
acceleration of income to the Fund. Recently proposed legislation would codify
the mark-to-market election for regulated investment companies.
<PAGE>38
DETERMINATION OF PERFORMANCE
From time to time, the Fund may quote the total return of its
Common Shares and/or Advisor Shares in advertisements or in reports and other
communications to shareholders. These figures are calculated by finding the
average annual compounded rates of return for the one-, five- and ten- (or such
shorter period as the relevant class of shares has been offered) year periods
that would equate the initial amount invested to the ending redeemable value
according to the following formula: P (1 + T)[*GRAPHIC OMITTED-SEE FOOTNOTE
BELOW] = ERV. For purposes of this formula, "P" is a hypothetical investment
of $1,000; "T" is average annual total return; "n" is number of years; and
"ERV" is the ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the one-, five- or ten-year periods (or fractional portion
thereof). Total return or "T" is computed by finding the average annual change
in the value of an initial $1,000 investment over the period and assumes that
all dividends and distributions are reinvested during the period.
The Fund may advertise, from time to time, comparisons of the
performance of its Common Shares and/or Advisor Shares with that of one or more
other mutual funds with similar investment objectives. The Fund may advertise
average annual calendar year-to-date and calendar quarter returns, which are
calculated according to the formula set forth in the preceding paragraph, except
that the relevant measuring period would be the number of months that have
elapsed in the current calendar year or most recent three months, as the case
may be.
The Fund may also advertise its yield. Yield is calculated by
annualizing the net investment income generated by the Fund over a specified
thirty-day period according to the following formula:
YIELD = 2[(a-b + 1)[**GRAPHIC OMITTED-SEE FOOTNOTE BELOW] -1]
---
cd
For purposes of this formula: "a" is dividends and interest earned during the
period; "b" is expenses accrued for the period (net of reimbursements); "c" is
the average daily number of shares outstanding during the period that were
entitled to receive dividends; and "d" is the maximum offering price per share
on the last day of the period.
The performance of a class of Fund shares will vary from time
to time depending upon market conditions, the composition of the Fund's
portfolio and operating expenses allocable to it. As described above, total
return is based on historical earnings and is not intended to indicate future
performance. Consequently, any given performance quotation should not be
considered as representative of performance for any specified period in the
- ------------------------
* The expression (1 + T) is being raised to the nth power.
** The expression (a-b + 1) is being raised to the 6th power.
<PAGE>39
future. Performance information may be useful as a basis for comparison with
other investment alternatives. However, the Fund's performance will fluctuate,
unlike certain bank deposits or other investments which pay a fixed yield for a
stated period of time. Any fees charged by Institutions or other institutional
investors directly to their customers in connection with investments in Fund
shares are not reflected in the Fund's total return, and such fees, if charged,
will reduce the actual return received by customers on their investments.
The Fund intends to diversify its assets among countries, and
in doing so, would expect to be able to reduce the risk arising from economic
problems affecting a single country. Warburg thus believes that, by spreading
risk throughout many diverse markets outside the United States, the Fund will
reduce its exposure to country-specific economic problems. Warburg also believes
that a diversified portfolio of international equity securities, when combined
with a similarly diversified portfolio of domestic equity securities, tends to
have a lower volatility than a portfolio composed entirely of domestic
securities. Furthermore, international equities have been shown to reduce
volatility in single asset portfolios regardless of whether the investments are
in all domestic equities or all domestic fixed-income instruments, and research
indicates that volatility can be significantly decreased when international
equities are added.
Reference may be made in advertising a class of Fund shares to
opinions of Wall Street economists and analysts regarding economic cycles and
their effects historically on the performance of small companies, both as a
class and relative to other investments. The Fund may also discuss its beta, or
volatility relative to the market, and make reference to its relative
performance in various market cycles in the United States.
INDEPENDENT ACCOUNTANTS AND COUNSEL
Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), with principal
offices at 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as
independent accountants for the Fund. The statement of assets and liabilities of
the Fund, as of December 12, 1996, that appears in this Statement of Additional
Information has been audited by Coopers & Lybrand, whose report thereon appears
elsewhere herein and has been included herein in reliance upon the report of
such firm of independent accountants given upon their authority as experts in
accounting and auditing.
Willkie Farr & Gallagher serves as counsel for the Fund as
well as counsel to Warburg, Counsellors Service and Counsellors Securities.
FINANCIAL STATEMENT
The Fund's financial statement follows the Report of
Independent Accountants.
<PAGE>A-1
APPENDIX
DESCRIPTION OF RATINGS
Commercial Paper Ratings
Commercial paper rated A-1 by Standard and Poor's Ratings
Group ("S&P") indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign designation. Capacity for timely
payment on commercial paper rated A-2 is satisfactory, but the relative degree
of safety is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating
assigned by Moody's Investors Services, Inc. ("Moody's"). Issuers rated Prime-1
(or related supporting institutions) are considered to have a superior capacity
for repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics of issuers rated Prime-1 but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
Corporate Bond Ratings
The following summarizes the ratings used by S&P for corporate
bonds:
AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA - Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB - This is the lowest investment grade. Debt rated BBB is
regarded as having an adequate capacity to pay interest and repay principal.
Although it normally exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this category than for
bonds in higher rated categories.
<PAGE>A-2
BB, B, CCC, CC and C - Debt rated BB and B are regarded, on
balance, as predominately speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
represents a lower degree of speculation than B, and CCC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB - Debt rated BB has less near-term vulnerability to default
than other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which could
lead to inadequate capacity to meet timely interest and principal payments. The
BB rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B - Debt rated B has a greater vulnerability to default but
currently have the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable
vulnerability to default and is dependent upon favorable business, financial and
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating.
CC - This rating is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating.
C - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
Additionally, the rating CI is reserved for income bonds on
which no interest is being paid. Such debt is rated between debt rated C and
debt rated D.
To provide more detailed indications of credit quality, the
ratings may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
D - Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The D rating also will
be used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
<PAGE>A-3
The following summarizes the ratings used by Moody's for
corporate bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Moody's applies numerical modifiers (1, 2 and 3) with respect
to the bonds rated "Aa" through "B." The modifier 1 indicates that the bond
being rated ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates that the bond
ranks in the lower end of its generic rating category.
Caa - Bonds that are rated Caa are of poor standing. These
issues may be in default or present elements of danger may exist with respect to
principal or interest.
<PAGE>A-4
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
<PAGE>1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of Warburg, Pincus Strategic Value Fund, Inc.
We have audited the accompanying Statement of Assets and Liabilities of
Warburg, Pincus Strategic Value Fund, Inc. (the "Fund") as of December
12, 1996. This financial statement is the responsibility of the Fund's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Warburg, Pincus Strategic
Value Fund, Inc. as of December 12, 1996 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 16, 1996
<PAGE>1
WARBURG, PINCUS STRATEGIC VALUE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
as of December 12, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
Assets:
Cash $100,000
Deferred Organizational Costs 20,780
Deferred Offering Costs 117,105
-------
Total Assets 237,885
Liabilities:
Accrued Organizational Costs 20,780
Accrued Offering Costs 117,105
-------
Total Liabilities 137,885
-------
Net Assets 100,000
=======
Net Asset Value, Redemption and Offering Price Per
Share (three billion shares authorized, consisting of 2
billion Common Shares and 1 billion Advisor Shares -
$.001 per share designated) applicable to
10,000 Common Shares. $10.00
======
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>1
WARBURG, PINCUS STRATEGIC VALUE FUND, INC.
Notes to Financial Statement
December 12, 1996
1. Organization:
Warburg, Pincus Strategic Value Fund, Inc. (the "Fund") was
incorporated on November 12, 1996 under the laws of the State of
Maryland. The Fund is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company. The
Fund's charter authorizes its Board of Directors to issue three
billion full and fractional shares of capital stock, $.001 par value per
share, of which two billion shares are designated Common Shares and 1
billion shares are designated Advisor Shares. Common Shares bear fees of .25%
of average daily net asset value pursuant to a 12b-1 distribution plan.
Advisor Shares bear fees not to exceed .75% of average daily net asset
value pursuant to a 12b-1 distribution plan. The assets of each class
are segregated, and a shareholder's interest is limited to the class in
which shares are held. The Fund has not commenced operations except
those related to organizational matters and the sale of 10,000 Common
Shares (the "Initial Shares") to Warburg, Pincus Counsellors,
Inc., the Fund's investment adviser (the "Adviser"), on December 12, 1996.
2. Organizational Costs, Offering Costs and Transactions with Affiliates:
Organizational costs have been capitalized by the Fund and are being amortized
over sixty months commencing with operations. In the event any of the Initial
Shares of the Fund are redeemed by any holder thereof during the period that
the Fund is amortizing its organizational costs, the redemption proceeds
payable to the holder thereof by the Fund will be reduced by unamortized
organizational costs in the same ratio as the number of Initial Shares
outstanding at the time of redemption. Offering costs, including initial
registration costs, have been deferred and will be charged to expense during
the fund's first year of operation.
Certain officers and a director of the Fund are also officers and a director
of the Adviser. These officers and director are paid no fees by the Fund for
serving as an officer or director of the Fund.
<PAGE>C-1
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements --
(1) Financial Statements included in Part B.
(a) Report of Coopers & Lybrand L.L.P., Independent
Accountants.
(b) Statement of Net Assets and Liabilities.
(b) Exhibits:
Exhibit No. Description of Exhibit
- ----------- ----------------------
1(a) Articles of Incorporation.*
1(b) Amended Articles of Incorporation.**
2(a) By-Laws.*
2(b) Amended and Restated By-Laws.**
3 Not applicable.
4 Forms of Stock Certificates.
5 Investment Advisory Agreement with Warburg, Pincus
Counsellors, Inc.
6 Form of Distribution Agreement.
7 Not applicable.
8 Form of Custodian Agreement with PNC Bank,
National Association.
9(a) Form of Transfer Agency and Service Agreement with
State Street Bank and Trust Company.
- ------------------------
* Incorporated by reference to Registrant's Registration Statement on
Form N-1A filed on November 15, 1996 (Securities Act File No.
333-16193).
** Incorporated by reference to Registrant's Pre-Effective Amendment No.
1 to its Registration Statement on Form N-1A filed on December 9, 1996
(Securities Act File No. 333-16193).
<PAGE>C-2
(b) Form of Co-Administration Agreement with
Counsellors Funds Service, Inc.
(c) Form of Co-Administration Agreement with PFPC Inc.
10(a) Opinion and Consent of Willkie Farr & Gallagher,
counsel to the Fund.
(b) Opinion and Consent of Venable, Baetjer and
Howard, LLP, Maryland counsel to the Fund.
11 Consent of Coopers & Lybrand L.L.P., Independent
Accountants.
12 Not applicable.
13 Form of Purchase Agreement.
14 Not applicable
15(a) Form of Shareholder Servicing and Distribution
Plan.
(b) Form of Services Agreement.
(c) Form of Warburg, Pincus Advisor Funds Services
Agreement.
(d) Form of Distribution Plan.
16 Schedule for Computation of Total Return
Performance Quotation.***
17 Financial Data Schedule.***
- ------------
*** To be filed by amendment.
Item 25. Persons Controlled by or Under Common Control
with Registrant
All of the outstanding shares of common stock of Registrant on
the date Registrant's Registration Statement becomes effective will be owned by
Warburg, Pincus Counsellors, Inc. ("Warburg"), a corporation formed under New
York law.
Item 26. Number of Holders of Securities
It is anticipated that Warburg will hold all Registrant's
shares of common stock, par value $.001 per share, on the date Registrant's
Registration Statement becomes effective.
<PAGE>C-3
Item 27. Indemnification
Registrant, officers and directors of Counsellors, of
Counsellors Securities Inc. ("Counsellors Securities") and of Registrant are
covered by insurance policies indemnifying them for liability incurred in
connection with the operation of Registrant. These policies provide insurance
for any "Wrongful Act" of an officer, director or trustee. Wrongful Act is
defined as breach of duty, neglect, error, misstatement, misleading statement,
omission or other act done or wrongfully attempted by an officer, director or
trustee in connection with the operation of Registrant. Insurance coverage does
not extend to (a) conflicts of interest or gain in fact any profit or advantage
to which one is not legally entitled, (b) intentional non-compliance with any
statute or regulation or (c) commission of dishonest, fraudulent acts or
omissions. Insofar as it related to Registrant, the coverage is limited in
amount and, in certain circumstances, is subject to a deductible.
Under Article VIII of the Articles of Incorporation
(the "Articles"), the Directors and officers of Registrant shall not have any
liability to Registrant or its stockholders for money damages, to the fullest
extent permitted by Maryland law. This limitation on liability applies to
events occurring at the time a person serves as a Director or officer of
Registrant whether or not such person is a Director or officer at the time of
any proceeding in which liability is asserted. No provision of Article VIII
shall protect or purport to protect any Director or officer of Registrant
against any liability to Registrant or its stockholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office. Registrant shall indemnify and advance expenses to its currently acting
and its former Director to the fullest extent that indemnification of Directors
and advancement of expenses to Directors is permitted by the Maryland General
Corporation Law.
Registrant shall indemnify and advance expenses to its
officers to the same extent as its Directors and to such further extent as is
consistent with such law. The Board of Directors may, through a by-law,
resolution or agreement, make further provisions for indemnification of
directors, officers, employees and agents to the fullest extent permitted by
the Maryland General Corporation Law.
Article V of the By-Laws further limits the liability
of the Directors by providing that any person who was or is a party or is
threatened to be made a party in any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that such person is a current or former director or
officer of Registrant, or is or was serving while a director or officer of
Registrant at the request of Registrant as a director, officer, partner,
trustee, employee, agent or fiduciary of another corporation, partnership,
joint venture, trust, enterprise or employee benefit plan, shall be indemnified
by Registrant against judgments, penalties, fines, excise taxes,
<PAGE>C-4
settlements and reasonable expenses (including attorneys' fees) actually
incurred by such person in connection with such action, suit or proceeding to
the full extent permissible under the Maryland General Corporation Law, the
1993 Act and the 1940 Act, as such statutes are now or hereafter in force,
except that such indemnity shall not protect any such person against any
liability to Registrant or any stockholder thereof to which such person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of this
office.
Item 28. Business and Other Connections of Investment Adviser
Warburg, a wholly owned subsidiary of Warburg, Pincus,
Counsellors G.P., acts as investment adviser to the Registrant. Warburg renders
investment advice to a wide variety of individual and institutional clients.
The list required by this Item 28 of officers and directors of Warburg,
together with information as to their other business, profession, vocation or
employment of a substantial nature during the past two years, is incorporated
by reference to Schedules A and D of Form ADV filed by Warburg (SEC File No.
801-07321).
Item 29. Principal Underwriter
(a) Counsellors Securities will act as distributor for
Registrant, as well as for The RBB Fund, Inc., Warburg Pincus Balanced Fund;
Warburg Pincus Capital Appreciation Fund; Warburg Pincus Cash Reserve Fund;
Warburg Pincus Emerging Growth Fund; Warburg Pincus Emerging Markets Fund;
Warburg Pincus Fixed Income Fund; Warburg Pincus Global Fixed Income Fund;
Warburg, Pincus Global Post-Venture Capital Fund; Warburg Pincus Growth &
Income Fund, Inc.; Warburg Pincus Institutional Fund, Inc.; Warburg Pincus
Intermediate Maturity Government Fund; Warburg Pincus International Equity
Fund; Warburg Pincus Japan Growth Fund; Warburg, Pincus Japan OTC Fund; Warburg
Pincus New York Intermediate Municipal Fund; Warburg Pincus New York Tax Exempt
Fund; Warburg Pincus Post-Venture Capital Fund; Warburg Pincus Small Company
Value Fund; Warburg Pincus Tax Free Fund; and Warburg Pincus Trust.
(b) For information relating to each director, officer or
partner of Counsellors Securities, reference is made to Form BD (SEC File No.
8-32482) filed by Counsellors Securities under the Securities Exchange Act of
1934.
(c) None.
Item 30. Location of Accounts and Records
(1) Warburg, Pincus Strategic Value Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(Fund's Articles of Incorporation, By-Laws and
minute books)
<PAGE>C-5
(2) Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as
investment adviser)
(3) PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as
Co-administrator)
(4) Counsellors Funds Service, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as
Co-administrator)
(5) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(records relating to its functions as transfer agent
and dividend disbursing agent)
(6) Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, Massachusetts 02171
(records relating to its functions as transfer agent
and dividend disbursing agent)
(7) PNC Bank, National Association
Broad and Chestnut Streets
Philadelphia, Pennsylvania 19101
(records relating to its functions as custodian)
(8) Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as distributor)
Item 31. Management Services
Not applicable.
Item 32. Undertakings.
(a) Registrant hereby undertakes to file a post-effective amendment,
with financial statements which need not be certified, within four to six months
from the effective date of this Registration Statement Amendment.
(b) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the latest annual report to shareholders
for the relevant Portfolio, upon request and without charge.
<PAGE>C-6
(c) Registrant hereby undertakes to call a meeting of its shareholders
for the purpose of voting upon the question of removal of a director or
directors of Registrant when requested in writing to do so by the holders of at
least 10% of Registrant's outstanding shares. Registrant undertakes further, in
connection with the meeting, to comply with the provisions of Section 16(c) of
the 1940 Act relating to communications with the shareholders of certain
common-law trusts.
<PAGE>C-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York and the State of New York, on the 24th day of December, 1996.
WARBURG, PINCUS SMALL COMPANY
GROWTH FUND, INC.
By:/s/ Arnold M.Reichman
Arnold M. Reichman
President
Pursuant to the requirements of the Securities Act of 1933,
as amended, this Amendment has been signed below by the following persons in
the capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C>
/s/John L. Furth Chief Executive Officer and December 24, 1996
John L. Furth Director
/s/Arnold M. Reichman President and December 24, 1996
Arnold M. Reichman Director
/s/Howard Conroy Vice President and Chief December 24, 1996
Howard Conroy Financial Officer
/s/Daniel S. Madden Treasurer and Chief Accounting December 24, 1996
Daniel S. Madden Officer
/s/Richard N. Cooper Director December 24, 1996
Richard N. Cooper
/s/Donald J. Donahue Director December 24, 1996
Donald J. Donahue
/s/Jack W. Fritz Director December 24, 1996
Jack W. Fritz
/s/Thomas A. Melfe Director December 24, 1996
Thomas A. Melfe
/s/Alexander B. Trowbridge Director December 24, 1996
Alexander B. Trowbridge
</TABLE>
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
4 Forms of Stock Certificates
5 Investment Advisory Agreement with Warburg, Pincus
Counsellors, Inc.
6 Form of Distribution Agreement
8 Form of Custodian Agreement with PNC Bank, National Association
9(a) Form of Transfer Agency and Service Agreement with State Street
Bank and Trust Company
(b) Form of Co-Administration Agreement with Counsellors Funds
Service, Inc.
(c) Form of Co-Administration Agreement with PFPC Inc.
10(a) Opinion and Consent of Willkie Farr & Gallagher, counsel to the
Fund
(b) Opinion and Consent of Venable, Baetjer and Howard, LLP,
Maryland counsel to the Fund
11 Consent of Coopers & Lybrand L.L.P., Independent Accountants
13 Form of Purchase Agreement
15(a) Form of Shareholder Servicing and Distribution Plan
(b) Form of Services Agreement
(c) Form of Warburg, Pincus Advisor Funds Services Agreement
(d) Form of Distribution Plan
<PAGE>1
NUMBER SHARES
_________ ---------
Incorporated under the laws of the State of Maryland
WARBURG, PINCUS STRATEGIC VALUE FUND, INC.
Common Stock
The Corporation is Authorized to Issue One Billion Shares, Par Value $.001,
Designated Advisor Shares
THIS CERTIFIES that is the owner of
fully paid and non-assessable Shares of the above Corporation transferable
only on the books of the Corporation by the holder hereof in person or by duly
authorized Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated_____________________
- ----------------------------- ------------------------------
Assistant Secretary President
<PAGE>2
The Corporation is authorized to issue two or more classes of stock. The
Corporation will furnish to any stockholder on request and without charge a
full statement of the designations and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the stock of each
class which the Corporation is authorized to issue and, if the Corporation is
authorized to issue any preferred or special class in series, of the
differences in the relative rights and preferences between the shares of each
series to the extent they have been set and the authority of the Board of
Directors to set the relative rights and preferences of subsequent series.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations. Additional abbreviations may
also be used though not in the list.
<TABLE>
<CAPTION>
<S> <C>
TEN COM as tenants in common UNIF GIFT MIN ACT Custodian
TEN ENT as tenants by the entireties (Minor)
JT TEN as joint tenants with right of survivorship and not under Uniform Gifts to Minors Act (State)
as tenants in common
</TABLE>
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
For value received, the undersigned hereby sells, assigns
and transfers unto ____________________________________________________
__________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
_____________________________________________________________________ Shares
represented by the within Certificate, and hereby irrevocably constitutes and
appoints ________________________________________________________________
_____________________________________________ Attorney to transfer the said
shares on the books of the within-named Corporation with full power of
substitution in the premises.
Dated, _____________________
In presence of
NOTICE: The signature to the assignment must correspond with the
name as written on the face of the certificate in every particular
without alteration or enlargement, or any change whatsoever.
<PAGE>1
NUMBER SHARES
_________ -----------
Incorporated under the laws of the State of Maryland
WARBURG, PINCUS STRATEGIC VALUE FUND, INC.
The Corporation is Authorized to Issue Three Billion Shares, Par Value $.001.
THIS CERTIFIES that is the owner of
fully paid and non-assessable Shares of the above Corporation transferable
only on the books of the Corporation by the holder hereof in person or by duly
authorized Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated_____________________
- ----------------------------- ------------------------------
Assistant Secretary President
<PAGE>2
The Corporation is authorized to issue two or more classes of stock. The
Corporation will furnish to any stockholder on request and without charge a
full statement of the designations and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the stock of each
class which the Corporation is authorized to issue and, if the Corporation is
authorized to issue any preferred or special class in series, of the
differences in the relative rights and preferences between the shares of each
series to the extent they have been set and the authority of the Board of
Directors to set the relative rights and preferences of subsequent series.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations. Additional abbreviations may
also be used though not in the list.
<TABLE>
<CAPTION>
<S> <C>
TEN COM as tenants in common UNIF GIFT MIN ACT Custodian
TEN ENT as tenants by the entireties (Minor)
JT TEN as joint tenants with right of survivorship and not under Uniform Gifts to Minors Act (State)
as tenants in common
</TABLE>
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
For value received, the undersigned hereby sells, assigns
and transfers unto ____________________________________________________
__________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
_____________________________________________________________________ Shares
represented by the within Certificate, and hereby irrevocably constitutes and
appoints ________________________________________________________________
_____________________________________________ Attorney to transfer the said
shares on the books of the within-named Corporation with full power of
substitution in the premises.
Dated, _____________________
In presence of
NOTICE: The signature to the assignment must correspond with the
name as written on the face of the certificate in every particular
without alteration or enlargement, or any change whatsoever.
<PAGE>1
INVESTMENT ADVISORY AGREEMENT
_______, 199_
Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
Warburg, Pincus Strategic Value Fund, Inc. (the "Fund"), a
corporation organized and existing under the laws of the State of Maryland,
herewith confirms its agreement with Warburg, Pincus Counsellors, Inc. (the
"Adviser") as follows:
1. Investment Description; Appointment
The Fund desires to employ the capital of the Fund by
investing and reinvesting in investments of the kind and in accordance with the
limitations specified in its Articles of Incorporation, as may be amended from
time to time, and in its Prospectus and Statement of Additional Information as
from time to time in effect, and in such manner and to such extent as may from
time to time be approved by the Board of Directors of the Fund. Copies of the
Fund's Prospectus and Statement of Additional Information, as each may be
amended from time to time, have been or will be submitted to the Adviser. The
Fund desires to employ and hereby appoints the Adviser to act as investment
adviser to the Fund. The Adviser accepts the appointment and agrees to furnish
the services for the compensation set forth below.
2. Services as Investment Adviser
Subject to the supervision and direction of the Board of
Directors of the Fund, the Adviser will (a) act in strict conformity with the
Fund's Articles of Incorporation, the Investment Company Act of 1940 and the
Investment Advisers Act of 1940, as the same may from time to time be amended,
(b) manage the Fund in accordance with the Fund's investment objective and
policies as stated in the Fund's Prospectus and Statement of Additional
Information relating to the Fund as from time to time in effect, (c) make
investment decisions for the Fund and (d) place purchase and sale orders for
securities on behalf of the Fund. In providing those services, the Adviser will
provide investment research and supervision of the Fund's investments and
conduct a continual program of investment, evaluation and, if appropriate, sale
and reinvestment of the Fund's assets. In addition, the Adviser will furnish
the Fund with whatever statistical information the Fund may reasonably request
with respect to the securities that the Fund may hold or contemplate
<PAGE>2
purchasing.
3. Brokerage
In executing transactions for the Fund and selecting brokers
or dealers, the Adviser will use its best efforts to seek the best overall
terms available. In assessing the best overall terms available for any
portfolio transaction, the Adviser will consider all factors it deems relevant
including, but not limited to, breadth of the market in the security, the price
of the security, the financial condition and execution capability of the broker
or dealer and the reasonableness of any commission for the specific transaction
and for transactions executed through the broker or dealer in the aggregate. In
selecting brokers or dealers to execute a particular transaction and in
evaluating the best overall terms available, the Adviser may consider the
brokerage and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934, as the same may from time to time be
amended) provided to the Fund and/or other accounts over which the Adviser or
an affiliate exercises investment discretion.
4. Information Provided to the Fund
The Adviser will keep the Fund informed of developments
materially affecting the Fund, and will, on its own initiative, furnish the
Fund from time to time with whatever information the Adviser believes is
appropriate for this purpose.
5. Standard of Care
The Adviser shall exercise its best judgment in rendering the
services listed in paragraphs 2, 3 and 4 above. The Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Fund in connection with the matters to which this Agreement relates, provided
that nothing herein shall be deemed to protect or purport to protect the
Adviser against any liability to the Fund or to shareholders of the Fund to
which the Adviser would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or
by reason of the Adviser's reckless disregard of its obligations and duties
under this Agreement.
6. Compensation
In consideration of the services rendered pursuant to this
Agreement, the Fund will pay the Adviser an annual fee calculated at an annual
rate of 1.00% of the Fund's average daily net assets. The fee for the period
from the date the Fund's initial registration statement is declared effective
by the Securities and Exchange Commission to the end of the year during which
the initial registration statement is declared effective shall be prorated
according to the proportion that such period bears to the full yearly period.
Upon any termination of this
<PAGE>3
Agreement before the end of a year, the fee for such part of that year shall be
prorated according to the proportion that such period bears to the full yearly
period and shall be payable upon the date of termination of this Agreement. For
the purpose of determining fees payable to the Adviser, the value of the Fund's
net assets shall be computed at the times and in the manner specified in the
Fund's Prospectus or Statement of Additional Information as from time to time
in effect.
7. Expenses
The Adviser will bear all expenses in connection with the
performance of its services under this Agreement. The Fund will bear its
proportionate share of certain other expenses to be incurred in its operation,
including: investment advisory and administration fees; taxes, interest,
brokerage fees and commissions, if any; fees of Directors of the Fund who are
not officers, directors, or employees of the Adviser or any of its affiliates;
fees of any pricing service employed to value shares of the Fund; Securities and
Exchange Commission fees and state blue sky qualification fees; charges of
custodians and transfer and dividend disbursing agents; the Fund's proportionate
share of insurance premiums; outside auditing and legal expenses; costs of
maintenance of the Fund's existence; costs attributable to investor services,
including, without limitation, telephone and personnel expenses; costs of
preparing and printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings of the shareholders of the Fund and of the
officers or Board of Directors of the Fund; and any extraordinary expenses.
The Fund will be responsible for nonrecurring expenses which
may arise, including costs of litigation to which the Fund is a party and of
indemnifying officers and Directors of the Fund with respect to such litigation
and other expenses as determined by the Directors.
8. Services to Other Companies or Accounts
The Fund understands that the Adviser now acts, will continue
to act and may act in the future as investment adviser to fiduciary and other
managed accounts and to one or more other investment companies or series of
investment companies, and the Fund has no objection to the Adviser so acting,
provided that whenever the Fund and one or more other accounts or investment
companies or portfolios advised by the Adviser have available funds for
investment, investments suitable and appropriate for each will be allocated in
accordance with a formula believed to be equitable to each entity. The Fund
recognizes that in some cases this procedure may adversely affect the size of
the position obtainable for the Fund. In addition, the Fund understands that the
persons employed by the Adviser to assist in the performance of the Adviser's
duties hereunder will not devote their full time to such service and nothing
contained herein
<PAGE>4
shall be deemed to limit or restrict the right of the Adviser or any affiliate
of the Adviser to engage in and devote time and attention to other businesses
or to render services of whatever kind or nature.
9. Term of Agreement
This Agreement shall continue until April 17, 1998 and
thereafter shall continue automatically for successive annual periods, provided
such continuance is specifically approved at least annually by (a) the Board of
Directors of the Fund or (b) a vote of a "majority" (as defined in the
Investment Company Act of 1940, as amended) of the Fund's outstanding voting
securities, provided that in either event the continuance is also approved by a
majority of the Board of Directors who are not "interested persons" (as defined
in said Act) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval. This Agreement is terminable,
without penalty, on 60 days' written notice, by the Board of Directors of the
Fund or by vote of holders of a majority of the Fund's shares, or upon 90 days'
written notice, by the Adviser. This Agreement will also terminate automatically
in the event of its assignment (as defined in said Act).
10. Representation by the Fund
The Fund represents that a copy of its Articles of
Incorporation, dated November 12, 1996, together with all amendments thereto, is
on file in the Department of Assessments and Taxation of the State of Maryland.
11. Miscellaneous
The Fund recognizes that directors, officers and employees of
the Adviser may from time to time serve as directors, trustees, officers and
employees of corporations and business trusts (including other investment
companies) and that such other corporations and trusts may include the name
"Warburg, Pincus" as part of their names, and that the Adviser or its affiliates
may enter into advisory or other agreements with such other corporations and
trusts. If the Adviser ceases to act as
<PAGE>5
the investment adviser of the Fund's shares, the Fund agrees that, at the
Adviser's request, the Fund's license to use the words "Warburg, Pincus" will
terminate and that the Fund will take all necessary action to change the name
of the Fund to names not including the words "Warburg, Pincus".
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Very truly yours,
WARBURG, PINCUS STRATEGIC VALUE FUND, INC.
By:
Name:
Title:
Accepted:
WARBURG, PINCUS COUNSELLORS, INC.
By:
Name:
Title:
<PAGE>1
DISTRIBUTION AGREEMENT
_______, 199_
Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
Ladies and Gentlemen:
This is to confirm that, in consideration of the agreements
hereinafter contained, the undersigned, Warburg, Pincus Strategic Value Fund,
Inc. (the "Fund"), an open-end, non-diversified, management investment company
organized as a corporation under the laws of the State of Maryland, has agreed
that Counsellors Securities Inc. ("Counsellors Securities") shall be, for the
period of this Agreement, the distributor of shares of common stock of the
Fund, par value $.001 per share. The common stock not designated Advisor Shares
shall be referred to as the "Common Shares".
1. Services as Distributor
1.1 Counsellors Securities will act as agent for the distribution
of the Common Shares and Advisor Shares covered by the Fund's registration
statement on Form N-1A, under the Securities Act of 1933, as amended (the "1933
Act"), and the Investment Company Act of 1940, as amended (the "1940 Act") (the
registration statement, together with the prospectuses (the "prospectus") and
statement of additional information (the "statement of additional information")
included as part of the registration statement, any amendments to the
registration statement, and any supplements to, or material incorporated by
reference into the prospectus or statement of additional information, being
referred to collectively in this Agreement as the "registration statement").
1.2 Counsellors Securities agrees to use appropriate efforts to
solicit orders for the sale of the Common Shares and Advisor Shares at such
prices and on the terms and conditions set forth in the registration statement
and will undertake such advertising and promotion as it believes is reasonable
in connection with such solicitation.
1.3 All activities by Counsellors Securities as distributor of the
Common Shares and Advisor Shares shall comply with all applicable laws, rules
and regulations, including,
<PAGE>2
without limitation, all rules and regulations made or adopted by the Securities
and Exchange Commission (the "SEC") or by any securities association registered
under the Securities Exchange Act of 1934, as amended.
1.4 Counsellors Securities agrees to (a) provide one or more
persons during normal business hours to respond to telephone questions
concerning the Fund and its performance, (b) provide prospectuses of other
funds advised by Warburg, Pincus Counsellors, Inc. to shareholders considering
exercising the exchange privilege and (c) perform such other services as are
described in the registration statement and in the Shareholder Servicing and
Distribution Plan (with respect to Common Shares, the "12b-1 Plan") and in the
Distribution Plan (with respect to Advisor Shares, the "Distribution Plan"),
each adopted by the Fund pursuant to Rule 12b-1 under the 1940 Act ("Rule
12b-1") to be performed by Counsellors Securities, without limitation,
distributing and receiving subscription order forms and receiving written
redemption requests.
1.5 Pursuant to the 12b-1 Plan, the Fund will pay Counsellors
Securities on the first business day of each quarter a fee for the previous
quarter calculated at an annual rate of .25% of the average daily net assets of
the Common Shares of the Fund as compensation for the services provided by
Counsellors Securities to the Common Shares pursuant to this Agreement.
Counsellors Securities serves without compensation as distributor for the
Advisor Shares pursuant to this Agreement. Amounts paid to Counsellors
Securities under the 12b-1 Plan may be used by Counsellors Securities to cover
expenses that are primarily intended to result in, or that are primarily
attributable to, (a) the sale of the Common Shares, as set forth in the 12b-1
Plan ("Selling Services"), (b) ongoing servicing and/or maintenance of the
accounts of holders of Common Shares, as set forth in the 12b-1 Plan
("Shareholder Services"), and/or (c) sub-transfer agency services,
subaccounting services or administrative services with respect to the Common
Shares, as set forth in the 12b-1 Plan ("Administrative Services" and
collectively with Selling Services and Administrative Services, "Services")
including, without limitation, (i) payments reflecting an allocation of
overhead and other office expenses of Counsellors Securities related to
providing Services; (ii) payments made to, and reimbursement of expenses of,
persons who provide support services in connection with the distribution of the
Common Shares including, but not limited to, office space and equipment,
telephone facilities, answering routine inquiries regarding the Fund, and
providing any other Shareholder Services; (iii) payments made to compensate
selected dealers or other authorized persons for providing any Services; (iv)
costs relating to the formulation and implementation of marketing and
promotional activities for the Common Shares, including, but not limited to,
direct mail promotions and television, radio, newspaper, magazine and other
mass media advertising, and related travel and
<PAGE>3
entertainment expenses; (v) costs of printing and distributing prospectuses,
statements of additional information and reports of the Fund to prospective
holders of Common Shares; and (vi) costs involved in obtaining whatever
information, analyses and reports with respect to marketing and promotional
activities for the Common Shares that the Fund may, from time to time, deem
advisable.
1.6 Counsellors Securities acknowledges that, whenever in the judgment
of the Fund's officers such action is warranted for any reason, including,
without limitation, market, economic or political conditions, those officers
may decline to accept any orders for, or make any sales of, the Common Shares
or Advisor Shares until such time as those officers deem it advisable to accept
such orders and to make such sales.
1.7 Counsellors Securities will act only on its own behalf as
principal should it choose to enter into selling agreements with selected
dealers or others.
1.8 Counsellors Securities will transmit any orders received by it for
purchase or redemption of the Common Shares and Advisor Shares to State Street
Bank and Trust Company ("State Street"), the Fund's transfer and dividend
disbursing agent, or its successor of which Counsellors Securities is notified
in writing. The Fund will promptly advise Counsellors Securities of the
determination to cease accepting orders or selling Common Shares or Advisor
Shares or to recommence accepting orders or selling Common Shares or Advisor
Shares. The Fund (or its agent) will confirm orders for Common Shares and
Advisor Shares placed through Counsellors Securities upon their receipt, or in
accordance with any exemptive order of the SEC, and will make appropriate book
entries pursuant to the instructions of Counsellors Securities. Counsellors
Securities agrees to cause payment for Common Shares and Advisor Shares and
instructions as to book entries to be delivered promptly to the Fund (or its
agent).
1.9 The outstanding Common Shares and Advisor Shares are subject to
redemption as set forth in the prospectus. The price to be paid to redeem the
Common Shares and Advisor Shares will be determined as set forth in the
prospectus.
1.10 Counsellors Securities will prepare and deliver reports to the
Treasurer of the Fund on a regular, at least quarterly, basis, showing the
distribution expenses incurred pursuant to this Agreement, the 12b-1 Plan and
the Distribution Plan adopted by the Fund pursuant to Rule 12b-1 and the
purposes therefor, as well as any supplemental reports as the Directors from
time to time may reasonably request.
<PAGE>4
2. Duties of the Fund
2.1 The Fund agrees at its own expense to execute any and all
documents, to furnish any and all information and to take any other actions
that may be reasonably necessary in connection with the sale of Common Shares
and Advisor Shares in those states that Counsellors Securities may designate.
2.2 The Fund shall furnish from time to time, for use in connection
with the sale of the Common Shares and Advisor Shares, such informational
reports with respect to the Fund and the Common Shares and Advisor Shares as
Counsellors Securities may reasonably request, all of which shall be signed by
one or more of the Fund's duly authorized officers; and the Fund warrants that
the statements contained in any such reports, when so signed by one or more of
the Fund's officers, shall be true and correct. The Fund shall also furnish
Counsellors Securities upon request with: (a) annual audits of the Fund's books
and accounts made by independent public accountants regularly retained by the
Fund, (b) semiannual unaudited financial statements pertaining to the Fund, (c)
quarterly earnings statements prepared by the Fund, (d) a monthly itemized list
of the securities held by the Fund, (e) monthly balance sheets as soon as
practicable after the end of each month and (f) from time to time such
additional information regarding the Fund's financial condition as Counsellors
Securities may reasonably request.
3. Representations and Warranties
The Fund represents to Counsellors Securities that all registration
statements, prospectuses and statements of additional information filed by the
Fund with the SEC under the 1933 Act and the 1940 Act with respect to the
Common Shares and/or Advisor Shares have been carefully prepared in conformity
with the requirements of the 1933 Act, the 1940 Act and the rules and
regulations of the SEC thereunder. As used in this Agreement the terms
"registration statement", "prospectus" and "statement of additional
information" shall mean any registration statement, prospectus and statement of
additional information filed by the Fund with respect to the Common Shares
and/or Advisor Shares with the SEC and any amendments and supplements thereto
which at any time shall have been filed with the SEC. The Fund represents and
warrants to Counsellors Securities that any registration statement with respect
to the Common Shares and/or Advisor Shares, or prospectus and statement of
additional information contained therein, when such registration statement
becomes effective, will include all statements required to be contained therein
in conformity with the 1933 Act, the 1940 Act and the rules and regulations of
the SEC; that all statements of fact contained in any registration statement
with respect to the Common Shares and/or Advisor Shares, prospectus or
statement of additional information will be true and correct when such
<PAGE>5
registration statement becomes effective; and that neither any registration
statement nor any prospectus or statement of additional information with
respect to the Common Shares and/or Advisor Shares when such registration
statement becomes effective will include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading to a purchaser of the Common Shares
and/or Advisor Shares. Counsellors Securities may, but shall not be obligated
to, propose from time to time such amendment or amendments to any registration
statement and such supplement or supplements to any prospectus or statement of
additional information as, in the light of future developments, may, in the
opinion of Counsellors Securities' counsel, be necessary or advisable. If the
Fund shall not propose such amendment or amendments and/or supplement or
supplements within fifteen (15) days after receipt by the Fund of a written
request from Counsellors Securities to do so, Counsellors Securities may, at
its option, terminate this Agreement. The Fund shall not file any amendment to
any registration statement or supplement to any prospectus or statement of
additional information without giving Counsellors Securities reasonable notice
thereof in advance; provided, however, that nothing contained in this Agreement
shall in any way limit the Fund's right to file at any time such amendments to
any registration statement and/or supplements to any prospectus or statement of
additional information with respect to the Common Shares and/or Advisor Shares,
of whatever character, as the Fund may deem advisable, such right being in all
respects absolute and unconditional.
4. Indemnification
4.1 The Fund agrees to indemnify, defend and hold Counsellors
Securities, its several officers and directors, and any person who controls
Counsellors Securities within the meaning of Section 15 of the 1933 Act, free
and harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith) which
Counsellors Securities, its officers and directors, or any such controlling
person, may incur under the 1933 Act, the 1940 Act or common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement
of a material fact contained in any registration statement, any prospectus or
any statement of additional information with respect to the Common Shares
and/or Advisor Shares, or arising out of or based upon any omission or alleged
omission to state a material fact required to be stated in any registration
statement, any prospectus or any statement of additional information with
respect to the Common Shares and/or Advisor Shares, or necessary to make the
statements in any of them not misleading; provided, however, that the Fund's
agreement to indemnify Counsellors Securities, its officers or directors, and
any such controlling person shall not be deemed to cover any claims, demands,
liabilities or expenses arising out of or based
<PAGE>6
upon any statements or representations made by Counsellors Securities or its
representatives or agents other than such statements and representations as are
contained in any registration statement, prospectus or statement of additional
information with respect to the Common Shares and/or Advisor Shares and in such
financial and other statements as are furnished to Counsellors Securities
pursuant to paragraph 2.2 hereof; and further provided that the Fund's
agreement to indemnify Counsellors Securities and the Fund's representations
and warranties hereinbefore set forth in paragraph 3 shall not be deemed to
cover any liability to the Fund or its shareholders to which Counsellors
Securities would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by reason of
Counsellors Securities' reckless disregard of its obligations and duties under
this Agreement. The Fund's agreement to indemnify Counsellors Securities, its
officers and directors, and any such controlling person, as aforesaid, is
expressly conditioned upon the Fund's being notified of any action brought
against Counsellors Securities, its officers or directors, or any such
controlling person, such notification to be given by letter or by telegram
addressed to the Fund at its principal office in New York, New York and sent to
the Fund by the person against whom such action is brought, within ten (10)
days after the summons or other first legal process shall have been served. The
failure to so notify the Fund of any such action shall not relieve the Fund
from any liability that the Fund may have to the person against whom such
action is brought by reason of any such untrue or alleged untrue statement or
omission or alleged omission otherwise than on account of the Fund's indemnity
agreement contained in this paragraph 4.1. The Fund's indemnification agreement
contained in this paragraph 4.1 and the Fund's representations and warranties
in this Agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of Counsellors Securities,
its officers and directors, or any controlling person, and shall survive the
delivery of any of the Fund's shares. This agreement of indemnity will inure
exclusively to Counsellors Securities' benefit, to the benefit of its several
officers and directors, and their respective estates, and to the benefit of the
controlling persons and their successors. The Fund agrees to notify Counsellors
Securities promptly of the commencement of any litigation or proceedings
against the Fund or any of its officers or directors in connection with the
issuance and sale of any of the Common Shares and/or Advisor Shares.
4.2 Counsellors Securities agrees to indemnify, defend and hold the
Fund, its several officers and directors, and any person who controls the Fund
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
costs of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) that the Fund, its officers or
directors or any such controlling person
<PAGE>7
may incur under the 1933 Act, the 1940 Act or common law or otherwise, but only
to the extent that such liability or expense incurred by the Fund, its officers
or directors or such controlling person resulting from such claims or demands
shall arise out of or be based upon (a) any unauthorized sales literature,
advertisements, information, statements or representations or (b) any untrue or
alleged untrue statement of a material fact contained in information furnished
in writing by Counsellors Securities to the Fund specifically for use in the
registration statement and used in the answers to any of the items of the
registration statement or in the corresponding statements made in the
prospectus or statement of additional information, or shall arise out of or be
based upon any omission or alleged omission to state a material fact in
connection with such information furnished in writing by Counsellors Securities
to the Fund and required to be stated in such answers or necessary to make such
information not misleading. Counsellors Securities' agreement to indemnify the
Fund, its officers and directors, and any such controlling person, as
aforesaid, is expressly conditioned upon Counsellors Securities' being notified
of any action brought against the Fund, its officers or directors, or any such
controlling person, such notification to be given by letter or telegram
addressed to Counsellors Securities at its principal office in New York, New
York and sent to Counsellors Securities by the person against whom such action
is brought, within ten (10) days after the summons or other first legal process
shall have been served. The failure to so notify Counsellors Securities of any
such action shall not relieve Counsellors Securities from any liability that
Counsellors Securities may have to the Fund, its officers or directors, or to
such controlling person by reason of any such untrue or alleged untrue
statement or omission or alleged omission otherwise than on account of
Counsellors Securities' indemnity agreement contained in this paragraph 4.2.
Counsellors Securities agrees to notify the Fund promptly of the commencement
of any litigation or proceedings against Counsellors Securities or any of its
officers or directors in connection with the issuance and sale of any of the
Common Shares and/or Advisor Shares.
4.3 In case any action shall be brought against any indemnified party
under paragraph 4.1 or 4.2, and it shall timely notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish to do so, to assume the
defense thereof with counsel satisfactory to such indemnified party. If the
indemnifying party opts to assume the defense of such action, the indemnifying
party will not be liable to the indemnified party for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than (a) reasonable costs of investigation or the
furnishing of documents or witnesses and (b) all reasonable fees and expenses
of separate counsel to such indemnified party if (i) the indemnifying party and
the indemnified party shall have agreed to the retention of such counsel or
(ii) the indemnified
<PAGE>8
party shall have concluded reasonably that representation of the indemnifying
party and the indemnified party by the same counsel would be inappropriate due
to actual or potential differing interests between them in the conduct of the
defense of such action.
5. Effectiveness of Registration
None of the Common Shares or Advisor Shares shall be offered by either
Counsellors Securities or the Fund under any of the provisions of this
Agreement and no orders for the purchase or sale of the Common Shares or
Advisor Shares shall be accepted by the Fund if and so long as the
effectiveness of the registration statement shall be suspended under any of the
provisions of the 1933 Act or if and so long as the prospectus is not on file
with the SEC; provided, however, that nothing contained in this paragraph 5
shall in any way restrict or have an application to or bearing upon the Fund's
obligation to repurchase its shares from any shareholder in accordance with the
provisions of the prospectus or statement of additional information.
6. Notice to Counsellors Securities
The Fund agrees to advise Counsellors Securities immediately in
writing:
(a) of any request by the SEC for amendments to the
registration statement, prospectus or statement of additional
information then in effect with respect to the Common Shares and/or
Advisor Shares or for additional information;
(b) in the event of the issuance by the SEC of any
stop order suspending the effectiveness of the registration statement,
prospectus or statement of additional information then in effect with
respect to the Common Shares and/or Advisor Shares or the initiation
of any proceeding for that purpose;
(c) of the happening of any event that makes untrue
any statement of a material fact made in the registration statement,
prospectus or statement of additional information then in effect with
respect to the Common Shares and/or Advisor Shares or that requires
the making of a change in such registration statement, prospectus or
statement of additional information in order to make the statements
therein not misleading; and
(d) of all actions of the SEC with respect to any
amendment to any registration statement, prospectus or statement of
additional information with respect to the Common Shares or Advisor
Shares which may from time to time be filed with the SEC.
<PAGE>9
7. Term of Agreement
This Agreement shall continue until April 17, 1998 with respect to
each of the Common Shares and Advisor Shares, and thereafter shall continue
automatically for successive annual periods ending on April 17th of each year,
provided such continuance is specifically approved at least annually by (a) a
vote of a majority of the Fund's Board of Directors or (b) a vote of a majority
(as defined in the 1940 Act) of each of the outstanding Common Shares and
Advisor Shares, respectively, provided that the continuance is also approved by
a vote of a majority of the Fund's Directors who are not interested persons (as
defined in the 1940 Act) of the Fund and who have no direct or indirect
financial interest in the operation of the 12b-1 Plan or the Distribution Plan,
in this Agreement or in any agreement related to the 12b-1 Plan or Distribution
Plan ("Qualified Directors"), by vote cast in person at a meeting called for
the purpose of voting on such approval. This Agreement is terminable with
respect to the Common Shares or the Advisor Shares without penalty (a) on sixty
(60) days' written notice, by a vote of a majority of the Fund's Qualified
Directors or by vote of a majority (as defined in the 1940 Act) of the
outstanding Common Shares or Advisor Shares, as applicable, or (b) on ninety
(90) days' written notice by Counsellors Securities. This Agreement will also
terminate automatically in the event of its assignment (as defined in the 1940
Act).
8. Amendments
This Agreement may not be amended to increase materially the amount of
the fee with respect to the Common Shares described in Section 1.5 above
without approval of at least a majority (as defined in the 1940 Act) of the
outstanding Common Shares. In addition, all material amendments to this
Agreement must be approved by vote of the Fund's Board of Directors, and by a
vote of a majority of the Qualified Directors, cast in person at a meeting
called for the purpose of voting on the approval.
<PAGE>10
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below
indicated, whereupon it shall become a binding agreement between us.
Very truly yours,
WARBURG, PINCUS STRATEGIC
VALUE FUND, INC.
By:_________________________
Name:________________________
Title:________________________
Accepted:
COUNSELLORS SECURITIES INC.
By:___________________________
Name:_________________________
<PAGE>
warstrava.cus
CUSTODIAN SERVICES AGREEMENT TERMS AND CONDITIONS
This Agreement is made as of December __, 1996 by and between PNC
BANK, NATIONAL ASSOCIATION, a national banking association, and WARBURG, PINCUS
STRATEGIC VALUE FUND, INC., a Maryland corporation (the "Fund").
The Fund is registered as an open-end investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund wishes to
retain PNC Bank to provide custodian services, and PNC Bank wishes to furnish
custodian services, either directly or through an affiliate or affiliates, as
more fully described herein.
In consideration of the premises and mutual covenants herein
contained, the parties agree as follows:
1. Definitions.
(a) "Authorized Person". The term "Authorized Person" shall
mean any officer of the Fund and any other person, who is duly authorized by
the Fund's Governing Board, to give Oral and Written Instructions on behalf of
the Fund. Such persons are listed in the Certificate attached hereto as the
Authorized Persons Appendix as such appendix may be amended in writing by the
Fund's Governing Board from time to time.
(b) "Book-Entry System". The term "Book-Entry System"
means Federal Reserve Treasury book-entry system for United States and federal
agency securities, its successor or successors, and its nominee or nominees and
any book-entry system maintained by an
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exchange registered with the SEC under the 1934 Act.
(c) "CFTC". The term "CFTC" shall mean the Commodities
Futures Trading Commission.
(d) "Governing Board". The term "Governing Board" shall mean
the Fund's Board of Directors if the Fund is a corporation or the Fund's Board
of Trustees if the Fund is a trust, or, where duly authorized, a competent
committee thereof.
(e) "Oral Instructions". The term "Oral Instructions" shall
mean oral instructions received by PNC Bank from an Authorized Person or from a
person reasonably believed by PNC Bank to be an Authorized Person.
(f) "PNC Bank". The term "PNC Bank" shall mean PNC Bank,
National Association or a subsidiary or affiliate of PNC Bank, National
Association.
(g) "SEC". The term "SEC" shall mean the Securities and
Exchange Commission.
(h) "Securities and Commodities Laws". The term shall mean
the "1933 Act", the Securities Act of 1933, as amended, the "1934 Act", the
Securities Exchange Act of 1934, as amended, the "1940 Act", and the "CEA", the
Commodities Exchange Act, as amended.
(i) "Shares". The term "Shares" shall mean the shares of
stock of any series or class of the Fund, or, where appropriate, units of
beneficial interest in a trust where the Fund is organized as a Trust.
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<PAGE>
(j) "Property". The term "Property" shall mean:
(i) any and all securities and other investment
items which the Fund may from time to time
deposit, or cause to be deposited, with PNC
Bank or which PNC Bank may from time to time
hold for the Fund;
(ii) All income in respect of any of such securities or
other investment items;
(iii) all proceeds of the sale of any of such securities
or investment items; and
(iv) all proceeds of the sale of securities issued by the
Fund, which are received by PNC Bank from time to
time, from or on behalf of the Fund.
(k) "Written Instructions". The term "Written Instructions"
shall mean written instructions signed by two Authorized Persons and received
by PNC Bank. The instructions may be delivered by hand, mail, tested telegram,
cable, telex or facsimile sending device.
2. Appointment. The Fund hereby appoints PNC Bank to
provide custodian services, and PNC Bank accepts such appointment
and agrees to furnish such services.
3. Delivery of Documents. The Fund has provided or, where
applicable, will provide PNC Bank with the following:
(a) certified or authenticated copies of the
resolutions of the Fund's Governing Board,
approving the appointment of PNC Bank or its
affiliates to provide services;
(b) a copy of the Fund's most recent effective
registration statement;
(c) a copy of the Fund's advisory agreement or
agreements;
(d) a copy of the Fund's distribution agreement or
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<PAGE>
agreements;
(e) a copy of the Fund's administration agreements if
PFPC is not providing the Fund with such services;
(f) copies of any shareholder servicing agreements
made in respect of the Fund; and
(g) certified or authenticated copies of any and all
amendments or supplements to the foregoing.
4. Compliance with Government Rules and Regulations. PNC Bank
undertakes to comply with all applicable requirements of the Securities and
Commodities Laws, and any laws, rules and regulations of governmental
authorities having jurisdiction with respect to all duties to be performed by
PNC Bank hereunder. Except as specifically set forth herein, PNC Bank assumes
no responsibility for such compliance by the Fund.
5. Instructions. Unless otherwise provided in this Agreement, PNC Bank
shall act only upon Oral and Written Instructions. PNC Bank shall be entitled
to rely upon any Oral and Written Instructions it receives from an Authorized
Person (or from a person reasonably believed by PNC Bank to be an Authorized
Person) pursuant to this Agreement. PNC Bank may assume that any Oral or
Written Instructions received hereunder are not in any way inconsistent with
the provisions of organizational documents of the Fund or of any vote,
resolution or proceeding of the Fund's Governing Board or of the Fund's
shareholders.
The Fund agrees to forward to PNC Bank Written Instructions confirming
Oral Instructions so that PNC Bank receives the Written Instructions by the
close of business on the same day that such
4
<PAGE>
Oral Instructions are received. The fact that such confirming Written
Instructions are not received by PNC Bank shall in no way invalidate the
transactions or enforceability of the transactions authorized by the Oral
Instructions.
The Fund further agrees that PNC Bank shall incur no liability to the
Fund in acting upon Oral or Written Instructions provided such instructions
reasonably appear to have been received from an Authorized Person.
6. Right to Receive Advice.
(a) Advice of the Fund. If PNC Bank is in doubt as to any
action it should or should not take, PNC Bank may request directions or advice,
including Oral or Written Instructions, from the Fund.
(b) Advice of Counsel. If PNC Bank shall be in doubt as to
any questions of law pertaining to any action it should or should not take, PNC
Bank may request advice at its own cost from such counsel of its own choosing
(who may be counsel for the Fund, the Fund's advisor or PNC Bank, at the option
of PNC Bank).
(c) Conflicting Advice. In the event of a conflict between
directions, advice or Oral or Written Instructions PNC Bank receives from the
Fund, and the advice it receives from counsel, PNC Bank shall be entitled to
rely upon and follow the advice of counsel.
(d) Protection of PNC Bank. PNC Bank shall be protected
in any action it takes or does not take in reliance upon
5
<PAGE>
directions, advice or Oral or Written Instructions it receives from the Fund or
from counsel and which PNC Bank believes, in good faith, to be consistent with
those directions, advice or Oral or Written Instructions.
Nothing in this paragraph shall be construed so as to impose an
obligation upon PNC Bank (i) to seek such directions, advice or Oral or Written
Instructions, or (ii) to act in accordance with such directions, advice or Oral
or Written Instructions unless, under the terms of other provisions of this
Agreement, the same is a condition of PNC Bank's properly taking or not taking
such action.
7. Records. The books and records pertaining to the Fund, which are in
the possession of PNC Bank, shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the 1940 Act and other
applicable securities laws, rules and regulations. The Fund, or the Fund's
authorized representatives, shall have access to such books and records at all
times during PNC Bank's normal business hours. Upon the reasonable request of
the Fund, copies of any such books and records shall be provided by PNC Bank to
the Fund or to an authorized representative of the Fund, at the Fund's expense.
8. Confidentiality. PNC Bank agrees to keep confidential all records
of the Fund and information relative to the Fund and its Shareholders (past,
present and potential), unless the release of such records or information is
otherwise consented to, in
6
<PAGE>
writing, by the Fund. The Fund further agrees that, should PNC Bank be required
to provide such information or records to duly constituted authorities (who may
institute civil or criminal contempt proceedings for failure to comply), PNC
Bank shall not be required to seek the Fund's consent prior to disclosing such
information; provided that PNC Bank gives the Fund prior written notice of the
provision of such information and records.
9. Cooperation with Accountants. PNC Bank shall cooperate with the
Fund's independent public accountants and shall take all reasonable action in
the performance of its obligations under this Agreement to ensure that the
necessary information is made available to such accountants for the expression
of their opinion, as required by the Fund.
10. Disaster Recovery. PNC Bank shall enter into and shall maintain in
effect with appropriate parties one or more agreements making reasonable
provision for emergency use of electronic data processing equipment to the
extent appropriate equipment is available. In the event of equipment failures,
PNC Bank shall, at no additional expense to the Fund, take reasonable steps to
minimize service interruptions but shall have no liability with respect
thereto.
11. Compensation. As compensation for custody services rendered by
PNC Bank during the term of this Agreement, the Fund will pay to PNC Bank a fee
or fees as may be agreed to in writing from time to time by the Fund and PNC
Bank.
7
<PAGE>
12. Indemnification. The Fund agrees to indemnify and hold harmless PNC
Bank and its nominees from all taxes, charges, expenses, assessment, claims and
liabilities (including, without limitation, liabilities arising under the
Securities and Commodities Laws, and any state and foreign securities and blue
sky laws, and amendments thereto, and expenses, including (without limitation)
attorneys' fees and disbursements, arising directly or indirectly from any
action which PNC Bank takes or does not take (i) at the request or on the
direction of or in reliance on the advice of the Fund or (ii) upon Oral or
Written Instructions. Neither PNC Bank, nor any of its nominees, shall be
indemnified against any liability to the Fund or to its shareholders (or any
expenses incident to such liability) arising out of PNC Bank's or its nominees'
own willful misfeasance, bad faith, gross negligence or reckless disregard of
its duties and obligations under this Agreement or PNC Bank's own grossly
negligent failure to perform its duties under this Agreement.
13. Responsibility of PNC Bank. PNC Bank shall be under no duty to take
any action on behalf of the Fund except as specifically set forth herein or as
may be specifically agreed to by PNC Bank, in writing. PNC Bank shall be
obligated to exercise care and diligence in the performance of its duties
hereunder, to act in good faith and to use its best efforts, within reasonable
limits, in performing Services provided for under this Agreement. PNC Bank shall
be responsible for its own or its nominees' own
8
<PAGE>
willful misfeasance, bad faith, gross negligence or reckless disregard of its
duties and obligations under this Agreement or PNC Bank's own grossly negligent
failure to perform its duties under this Agreement.
Without limiting the generality of the foregoing or of any other
provision of this Agreement, PNC Bank, in connection with its duties under this
Agreement, shall not be under any duty or obligation to inquire into and shall
not be liable for (a) the validity or invalidity or authority or lack thereof of
any Oral or Written Instruction, notice or other instrument which conforms to
the applicable requirements of this Agreement, and which PNC Bank reasonably
believes to be genuine; or (b) delays or errors or loss of data occurring by
reason of circumstances beyond PNC Bank's control, including acts of civil or
military authority, national emergencies, fire, flood or catastrophe, acts of
God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
Notwithstanding anything in this Agreement to the contrary, PNC Bank
shall have no liability to the Fund for any consequential, special or indirect
losses or damages which the Fund may incur or suffer by or as a consequence of
PNC Bank's performance of the services provided hereunder, whether or not the
likelihood of such losses or damages was known by PNC Bank.
14. Description of Services.
(a) Delivery of the Property. Notwithstanding anything
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<PAGE>
in this Agreement to the contrary, PNC Bank shall be the custodian of all
securities, cash and other property of the Fund received by it for the account
of the Fund, including cash received as a result of the distribution of its
Shares, during the period that is set forth in this Agreement. PNC Bank will not
be responsible for such property until actual receipt.
(b) Receipt and Disbursement of Money. PNC Bank, acting upon
Written Instructions, shall open and maintain separate account(s) in the Fund's
name using all cash received from or for the account of the Fund, subject to the
terms of this Agreement. In addition, upon Written Instructions, PNC Bank shall
open separate custodial accounts for each separate series, portfolio or class of
the Fund and shall hold in such account(s) all cash received from or for the
accounts of the Fund specifically designated to each separate series, portfolio
or class.
PNC Bank shall make cash payments from or for the account of the Fund
only for:
(i) purchases of securities in the name of the
Fund or PNC Bank or PNC Bank's nominee as
provided in sub-paragraph j and for which
PNC Bank has received a copy of the broker's
or dealer's confirmation or payee's invoice,
as appropriate;
(ii) purchase or redemption of Shares of the
Fund delivered to PNC Bank;
(iii) payment of, subject to Written Instructions,
interest, taxes, administration, accounting,
distribution, advisory, management fees or similar
expenses which are to be borne by the Fund;
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<PAGE>
(iv) payment to, subject to receipt of
Written Instructions, the Fund's
transfer agent, as agent for the
shareholders, an amount equal to the
amount of dividends and distributions
stated in the Written Instructions to be
distributed in cash by the transfer
agent to shareholders, or, in lieu of
paying the Fund's transfer agent,
PNC Bank may arrange for the direct
payment of cash dividends and
distributions to shareholders in
accordance with procedures mutually
agreed upon from time to time by and
among the Fund, PNC Bank and the Fund's
transfer agent.
(v) payments, upon receipt Written
Instructions, in connection with the
conversion, exchange or surrender of
securities owned or subscribed to by the
Fund and held by or delivered to
PNC Bank;
(vi) payments of the amounts of dividends
received with respect to securities sold
short;
(vii) payments made to a sub-custodian
pursuant to provisions in sub-paragraph
c of this Paragraph 14; and
(viii) payments, upon Written Instructions made for other
proper Fund purposes.
PNC Bank is hereby authorized to endorse and collect all
checks, drafts or other orders for the payment of money received as custodian
for the account of the Fund.
(c) Receipt of Securities.
(i) PNC Bank shall hold all securities
received by it for the account of the
Fund in a separate account that
physically segregates such securities
from those of any other persons, firms
or corporations. All such securities
shall be held or disposed of only upon
Written Instructions of the Fund
11
<PAGE>
pursuant to the terms of this Agreement. PNC
Bank shall have no power or authority to
assign, hypothecate, pledge or otherwise
dispose of any such securities or
investment, except upon the express terms of
this Agreement and upon Written
Instructions, accompanied by a certified
resolution of the Fund's Governing Board,
authorizing the transaction. In no case may
any member of the Fund's Governing Board, or
any officer, employee or agent of the Fund
withdraw any securities.
At PNC Bank's own expense and for its own
convenience, PNC Bank may enter into
sub-custodian agreements with other United
States banks or trust companies to perform
duties described in this sub-paragraph c.
Such bank or trust company shall have an
aggregate capital, surplus and undivided
profits, according to its last published
report, of at least one million dollars
($1,000,000), if it is a subsidiary or
affiliate of PNC Bank, or at least twenty
million dollars ($20,000,000) if such bank
or trust company is not a subsidiary or
affiliate of PNC Bank. In addition, such
bank or trust company must be qualified to
act as custodian and agree to comply with
the relevant provisions of the 1940 Act and
other applicable rules and regulations. Any
such arrangement will not be entered into
without prior written notice to the Fund.
PNC Bank shall remain responsible for the
performance of all of its duties as
described in this Agreement and shall hold
the Fund and the Money Market Series
harmless from its own acts or omissions,
under the standards of care provided for
herein, or the acts and omissions of any
sub-custodian chosen by PNC Bank under the
terms of this sub-paragraph c.
(d) Transactions Requiring Instructions. Upon receipt
of Oral or Written Instructions and not otherwise, PNC Bank,
directly or through the use of the Book-Entry System, shall:
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<PAGE>
(i) deliver any securities held for the Fund
against the receipt of payment for the
sale of such securities;
(ii) execute and deliver to such persons as may be
designated in such Oral or Written Instructions,
proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as
owner of any securities may be exercised;
(iii) deliver any securities to the issuer thereof, or its
agent, when such securities are called, redeemed,
retired or otherwise become payable; provided that,
in any such case, the cash or other consideration is
to be delivered to PNC Bank;
(iv) deliver any securities held for the Fund against
receipt of other securities or cash issued or paid in
connection with the liquidation, reorganization,
refinancing, tender offer, merger, consolidation or
recapitalization of any corporation, or the exercise
of any conversion privilege;
(v) deliver any securities held for the Fund to any
protective committee, reorganization committee or
other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization
or sale of assets of any corporation, and receive
and hold under the terms of this Agreement such
certificates of deposit, interim receipts or other
instruments or documents as may be issued to it to
evidence such delivery;
(vi) make such transfer or exchanges of the assets of the
Fund and take such other steps as shall be stated in
said Oral or Written Instructions to be for the
purpose of effectuating a duly authorized plan of
liquidation, reorganization, merger, consolidation or
recapitalization of the Fund;
(vii) release securities belonging to the Fund
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<PAGE>
to any bank or trust company for the purpose of a
pledge or hypothecation to secure any loan incurred
by the Fund; provided, however, that securities shall
be released only upon payment to PNC Bank of the
monies borrowed, except that in cases where
additional collateral is required to secure a
borrowing already made subject to proper prior
authorization, further securities may be released for
that purpose; and repay such loan upon redelivery to
it of the securities pledged or hypothecated therefor
and upon surrender of the note or notes evidencing
the loan;
(viii) release and deliver securities owned by the Fund in
connection with any repurchase agreement entered into
on behalf of the Fund, but only on receipt of payment
therefor; and pay out moneys of the Fund in
connection with such repurchase agreements, but only
upon the delivery of the securities;
(ix) release and deliver or exchange securities owned by
the Fund in connection with any conversion of such
securities, pursuant to their terms, into other
securities;
(x) release and deliver securities owned by the fund for
the purpose of redeeming in kind shares of the Fund
upon delivery thereof to PNC Bank; and
(xi) release and deliver or exchange securities owned by
the Fund for other corporate purposes.
PNC Bank must also receive a certified
resolution describing the nature of the
corporate purpose and the name and address
of the person(s) to whom delivery shall be
made when such action is pursuant to
sub-paragraph d.
(e) Use of Book-Entry System. The Fund shall deliver to
PNC Bank certified resolutions of the Fund's Governing Board
14
<PAGE>
approving, authorizing and instructing PNC Bank on a continuous and on-going
basis, to deposit in the Book-Entry System all securities belonging to the Fund
eligible for deposit therein and to utilize the Book-Entry System to the extent
possible in connection with settlements of purchases and sales of securities by
the Fund, and deliveries and returns of securities loaned, subject to repurchase
agreements or used as collateral in connection with borrowings. PNC Bank shall
continue to perform such duties until it receives Written or Oral Instructions
authorizing contrary actions(s).
To administer the Book-Entry System properly, the following provisions
shall apply:
(i) With respect to securities of the Fund
which are maintained in the Book-Entry
system, established pursuant to this
sub-paragraph e hereof, the records of PNC
Bank shall identify by Book-Entry or
otherwise those securities belonging to the
Fund. PNC Bank shall furnish the Fund a
detailed statement of the Property held for
the Fund under this Agreement at least
monthly and from time to time and upon
written request.
(ii) Securities and any cash of the Fund
deposited in the Book-Entry System will
at all times be segregated from any
assets and cash controlled by PNC Bank
in other than a fiduciary or custodian
capacity but may be commingled with
other assets held in such capacities.
PNC Bank and its sub-custodian, if any,
will pay out money only upon receipt of
securities and will deliver securities
only upon the receipt of money.
(iii) All books and records maintained by PNC
Bank which relate to the Fund's
participation in the Book-Entry System will
at all times during PNC Bank's
15
<PAGE>
regular business hours be open to the
inspection of the Fund's duly authorized
employees or agents, and the Fund will be
furnished with all information in respect
of the services rendered to it as it may
require.
(iv) PNC Bank will provide the Fund with copies
of any report obtained by PNC Bank on the
system of internal accounting control of
the Book-Entry System promptly after
receipt of such a report by PNC Bank.
PNC Bank will also provide the Fund with such reports on its
own system of internal control as the Fund may reasonably request
from time to time.
(f) Registration of Securities. All Securities held for the Fund which
are issued or issuable only in bearer form, except such securities held in the
Book-Entry System, shall be held by PNC Bank in bearer form; all other
securities held for the Fund may be registered in the name of the Fund; PNC
Bank; the Book-Entry System; a sub-custodian; or any duly appointed nominee(s)
of the Fund, PNC Bank, Book-Entry system or sub-custodian. The Fund reserves
the right to instruct PNC Bank as to the method of registration and safekeeping
of the securities of the Fund. The Fund agrees to furnish to PNC Bank
appropriate instruments to enable PNC Bank to hold or deliver in proper form
for transfer, or to register its registered nominee or in the name of the
Book-Entry System, any securities which it may hold for the account of the Fund
and which may from time to time be registered in the name of the Fund. PNC Bank
shall hold all such securities which are not
16
<PAGE>
held in the Book-Entry System in a separate account for the Fund in the name of
the Fund physically segregated at all times from those of any other person or
persons.
(g) Voting and Other Action. Neither PNC Bank nor its nominee shall
vote any of the securities held pursuant to this Agreement by or for the account
of the Fund, except in accordance with Written Instructions. PNC Bank, directly
or through the use of the Book-Entry System, shall execute in blank and promptly
deliver all notice, proxies, and proxy soliciting materials to the registered
holder of such securities. If the registered holder is not the Fund then Written
or Oral Instructions must designate the person(s) who owns such securities.
(h) Transactions Not Requiring Instructions. In the absence of
contrary Written Instructions, PNC Bank is authorized to take the following
actions:
(i) Collection of Income and Other Payments.
(A) collect and receive for the account
of the Fund, all income, dividends,
distributions, coupons, option
premiums, other payments and similar
items, included or to be included in
the Property, and, in addition,
promptly advise the Fund of such
receipt and credit such income, as
collected, to the Fund's custodian
account;
17
<PAGE>
(B) endorse and deposit for collection,
in the name of the Fund, checks,
drafts, or other orders for the
payment of money;
(C) receive and hold for the account of
the Fund all securities received as
a distribution on the Fund's
portfolio securities as a result of
a stock dividend, share split-up or
reorganization, recapitalization,
readjustment or other rearrangement
or distribution of rights or
similar securities issued with
respect to any portfolio securities
belonging to the Fund held by
PNC Bank hereunder;
(D) present for payment and collect the
amount payable upon all securities
which may mature or be called,
redeemed, or retired, or otherwise
become payable on the date such
securities become payable; and
(E) take any action which may be
necessary and proper in connection
with the collection and receipt of
such income and other payments and
the endorsement for collection of
checks, drafts, and other negotiable
instruments.
(ii) Miscellaneous Transactions.
(A) PNC Bank is authorized to deliver
or cause to be delivered Property
against payment or other
consideration or written receipt
therefor in the following cases:
(1) for examination by a broker
or dealer selling for the
account of the Fund in
accordance with street
delivery custom;
(2) for the exchange of
interim receipts
18
<PAGE>
or temporary securities for
definitive securities; and
(3) for transfer of securities
into the name of the Fund
or PNC Bank or nominee of
either, or for exchange of
securities for a different
number of bonds,
certificates, or other
evidence, representing the
same aggregate face amount
or number of units bearing
the same interest rate,
maturity date and call
provisions, if any;
provided that, in any such
case, the new securities
are to be delivered to PNC
Bank.
(B) Unless and until PNC Bank receives
Oral or Written Instructions to the
contrary, PNC Bank shall:
(1) pay all income items held
by it which call for
payment upon presentation
and hold the cash received
by it upon such payment for
the account of the Fund;
(2) collect interest and cash
dividends received, with
notice to the Fund, to the
account of the Fund;
(3) hold for the account of
the Fund all stock
dividends, rights and
similar securities issued
with respect to any
securities held by us; and
(4) execute as agent on behalf
of the Fund all necessary
ownership certificates
required by the Internal
Revenue Code or the Income
Tax Regulations of the
United States Treasury
Department or under the
laws of any State now or
hereafter in effect,
19
<PAGE>
inserting the Fund's name
on such certificate as the
owner of the securities
covered thereby, to the
extent it may lawfully do
so.
(i) Segregated Accounts.
(i) PNC Bank shall upon receipt of Written or
Oral Instructions establish and maintain a
segregated accounts(s) on its records for
and on behalf of the Fund. Such account(s)
may be used to transfer cash and securities,
including securities in the Book-Entry
System:
(A) for the purposes of compliance by
the Fund with the procedures
required by a securities or option
exchange, providing such procedures
comply with the 1940 Act and any
releases of the SEC relating to the
maintenance of segregated accounts
by registered investment companies;
and
(B) Upon receipt of Written
Instructions, for other proper
corporate purposes.
(ii) PNC Bank shall arrange for the establishment of IRA
custodian accounts for such shareholders holding
shares through IRA accounts, in accordance with the
Prospectus, the Internal Revenue Code (including
regulations), and with such other procedures as are
mutually agreed upon from time to time by and among
the Fund, PNC Bank and the Fund's transfer agent.
(j) Purchases of Securities. PNC Bank shall settle
purchased securities upon receipt of Oral or Written Instructions
from the fund or its investment advisor(s) that specify:
(i) the name of the issuer and the title of
the securities, including CUSIP number
if applicable;
(ii) the number of shares or the principal
20
<PAGE>
amount purchased and accrued interest,
if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such purchase; and
(vi) the name of the person from whom or the broker
through whom the purchase was made. PNC Bank shall
upon receipt of securities purchased by or for the
Fund pay out of the moneys held for the account of
the Fund the total amount payable to the person from
whom or the broker through whom the purchase was
made, provided that the same conforms to the total
amount payable as set forth in such Oral or Written
Instructions.
(k) Sales of Securities. PNC Bank shall sell securities
upon receipt of Oral Instructions from the Fund that specify:
(i) the name of the issuer and the title of the
security, including CUSIP number if applicable;
(ii) the number of shares or principal amount sold, and
accrued interest, if any;
(iii) the date of trade, settlement and sale;
(iv) the sale price per unit;
(v) the total amount payable to the Fund upon such sale;
(vi) the name of the broker through whom or the person to
whom the sale was made; and
(vii) the location to which the security must be delivered
and delivery deadline, if any.
PNC Bank shall deliver the securities upon receipt of the
21
<PAGE>
total amount payable to the Fund upon such sale, provided that the total amount
payable is the same as was set forth in the Oral or Written Instructions.
Subject to the foregoing, PNC Bank may accept payment in such form as shall be
satisfactory to it, and may deliver securities and arrange for payment in
accordance with the customs prevailing among dealers in securities.
(l) Reports.
(i) PNC Bank shall furnish the Fund the
following reports:
(A) such periodic and special reports
as the Fund may reasonably request;
(B) a monthly statement summarizing all
transactions and entries for the
account of the Fund, listing the
portfolio securities belonging to
the fund with the adjusted average
cost of each issue and the market
value at the end of such month, and
stating the cash account of the
Fund including disbursement;
(C) the reports to be furnished to the
Fund pursuant to Rule 17f-4; and
(D) such other information as may be
agreed upon from time to time
between the Fund and PNC Bank.
(ii) PNC Bank shall transmit promptly to the Fund any
proxy statement, proxy material, notice of a call or
conversion or similar communication received by it as
custodian of the Property. PNC Bank shall be under no
other obligation to inform the Fund as to such
actions or events.
(m) Collections. All collections of monies or other
property in respect, or which are to become part, of the Property
22
<PAGE>
(but not the safekeeping thereof upon receipt by PNC Bank) shall be at the sole
risk of the Fund. If payment is not received by PNC Bank within a reasonable
time after proper demands have been made, PNC Bank shall notify the Fund in
writing, including copies of all demand letters, any written responses,
memoranda of all oral responses and to telephonic demands thereto, and await
instructions from the Fund. PNC Bank shall not be obliged to take legal action
for collection unless and until reasonably indemnified to its satisfaction. PNC
Bank shall also notify the Fund as soon as reasonably practicable whenever
income due on securities is not collected in due course.
15. Duration and Termination. This Agreement shall continue until
terminated by the Fund or by PNC Bank on sixty (60) days' prior written notice
to the other party. In the event this Agreement is terminated (pending
appointment of a successor to PNC Bank or vote of the shareholders of the Fund
to dissolve or to function without a custodian of its cash, securities or other
property), PNC Bank shall not deliver cash, securities or other property of the
Fund to the Fund. It may deliver them to a bank or trust company of PNC Bank's,
having an aggregate capital, surplus and undivided profits, as shown by its last
published report, of not less than twenty million dollars ($20,000,000), as a
custodian for the Fund to be held under terms similar to those of this
Agreement. PNC Bank shall not be required to make any such delivery or payment
until full payment shall have been made to PNC
23
<PAGE>
Bank of all of its fees, compensation, costs and expenses. PNC Bank shall have a
security interest in and shall have a right of setoff against Property in the
Fund's possession as security for the payment of such fees, compensation, costs
and expenses.
16. Notices. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. Notice shall be addressed (a) if to PNC Bank at PNC
Bank's address, Airport Business Center, International Court 2, 200 Stevens
Drive, Philadelphia, Pennsylvania 19113, marked for the attention of the
Custodian Services Department (or its successor) (b) if to the Fund, at the
address of the Fund; or (c) if to neither of the foregoing, at such other
address as shall have been notified to the sender of any such Notice or other
communication. If notice is sent by confirming telegram, cable, telex or
facsimile sending device, it shall be deemed to have been given immediately. If
notice is sent by first-class mail, it shall be deemed to have been given five
days after it has been mailed. If notice is sent by messenger, it shall be
deemed to have been given on the day it is delivered.
17. Amendments. This Agreement, or any term hereof, may be
changed or waived only by a written amendment, signed by the party
against whom enforcement of such change or waiver is sought.
18. Delegation. PNC Bank may assign its rights and delegate
its duties hereunder to any wholly-owned direct or indirect
24
<PAGE>
subsidiary of PNC Bank, National Association or PNC Bank Corp., provided that
(i) PNC Bank gives the Fund thirty (30) days prior written notice; (ii) the
delegate agrees with PNC Bank to comply with all relevant provisions of the 1940
Act; and (iii) PNC Bank and such delegate promptly provide such information as
the Fund may request, and respond to such questions as the Fund may ask,
relative to the delegation, including (without limitation) the capabilities of
the delegate.
19. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
20. Further Actions. Each party agrees to perform such
further acts and execute such further documents as are necessary to
effectuate the purposes hereof.
21. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one more separate documents their agreement, if any, with respect
to delegated and/or Oral Instructions.
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
This Agreement shall be deemed to be a contract made in
Pennsylvania and governed by Pennsylvania law. If any provision of
25
<PAGE>
this Agreement shall be held or made invalid by a court decision, statute, rule
or otherwise, the remainder of this Agreement shall not be affected thereby.
This Agreement shall be binding and shall inure to the benefit of the parties
hereto and their respective successors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
PNC BANK, NATIONAL ASSOCIATION
By:______________________________
Title:___________________________
WARBURG, PINCUS STRATEGIC VALUE FUND, INC.
By:______________________________
Title:___________________________
26
<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (Type) SIGNATURE
- ----------- ---------
27
<PAGE>
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
between
WARBURG, PINCUS STRATEGIC VALUE FUND, INC.
and
STATE STREET BANK AND TRUST COMPANY
1A - Domestic/Corporation
<PAGE>
TABLE OF CONTENTS
Page
1. Terms of Appointment; Duties of the Bank....................1
2. Fees and Expenses...........................................3
3. Representations and Warranties of the Bank..................4
4. Representations and Warranties of the Fund..................4
5. Data Access and Proprietary Information.....................5
6. Indemnification.............................................6
7. Standard of Care............................................7
8. Covenants of the Fund and the Bank..........................7
9. Termination of Agreement....................................8
10. Assignment..................................................8
11. Amendment...................................................9
12. Massachusetts Law to Apply..................................9
13. Force Majeure...............................................9
14. Consequential Damages.......................................9
15. Merger of Agreement.........................................9
16. Counterparts...............................................10
17. Reproduction of Documents..................................10
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the ____ day of ________, 1996, by and between Warburg,
Pincus Strategic Value Fund, Inc., a Maryland corporation, having its
principal office and place of business at 466 Lexington Avenue, New York,
New York 10017-3147 (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company having its principal office and place of
business at 225 Franklin Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund desires to appoint the Bank as its transfer agent, dividend
disbursing agent, custodian of certain retirement plans and agent in connection
with certain other activities, and the Bank desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
l. Terms of Appointment; Duties of the Bank
1.1 Subject to the terms and conditions set forth in this Agreement, the
Fund hereby employs and appoints the Bank to act as, and the Bank
agrees to act as its transfer agent for the Fund's authorized and
issued shares of its common stock, $.001 par value, ("Shares"),
dividend disbursing agent, custodian of certain retirement plans and
agent in connection with any accumulation, open-account or similar
plans provided to the shareholders of the Fund ("Shareholders") and
set out in the currently effective prospectus and statement of
additional information ("prospectus") of the Fund, including without
limitation any periodic investment plan or periodic withdrawal
program.
1.2 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time
by agreement between the Fund and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of
Shares, and promptly deliver payment and appropriate
documentation thereof to the Custodian of the Fund
authorized pursuant to the Articles of Incorporation
of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate
number of Shares and hold such Shares in the
appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and
redemption directions and deliver the appropriate
documentation thereof to the Custodian;
<PAGE>
(iv) In respect to the transactions in items (i), (ii)
and (iii) above, the Bank shall execute transactions
directly with broker-dealers authorized by the Fund
who shall thereby be deemed to be acting on behalf
of the Fund;
(v) At the appropriate time as and when it receives
monies paid to it by the Custodian with respect to
any redemption, pay over or cause to be paid over in
the appropriate manner such monies as instructed by
the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered
owners thereof upon receipt of appropriate
instructions;
(vii) Prepare and transmit payments for dividends and
distributions declared by the Fund;
(viii) Issue replacement certificates for those
certificates alleged to have been lost, stolen or
destroyed upon receipt by the Bank of
indemnification satisfactory to the Bank and
protecting the Bank and the Fund, and the Bank at
its option, may issue replacement certificates in
place of mutilated stock certificates upon
presentation thereof and without such indemnity;
(ix) Maintain records of account for and advise the
Fund and its Shareholders as to the foregoing; and
(x) Record the issuance of shares of the Fund and
maintain pursuant to SEC Rule 17Ad-10(e) a record of
the total number of shares of the Fund which are
authorized, based upon data provided to it by the
Fund, and issued and outstanding. The Bank shall
also provide the Fund on a regular basis with the
total number of shares which are authorized and
issued and outstanding and shall have no obligation,
when recording the issuance of shares, to monitor
the issuance of such shares or to take cognizance of
any laws relating to the issue or sale of such
shares, which functions shall be the sole
responsibility of the Fund.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall:
(i) perform the customary services of a transfer agent,
dividend disbursing agent, custodian of certain retirement
plans and, as relevant, agent in connection with accumulation,
open-account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program),
including but not limited to: maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies,
mailing Shareholder reports and prospectuses to current
Shareholders, withholding taxes on U.S. resident and
non-resident alien accounts, preparing and filing U.S. Treasury
Department Forms 1099 and other appropriate forms required with
respect to dividends and distributions
2
<PAGE>
by federal authorities for all Shareholders, preparing and
mailing confirmation forms and statements of account to
Shareholders for all purchases and redemptions of Shares and
other confirmable transactions in Shareholder accounts,
preparing and mailing activity statements for Shareholders, and
providing Shareholder account information and (ii) provide a
system which will enable the Fund to monitor the total number
of Shares sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank in writing
those transactions and assets to be treated as exempt from blue
sky reporting for each State and (ii) verify the establishment
of transactions for each State on the system prior to
activation and thereafter monitor the daily activity for each
State. The responsibility of the Bank for the Fund's blue sky
State registration status is solely limited to the initial
establishment of transactions subject to blue sky compliance by
the Fund and the reporting of such transactions to the Fund as
provided above.
(d) Procedures as to who shall provide certain of these services in
Section 1 may be established from time to time by agreement
between the Fund and the Bank per the attached service
responsibility schedule. The Bank may at times perform only a
portion of these services and the Fund or its agent may perform
these services on the Fund's behalf.
(e) The Bank shall provide additional services on behalf of the
Fund (i.e., escheatment services) which may be agreed upon in
writing between the Fund and the Bank.
2. Fees and Expenses
2.1 For the performance by the Bank pursuant to this Agreement, the Fund
agrees to pay the Bank an annual maintenance fee for each Shareholder
account as set out in the initial fee schedule attached hereto. Such
fees and out-of-pocket expenses and advances identified under Section
2.2 below may be changed from time to time subject to mutual written
agreement between the Fund and the Bank.
2.2 In addition to the fee paid under Section 2.1 above, the Fund agrees
to reimburse the Bank for out-of-pocket expenses, including but not
limited to confirmation production, postage, forms, telephone,
microfilm, microfiche, tabulating proxies, records storage, or
advances incurred by the Bank for the items set out in the fee
schedule attached hereto. In addition, any other expenses incurred by
the Bank at the request or with the consent of the Fund, will be
reimbursed by the Fund.
2.3 The Fund agrees to pay all fees and reimbursable expenses within five
days following the receipt of the respective billing notice. Postage
for mailing of dividends, proxies, Fund reports and other mailings to
all shareholder accounts shall be advanced to the Bank by the Fund at
least seven (7) days prior to the mailing date of such materials.
3
<PAGE>
3. Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.1 It is a trust company duly organized and existing and in good
standing under the laws of The Commonwealth of Massachusetts.
3.2 It is duly qualified to carry on its business in The Commonwealth of
Massachusetts.
3.3 It is empowered under applicable laws and by its Charter and By-Laws
to enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement.
4. Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.1 It is a corporation duly organized and existing and in good standing
under the laws of Maryland.
4.2 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
4.3 All corporate proceedings required by said Articles of
Incorporation and By-Laws have been taken to authorize it to enter
into and perform this Agreement.
4.4 It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940, as amended.
4.5 A registration statement under the Securities Act of 1933, as amended
is currently effective and will remain effective, and appropriate
state securities law filings have been made and will continue to be
made, with respect to all Shares of the Fund being offered for sale.
5. Data Access and Proprietary Information
5.1 The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and
documentation manuals furnished to the Fund by the Bank as part of
the Fund's ability to access certain Fund-related data ("Customer
Data")
4
<PAGE>
maintained by the Bank on data bases under the control and ownership
of the Bank or other third party ("Data Access Services") constitute
copyrighted, trade secret, or other proprietary information
(collectively, "Proprietary Information") of substantial value to
the Bank or other third party. In no event shall Proprietary
Information be deemed Customer Data. The Fund agrees to treat all
Proprietary Information as proprietary to the Bank and further
agrees that it shall not divulge any Proprietary Information to any
person or organization except as may be provided hereunder. Without
limiting the foregoing, the Fund agrees for itself and its employees
and agents:
(a) to access Customer Data solely from locations as may be
designated in writing by the Bank and solely in accordance with
the Bank's applicable user documentation;
(b) to refrain from copying or duplicating in any way the
Proprietary Information;
(c) to refrain from obtaining unauthorized access to any portion of
the Proprietary Information, and if such access is
inadvertently obtained, to inform in a timely manner of such
fact and dispose of such information in accordance with the
Bank's instructions;
(d) to refrain from causing or allowing the data acquired hereunder
from being retransmitted to any other computer facility or
other location, except with the prior written consent of the
Bank;
(e) that the Fund shall have access only to those authorized
transactions agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to
protect at the Bank's expense the rights of the Bank in
Proprietary Information at common law, under federal copyright
law and under other federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 5. The obligations of this Section shall
survive any earlier termination of this Agreement.
5.2 If the Fund notifies the Bank that any of the Data Access Services do
not operate in material compliance with the most recently issued user
documentation for such services, the Bank shall endeavor in a timely
manner to correct such failure. Organizations from which the Bank may
obtain certain data included in the Data Access Services are solely
responsible for the contents of such data and the Fund agrees to make
no claim against the Bank arising out of the contents of such
third-party data, including, but not limited to, the accuracy
thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE
SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS IS,
AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL WARRANTIES
EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO,
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
5
<PAGE>
5.3 If the transactions available to the Fund include the ability to
originate electronic instructions to the Bank in order to (i) effect
the transfer or movement of cash or Shares or (ii) transmit
Shareholder information or other information, then in such event the
Bank shall be entitled to rely on the validity and authenticity of
such instruction without undertaking any further inquiry as long as
such instruction is undertaken in conformity with security procedures
established by the Bank from time to time.
6. Indemnification
6.1 The Bank shall not be responsible for, and the Fund shall indemnify
and hold the Bank harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses and
liability arising out of or attributable to:
(a) All actions of the Bank or its agent or subcontractors
required to be taken pursuant to this Agreement, provided
that such actions are taken in good faith and without
negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful
misconduct which arise out of the breach of any
representation or warranty of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records, documents or
services which (i) are received by the Bank or its agents or
subcontractors, and (ii) have been prepared, maintained or
performed by the Fund or any other person or firm on behalf
of the Fund including but not limited to any previous
transfer agent or registrar.
(d) The reliance on, or the carrying out by the Bank or
its agents or subcontractors of any instructions or
requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the
securities laws or regulations of any state that such Shares
be registered in such state or in violation of any stop
order or other determination or ruling by any federal agency
or any state with respect to the offer or sale of such
Shares in such state.
6.2 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the
Bank under this Agreement, and the Bank and its agents or
subcontractors shall not be liable and shall be indemnified by the
Fund for any action taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel. The Bank, its
agents and subcontractors shall be protected and indemnified in
acting upon any paper or document furnished by or on behalf of the
Fund, reasonably believed to be genuine and to have been signed by
the proper person or persons, or upon any instruction, information,
data, records or documents provided the Bank or its agents or
subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Fund, and shall not be held to
6
<PAGE>
have notice of any change of authority of any person, until receipt
of written notice thereof from the Fund. The Bank, its agents and
subcontractors shall also be protected and indemnified in recognizing
stock certificates which are reasonably believed to bear the proper
manual or facsimile signatures of the officers of the Fund, and the
proper countersignature of any former transfer agent or former
registrar, or of a co-transfer agent or co-registrar.
6.3 In order that the indemnification provisions contained in this
Section 6 shall apply, upon the assertion of a claim for which the
Fund may be required to indemnify the Bank, the Bank shall promptly
notify the Fund of such assertion, and shall keep the Fund advised
with respect to all developments concerning such claim. The Fund
shall have the option to participate with the Bank in the defense of
such claim or to defend against said claim in its own name or in the
name of the Bank. The Bank shall in no case confess any claim or make
any compromise in any case in which the Fund may be required to
indemnify the Bank except with the Fund's prior written consent.
7. Standard of Care
The Bank shall at all times act in good faith and agrees to use its
best efforts within reasonable limits to insure the accuracy of all
services performed under this Agreement, but assumes no
responsibility and shall not be liable for loss or damage due to
errors unless said errors are caused by its negligence, bad faith, or
willful misconduct or that of its employees.
8. Covenants of the Fund and the Bank
8.1 The Fund shall promptly furnish to the Bank the following:
(a) A certified copy of the resolution of the Board of Directors
of the Fund authorizing the appointment of the Bank and the
execution and delivery of this Agreement.
(b) A copy of the Articles of Incorporation and By-Laws of the
Fund and all amendments thereto.
8.2 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices,
if any; and for the preparation or use, and for keeping account of,
such certificates, forms and devices.
8.3 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940,
as amended, and the Rules thereunder, the Bank agrees that all such
records prepared or maintained by the Bank relating to the services
to be performed by the Bank hereunder are the property of the Fund
and will be preserved, maintained and made
7
<PAGE>
available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its
request.
8.4 The Bank and the Fund agree that all books, records, information and
data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out
of this Agreement shall remain confidential, and shall not be
voluntarily disclosed to any other person, except as may be required
by law.
8.5 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the
Fund and to secure instructions from an authorized officer of the
Fund as to such inspection. The Bank reserves the right, however, to
exhibit the Shareholder records to any person whenever it is advised
by its counsel that it may be held liable for the failure to exhibit
the Shareholder records to such person.
9. Termination of Agreement
9.1 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
9.2 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
borne by the Fund. Additionally, the Bank reserves the right to
charge for any other reasonable expenses associated with such
termination and/or a charge equivalent to the average of three (3)
months' fees.
10. Assignment
10.1 Except as provided in Section 10.3 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party
without the written consent of the other party.
10.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
10.3 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data
Services, Inc., a Massachusetts corporation ("BFDS") which is duly
registered as a transfer agent pursuant to Section 17A(c)(2) of the
Securities Exchange Act of 1934, as amended ("Section 17A(c)(2)"),
(ii) a BFDS subsidiary duly registered as a transfer agent pursuant
to Section 17A(c)(2) or (iii) a BFDS affiliate; provided, however,
that the Bank shall be as fully responsible to the Fund for the acts
and omissions of any subcontractor as it is for its own acts and
omissions.
11. Amendment
This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution
of the Board of Directors of the Fund.
8
<PAGE>
12. Massachusetts Law to Apply
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth
of Massachusetts.
13. Force Majeure
In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its
control, or other causes reasonably beyond its control, such party
shall not be liable for damages to the other for any damages
resulting from such failure to perform or otherwise from such causes.
14. Consequential Damages
Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or
for any consequential damages arising out of any act or failure to
act hereunder.
15. Merger of Agreement
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
16. Counterparts
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
17. Reproduction of Documents
This Agreement and all schedules, exhibits, attachments and
amendments hereto may be reproduced by any photographic, photostatic,
microfilm, micro-card, miniature photographic or other similar
process. The parties hereto all/each agree that any such reproduction
shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is
in existence and whether or not such reproduction was made by a party
in the regular course of business, and that any enlargement,
facsimile or further reproduction of such reproduction shall likewise
be admissible in evidence.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
WARBURG, PINCUS STRATEGIC
VALUE FUND, INC.
BY:__________________________
ATTEST:
______________________
STATE STREET BANK AND TRUST
COMPANY
BY:__________________________
Executive Vice President
ATTEST:
______________________
<PAGE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
Service Performed Responsibility
Bank Fund
1. Receives orders for the purchase
of Shares.
2. Issue Shares and hold Shares in
Shareholders accounts.
3. Receive redemption requests.
4. Effect transactions 1-3 above
directly with broker-dealers.
5. Pay over monies to redeeming
Shareholders.
6. Effect transfers of Shares.
7. Prepare and transmit dividends
and distributions.
8. Issue Replacement Certificates.
9. Reporting of abandoned property.
10. Maintain records of account.
11. Maintain and keep a current and
accurate control book for each
issue of securities.
12. Mail proxies.
13. Mail Shareholder reports.
14. Mail prospectuses to current
Shareholders.
15. Withhold taxes on U.S. resident
and non-resident alien accounts.
16. Prepare and file U.S. Treasury
Department forms.
<PAGE>
Service Performed Responsibility
Bank Fund
17. Prepare and mail account and
confirmation statements for
Shareholders.
18. Provide Shareholder account
information.
19. Blue sky reporting.
* Such services are more fully described in Section 1.2 (a), (b)
and (c) of the Agreement.
WARBURG, PINCUS STRATEGIC VALUE FUND, INC.
BY:____________________________
ATTEST:
_______________________________
STATE STREET BANK AND TRUST COMPANY
BY:____________________________
Executive Vice President
ATTEST:
_______________________________
<PAGE>1
CO-ADMINISTRATION AGREEMENT
___________, 199_
Counsellors Funds Service, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
Warburg, Pincus Strategic Value Fund, Inc. (the "Fund"), a
corporation organized and existing under the laws of the State of Maryland,
confirms its agreement with Counsellors Funds Service, Inc. ("Counsellors
Service") as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the limitations
specified in its Articles of Incorporation, as amended from time to time (the
"Articles"), in its By-laws, as amended from time to time (the "By-laws"), in
the Fund's prospectus (the "Prospectus") and Statement of Additional Information
(the "Statement of Additional Information") as in effect from time to time, and
in such manner and to the extent as may from time to time be approved by the
Board of Directors of the Fund. Copies of the Prospectus, Statement of
Additional Information and the Articles and By-laws have been submitted to
Counsellors Service. The Fund employs Warburg, Pincus Counsellors, Inc. (the
"Adviser") as its investment adviser and desires to employ and hereby appoints
Counsellors Service as its co-administrator. Counsellors Service accepts this
appointment and agrees to furnish the services for the compensation set forth
below.
2. Services as Co-Administrator
Subject to the supervision and direction of the Board of
Directors of the Fund, Counsellors Service will:
<PAGE>2
(a) assist in supervising all aspects of the Fund's
operations, except those performed by other parties pursuant to written
agreements with the Fund;
(b) provide various shareholder liaison services including,
but not limited to, responding to inquiries of shareholders regarding the Fund,
providing information on shareholder investments, assisting shareholders of the
Fund in changing dividend options, account designations and addresses, and
other similar services;
(c) provide certain administrative services including, but
not limited to, providing periodic statements showing the account balance of a
Fund shareholder and integrating the statements with those of other
transactions and balances in the shareholder's other accounts serviced by the
Fund's custodian or transfer agent;
(d) supply the Fund with office facilities (which may be
Counsellors Service's own offices), data processing services, clerical,
internal executive and administrative services, and stationery and office
supplies;
(e) furnish corporate secretarial services, including
assisting in the preparation of materials for Board of Directors' meetings and
distributing those materials and preparing minutes of meetings of the Fund's
Board of Directors and any committees thereof and of the Fund's shareholders;
(f) coordinate the preparation of reports to the Fund's
shareholders of record and filings with the Securities and Exchange Commission
(the "SEC") including, but not limited to, proxy statements; annual,
semi-annual and quarterly reports to shareholders; and post-effective
amendments to the Fund's Registration Statement on Form N-1A (the "Registration
Statement");
(g) assist in the preparation of the Fund's tax returns and
assist in other regulatory filings as necessary;
(h) assist the Adviser, at the Adviser's request, in
monitoring and developing compliance procedures for the Fund which will
include, among other matters, procedures to assist the Adviser in monitoring
compliance with the Fund's investment objective, policies, restrictions, tax
matters and applicable laws and regulations; and
<PAGE>3
(i) acting as liaison between the Fund and the Fund's
independent public accountants, counsel, custodian or custodians, transfer agent
and co-administrator and taking all reasonable action in the performance of its
obligations under this Agreement to assure that all necessary information is
made available to each of them.
In performing all services under this Agreement, Counsellors
Service shall act in conformity with applicable law, the Articles and By-laws,
and the investment objective, investment policies and other practices and
policies set forth in the Registration Statement, as such Registration Statement
and practices and policies may be amended from time to time.
3. Compensation
In consideration of services rendered pursuant to this
Agreement, the Fund will pay Counsellors Service on the first business day of
each month a fee for the previous month at an annual rate of .10% of the Fund's
average daily net assets. The fee for the period from the date the Fund
commences its investment operations to the end of the month during which the
Fund commences its investment operations shall be prorated according to the
proportion that such period bears to the full monthly period. Upon any
termination of this Agreement before the end of any month, the fee for such part
of a month shall be prorated according to the proportion which such period bears
to the full monthly period and shall be payable upon the date of termination of
this Agreement. For the purpose of determining fees payable to Counsellors
Service, fees shall be calculated monthly and the value of the Fund's net assets
shall be computed at the times and in the manner specified in the Prospectus and
Statement of Additional Information as from time to time in effect.
4. Expenses
Counsellors Service will bear all expenses in connection with
the performance of its services under this Agreement; provided, however, that
the Fund will reimburse Counsellors Service for the out-of-pocket expenses
incurred by it on behalf of the Fund. Such reimbursable expenses shall include,
but not be limited to, postage, telephone, telex and FedEx charges. Counsellors
Service will bill the Fund as soon as practicable after the end of each calendar
month for the expenses it is entitled to have reimbursed.
The Fund will bear certain other expenses to be incurred in
its operation, including: taxes, interest, brokerage fees and commissions, if
any; fees of Directors of the Fund who are not officers, directors, or employees
of the Adviser or Counsellors Service; SEC fees and state blue sky qualification
<PAGE>4
fees; charges of custodians and transfer and dividend disbursing agents; certain
insurance premiums; outside auditing and legal expenses; costs of maintenance of
corporate existence; except as otherwise provided herein, costs attributable to
investor services, including without limitation, telephone and personnel
expenses; costs of preparing and printing prospectuses and statements of
additional information for regulatory purposes and for distribution to existing
shareholders; costs of shareholders' reports and meetings, and meetings of the
officers of the Board of Directors of the Fund; costs of any pricing services;
and any extraordinary expenses.
5. Standard of Care
Counsellors Service shall exercise its best judgment in
rendering the services listed in paragraph 2 above. Counsellors Service shall
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the matters to which this Agreement
relates provided that nothing in this Agreement shall be deemed to protect or
purport to protect Counsellors Service against liability to the Fund or its
shareholders to which Counsellors Service would otherwise be subject by reason
of willful misfeasance, bad faith or negligence on its part in the performance
of its duties or by reason of Counsellors Service's reckless disregard of its
obligations and duties under this Agreement.
6. Term of Agreement
This Agreement shall become effective as of the date the Fund
commences its investment operations and shall continue until April 17, 1998 and
shall continue automatically (unless terminated as provided herein) for
successive annual periods ending on April 17th of each year, provided that such
continuance is specifically approved at least annually by the Board of Directors
of the Fund, including a majority of the Board of Directors who are not
"interested persons" (as defined in the Investment Company Act of 1940, as
amended) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval. This Agreement is terminable,
without penalty, on sixty (60) days' written notice, by the Board of Directors
of the Fund or by vote of holders of a majority of the Fund's shares, or upon
sixty (60) days' written notice, by Counsellors Service.
<PAGE>5
7. Service to Other Companies or Accounts
The Fund understands that Counsellors Service now acts, will
continue to act and may act in the future as administrator, co-administrator or
administrative services agent to one or more other investment companies, and the
Fund has no objection to Counsellors Service's so acting. The Fund understands
that the persons employed by Counsellors Service to assist in the performance of
Counsellors Service's duties hereunder will not devote their full time to such
service and nothing contained in this Agreement shall be deemed to limit or
restrict the right of Counsellors Service or any affiliate of Counsellors
Service to engage in and devote time and attention to other businesses or to
render services of whatever kind or nature.
If the foregoing is in accordance with your understanding,
kindly indicate your acceptance hereof by signing and returning to us the
enclosed copy hereof.
Very truly yours,
WARBURG, PINCUS STRATEGIC VALUE FUND, INC.
By:_____________________________
Name:____________________________
Title:____________________________
Accepted:
COUNSELLORS FUNDS SERVICE, INC.
By:___________________________
Name:_________________________
Title:________________________
<PAGE>1
CO-ADMINISTRATION AGREEMENT
TERMS AND CONDITIONS
This Agreement is made as of ________, 199_ by and between
Warburg, Pincus Strategic Value Fund, Inc. (the "Fund"), a Maryland corporation,
and PFPC Inc. ("PFPC"), a Delaware corporation, which is an indirect, wholly
owned subsidiary of PNC Bank Corp.
The Fund is registered as an open-end investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund wishes
to retain PFPC to provide certain administration and accounting services, and
PFPC wishes to furnish such services.
In consideration of the promises and mutual covenants herein
contained, the parties agree as follows:
1. Definitions.
(a) "Authorized Person." The term "Authorized Person" shall
mean any officer of the Fund and any other person, who is duly authorized by the
Fund's Board of Directors, to give Oral and Written Instructions on behalf of
the Fund. Such persons are listed in the Certificate attached hereto as the
Authorized Persons Appendix to each Services Attachment to this Agreement. If
PFPC provides more than one service hereunder, the Fund's designation of
Authorized Persons may vary by service.
(b) "Board of Directors." The term "Board of Directors" shall
mean the Fund's Board of Directors or, where duly authorized, a competent
committee thereof.
(c) "CFTC." The term "CFTC" shall mean the Commodities
Futures Trading Commission.
(d) "Oral Instructions." The term "Oral Instructions" shall
mean oral instructions received by PFPC from an Authorized Person or from a
person reasonably believed by PFPC to be an Authorized Person.
(e) "PNC." The term "PNC" shall mean PNC Bank or a
subsidiary or affiliate of PNC Bank.
(f) "SEC." The term "SEC" shall mean the Securities and
Exchange Commission.
<PAGE>2
(g) "Securities and Commodities Laws." The terms the "1933
Act" shall mean the Securities Act of 1933, as amended, the "1934 Act" shall
mean the Securities Exchange Act of 1934, as amended, the "1940 Act" shall mean
the Investment Company Act 1940, as amended, and the "CEA" shall mean the
Commodities Exchange Act, as amended.
(h) "Services." The term "Services" shall mean the
service provided to the Fund by PFPC.
(i) "Shares." The term "Shares" shall mean the shares
of any class of common stock, par value $.001 per share, of the Fund.
(j) "Property." The term "Property" shall mean:
(i) any and all securities and other investment
items which the Fund may from time to time
deposit, or cause to be deposited, with PNC
or which PNC may from time to time hold for
the Fund;
(ii) all income in respect of any of such
securities or other investment items;
(iii) all proceeds of the sale of any of such
securities or investment items; and
(iv) all proceeds of the sale of securities
issued by the Fund, which are received by
PNC from time to time, from or on behalf of
the Fund.
(k) "Written Instructions." The term "Written Instructions"
shall mean written instructions signed by one Authorized Person and received by
PFPC. The instructions may be delivered by hand, mail, tested telegram, cable,
telex or facsimile sending device.
2. Appointment.
The Fund hereby appoints PFPC to provide administration and
accounting services, in accordance with the terms set forth in this Agreement.
PFPC accepts such appointment and agrees to furnish such services.
<PAGE>3
3. Delivery of Documents.
The Fund has provided or, where applicable, will provide PFPC
with the following:
(a) certified or authenticated copies of the resolutions
of the Board of Directors, approving the appointment
of PNC or its affiliates to provide services to the
Fund;
(b) a copy of the Fund's most recent effective
registration statement;
(c) a copy of the Fund's advisory agreement;
(d) a copy of the Fund's distribution agreements;
(e) a copy of the Fund's co-administration agreement if
PFPC is not providing the Fund with such services;
(f) copies of any shareholder servicing agreements made
in respect of the Fund; and
(g) certified or authenticated copies of any and all
amendments or supplements to the foregoing.
4. Compliance with Government Rules and Regulations. PFPC undertakes to
comply with all applicable requirements of the 1933 Act, the 1934 Act, the 1940
Act, and the CEA, and any laws, rules and regulations of governmental
authorities having jurisdiction with respect to all duties to be performed by
PFPC hereunder. Except as specifically set forth herein, PFPC assumes no
responsibility for such compliance by the Fund.
5. Instructions.
Unless otherwise provided in this Agreement, PFPC shall act
only upon Oral and Written Instructions.
PFPC shall be entitled to rely upon any Oral and Written
Instructions it receives from an Authorized Person (or from a person reasonably
believed by PFPC to be an Authorized Person) pursuant to this Agreement. PFPC
may assume that any Oral or Written Instruction received hereunder is not in any
way inconsistent with the provisions of organizational documents or this
Agreement or of any vote, resolution or proceeding of the Board of Directors or
of the Fund's shareholders.
<PAGE>4
The Fund agrees to forward to PFPC Written Instructions
confirming Oral Instructions so that PFPC receives the Written Instructions by
the close of business on the same day that such Oral Instructions are received.
The fact that such confirming Written Instructions are not received by PFPC
shall in no way invalidate the transactions or enforceability of the
transactions authorized by the Oral Instructions. The Fund further agrees that
PFPC shall incur no liability to the Fund in acting upon Oral or Written
Instructions provided such instructions reasonably appear to have been received
from an Authorized Person.
6. Right to Receive Advice.
(a) Advice of the Fund. If PFPC is in doubt as to any action
it should or should not take, PFPC may request directions or advice, including
Oral or Written Instructions, from the Fund.
(b) Advice of Counsel. If PFPC shall be in doubt as to any
questions of law pertaining to any action it should or should not take, PFPC may
request advice at its own cost from such counsel of its own choosing (who may be
counsel for the Fund, the Fund's investment adviser (the "Adviser") or PFPC, at
the option of PFPC).
(c) Conflicting Advice. In the event of a conflict between
directions, advice or Oral or Written Instructions PNC receives from the Fund,
and the advice it receives from counsel, PFPC shall be entitled to rely upon and
follow the advice of counsel.
(d) Protection of PFPC. PFPC shall be protected in any action
it takes or does not take in reliance upon directions, advice or Oral or Written
Instructions it receives from the Fund or from counsel and which PFPC believes,
in good faith, to be consistent with those directions, advice and Oral or
Written Instructions.
Nothing in this paragraph shall be construed so as to impose
an obligation upon PFPC (i) to seek such directions, advice or Oral or Written
Instructions, or (ii) to act in accordance with such directions, advice or Oral
or Written Instructions unless, under the terms of other provisions of this
Agreement, the same is a condition of PFPC's properly taking or not taking such
action.
<PAGE>5
7. Records.
The books and records pertaining to the Fund, which are in the
possession of PFPC, shall be the property of the Fund. Such books and records
shall be prepared and maintained as required by the 1940 Act and other
applicable securities laws, rules and regulations. The Fund, or the Fund's
Authorized Persons, shall have access to such books and records at all times
during PFPC's normal business hours. Upon the reasonable request of the Fund,
copies of any such books and records shall be provided by PFPC to the Fund or to
an Authorized Person of the Fund, at the Fund's expense.
PFPC shall keep the following records:
(a) all books and records with respect to the Fund's
books of account;
(b) records of the Fund's securities transactions; and
(c) all other books and records as PFPC is required to
maintain pursuant to Rule 31a-1 of the 1940 Act and
as specifically set forth in Appendix A hereto.
8. Confidentiality.
PFPC agrees to keep confidential all records of the Fund and
information relative to the Fund and its shareholders (past, present and
potential), unless the release of such records or information is otherwise
consented to, in writing, by the Fund. The Fund agrees that such consent shall
not be unreasonably withheld. The Fund further agrees that, should PFPC be
required to provide such information or records to duly constituted authorities
(who may institute civil or criminal contempt proceedings for failure to
comply), PFPC shall not be required to seek the Fund's consent prior to
disclosing such information.
9. Liaison with Accountants.
PFPC shall act as liaison with the Fund's independent public
accountants and shall provide account analyses, fiscal year summaries, and other
audit-related schedules. PFPC shall take all reasonable action in the
performance of its obligations under this Agreement to assure that the necessary
information is made available to such accountants for the expression of their
opinion, as such may be required by the Fund from time to time.
<PAGE>6
10. Disaster Recovery.
PFPC shall enter into and shall maintain in effect with
appropriate parties one or more agreements making reasonable provision of
emergency use of electronic data processing equipment to the extent appropriate
equipment is available. In the event of equipment failures, PFPC shall, at no
additional expense to the Fund, take reasonable steps to minimize service
interruptions but shall have no liability with respect thereto.
11. Compensation.
As compensation for services rendered by PFPC during the term
of this Agreement, the Fund will pay PFPC a fee or fees as may be agreed to in
writing by the Fund and PFPC.
12. Indemnification.
The Fund agrees to indemnify and hold harmless PFPC and its
nominees from all taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the 1933 Act, the 1934
Act, the 1940 Act, the CEA, and any state and foreign securities and blue sky
laws, and amendments thereto, and expenses, including (without limitation)
attorneys' fees and disbursements, arising directly or indirectly from any
action which PFPC takes or does not take (a) at the request or on the direction
of or in reliance on the advice of the Fund or (b) upon Oral or Written
Instructions. Neither PFPC, nor any of its nominees, shall be indemnified
against any liability to the Fund or to its shareholders (or any expenses
incident to such liability) arising out of PFPC's own willful misfeasance, bad
faith, negligence or reckless disregard of its duties and obligations under this
Agreement.
13. Responsibility of PFPC.
PFPC shall be under no duty to take any action on behalf of
the Fund except as specifically set forth herein or as may be specifically
agreed to by PFPC, in writing. PFPC shall be obligated to exercise care and
diligence in the performance of its duties hereunder, to act in good faith and
to use its best efforts, within reasonable limits, in performing services
provided for under this Agreement. PFPC shall be responsible for its own
negligent failure to perform its duties under this Agreement. Notwithstanding
the foregoing, PFPC shall not be responsible for losses beyond its control,
provided that PFPC has acted in accordance with the standard of care set forth
above; and provided further that PFPC shall only be responsible for that
<PAGE>7
portion of losses or damages suffered by the Fund that are attributable to the
negligence of PFPC.
Without limiting the generality of the foregoing or of any
other provision of this Agreement, PFPC, in connection with its duties under
this Agreement, shall not be liable for (a) the validity or invalidity or
authority or lack thereof of any Oral or Written Instruction, notice or other
instrument which conforms to the applicable requirements of this Agreement, and
which PFPC reasonably believes to be genuine; or (b) delays or errors or loss of
data occurring by reason of circumstances beyond PFPC's control, including acts
of civil or military authority, national emergencies, labor difficulties, fire,
flood or catastrophe, acts of God, insurrection, war, riots or failure of the
mails, transportation, communication or power supply.
Notwithstanding anything in this Agreement to the contrary,
PFPC shall have no liability to the Fund for any consequential, special or
indirect losses or damages which the Fund may incur or suffer by or as a
consequence of PFPC's performance of the services provided hereunder, whether or
not the likelihood of such losses or damages was known by PFPC.
14. Description of Accounting Services.
(a) Services on a Continuing Basis. PFPC will perform
the following accounting functions if required:
(i) Journalize the Fund's investment, capital
share and income and expense activities;
(ii) Verify investment buy/sell trade tickets
when received from the Adviser and transmit trades
to the Fund's custodian for proper
settlement;
(iii) Maintain individual ledgers for investment
securities;
(iv) Maintain historical tax lots for each
security;
(v) Reconcile cash and investment balances of
the Fund with the custodian, and provide
the Adviser with the beginning cash balance
available for investment purposes;
<PAGE>8
(vi) Update the cash availability throughout the
day as required by the Adviser;
(vii) Post to and prepare the Fund's Statement of
Assets and Liabilities and the Statement of
Operations;
(viii) Calculate various contractual expenses
(e.g., advisory and custody fees);
(ix) Monitor the expense accruals and notify the
Fund's management of any proposed
adjustments;
(x) Control all disbursements from the Fund and
authorize such disbursements upon Written
Instructions;
(xi) Calculate capital gains and losses;
(xii) Determine the Fund's net income;
(xiii) Obtain security market quotes from
independent pricing services approved by
the Adviser, or if such quotes are
unavailable, then obtain such prices from
the Adviser, and in either case calculate
the market value of the Fund's investments;
(xiv) Transmit or mail a copy of the daily
portfolio valuation to the Adviser;
(xv) Compute the net asset value of the Fund;
(xvi) As appropriate, compute the Fund's yield,
total return, expense ratios, portfolio
turnover rate, and, if required, portfolio
average dollar-weighted maturity; and
(xvii) Prepare a monthly financial statement,
which will include the following items:
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Cash Statement
<PAGE>9
Schedule of Capital Gains and Losses.
15. Description of Administration Services.
(a) Services on a Continuing Basis.
(i) Prepare quarterly broker security
transactions summaries;
(ii) Prepare monthly security transaction
listings;
(iii) Prepare for execution and file the Fund's
federal and state tax returns;
(iv) Prepare and file the Fund's semiannual
reports with the SEC on Form N-SAR;
(v) Prepare and file with the SEC the Fund's
annual and semiannual shareholder reports;
(vi) Assist with the preparation of registration
statements and other filings relating to
the registration of Shares; and
(vii) Monitor the Fund's status as a regulated
investment company under Sub-Chapter M of
the Internal Revenue Code of 1986, as
amended.
16. Duration and Termination.
This Agreement shall continue until terminated by the Fund or
by PFPC on sixty (60) days' prior written notice to the other party.
17. Notices.
All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. If notice is sent by confirming telegram, cable, telex
or facsimile sending device, it shall be deemed to have been given immediately.
If notice is sent by first-class mail, it shall be deemed to have been given
three days after it has been mailed. If notice is sent by messenger, it shall be
deemed to have been given on the day it is delivered. Notices shall be addressed
(a) if to PFPC, at PFPC's
<PAGE>10
address, 400 Bellevue Parkway, Wilmington, Delaware 19809; (b)
if to the Fund, at the address of the Fund; or (c) if to neither of the
foregoing, at such other address as shall have been notified to the sender of
any such notice or other communication.
18. Amendments.
This Agreement, or any term thereof, may be changed or waived
only by written amendment, signed by the party against whom enforcement of such
change or waiver is sought.
19. Delegation.
PFPC may assign its rights and delegate its duties hereunder
to any wholly owned direct or indirect subsidiary of PNC Bank or PNC Bank Corp.,
provided that (a) PFPC gives the Fund thirty (30) days' prior written notice;
(b) the delegate agrees with PFPC to comply with all relevant provisions of the
1940 Act; and (c) PFPC and such delegate promptly provide such information as
the Fund may request, and respond to such questions as the Fund may ask,
relative to the delegation, including (without limitation) the capabilities of
the delegate.
20. Counterparts.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
21. Further Actions.
Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes hereof.
22. Miscellaneous.
This Agreement embodies the entire agreement and understanding
between the parties and supersedes all prior agreements and understandings
relating to the subject matter hereof, provided that the parties may embody in
one or more separate documents their agreement, if any, with respect to
delegated and/or Oral Instructions.
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
<PAGE>11
This Agreement shall be deemed to be a contract made in
Delaware and governed by Delaware law. If any provision of this agreement shall
be held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby. This Agreement shall
be binding and shall inure to the benefit of the parties hereto and their
respective successors.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated below on the day and year
first above written.
PFPC INC.
By:
Name:
Title:
WARBURG, PINCUS STRATEGIC VALUE FUND, INC.
By:
Name:
Title:
<PAGE>
APPENDIX A
None.
<PAGE>1
________, 199_
Warburg, Pincus Strategic Value Fund, Inc.
466 Lexington Avenue
New York, New York 10017
RE: CO-ADMINISTRATION SERVICE FEES
Gentlemen:
This letter constitutes our agreement with respect to
compensation to be paid to PFPC Inc. ("PFPC") under the terms of a
Co-Administration Agreement dated _________, 199_ between you (the "Fund") and
PFPC. Pursuant to Paragraph 11 of that Agreement, and in consideration of the
services to be provided to you, you will pay PFPC an annual co-administration
fee, to be calculated daily and paid monthly. You will also reimburse PFPC for
its out-of-pocket expenses incurred on behalf of the Fund, including, but not
limited to: postage and handling, telephone, telex, FedEx and outside pricing
service charges.
The annual administration and accounting fee shall be the
following percentages of the Fund's average daily net assets.:-
Percentage Net Assets
---------- ----------
O.10 First US$500,000,000
0.075 Next US$1,000,000,000
0.05 Above US$1,500,000,000
The fee for the period from the day of the year this agreement
is entered into until the end of that year shall be pro-rated according to the
proportion which such period bears to the full annual period.
<PAGE>2
If the foregoing accurately sets forth our agreement, and you
intend to be legally bound thereby, please execute a copy of this letter and
return it to us.
Very truly yours,
PFPC INC.
By:____________________________
Name:__________________________
Title:_________________________
Accepted: WARBURG, PINCUS STRATEGIC VALUE FUND, INC.
By:___________________________
Name:_________________________
Title:________________________
<PAGE>1
Willkie Farr & Gallagher
One Citicorp Center
153 Esat 53rd Street
New York, New York 10022-4677
December 24, 1996
Warburg, Pincus Strategic Value Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Ladies and Gentlemen:
We have acted as counsel to Warburg, Pincus Strategic Value Fund, Inc. (the
"Fund"), a corporation organized under the laws of the State of Maryland, in
connection with the preparation of a registration statement on Form N-1A
covering the offer and sale of an indefinite number of shares of Common Stock
of the Fund (the "Common Stock"), two billion of which are designated "Common
Shares" and one billion of which are designated "Advisor Shares", par value
$.001 per share (collectively, the "Shares").
We have examined copies of the Charter and By-Laws of the Fund, as amended, the
Fund's prospectuses and statement of additional information (the "Statement of
Additional Information") included in its Registration Statement on Form N-1A,
Securities Act File No. 333-16193 and Investment Company Act File No. 811-07929
(the "Registration Statement"), all resolutions adopted by the Fund's Board of
Directors (the "Board") at its organizational meeting held on December 19,
1996, consents of the Board and other records, documents and papers that we
have deemed necessary for the purpose of this opinion. We have also examined
such other statutes and authorities as we have deemed necessary to form a basis
for the opinion hereinafter expressed.
In our examination of material, we have assumed the genuineness of all
signatures and the conformity to original documents of all copies submitted to
us. As to various questions of fact material to our opinion, we have relied
upon statements and certificates of officers and representatives of the Fund
and others.
<PAGE>2
Based upon the foregoing, we are of the opinion that:
1. The Fund is duly organized and validly existing as a
corporation in good standing under the laws of the State of
Maryland.
2. The 10,000 presently issued and outstanding shares of Common
Stock, all of which are designated Common Shares, of the Fund
have been validly and legally issued and are fully paid and
nonassessable.
3. The Common Shares and Advisor Shares of the Fund to be
offered for sale pursuant to the Registration Statement are,
to the extent of the number of Shares authorized to be issued
by the Fund in its Charter, duly authorized and, when sold,
issued and paid for as contemplated by the Registration
Statement, will have been validly and legally issued and will
be fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the reference to us in the Statement of Additional
Information and to the filing of this opinion as an exhibit to any application
made by or on behalf of the Fund or any distributor or dealer in connection
with the registration or qualification of the Fund or the Shares under the
securities laws of any state or other jurisdiction.
We are members of the Bar of the State of New York only and do not opine as to
the laws of any jurisdiction other than the laws of the State of New York and
the laws of the United States, and the opinions set forth above are,
accordingly, limited to the laws of those jurisdictions. As to matters
involving the application of the laws of the State of Maryland, we have relied
on the opinion of Messrs. Venable, Baetjer and Howard, LLP.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE>
Venable, Baetjer and Howard, LLP
1800 Mercantile Bank & Trust Building
Two Hopkins Place
Baltimore, Maryland 21201-7742
December 24, 1996
Willkie, Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022-4677
Re: Warburg, Pincus Strategic Value Fund, Inc.
Ladies and Gentlemen:
We have acted as special Maryland counsel for Warburg, Pincus
Strategic Value Fund, Inc., a Maryland corporation (the "Fund"), in connection
with the organization of the Fund and the issuance of shares of its common
stock, par value $.001 per share, including Common Shares (the "Common Shares")
and Advisor Shares (the "Advisor Shares").
As special Maryland counsel for the Fund, we are familiar
with its Charter and Bylaws, as amended. We have examined its Registration
Statement on Form N-1A, Securities Act File No. 333-16193 and Investment
Company Act File No. 811-07929, including the prospectuses and statement of
additional information contained therein, substantially in the form in which it
is to become effective (the "Registration Statement"). We have further examined
and relied upon a certificate of the Maryland State Department of Assessments
and Taxation to the effect that the Fund is duly incorporated and existing
under the laws of the State of Maryland and is in good standing and duly
authorized to transact business in the State of Maryland.
We have also examined and relied upon such corporate records
of the Fund and other documents and certificates with respect to factual
matters as we have deemed necessary to render the opinion expressed herein. We
have assumed, without independent verification, the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, and
the conformity with originals of all documents submitted to us as copies.
<PAGE>2
Based on such examination, we are of the opinion:
1. The Fund is duly organized and validly existing
as a corporation in good standing under the laws
of the State of Maryland.
2. The 10,000 presently issued and outstanding shares
of Common Shares stock of the Fund have been validly
and legally issued and are fully paid and
nonassessable.
3. The Common Shares and Advisor Shares of the Fund to
be offered for sale pursuant to the Registration
Statement are, to the extent of the number of shares
of each such class authorized to be issued by the
Fund in its Charter, duly authorized and, when sold,
issued and paid for as contemplated by the
Registration Statement, will have been validly and
legally issued and will be fully paid and
nonassessable.
This letter expresses our opinion with respect to the
Maryland General Corporation Law governing matters such as due organization and
the authorization and issuance of stock. It does not extend to the securities
or "blue sky" laws of Maryland, to federal securities laws or to other laws.
You may rely upon our foregoing opinion in rendering your
opinion to the Fund that is to be filed as an exhibit to the Registration
Statement. We consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
Venable, Baetjer and Howard, LLP
<PAGE>
<PAGE>1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion of our report dated December 16, 1996 on our audit
of the Statement of Assets and Liabilities of Warburg, Pincus Strategic Value
Fund, Inc. as of December 12, 1996 with respect to this Pre-Effective
Amendment No. 2 to the Registration Statement (No. 333-16193) under the
Securities Act of 1933 on Form N-1A. We also consent to the reference to our
Firm under the heading "Independent Accountants and Counsel" in the Statement
of Additional Information.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 23, 1996
<PAGE>1
PURCHASE AGREEMENT
Warburg, Pincus Strategic Value Fund, Inc. (the "Fund"), a
corporation organized under the laws of the State of Maryland, and Warburg,
Pincus Counsellors, Inc. ("Warburg") hereby agree as follows:
1. The Fund offers Warburg and Warburg hereby purchases
10,000 shares of common stock of the Fund, each of which shall be designated
"Common Shares" each having a par value $.001 per share (the "Shares") at a
price of $10.00 per Share (the "Initial Shares"). Warburg hereby acknowledges
receipt of certificates representing the Initial Shares and the Fund hereby
acknowledges receipt from Warburg of $100,000.00 in full payment for the
Initial Shares.
2. Warburg represents and warrants to the Fund that the
Initial Shares are being acquired for investment purposes and not for the
purpose of distributing them.
3. Warburg agrees that if any holder of the Initial Shares
redeems any Initial Share in the Fund before five years after the date upon
which the Fund commences its investment activities, the redemption proceeds
will be reduced by the amount of unamortized organizational expenses, in the
same proportion as the number of Initial Shares being redeemed bears to the
number of Initial Shares outstanding at the time of redemption. The parties
<PAGE>2
hereby acknowledge that any Shares acquired by Warburg other than the Initial
Shares have not been acquired to fulfill the requirements of Section 14 of the
Investment Company Act of 1940, as amended, and, if redeemed, their redemption
proceeds will not be subject to reduction based on the unamortized
organizational expenses of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the ____ day of ________________, 199_.
WARBURG, PINCUS STRATEGIC VALUE FUND, INC.
By:___________________________
Name:___________________________
Title:___________________________
ATTEST:
_______________________
WARBURG, PINCUS COUNSELLORS, INC.
By:___________________________
Name:___________________________
Title:___________________________
ATTEST:
_______________________
<PAGE>1
SHAREHOLDER SERVICING AND DISTRIBUTION PLAN
This Shareholder Servicing and Distribution Plan ("Plan") is
adopted by Warburg, Pincus Strategic Value Fund, Inc., a corporation organized
under the laws of State of Maryland (the "Fund"), with respect to the common
stock, par value $.001 per share, of the Fund other than those designated
Advisor Shares (the "Shares") pursuant to Rule 12b-1 (the "Rule") under the
Investment Company Act of 1940, as amended (the "1940 Act"), subject to the
following terms and conditions:
Section 1. Amount of Payments.
The Fund will pay Counsellors Securities Inc. ("Counsellors
Securities"), a corporation organized under the laws of the State of New York,
for shareholder servicing and distribution services provided to the Shares, an
annual fee of up to .25% of the value of the average daily net assets of the
Shares. Fees to be paid with respect to the Fund under this Plan will be
calculated monthly and paid quarterly by the Fund.
Section 2. Services Payable under the Plan.
(a) The annual fees described above payable with respect to
the Fund are intended to compensate Counsellors Securities, or enable
Counsellors Securities to compensate other persons ("Service Providers"),
including any other distributor of Shares, for providing (i) ongoing servicing
and/or maintenance of the accounts of holders of Shares ("Shareholder
Services"); (ii) services that are primarily intended to result in, or that are
primarily attributable to, the sale of Shares ("Selling Services"); and/or (iii)
subtransfer agency services, subaccounting services or administrative services
with respect to Shares ("Administrative Services"). Shareholder Services may
include, among other things, responding to inquiries of prospective investors
regarding the Fund and services to shareholders not otherwise required to be
provided by the Fund's custodian or any co-administrator. Selling Services may
include, but are not limited to: the printing and distribution to prospective
investors in Shares of prospectuses and statements of additional information
describing the Fund; the preparation, including printing, and distribution of
sales literature, reports and media advertisements relating to the Shares;
providing telephone services relating to the Fund; distributing Shares; costs
relating to the formulation and implementation of marketing
<PAGE>2
and promotional activities, including, but not limited to, direct mail
promotions and television, radio, newspaper, magazine and other mass media
advertising, and related travel and entertainment expenses; and costs involved
in obtaining whatever information, analyses and reports with respect to
marketing and promotional activities that the Fund may, from time to time, deem
advisable. In providing compensation for Selling Services in accordance with
this Plan, Counsellors Securities is expressly authorized (i) to make, or cause
to be made, payments reflecting an allocation of overhead and other office
expenses related to providing Services; (ii) to make, or cause to be made,
payments, or to provide for the reimbursement of expenses of, persons who
provide support services in connection with the distribution of Shares
including, but not limited to, office space and equipment, telephone
facilities, answering routine inquiries regarding the Fund, and providing any
other Service; and (iii) to make, or cause to be made, payments to compensate
selected dealers or other authorized persons for providing any Services.
Administrative Services may include, but are not limited to, establishing and
maintaining accounts and records on behalf of Fund shareholders; processing
purchase, redemption and exchange transactions in Shares; and other similar
services not otherwise required to be provided by the Fund's transfer agent or
any co-administrator.
(b) Payments under this Plan are not tied exclusively to the
expenses for shareholder servicing, administration and distribution expenses
actually incurred by Counsellors Securities or any Service Provider, and the
payments may exceed expenses actually incurred by Counsellors Securities and/or
a Service Provider. Furthermore, any portion of any fee paid to Counsellors
Securities or to any of its affiliates by the Fund or any of their past profits
or other revenue may be used in their sole discretion to provide services to
shareholders of the Fund or to foster distribution of Shares.
Section 3. Approval of Plan.
Neither this Plan nor any related agreements will take effect
until approved by a majority of (a) the outstanding voting Shares, (b) the full
Board of Directors of the Fund and (c) those Directors who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
operation of this Plan or in any agreements related to it (the "Independent
Directors"), cast in person at a meeting called for the purpose of voting on
this Plan and the related agreements.
<PAGE>3
Section 4. Continuance of Plan.
This Plan will continue in effect with respect to the Shares
from year to year so long as its continuance is specifically approved annually
by vote of the Fund's Board of Directors in the manner described in Section 3(b)
and 3(c) above. The Fund's Board of Directors will evaluate the appropriateness
of this Plan and its payment terms on a continuing basis and in doing so will
consider all relevant factors, including the types and extent of Shareholder
Services, Selling Services and Administrative Services provided by Counsellors
Securities and/or Service Providers and amounts Counsellors Securities and/or
Service Providers receive under this Plan.
Section 5. Termination.
This Plan may be terminated at any time with respect to the
Shares by vote of a majority of the Independent Directors or by a vote of a
majority of the outstanding voting Shares.
Section 6. Amendments.
This Plan may not be amended to increase materially the amount
of the fees described in Section 1 above with respect to the Shares without
approval of at least a majority of the outstanding voting Shares. In addition,
all material amendments to this Plan must be approved in the manner described in
Section 3(b) and 3(c) above.
Section 7. Selection of Certain Directors.
While this Plan is in effect with respect to the Fund, the
selection and nomination of the Fund's Directors who are not interested persons
of the Fund will be committed to the discretion of the Directors then in office
who are not interested persons of the Fund.
Section 8. Written Reports.
In each year during which this Plan remains in effect with
respect to the Fund, any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to the Plan or any related agreement will
prepare and furnish to the Fund's Board of Directors, and the Board will review,
at least quarterly, written reports, complying with the requirements of
<PAGE>4
the Rule, which set out the amounts expended under this Plan and the purposes
for which those expenditures were made.
Section 9. Preservation of Materials.
The Fund will preserve copies of this Plan, any agreement
relating to this Plan and any report made pursuant to Section 8 above, for a
period of not less than six years (the first two years in an easily accessible
place) from the date of this Plan, the agreement or the report.
Section 10. Meaning of Certain Terms.
As used in this Plan, the terms "interested person" and
"majority of the outstanding voting securities" will be deemed to have the same
meanings that those terms have under the 1940 Act and the rules and regulations
under the 1940 Act, subject to any exemption that may be granted to the Fund
under the 1940 Act by the Securities and Exchange Commission.
Section 11. Date of Effectiveness.
This Plan will become effective as of the date the Fund first
commences its investment operations.
IN WITNESS WHEREOF, the Fund has executed this Plan as of the
_____ day of_______, 199_.
WARBURG, PINCUS STRATEGIC VALUE
FUND, INC.
By:_____________________________
Name:___________________________
Title:__________________________
<PAGE>1
SERVICES AGREEMENT
Ladies and Gentlemen:
We have an agreement (the "Distribution Agreement") with each of
several open-end investment companies, or series thereof, for which Warburg,
Pincus Counsellors, Inc. ("Counsellors") provides investment advisory services
(together with such other open-end investment companies, or series thereof, for
which Counsellors provides advisory services in the future, the
"Counsellors-advisor Funds"). Pursuant to the Distribution Agreements, we,
Counsellors Securities Inc. ("CSI"), act as the distributor of shares of common
stock of the Funds designated "Common Shares" (collectively, the "Shares"). You
provide recordkeeping and administrative services to certain employee benefit
plans and retirement plans (together, the "Plans") that include or propose to
include certain of the Counsellors-advisor Funds (as modified from time to time,
the "Funds") as an investment alternative or to other customers of yours who
from time to time beneficially own Shares (together with Plan participants,
"Customers"). We may enter into other similar agreements with any other person
or persons without your consent or notice to you.
As used herein, unless the context otherwise requires, "we," "our"
and/or "us" refer to CSI and "you," "your" and "yours" refer to the company that
is the counterparty to this Agreement (the "Service Organization"). The terms
"Prospectus" and "Statement" as used herein refer respectively to the then
current prospectus and statement of additional information relating to the
Shares forming parts of the Registration Statement on Form N-1A of a Fund under
the Securities Act of 1933, as amended (the "1933 Act").
1. Services. As applicable, you agree to provide the administrative,
shareholder and/or other services set forth on Schedule A hereto, as amended
from time to time. In providing such services, you shall not, except as
specifically provided herein, have any authority to act as agent for us or any
Fund, but shall act only as agent of the Plans and Customers who from time to
time beneficially own Shares of one or more Funds and as an independent
contractor and not as an employee or agent of the Funds, Counsellors or us.
You will maintain all records required by law, including records
detailing the services you provide in return for the fees to which you are
entitled under this Agreement. Such records shall be preserved, maintained and
made available to the extent required and in accordance with the Investment
Company Act of 1940, as amended (the "1940 Act"), and the Securities Exchange
Act of 1934 (the "1934 Act")
<PAGE>2
and the respective rules thereunder. Upon request by a Fund or us, you
agree to promptly make copies or, if required, originals of such of these
records available to the Fund or us, as the case may be. You also agree to
promptly notify the Fund or us if you experience any difficulty in maintaining
the records described in the foregoing in an accurate and complete manner. This
provision shall survive the termination of this Agreement.
You agree to furnish the Funds, Counsellors and us with such occasional
and periodic reports as we shall reasonably request from time to time to enable
the Funds or us to comply with applicable laws and regulations (including,
without limitation, providing reports relating to blue sky and other state
securities laws and regulations) and with such other information as we may
reasonably request (including, without limitation, periodic certifications
confirming the provision to Plans (and Customers of the services described
herein). Moreover, you agree to provide to the Funds, Counsellors and us access
to you and your personnel at our reasonable request during normal business hours
to confirm compliance with the provisions of this Agreement and applicable law.
You shall take all steps necessary to ensure that the arrangements
provided for in this Agreement are properly disclosed to the Plans. You agree to
inform Plans and Customers that they are transacting business with you and not
with the Funds, Counsellors or us, and that they may look only to you for
resolution of problems or discrepancies in their accounts or between those
accounts and your omnibus accounts (the "Accounts") at the Funds.
Neither any Fund, Counsellors nor we assume any responsibility or
obligation as to your right to sell Shares in any state or jurisdiction. We have
full authority to take such action as we may deem advisable in respect of all
matters pertaining to the continuous offering of Shares. We reserve the right in
our sole discretion and without prior notice to you to suspend sales or withdraw
the offering of Shares of any or all Funds. You agree that you will not offer or
sell any Shares except in compliance with applicable federal and state
securities laws. You agree that you will not offer or sell any Shares to Plans,
Customers or other persons (i) in any state or jurisdiction in which such Shares
are not qualified for sale or exempt from the requirements of the relevant
securities laws or in which you are not properly licensed or authorized to make
such offers or sales, (ii) with respect to whom such investment would not be
suitable or otherwise appropriate, or (iii) at any time after CSI or any Fund
has provided you with written notice that any Fund is not then currently
offering Shares to the public.
You shall maintain at all times general liability and other insurance
coverage, including errors and omissions coverage, that is reasonable and
customary in light of your duties hereunder, with limits of not less than $5
million. Such insurance coverage shall be issued by a qualified insurance
carrier with a Best's rating of at least "A" or with the highest rating of a
nationally recognized statistical rating organization. In
<PAGE>3
addition, you shall promptly deliver to us such financial statements as
we reasonably request concerning your financial condition; such statements shall
fairly represent your financial condition as of the date thereof. You shall
inform us of any subsequent material change in your financial condition that
would cause such statements to no longer fairly represent your financial
condition.
2. Orders for Shares. Orders received from you for Shares of a Fund
will be accepted by us only at the public offering price applicable to each
order, as set forth in the relevant Prospectus and Statement. All orders by you
for a Fund's Shares will be held through the Accounts with the Fund, and you
agree to make available to the Funds on a monthly basis records necessary to
determine the number of Plans or Customers in each Account (indicating the
number of new Customer accounts opened during the month, as well as the number
of ongoing Customer accounts) and, if requested by us, the times of receipt of
Customer orders. You agree to use your best efforts to assist us in identifying
"market timers" or investors who engage in a pattern of short-term trading.
On each day on which a Fund calculates its net asset value (a "Business
Day"), you shall aggregate and calculate the net purchase and redemption orders
for each Account. Net orders shall only reflect Customer orders that you have
received prior to the close of regular trading on the New York Stock Exchange,
Inc. (the "NYSE") (currently 4:00 p.m., Eastern time) on that Business Day.
Orders that you have received after the close of regular trading on the NYSE
shall be treated as though received on the next Business Day. Each communication
of orders by you shall constitute a representation that such orders were
received by you prior to the close of regular trading on the NYSE on the
Business Day on which the purchase or redemption order is priced in accordance
with Rule 22c-1 under the 1940 Act. Other procedures relating to the Funds,
including the timing and manner of payment for Shares, shall be in accordance
with Schedule B, as amended from time to time, as well as with the Prospectus
and Statement of the relevant Fund and with oral or written instructions that we
or the relevant Fund shall forward to you from time to time.
SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT AND THE
PROCEDURES REFERRED TO IN THE PRECEDING PARAGRAPH, YOU ARE HEREBY APPOINTED TO
ACT, AND YOU HEREBY AGREE TO ACT, AS AGENT OF EACH FUND FOR THE PURPOSE
SPECIFICALLY SET FORTH IN THIS PARAGRAPH. Provided that you comply with the
procedures referred to in the preceding paragraph, you shall be deemed to be an
agent of each Fund for the sole purpose of receiving instructions from Customers
for the purchase and redemption of Shares of the Fund prior to the close of
regular trading on the NYSE each Business Day and communicating orders based on
such instructions to us or the Fund's transfer agent, all as specified herein.
The Business Day on which you receive such instructions prior to the close of
regular trading on the NYSE shall be the Business Day on which such
<PAGE>4
orders will be deemed to be received by us or the Fund's transfer agent
as a result of such instructions.
You shall not withhold placing orders for the Shares received from
Customers so as to profit yourself as a result of such withholding. You shall
not place orders for Shares unless you have already received purchase orders for
Shares at the applicable public offering price and subject to the terms hereof.
All orders are subject to acceptance or rejection by us or the relevant Fund in
the sole discretion of either, or by the relevant Fund's transfer agent acting
on our behalf, and orders shall be effective only upon receipt in proper form.
The Funds may, if necessary, delay redemption of Shares to the extent permitted
by the 1940 Act.
3. Fees.For the services and facilities provided by you hereunder, we
agree to pay you beginning on the effective date indicated next to our signature
below an amount calculated at the rate and in the manner set forth in Schedule
C, as amended from time to time.
You agree that during the term of this Agreement, you will not assess
against or collect from Plans or Customers any transaction fee upon the purchase
or redemption of any Fund's Shares that are considered in calculating the fee
due pursuant to this Agreement.
4. CSI's Responsibilities; Limitation of Liability for Claims. Any
printed information that we furnish to you other than the Prospectus, the
Statement, information supplemental to the Prospectus and the Statement,
periodic reports and proxy solicitation materials are our sole responsibility
and not the responsibility of any Fund, and you agree that the Funds, the
shareholders of the Funds and the officers and governing Boards of the Funds
shall have no liability or responsibility to you in these respects. You also
agree that the payment of compensation to you under this Agreement is solely our
responsibility and not that of any Fund, and you agree that the Funds, the
shareholders of the Funds and the officers and governing Boards of the Funds
shall have no liability or responsibility to you with respect to any
indebtedness, liability or obligation hereunder. Further, it is understood, in
the case of each Fund that is organized as a Massachusetts business trust or
series thereof, that the declarations of trust for each trust refers to the
trustees collectively as trustees and not as individuals personally, and that
the declaration of trust provides that no shareholder, officer, trustee,
employee or agent of the trust shall be subject to claims against or obligations
of the trust to any extent whatsoever, but that the trust estate only shall be
liable. No Fund or series of a Fund shall be liable for the obligations or
liabilities of any other Fund or series of a Fund.
5. Pricing Errors. In the event adjustments are required to correct any
error in the computation of the net asset value of a Fund's Shares, the Fund or
we shall notify you as soon as practicable after discovering the need for those
adjustments that result
<PAGE>5
in an aggregate reimbursement of $150 or more to the Accounts. Any such
notice shall state for each day for which an error was in effect the incorrect
price, the correct price and, to the extent communicated to the Fund's
shareholders, the reason for the price change. You may send this notice or a
derivation thereof (so long as such derivation is approved in advance by
Counsellors or us) to Customers whose accounts are affected by the price change.
If an adjustment is to be made in accordance with the preceding
paragraph, the relevant Fund shall make all necessary adjustments (within the
parameters specified therein) to the number of Shares owned in the Accounts and
distribute to you the amount of such underpayment for credit to Customers'
accounts.
If the Accounts received amounts in excess of the amounts to which they
otherwise would have been entitled, you, at our request, will make a good faith
attempt to collect such excess amounts from Customers. In no event, however,
shall you be liable to the Funds or us for any such amounts.
6. Termination; Assignment. This Agreement shall be terminable without
penalty upon 30 days' written notice to us by you and upon 10 days' written
notice to you by us; provided, however, that any termination of this Agreement
shall not affect any unpaid obligations under this Agreement and you shall be
entitled to receive all fees earned up to and including the effective date of
termination.
This Agreement shall not be assignable by either us or you without the
prior written consent of the Funds. Nothing in this Agreement is intended to
confer upon any person other than the parties hereto and their permitted assigns
and successors any rights or remedies under or by reason of this Agreement.
7. Fund Information. You agree that you will not offer or sell any
Shares except in compliance with applicable federal and state securities laws
and that in connection with sales and offers to sell Shares you will furnish to
each person to whom any such sale or offer is made, at or prior to the time of
offering or sale, a copy of the relevant Prospectus and, if requested, the
corresponding Statement (each as then amended or supplemented) and will not
furnish to any person any information relating to a Fund that is inconsistent in
any respect with the information contained in the Prospectus and Statement (each
as then amended or supplemented). You shall not make any representations
concerning the Shares or a Fund except those contained in the relevant
Prospectus or Statement or in such printed material issued by us or a Fund as
information supplemental to the Prospectus and Statement.
CSI will provide you on a timely basis with investment performance
information for each Fund, including total return for the preceding calendar
month and calendar quarter, the calendar year to date and the prior one-year,
five-year and ten-year (or life of the Fund) periods. You may, based on the
Securities and Exchange Commission-
<PAGE>6
mandated information supplied by CSI, prepare communications for
Customers ("Customer Materials"). You shall provide copies of all Participant
Materials to CSI concurrently with their first use for CSI's internal
recordkeeping purposes; however, it is understood that neither CSI nor any Fund
shall be responsible for errors or omissions in, or the content of, Customer
Materials.
8. Standard of Care; Indemnification. In carrying out your and our
obligations under this Agreement, you and we each agree to act in good faith and
without negligence.
You agree to and do release, indemnify and hold each Fund, Counsellors,
CSI and their and our respective employees, agents, trustees, directors,
officers and controlling persons harmless from and against any and all direct or
indirect claims, liabilities, expenses or losses resulting from requests,
directions, actions or inactions of or by you or your officers, employees or
agents regarding your responsibilities hereunder. Without limiting the
generality of the foregoing, you agree that this provision will apply to claims,
liabilities, expenses or losses arising out of (a) your making any statement or
representation concerning the Shares or a Fund that is not contained in the
relevant Prospectus or Statement or in such printed material issued by us or a
Fund as information supplemental to the Prospectus and Statement (including,
without limitation, any statement, representation or omission contained in
Customer Materials) and (b) an offering or sale of Shares (i) in any state or
jurisdiction in which such Shares are not qualified for sale or exempt from the
requirements of the relevant securities laws or in which you are not properly
licensed or authorized to make such offers or sales, (ii) which is unsuitable or
otherwise inappropriate to any Plan or Customer or (iii) at any time after CSI
or any Fund has provided you with written notice that any Fund is not then
currently offering Shares to the public. The Funds and CSI, in each case solely
to the extent of such parties' responsibilities hereunder, agree to and do
release, indemnify and hold you and your officers, directors and controlling
persons harmless from and against any and all direct or indirect claims,
liabilities, expenses or losses resulting from requests, directions, actions or
inactions of or by any Fund, CSI or its or our respective officers, employees or
agents regarding our responsibilities hereunder.
This provision shall survive the termination of this Agreement.
9. Representations and Warranties. Each party hereby represents and
warrants to each other party that it is duly authorized by all necessary action,
approval or authorization to enter into this Agreement and that it is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized.
You further represent, warrant and agree that:
<PAGE>7
(i) you are fully authorized by applicable law and
regulation and by any agreement you may have with any Plan, Customer or
other client for whom you may act pursuant to this Agreement to perform
the services and receive the compensation therefor described in this
Agreement;
(ii) in performing the services described in this
Agreement, you will comply with all applicable laws, rules and
regulations and with the relevant Prospectus and Statement;
(iii) if you are not duly registered as a
broker-dealer under Section 15 of the 1934 Act or as a transfer agent
under Section 17A of the 1934 Act and, in either case, applicable state
securities laws and regulations, you are not required to be so
registered and will not be required to be so registered in order to
perform the services and receive the compensation therefor described in
this Agreement;
(iv) neither you nor any of your "affiliates" (as
such term is defined in 29 C.F.R. Section 2510.3-21(e)) is a
"fiduciary" of any Plan as such term is defined in section 3(21) of the
Employment Retirement Income Security Act of 1974, as amended
("ERISA"), and section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code"); and
(v) the receipt of fees hereunder will not
constitute a "prohibited transaction" as such term is defined in
section 406 of ERISA and section 4975 of the Code.
10. Transactions Subject to Fund/SERV. Upon the execution of the Fund/SERV
Amendment to this Agreement, trades may be made through Fund/SERV.
11. Governing Law; Complete Agreement. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York without
reference to conflicts of laws principles.
This Agreement contains the full and complete understanding of the
parties and supersedes all prior representations, promises, statements,
arrangements, agreements, warranties and understandings between the parties with
respect to the subject matter hereof, whether oral or written, express or
implied.
12. Amendment. This Agreement, including the Schedules thereto, may be
modified or amended and the terms of this Agreement may be waived only by
writings signed by each of the parties.
<PAGE>8
13. Notices. All notices and communications shall be mailed or telecopied
to you to the address set forth below and to us at 466 Lexington Avenue, New
York, New York 10017, Attention: Eugene P. Grace (Fax No.: 212-878-9351), or in
any case to such other address as a party may request by giving written notice
to the other.
COUNSELLORS SECURITIES INC.
Date:_____________ __, 199_ By:________________________________
Name:
Title:
Effective as of: _________, 199_
WARBURG PINCUS STRATEGIC VALUE FUND
By:________________________________
Name:
Title:
Please indicate your confirmation and acceptance of this Agreement as
of the date written above by signing below and returning one copy of this
Agreement to Counsellors Securities Inc., 466 Lexington Avenue, New York, New
York 10017, Attention: Eugene P. Grace.
Accepted and Agreed:
By:
Name (Print):
Title:
Address:
Telephone No.:
Fax No.:
<PAGE>A-1
Capitalized terms used herein and not otherwise defined shall
have the meaning set forth in the body of the Services Agreement.
SCHEDULE A
Administrative Services
(i) providing Customers with a service that invests the assets of
their accounts in Shares;
(ii) receiving from the Plans and Customers, in accordance with the
Services Agreement, instructions for the purchase and redemption of Shares;
aggregating and processing purchase and redemption requests for Shares from
Customers and placing net purchase and redemption orders for each Account with
CSI or its designee, communicating such orders in a timely manner to CSI or its
designee in accordance with Schedule D to the Services Agreement; promptly
delivering, or instructing the Plans to deliver, appropriate documentation to
CSI or its designee; and settling purchase and redemption orders in accordance
with the Services Agreement and the relevant Prospectus and Statement;
(iii) arranging for bank wires;
(iv) providing sub-accounting with respect to Shares beneficially
owned by Plans and Customers;
(v) to the extent required by law, at your expense, forwarding
shareholder communications from the relevant Fund (such as the Prospectus, the
Statement, information supplemental to the Prospectus and Statement, periodic
reports, proxy solicitation materials and dividend, distribution and tax
notices) to Plans and Customers, with such material to be provided to you by
CSI to the extent reasonably practicable upon 10 Business Days' notice;
(vi) withholding taxes on non-resident alien accounts and
otherwise as required by law;
(vii) maintaining records of dividends and other distributions;
including dates and prices for all transactions, reinvesting or disbursing in
cash such dividends and distributions in the relevant Fund for Plans and
Customers;
<PAGE>A-2
(viii) preparing and delivering to Plans and Customers and state
and federal regulatory authorities, including the U.S. Internal Revenue
Service, such information respecting dividends and distributions paid by the
relevant Fund as may be required by law;
(ix) maintaining adequate records for each Plan and Customer,
including daily and monthly summaries, reflecting Shares purchased and
redeemed, including dates and prices for all transactions and Share balances;
and
(x) preparing and delivering to Plans and Customers periodic account
statements showing for each Plan and Customer, respectively, the total number
of Shares of a Fund held as of the statement closing date, purchases and
redemptions of Shares during the statement period and dividends and other
distributions paid during the statement period including dates and prices for
all transactions.
<PAGE>A-3
Shareholder Services
(i) responding to Plan and Customer inquiries; providing information
on Plan and Customer investments; and providing other shareholder liaison
services;
(ii) providing office space and equipment, telephone facilities and
personnel (which may be any part of the space, equipment and facilities
currently used in your business, or any personnel already employed by you) as
may be reasonably necessary or beneficial in order to provide services to Plans
and Customers under this Agreement;
(iii) sending confirmations of orders to the Plans and Customers to
the extent required by law and paying any expenses in connection therewith;
(iv) using all reasonable efforts to ensure that taxpayer
identification numbers provided by you on behalf of the Plans and Customers are
correct; and
(v) providing the Plans and Customers a confirming Prospectus
following an acquisition of Shares to the extent required by law.
Other Services
(i) providing all other services as may be incidental to the
Administrative Services and Shareholder Services enumerated above;
(ii) providing such other services as may be normal or customary
for service providers performing substantially similar services; and
(iii) providing such other services as may be mutually agreed by the
parties to the extent permitted under applicable law.
<PAGE>B-1
SCHEDULE B
Operating Procedures
(i) Each Fund will make available its net asset value per Share each
Business Day as soon as reasonably practicable after calculation. The Fund will
use its best efforts to make such determination available by 6:00 p.m., Eastern
time, but in no event later than 7:00 p.m., Eastern time.
(ii) For orders placed with a Fund for investment at the prior
Business Day's net asset value per Share (the Business day of the order being
referred to as "T+1"):
(a) orders must be communicated to us or the Fund's transfer
agent by 9:00 a.m., Eastern time, on T + 1, and
(b) payment for such orders must be in federal funds
transmitted by wire initiated by 12:00 p.m., Eastern time, on T + 1 by either
you or us, as applicable.
(iii) Issuance and transfer of Shares will be by book entry only.
Share certificates will not be issued by the Funds unless specifically
requested by you and agreed to by the relevant Fund.
(iv) CSI will make available reports as to the states and
jurisdictions in which we believe Shares of the Funds are qualified for sale
under, or are exempt from the requirements of, the respective securities laws
of such states and jurisdictions. These reports will be updated periodically.
(v) The Funds will make available confirmation of executed orders the
next Business Day following receipt of the order from you. Confirmation may be
in written or verbal form. You must promptly inform CSI of any discrepancies;
silence will be deemed to indicate agreement.
(vi) Each Fund will furnish notice of the declaration of any dividends
or other distributions payable by it. This information will include the ex,
record and payable dates along with the Shares' reinvestment price. Typically,
this notice will be given by fax transmission, but may be given by other means
as may be reasonable under the circumstances.
(vii) Dividends and distributions of a Fund will be automatically
reinvested, unless otherwise indicated in writing by you, at net asset value
per Share of the Fund in accordance with the Fund's Prospectus.
(viii) The Funds will prepare Account statements on a calendar quarter
basis.
<PAGE>C-1
SCHEDULE C
FEES
<TABLE>
<CAPTION>
Total Annual Fee as % of
Average Daily Net Assets of
Name of Fund Customers held:
------------ ---------------------------
<S> <C>
Warburg Pincus
Strategic Value
</TABLE>
Service Provider:_____________________
Approved By:_____________________
Name:_____________________
Title:_____________________
Date:_____________________
<PAGE>C-2
Fees will be computed by CSI and paid quarterly. CSI or another of the
Funds' designees shall pay the Fee to you, and shall be reimbursed by each Fund
for a portion of the Fee due with respect to that Fund to be determined from
time to time ("Fund Portion"). The difference between the Fee due minus the
Fund Portion shall not be reimbursed by the Funds, but shall be borne by CSI or
another of the Funds' designees.
For purposes of determining the Fees payable hereunder, the average
net assets of the Plans' and Customers' Shares will be computed in the manner
specified in the relevant Fund's registration statement (as the same is in
effect from time to time) in connection with the computation of the net asset
value of Shares for purposes of purchases and redemptions. Fees payable
hereunder shall only be paid with respect to assets serviced by you and not by
any other financial institution and/or any of your affiliates. You will not at
any time include or permit to be included in the calculation of Customers' or
Plans' Shares or fees due from CSI or any affiliate thereof pursuant to this
Agreement, Shares with respect to which a fee is being paid by CSI to a party
other than you or which are otherwise the subject of a similar agreement,
whether such agreement is in place on the date hereof or entered into at some
future date.
In computing your fee, the applicable fee rate set forth above
(multiplied by the actual number of days elapsed during the period and divided
by 365) shall be applied to the average aggregate quarterly net asset value of
Shares of the applicable Funds in accounts for which you provide services for
the period in question. Each quarterly fee shall be determined independently of
every other quarterly fee. For the quarter in which this Agreement becomes
effective or terminates, there shall be an appropriate proration on the basis
of the number of days that the Agreement is in effect during such quarter. In
addition, if in any period the aggregate amount payable to you is less than
$200, we may, in our discretion, defer the payment of such amount until it,
together with a subsequent payment or payments, exceeds $200.
<PAGE>
0209517.01
WARBURG PINCUS ADVISOR FUNDS SERVICES AGREEMENT
Gentlemen:
We, Counsellors Securities Inc. ("CSI"), have an agreement (the
"Distribution Agreement") with the several open-end management investment
companies, or series thereof, for which Warburg, Pincus Counsellors, Inc.
("Counsellors") provides investment advisory services which are listed on
Appendix A hereto, as amended from time to time (the "Funds"). Pursuant to the
Distribution Agreements, we act as the distributor of shares of each Fund's
common stock or beneficial interest, as the case may be, par value $.001 per
share, designated Series 2 Shares or Advisor Shares (collectively, "Advisor
Shares"). This is to confirm that, in consideration of the agreements
hereinafter contained, we have agreed that the company that is the counterparty
to this Agreement (the "Service Organization") shall provide certain services in
connection with the Advisor Shares. We acknowledge that Advisor Shares may be
sold directly to certain employee benefit and retirement plans ("Plans") that
include or propose to include one or more Funds as an investment alternative.
The terms "Prospectus" and "Statement" as used herein refer respectively to the
then current prospectus and statement of additional information relating to the
Advisor Shares forming parts of the Registration Statement on Form N-1A of a
Fund under the Securities Act of 1933, as amended (the "1933 Act").
1. Services. Service Organization agrees to provide to investors in the
Funds ("Customers"), Plans and Plan participants the administrative, shareholder
and/or other services set forth on Schedule A hereto, as amended from time to
time. If Service Organization is not a banking organization that is prohibited
from performing such services (a "Bank"), Service Organization also agrees to
provide the distribution and marketing services set forth on Schedule A hereto.
In providing such services, Service Organization shall not, except as
specifically provided herein, have any authority to act as agent for CSI or any
Fund, but shall act only as agent of the Plans, Plan participants and Customers
who from time to time beneficially own Advisor Shares and as an
<PAGE>
independent contractor and not as an employee or agent of the Funds,
Counsellors or CSI.
Service Organization will maintain all records required by law,
including records detailing the services it provides in return for the fees to
which it is entitled under this Agreement. Such records shall be preserved,
maintained and made available to the extent required by law and in accordance
with the Investment Company Act of 1940, as amended (the "1940 Act"), the
Securities Exchange Act of 1934 (the "1934 Act") and the rules thereunder. Upon
request by a Fund or CSI, Service Organization agrees to promptly make copies
or, if required, originals of such of these records available to the Fund or
CSI, as the case may be. Service Organization also agrees to promptly notify the
Fund or CSI if it experiences any difficulty in maintaining these records in an
accurate and complete manner. This provision shall survive the termination of
this Agreement.
Service Organization agrees to furnish the Funds, Counsellors and CSI
with such occasional and periodic reports as we shall reasonably request from
time to time to enable us or the Funds to comply with applicable laws and
regulations (including, without limitation, providing reports relating to blue
sky and other state securities laws and regulations) and with such other
information as they may reasonably request (including, without limitation,
periodic certifications confirming the provision to Plans, Plan participants and
Customers of the services described herein). Moreover, Service Organization
agrees to provide to the Funds, Counsellors and CSI access to it, and its
personnel at their reasonable request during normal business hours to confirm
compliance with the provisions of this Agreement and applicable law. In
performing services hereunder, Service Organization agrees that it will not
engage in any activities set forth in Schedule B.
Service Organization shall take all steps necessary to ensure that the
arrangements provided for in this Agreement are properly disclosed to the Plans
and Customers. Service Organization agrees to inform Plans and Customers that
they are transacting business with Service Organization and not with CSI,
Counsellors or the Funds, and that they and Plan participants may look only to
Service Organization for resolution of problems or discrepancies in their
accounts or between those accounts and Service Organization's omnibus accounts
(the "Accounts") at the Funds.
<PAGE>
In the case of Service Organizations that are not banks, neither CSI,
Counsellors nor any Fund assumes any responsibility or obligation as to Service
Organization's right to sell Advisor Shares in any state or jurisdiction. Any
such Service Organization agrees that it will not offer or sell any Advisor
Shares to Plans, Customers or persons (i) in any jurisdiction in which Service
Organization is not properly licensed and authorized to make such offers or
sales, or in which Advisor Shares are not qualified for sale, (ii) with respect
to whom such investment would not be suitable or appropriate under applicable
law or (iii) at any time after CSI or any Fund has provided you with written
notice that any Fund is not then currently offering Advisor Shares to the
public. CSI has full authority to take such action as it may deem advisable in
respect of all matters pertaining to the continuous offering of Advisor Shares.
CSI reserves the right in its sole discretion and without prior notice to
Service Organization to suspend sales or withdraw the offering of Advisor Shares
of each Fund.
Service Organization shall maintain at all times general liability and
other insurance coverage, including errors and omissions coverage, that is
reasonable and customary in light of its duties hereunder, with limits of not
less than $5 million. Such insurance coverage shall be issued by a qualified
insurance carrier with a Best's rating of at least "A" or with the highest
rating of a nationally recognized statistical rating organization. In addition,
Service Organization shall promptly deliver to CSI such financial statements as
CSI may reasonably request concerning Service Organization's financial
condition; such statements shall fairly represent Service Organization's
financial condition as of the date thereof.
Each Fund and CSI may enter into other similar agreements with any
other person or persons without Service Organization's consent.
2. Orders for Advisor Shares. Orders received from Service Organization
for Advisor Shares will be accepted by CSI only at the public offering price
applicable to each order, as set forth in the relevant Prospectus and Statement.
All orders by Service Organization for Advisor Shares will be held through the
Accounts with the Funds; and Service Organization agrees to make available on a
monthly basis to CSI records necessary to determine the number of Plans, Plan
participants and/or Customers in each Account and the times of receipt of Plan
participant and Customer orders. Service Organization agrees to use its best
efforts to assist CSI in identifying "market timers" or investors who engage in
a pattern of short-term trading.
<PAGE>
On each day on which a Fund calculates its net asset value (a "Business
Day"), Service Organization shall aggregate and calculate the net purchase and
redemption orders for each Account maintained by the Fund in which Plan
participant and Customer assets are invested. Net orders shall only reflect Plan
participant and Customer orders that Service Organization has received prior to
the close of regular trading on the New York Stock Exchange, Inc. (the "NYSE")
(currently 4:00 p.m., Eastern time) on that Business Day. Orders that Service
Organization has received after the close of regular trading on the NYSE shall
be treated as though received on the next Business Day. Each communication of
orders by Service Organization shall constitute a representation that such
orders were received by it prior to the close of regular trading on the NYSE on
the Business Day on which the purchase or redemption order is priced in
accordance with Rule 22c-1 under the 1940 Act. Other procedures relating to the
Funds shall be in accordance with Schedule C, as amended from time to time, as
well as with the Prospectus and Statement of the relevant Fund and with oral or
written instructions that CSI or a Fund shall forward to Service Organization
from time to time.
SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT AND THE
PROCEDURES REFERRED TO ABOVE, SERVICE ORGANIZATION HEREBY IS APPOINTED TO ACT,
AND SERVICE ORGANIZATION HEREBY AGREES TO ACT AS AGENT OF CSI FOR THE PURPOSE
SPECIFICALLY SET FORTH IN THIS PARAGRAPH. Provided that Service Organization
complies with the foregoing, it shall be deemed to be an agent of CSI for the
sole purpose of receiving instructions as Plan and Customer agent for the
purchase and redemption of Advisor Shares of that Fund prior to the close of
regular trading each Business Day and communicating orders based on such
instructions to the Fund's transfer agent, all as specified herein. The Business
Day on which Service Organization receives such instructions prior to the close
of regular trading on the NYSE shall be the Business Day on which such orders
will be deemed to be received by CSI or the Fund's transfer agent as a result of
such instructions.
Dividends and capital gains distributions will be automatically
reinvested at net asset value in accordance with the Fund's Prospectus.
Payment for Advisor Shares must be received at the time, and in the
manner, set forth in Schedule C, as amended from time to time. All orders are
subject to acceptance or rejection by CSI or the relevant Fund in the sole
discretion of either, or by the Fund's transfer agent acting on its behalf, and
orders shall be effective only upon receipt in
<PAGE>
proper form. Each Fund may, if necessary, delay redemption of Advisor
Shares to the extent permitted by the 1940 Act.
3. Fees. (a) Each Fund has adopted a plan pursuant to Rule
12b-1 under the 1940 Act providing for paymnet of 12b-1 fee of up to .75% of the
value of the average daily net assets of the Advisor Shares held of record by
the Service Organization from time to time on behalf of Plan participants and
Customers (the "Customers' Advisor Shares"). In consideration of the services
and facilities provided by the Service Organization, CSI, on behalf of each
Fund, may pay to the Service Organization, and the Service Organization will
accept as full payment therefor, a fee in an amount obtained by multiplying the
applicable percentages set forth on Appendix A by the average daily net assets
of the Customers' Advisor Shares, which fee will be computed daily and payable
quarterly. The fee set forth above may include a service fee in the amount of
.25% of the average daily net assets of the Customers' Advisor Shares, which fee
will be computed daily and payable quarterly. Any such service fee shall be paid
to Service Organization solely for personal service and/or the maintenance of
shareholder accounts.
(b) For purposes of determining the fees payable under this
Section 3, the average daily net assets of the Customers' Advisor Shares will be
computed in the manner specified in the relevant Fund's registration statement
(as the same is in effect from time to time) in connection with the computation
of the net asset value of Advisor Shares for purposes of purchases and
redemptions. If in any period the aggregate amount payable to Service
Organization is less than $200, CSI may, in its discretion, defer the payment of
such amount until it, together with a subsequent payment or payments, exceeds
$200.
(c) Service Organization will provide to Plans, Plan
participants and Customers a schedule of fees showing the compensation payable
to the Service Organization hereunder, along with any other fees charged by it
to Plans, Plan participants and Customers relating to their assets that are
invested in Advisor Shares.
(d) The fees paid pursuant to this Agreement shall be payable
only after, for so long as and to the extent that CSI has received an amount
equal to the fees payable to Service Organization from each Fund pursuant to
such Fund's Distribution Plan, as amended from time to time, adopted pursuant to
Rule 12b-1 under the 1940 Act.
<PAGE>
4. Counsellors Securities' Responsibilities; Limitation of Liability
for Claims. Any printed information that is furnished to Service Organization
other than each Fund's Prospectus, Statement, information supplemental to the
Prospectus and the Statement, periodic reports and proxy solicitation materials
is CSI's sole responsibility, and not the responsibility of any Fund, and
Service Organization agrees that the Funds, the shareholders of the Funds and
the officers and governing Boards of the Funds shall have no liability or
responsibility to Service Organization in these respects. Further, it is
understood, in the case of each Fund that is organized as a Massachusetts
business trust or series thereof, that the declarations of trust for each trust
refers to the trustees collectively as trustees and not as individuals
personally, and that the declaration of trust provides that no shareholder,
trustee, officer, employee or agent of the trust shall be subject to claims
against or obligations of the trust to any extent whatsoever, but that the trust
estate only shall be liable. No Fund shall be liable for the obligations or
liabilities of any other Fund. No series of any Fund, if any, shall be liable
for obligations of any other series.
5. Pricing Errors. In the event adjustments are required to correct any
error in the computation of the net asset value of a Fund's Advisor Shares, the
Fund or CSI shall notify Service Organization as soon as practicable after
discovering the need for those adjustments that result in an aggregate
reimbursement of $150 or more to any one Account. Any such notice shall state
for each day for which an error occurred the incorrect price, the correct price
and, to the extent communicated to the Fund's shareholders, the reason for the
price change. Service Organization may send this notice or a derivation thereof
(so long as such derivation is approved in advance by CSI or Counsellors) to
Plan participants and Customers whose accounts are affected by the price change.
If an Account received amounts in excess of the amounts to which it
otherwise would have been entitled prior to an adjustment for an error, Service
Organization, at the Fund's request, will make a good faith attempt to collect
such excess amounts from Plan participants and Customers. In no event, however,
shall Service Organization be liable to a Fund or CSI for any such amounts.
If an adjustment is to be made in accordance with the first paragraph
of this Section 5, the relevant Fund shall make all necessary adjustments
(within the parameters specified in that first paragraph) to the number of
Advisor Shares owned in
<PAGE>
the Accounts and distribute to Service Organization the amount of such
underpayment for credit to Plan participants' and Customers' accounts.
6. Publicity. CSI will provide Service Organization on a timely basis
with investment performance information for each Fund in which Service
Organization maintains an Account, including total return for the preceding
calendar month and calendar quarter, the calendar year to date, and the prior
one-year, five-year, and ten-year (or life of the Fund) periods. Service
Organization may, based on the Securities and Exchange Commission-mandated
information supplied by CSI, prepare communications for Plan participants and
Customers ("Participant Materials"). Service Organization shall provide copies
of all Participant Materials to CSI concurrently with their first use for CSI's
internal recordkeeping purposes. It is understood that neither CSI nor any Fund
shall be responsible for errors or omissions in, or the content of, Participant
Materials.
7. Standard of Care; Indemnification. In carrying out Service
Organization's and CSI's obligations under this Agreement, Service Organization
and CSI each agree to act in good faith and without negligence.
Service Organization agrees to and does release, indemnify and hold
each Fund, its investment adviser(s), CSI and their respective officers,
trustees, directors, employees, agents and controlling persons harmless from and
against any and all direct or indirect claims, liabilities, expenses or losses
resulting from requests, directions, actions or inactions of or by Service
Organization or its or their officers, employees or agents regarding Service
Organization's responsibilities hereunder. Without limiting the generality of
the foregoing, Service Organization agrees that this provision will apply to
claims, liabilities, expenses or losses arising out of (a) Service Organization
making any statement or representation concerning the Advisor Shares that is not
contained in the relevant Prospectus or Statement or in such printed material
issued by CSI or a Fund as information supplemental to the Prospectus and
Statement (including, without limitation, any statement, representation or
omission contained in Participant Materials), (b) a sale or offering of Advisor
Shares (i) in any state or jurisdiction in which such Advisor Shares are not
qualified for sale or exempt from the requirements of the relevant securities
laws or in which Service Organization is not properly licensed or authorized to
make offers or sales, (ii) which is unsuited or otherwise inappropriate for any
Plan, Plan participant or Customer or (iii) at any time after CSI or any Fund
provides written notice that any Fund is not then currently offering Advisor
Shares to the public. CSI agrees to and does release, indemnify and hold Service
Organization
<PAGE>
and its officers, directors and controlling persons harmless from and
against any and all direct or indirect claims, liabilities, expenses or losses
resulting from requests, directions, actions or inactions of or by CSI or its
respective officers, trustees, directors, employees, agents or controlling
persons.
This provision shall survive the termination of this Agreement.
8. Representations and Warranties. Each party hereby represents and
warrants to the other that it is duly authorized by all necessary action,
approval or authorization to enter into this Agreement and that it is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized.
Service Organization further represents, warrants and agrees that:
(i) Service Organization is and, during the term of
this Agreement, will be fully authorized by applicable law and
regulation and by any agreement it may have with any Plan, Customer or
client for whom it may act in a manner covered by this Agreement to
perform the services and receive the compensation therefor described in
this Agreement;
(ii) in performing the services and receiving the
compensation described in this Agreement, Service Organization will
comply with all applicable laws, rules and regulations;
(iii) Service Organization is duly registered as a
broker-dealer under Section 15 of the 1934 Act and a transfer agent
under Section 17A of the 1934 Act and, in each case, applicable state
securities laws and regulations, and all such registrations are in full
force and effect and will remain in effect during the term of this
Agreement; if Service Organization is not so registered, it is not
required to be so registered and will not be required to be so
registered in order to perform the services described in this
Agreement;
<PAGE>
(iv) neither Service Organization, nor any of its
"affiliates" (as such term is defined in 29 C.F.R. Section
2510.3-21(e)) is or, during term of this Agreement, will become a
"fiduciary" of any Plan as such term is defined in section 3(21) of the
Employment Retirement Income Security Act of 1974, as amended
("ERISA"), and section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code");
(v) the receipt of fees hereunder will not
constitute a "prohibited transaction" as such term is defined in
section 406 of ERISA and section 4975 of the Code; and
(vi) the compensation payable to Service
Organization hereunder, together with any other compensation it
receives from Plans, Plan participants and Customers for services
contemplated by this Agreement, will not be excessive or unreasonable
under the laws and instruments governing its relationships with Plans,
Plan participants and Customers.
9. Reports. Service Organization will furnish CSI, each Fund or its
designees with such information as it or they may reasonably request (including,
without limitation, periodic certifications confirming the provision to Plans,
Plan participants and Customers of the services described herein), and will
otherwise cooperate with CSI, each Fund and its designees (including, without
limitation, any auditors designated by each Fund), in connection with the
preparation of reports to the Fund's governing Board concerning this Agreement
and the monies paid or payable by CSI, on behalf of the Fund, pursuant hereto,
as well as any other reports or filings that may be required by law. Service
Organization will promptly notify the Fund and CSI in the event it is no longer
able to make the representations and warranties set forth above.
10. Term. This Agreement will become effective on the date set forth
below. Unless sooner terminated, this Agreement will continue until one year
from the date hereof, and thereafter will continue automatically for successive
annual periods provided such continuance is specifically approved at least
annually by the Fund in the manner set forth in the next paragraph. This
Agreement is terminable with respect to each Fund, with or without cause,
without penalty (i) at any time by the Fund, which termination may be by vote of
a majority of (a) the Disinterested Trustees/Directors (as defined below) or (b)
the outstanding Advisor Shares of the Fund, or (ii) by CSI or Service
Organization upon 30 days' notice to the other party hereto.
<PAGE>
Anything in this Agreement to the contrary notwithstanding, no
compensation may be paid under this Agreement with respect to any Fund until
this Agreement has been approved by vote of a majority of (i) the Fund's
governing Board and (ii) those Trustees/Directors who are not "interested
persons" (as defined in the 1940 Act) of the Fund and have no direct or indirect
financial interest in the operation of the Distribution Plan adopted by the Fund
regarding the provision of distribution and support services to the beneficial
owners of the Advisor Shares or in any agreements related thereto
("Disinterested Trustees/Directors"), cast in person at a meeting for the
purpose of voting on such approval.
11. Transactions Subject to Fund/SERV. Upon the execution of a
Fund/SERV Amendment to this Agreement, transactions in Fund shares may be
affected through Fund/SERV.
12. Governing Law; Complete Agreement; Assignment. This Agreement
shall be governed by and construed in accordance with the laws (except the
conflict of law rules) of the State of New York.
This Agreement contains the full and complete understanding of the
parties and supersedes all prior representations, promises, statements,
arrangements, agreements, warranties and understandings between the parties with
respect to the subject matter hereof, whether oral or written, express or
implied.
This Agreement is non-assignable by the parties hereto and will
terminate automatically in the event of its assignment (as such term is defined
in the 1940 Act). Nothing in this Agreement is intended to confer upon any
person other than the Fund and the parties hereto and their permitted assigns
and successors any rights or remedies under or by reason of this Agreement.
13. Amendment. This Agreement, including the Schedules thereto, may
be modified or amended and the terms of this Agreement may be waived only by
writings signed by each of the parties.
<PAGE>
14. Notices. All notices and communications shall be mailed or
telecopied to Service Organization to the address set forth below and to the
Fund or CSI at 466 Lexington Avenue, New York, New York 10017, Attention:
Eugene P. Grace (Fax No.: 212-878-9351), or in any case to such other address
as a party may request by giving written notice to the other.
COUNSELLORS SECURITIES INC.
Date:_____________ __, 199_ By:________________________________
Name:
Title:
Effective as of:______________
<PAGE>
Please indicate Service Organization's confirmation and acceptance of this
Agreement as of the date written above by signing below and returning one copy
of this Agreement to Counsellors Securities Inc., 466 Lexington Avenue, New
York, New York 10017, Attention: Eugene P. Grace.
Accepted and Agreed:
- -----------------------------------
By:__________________________
Name (Print):__________________
Title:_________________________
Address: ______________________
Telephone No.:__________________
Fax No.:
<PAGE>
Capitalized terms used herein and not otherwise defined shall have the meaning
set forth in the body of the Advisor Funds Services Agreement.
APPENDIX A
Funds Fee Rate
----- --------
Warburg Pincus Balanced Fund .50%
Warburg Pincus Capital Appreciation Fund .50%
Warburg Pincus Emerging Growth Fund .50%
Warburg Pincus Emerging Markets Fund .50%
Warburg Pincus Fixed Income Fund .25%
Warburg Pincus Health Sciences Fund .50%
Warburg Pincus Global Fixed Income Fund .50%
Warburg, Pincus Global Pos-Venture Capital Fund .50%
Warburg Pincus Growth & Income Fund .50%
Warburg Pincus Intermediate Maturity Government Fund .25%
Warburg Pincus International Equity Fund .50%
Warburg Pincus Japan Growth Fund .50%
Warburg Pincus Japan OTC Fund .50%
Warburg Pincus New York Intermediate Municipal Fund .25%
Warburg Pincus Post-Venture Capital Fund .50%
Warburg Pincus Small Comany Growth Fund .50%
Warburg Pincus Small Company Value Fund .50%
Warburg, Pincus Strategic Value Fund .50%
<PAGE>
SCHEDULE A
Distribution and Marketing Services
(i) formulation and implementation of marketing and promotional
activities including, but not limited to, direct mail promotions and other
advertising, if appropriate;
(ii) distributing Prospectuses, Statements and reports of the Fund
to prospective Plans, Plan sponsors and Customers;
(iii) preparing, printing and distributing sales literature
pertaining to the Fund; and
(iv) obtaining information, analyses and reports with respect to
marketing and promotional activities relating to the Fund.
Administrative Services
(i) receiving from the Plans, Plan participants and Customers, by
the close of regular trading on the New York Stock Exchange (currently 4:00
p.m., Eastern time) on any business day (i.e., a day on which the New York
Stock Exchange is open for trading), instructions for the purchase and
redemption of shares; aggregating and processing purchase and redemption
requests for Advisor Shares from Plan participants and Customers and placing
net purchase and redemption orders with CSI or its designee; payment for net
purchase orders must be received at the time the order is placed; communicating
orders in a timely manner to CSI or its designee and promptly delivering, or
instructing the Plans to deliver, appropriate documentation to CSI or its
designee;
<PAGE>
(ii) providing Plan participants and Customers with a service that
invests the assets of their accounts in Advisor Shares;
(iii) providing information periodically to Plans, Plan
participants and Customers showing their positions in Advisor Shares;
(iv) arranging for bank wires;
(v) providing sub-accounting with respect to Advisor Shares
beneficially owned by Plans, Plan participants and Customers;
(vi) if required by law, forwarding shareholder communications from
the relevant Fund (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to Plans, Plan
participants and Customers at Service Organization's expense, with such
material to be provided to it by CSI to the extent reasonably practicable upon
ten Business Days' notice;
(vii) withholding taxes on non-resident alien accounts and
otherwise as appropriate;
(viii) maintaining records of dividends and distributions; and
disbursing dividends and distributions and reinvesting such in the relevant
Fund for Plans and Plan participants;
(ix) preparing and delivering to Plans, Plan participants and
Customers and state and federal regulatory authorities, including the U.S.
Internal Revenue Service, such information respecting dividends and
distributions paid by the relevant Fund as may be required by law;
<PAGE>
(x) maintaining adequate records for each Plan and Customer
reflecting Advisor Shares purchased and redeemed, including dates and prices
for all transactions, and Share balances;
(xi) preparing and delivering to Plans and Customers periodic
account statements showing for each Plan and Customer, respectively, the total
number of Advisor Shares held as of the statement closing date, purchases and
redemptions of Advisor Shares during the statement period, and dividends and
other distributions paid during the statement period (whether paid in cash or
reinvested in Advisor Shares), including dates and prices for all transactions;
(xii) on behalf of and to the extent instructed by each Plan and
Customer and as required by law, at Service Organization's expense, delivering
to Plan participants (or delivering to the Plans for distribution to Plan
participants) and Customers Prospectuses, Statements and other materials
provided to it by CSI to the extent reasonably practicable upon ten Business
Days' notice;
(xiii) maintain daily and monthly purchase summaries (expressed in
both Share and dollar amounts) for each Plan and Customer; and
(xiv) settle orders in accordance with the terms of the Prospectus
and Statement of the Fund.
<PAGE>
Shareholder Services
(i) responding to Plans, Plan participant and Customer inquiries;
(ii) providing information on Plan, Plan participant and Customer
investments;
(iii) providing other shareholder liaison services;
(iv) providing office space and equipment, telephone facilities and
personnel (which may be any part of the space, equipment and facilities
currently used in Service Organization's business, or any personnel employed by
Service Organization) as may be reasonably necessary or beneficial in order to
provide services to Plans and Customers under this Agreement;
(v) sending confirmations of orders to the Plans and Plan
participants and Customers to the extent required by law and paying any costs
in connection therewith;
(vi) using all reasonable efforts to ensure that taxpayer
identification numbers provided by Service Organization on behalf of the Plans,
Plan participants and Customers are correct; and
(vii) providing the Plans, Plan participants and Customers a
confirming Prospectus following an acquisition of Advisor Shares to the extent
required by law.
<PAGE>
Other Services
(i) providing all other services as may be incidental to
the Distribution and Marketing Services, Administrative Services and
Shareholder Services enumerated above;
(ii) providing such other services as may be normal or customary
for service providers performing substantially similar services; and
(iii) providing such other services as may be mutually agreed by the
parties to the extent permitted under applicable statutes, rules and
regulations.
<PAGE>
SCHEDULE B
Prohibited Activities
(i) Service Organization shall not withhold placing orders for the
Advisor Shares received from Plan participants and Customers so as to profit as
a result of such withholding.
(ii) Service Organization shall not place orders for Advisor Shares
unless it has already received purchase orders for Advisor Shares at the
applicable public offering price and subject to the terms hereof.
(iii) Service Organization agrees that it will not offer or sell any
Advisor Shares except under circumstances that will result in compliance with
applicable federal and state securities laws and that in connection with sales
and offers to sell Advisor Shares Service Organization will furnish to each
person to whom any such sale or offer is made, at or prior to the time of
offering or sale, a copy of the relevant Prospectus and, if requested, the
corresponding Statement (each as then amended or supplemented) and will not
furnish to any person any information relating to a Fund that is inconsistent
in any respect with the information contained in the Prospectus and Statement
(each as then amended or supplemented).
(iv) Service Organization shall not make any representations
concerning the Advisor Shares except those contained in the relevant Prospectus
and Statement and in such printed information subsequently issued by CSI or a
Fund as information supplemental to the Prospectus and Statement.
<PAGE>
SCHEDULE C
Operating Procedures
1. Each Fund will make available its net asset value per share on a
daily basis as soon as reasonably practicable after the net asset value is
calculated. The Fund will use its best efforts to make such determination
available by 6:00 p.m., Eastern time, but in no event later than 7:00 p.m.,
Eastern time, each Business Day.
2. Each Fund will furnish notice of the declaration of any income,
dividends or capital gains distributions payable by it. This information will
include the ex, record and payable dates along with the Fund's reinvestment
price. Typically, this notice will be given by fax transmission, but may be
given by other means as may be reasonable under the circumstances.
3. Dividends and capital gains distributions will be automatically
reinvested at net asset value in accordance with the Fund's Prospectus.
4. For trades placed with a Fund the Business Day after a trade date
("T+1") for investment at the prior Business Day's net asset value:
(i) trade orders must be received before 4:00 p.m., Eastern time, by
the Service Organization on the trade date ("T"):
(ii) trade orders must be communicated to the relevant Fund by 10:00
a.m., Eastern time on T + 1, and
(iii) payment for such orders must be in federal funds transmitted by
wire. This wire must be initiated by 12:00 p.m., Eastern time on T + 1 by
either the Service Organization or CSI, as the case may be.
5. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued by the Funds unless specifically
requested by the Service Organization and agreed to by the relevant Fund.
6. CSI will make available reports as to the states and jurisdictions
in which we believe the Funds are qualified for sale under, or are exempt from
the requirements of, the respective securities laws of such states and
jurisdictions. These reports will be updated periodically as changes arise.
7. The Funds will make available confirmation of executed trades the
next Business Day following receipt of the trade from the Service Organization.
Confirmation may be in written or verbal form. If verbal, Service Organization
must promptly inform CSI of any discrepancies; silence will be deemed to
indicate agreement.
8. The Funds will make available account statements on a calendar
quarter basis.
<PAGE>
<PAGE>1
DISTRIBUTION PLAN
This Distribution Plan (the "Plan") is adopted in accordance
with Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940
Act"), by Warburg, Pincus Strategic Value Fund, Inc., a corporation organized
under the laws of the State of Maryland (the "Fund"), subject to the following
terms and conditions:
Section 1. Distribution Agreements; Annual Fee.
Any officer of the Fund or Counsellors Securities Inc., the
Fund's distributor ("Counsellors Securities"), is authorized to execute and
deliver written agreements in any form duly approved by the Board of Directors
of the Fund (the "Agreements") with institutional shareholders of record,
broker-dealers, financial institutions, depository institutions, retirement
plans and other financial intermediaries ("Service Organizations") relating to
shares of the Fund's common stock, par value $.001 per share, designated Advisor
Shares (the "Advisor Shares"). Pursuant to an Agreement, Service Organizations
will be paid an annual fee out of the assets of the Fund by the Fund directly or
by Counsellors Securities on behalf of the Fund for providing (a) services
primarily intended to result in the sale of Advisor Shares ("Distribution
Services"), (b) shareholder servicing to their customers or clients who are the
record and/or the beneficial owners of Advisor Shares ("Customers")
("Shareholder Services") and/or (c) administrative and accounting services to
Customers ("Administrative Services"). A Service Organization will be paid an
annual fee under the Plan calculated daily and paid monthly at an annual rate of
up to .50% of the average daily net assets of the Advisor Shares held by or on
behalf of its Customers ("Customers' Shares") with respect to Distribution
Services and/or Administrative Services and may be paid an annual fee of up to
.25% of the average daily net assets of Customers' Shares with respect to
Shareholder Services.
Section 2. Services.
The annual fee paid to Service Organizations under Section 1
of the Plan with respect to Distribution Services, if any, will compensate
Service Organizations to cover certain expenses primarily intended to result in
the sale of Advisor Shares, including, but not limited to: (a) costs of payments
made to employees that engage in the distribution of Advisor
<PAGE>2
Shares; (b) payments made to, and expenses of, persons who provide support
services in connection with the distribution of Advisor Shares, including, but
not limited to, office space and equipment, telephone facilities, processing
shareholder transactions and providing any other shareholder services not
otherwise provided by the Fund's transfer agent; (c) costs relating to the
formulation and implementation of marketing and promotional activities,
including, but not limited to, direct mail promotions and television, radio,
newspaper, magazine and other mass media advertising; (d) costs of printing and
distributing prospectuses, statements of additional information and reports of
the Fund to prospective holders of Advisor Shares; (e) costs involved in
preparing, printing and distributing sales literature pertaining to the Fund
and (f) costs involved in obtaining whatever information, analyses and reports
with respect to marketing and promotional activities that the Fund may, from
time to time, deem advisable.
The annual fee paid to Service Organizations under Section 1
of the Plan with respect to Shareholder Services, if any, will compensate
Service Organizations for personal service and/or the maintenance of Customer
accounts, including but not limited to (a) responding to Customer inquiries, (b)
providing information on Customer investments and (c) providing other
shareholder liaison services.
The annual fee paid to Service Organizations under Section 1
of the Plan with respect to Administrative Services, if any, will compensate
Service Organizations for administrative and accounting services to their
Customers, including, but not limited to: (a) aggregating and processing
purchase and redemption requests from Customers and placing net purchase and
redemption orders with the Fund's distributor or transfer agent; (b) providing
Customers with a service that invests the assets of their accounts in Advisor
Shares; (c) processing dividend payments from the Fund on behalf of Customers;
(d) providing information periodically to Customers showing their positions in
Advisor Shares; (e) arranging for bank wires; (f) providing sub-accounting with
respect to Advisor Shares beneficially owned by Customers or the information to
the Fund necessary for sub-accounting; (g) forwarding shareholder communications
from the Fund (for example, proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to Customers,
if required by law and (h) providing other similar services to the extent
permitted under applicable statutes, rules and regulations.
Payments under this Plan are not tied exclusively to the
expenses for shareholder servicing, administration and distribution expenses
actually incurred by any Service
<PAGE>3
Organization, and the payments may exceed expenses actually
incurred by any Service Organization.
Section 3. Additional Payments.
Counsellors Securities, Warburg, Pincus Counsellors, Inc., the
Fund's investment adviser ("Warburg"), Counsellors Funds Service, Inc., the
Fund's co-administrator ("Counsellors Service"), or any affiliate of any of the
foregoing may, from time to time, make payments to Service Organizations for
providing distribution, administrative, accounting and/or other services with
respect to holders of Advisor Shares. Counsellors Securities, Warburg,
Counsellors Service or any affiliate thereof may, from time to time, at their
own expense, pay certain Fund transfer agent fees and expenses related to
accounts of Customers of Service Organizations that have entered into
Agreements. A Service Organization may use a portion of the fees paid pursuant
to the Plan to compensate the Fund's custodian or transfer agent for costs
related to accounts of Customers of the Service Organization that hold Advisor
Shares. Payments by the Fund under this Plan shall not be made to a Service
Organization with respect to services for which the Service Organization is
otherwise compensated by Counsellors Securities, Warburg, Counsellors Service or
any affiliate thereof.
Payments may be made to Service Organizations by Counsellors
Securities, Warburg, Counsellors Service or any affiliate thereof from any such
entity's own resources, which may include a fee it receives from the Fund.
Section 4. Monitoring.
Counsellors Securities shall monitor the arrangements
pertaining to the Fund's Agreements with Service Organizations.
Section 5. Approval by Shareholders.
The Plan is effective, and fees are payable in accordance with
Section 1 of the Plan pursuant to the approval of the Plan by a vote of at least
a majority of the outstanding voting Advisor Shares.
Section 6. Approval by Directors.
The Plan is effective, and payments under any related
agreement may be made pursuant to the approval of the Plan and
<PAGE>4
such agreement by a majority vote of both (a) the full Board of Directors of
the Fund and (b) those Directors who are not interested persons of the Fund and
who have no direct or indirect financial interest in the operation of the Plan
or in any agreements related to it (the "Qualified Directors"), cast in person
at a meeting called for the purpose of voting on the Plan and the related
agreements.
Section 7. Continuance of the Plan.
The Plan will continue in effect for so long as its
continuance is specifically approved at least annually by the Fund's Board of
Directors in the manner described in Section 5 above.
Section 8. Termination.
The Plan may be terminated at any time by a majority vote of
the Qualified Directors or by a majority of the outstanding voting Advisor
Shares.
Section 9. Amendments.
The Plan may not be amended to increase materially the amount
of the fees described in Section 1 above with respect to the Advisor Shares
without approval of at least a majority of the outstanding voting Advisor
Shares. In addition, all material amendments to the Plan must be approved by the
Fund's Board of Directors in the manner described in Section 6 above.
Section 10. Selection of Certain Directors.
While the Plan is in effect, the selection and nomination of
the Fund's Directors who are not interested persons of the Fund will be
committed to the discretion of the Directors then in office who are not
interested persons of the Fund.
Section 11. Written Reports.
In each year during which the Plan remains in effect,
Counsellors Securities will furnish to the Fund's Board of Directors, and the
Board will review, at least quarterly, written
<PAGE>5
reports, which set out the amounts expended under the Plan and the purposes for
which those expenditures were made.
Section 12. Preservation of Materials.
The Fund will preserve copies of the Plan, any agreement
relating to the Plan and any report made pursuant to Section 11 above, for a
period of not less than six years (the first two years in an easily accessible
place) from the date of the Plan, agreement or report.
Section 13. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and
"majority of the outstanding voting securities" will be deemed to have the same
meanings that those terms have under the 1940 Act and the rules and regulations
thereunder, subject to any exemption that may be granted to the Fund under the
1940 Act by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the Fund has executed the Plan as of
________ __, 199_.
WARBURG, PINCUS STRATEGIC VALUE
FUND, INC.
By:___________________________
Name:
Title:
Acknowledged this
day of ________, 199_
COUNSELLORS SECURITIES INC.
By:_____________________________
Name:
Title:
