<PAGE> 1
As filed with the U.S. Securities and Exchange Commission
on April 7, 1998
Securities Act File No. 333-
Investment Company Act File No. 811-
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.__ [ ]
Post-Effective Amendment No.__ [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [x]
Amendment No.__ [ ]
(Check appropriate box or boxes)
Warburg, Pincus International Small Company 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 International Small Company 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 Proposed
Title of Maximum Maximum
Securities Offering Aggregate Amount of
Being Amount Being Price per Offering Registra-
Registered Registered Unit Price tion Fee
------------------------ --------------- -------------- ------------ ----------
<S> <C> <C> <C> <C>
Shares of
common
stock, $.001
par value
per share Indefinite* Indefinite* Indefinite* $None
@@
</TABLE>
- ----------
* 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").
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 INTERNATIONAL SMALL COMPANY 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 Expenses
3. Condensed Financial Information............... Not applicable
4. General Description of
Registrant.................................. Cover Page; Investment Objective and
Policies; Risk Factors and Special
Considerations and Certain Investment
Strategies; Investment Guidelines;
General Information
5. Management of the Fund........................ Management of the Fund
6. Capital Stock and Other
Securities.................................. General 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
Item No.
- --------
<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
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C>
Exchange Shares," "Net Asset Value"
20. Tax Status.................................... Additional Information Concerning
Taxes; See Prospectus--"Dividends,
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.......................... Statements of Assets and Liabilities;
Report of Coopers and Lybrand, L.L.P.,
Independent Accountants
</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> 6
SUBJECT TO COMPLETION, DATED APRIL 7, 1998
PROSPECTUS
, 1998
WARBURG PINCUS
INTERNATIONAL SMALL COMPANY FUND
[WARBURG PINCUS FUNDS LOGO]
<PAGE> 7
SUBJECT TO COMPLETION, DATED APRIL 7, 1998
PROSPECTUS , 1998
Warburg Pincus Funds is a family of open-end mutual funds that offer investors a
variety of investment opportunities. One fund is described in this Prospectus:
WARBURG PINCUS INTERNATIONAL SMALL COMPANY FUND seeks capital appreciation by
investing in a portfolio of equity securities of non-United States small-sized
companies.
International investing entails special risk considerations, including currency
fluctuations, lower liquidity, economic instability, political uncertainty and
differences in accounting methods. See "Risk Factors and Special
Considerations."
NO LOAD CLASS OF COMMON SHARES
- --------------------------------------------------------------------------------
Common Shares that are "no load" are 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.
LOW MINIMUM INVESTMENT
- --------------------------------------------------------------------------------
The minimum initial investment in the Fund is $2,500 ($500 for an IRA or
Uniform Transfers/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 has been filed with the Securities and Exchange Commission (the "SEC"). The
SEC maintains a Web site (http://www.sec.gov) that contains the Statement of
Additional Information, material incorporated by reference and other information
regarding the Fund. The Statement of Additional Information is available to
investors without charge by calling Warburg Pincus Funds at (800) 927-2874.
Information regarding the status of shareholder accounts may be obtained by
calling Warburg Pincus Funds at the same number. Warburg Pincus Funds maintains
a Web site at www.warburg.com. 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 FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTMENTS IN SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
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> 8
THE FUND'S EXPENSES
- --------------------------------------------------------------------------------
Although authorized to offer two separate classes of shares (Common Shares and
Advisor Shares), the Warburg Pincus International Small Company Fund (the
"Fund") currently offers only Common Shares. Common Shares pay the Fund's
distributor a 12b-1 fee. See "Management of the Fund -- 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 (after fee waivers)....................... .49%+
12b-1 Fees................................................ .25%
Other Expenses (after expense reimbursements)............. .81%+
----
Total Fund Operating Expenses (after fee waivers and
expense reimbursements)*................................ 1.55%
EXAMPLE
You would pay the following expense on a $1,000
investment, assuming
(1) 5% annual return and (2) redemption at the end of each
time period:
1 year.................................................... $16
3 years................................................... $49
</TABLE>
- --------------------------------------------------------------------------------
+ Annual Fund Operating Expenses are based on estimated amounts to be charged in
the current fiscal year after the anticipated waiver of fees by the Fund's
investment adviser and co-administrator. The investment adviser and co-
administrator have voluntarily agreed to limit the Fund's expenses as shown
above until October 31, 1999. The investment adviser and co-administrator are
under no obligation to continue such waivers and/or reimbursements thereafter.
* Absent the anticipated waiver of fees by the Fund's investment adviser and
co-administrator, Management Fees for the Fund would equal 1.10%, Other
Expenses would equal .93%, and Total Fund Operating Expenses would equal
2.28%.
---------------------------
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%.
Long-term shareholders of the Fund may pay more than the economic equivalent of
the maximum sales charges permitted by the National Association of Securities
Dealers, Inc.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The investment objective of the Fund is to seek capital appreciation. This
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
2
<PAGE> 9
investment objective by investing in a portfolio of equity securities of small-
sized companies, wherever organized, that in the judgment of Warburg Pincus
Asset Management, Inc., the Fund's investment adviser ("Warburg"), have their
principal business activities and interests outside of the United States. The
Fund intends to invest, under normal market conditions, at least 65% of its
total assets in common stocks, warrants and securities convertible into or
exchangeable for common stocks of foreign small companies that present
attractive opportunities for capital appreciation. Ordinarily the Fund's
investments will be in at least three countries other than the United States.
The Fund considers a "small" company to be one whose market capitalization,
measured at the time the Fund purchases a security of that company, is no larger
than the largest market capitalization of companies represented in the Morgan
Stanley Capital International EAFE(R) Small Cap Index (the "Small Cap Index").
(As of , 1998, the largest market capitalization of companies
represented in the Small Cap Index was $ .) Companies whose market
capitalization no longer meets this definition after purchase continue to be
considered small companies for purposes of the Fund's policy of investing at
least 65% of its assets in foreign small companies. As a result of these
policies, the average market capitalization of the Fund at any particular time
may exceed the largest market capitalization of companies represented in the
Small Cap Index, particularly at times when the market values of small company
stocks are rising. Because the Fund will invest in both developed and emerging
markets, some companies in smaller markets in which the Fund may invest might
rank among the largest companies, by market capitalization, in those markets.
The Fund intends to be widely diversified across securities of many companies
located in a number of countries, and may invest up to 20% of its assets in less
developed countries considered to be "emerging markets." In appropriate
circumstances, such as when a direct investment by the Fund in the securities of
a particular country cannot be made or when the securities of an investment
company are more liquid than the underlying portfolio securities, the Fund may,
consistent with the provisions of the Investment Company Act of 1940, as amended
(the "1940 Act"), invest in the securities of closed-end investment companies.
The Fund will invest primarily in companies whose securities are traded on
national securities exchanges or in an organized over-the-counter market, such
as the Japan Securities Dealers Association Automated Quotation System
("JASDAQ"), the European Association of Securities Dealers Automated Quotation
System ("EASDAQ") and the U.K. Alternative Investment Market ("AIM"). The Fund
may engage in a variety of strategies, including currency hedging and short
selling, to seek to reduce currency and other risks or to enhance return. The
Fund may invest up to 35% of its assets in U.S. securities.
Warburg will attempt to identify countries and industries that it believes
will relatively outperform and seeks to invest in companies that it believes can
be purchased at a reasonable price for their projected growth. Small compa-
3
<PAGE> 10
nies in which the Fund may invest may still be in the developmental stage, may
be older companies that appear to be entering a new stage of growth progress
owing to factors such as management changes or development of new technology,
products or markets or may be companies providing products or services with a
high unit volume growth rate. The Fund may also invest in securities of emerging
growth companies, which can be companies that have passed their start-up phase
and that show positive earnings and prospects of achieving significant profit
and gain in a relatively short period of time. Emerging growth companies
generally stand to benefit from new products or services, technological
developments, changes in management and other factors and include companies
experiencing unusual developments affecting their market value. The Fund's
investments will be made on the basis of their equity characteristics and
securities ratings generally will not be a factor in the selection process.
PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
DEBT SECURITIES. The Fund may invest up to 35% of its total assets in
investment grade debt securities (other than money market obligations) and
preferred stocks that are not convertible into common stock 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 appreciation when interest rates are expected
to decline. The success of such a strategy is dependent upon Warburg's ability
to forecast accurately changes in interest rates. The market value of debt
obligations may also be expected to vary depending upon, among other factors,
the ability of the issuer to repay principal and interest, any change in
investment rating and general economic conditions.
A security will be deemed to be investment grade if it is rated within the
four highest grades by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Ratings Services ("S&P") or, if unrated, is determined to be of
comparable quality by Warburg. Bonds rated in the fourth highest grade have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds. Subsequent to
its purchase by the 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, although Warburg will
consider such event in its determination of whether the Fund should continue to
hold the securities. The Fund does not currently intend during the coming year
to hold more than 5% of its net assets in securities rated below investment
grade, including convertible and non-convertible debt securities downgraded
below investment grade subsequent to acquisition by the Fund.
When Warburg believes that a defensive posture is warranted, the Fund
4
<PAGE> 11
may invest temporarily without limit in U.S. and foreign investment grade debt
obligations, other securities of U.S. companies and in domestic and foreign
money market obligations, including repurchase agreements.
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 remaining to maturity) 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 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 in which 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 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 or Warburg. As a shareholder in any
mutual fund, the Fund will bear its ratable share of the mutual fund's
5
<PAGE> 12
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 SECURITIES. 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. Subsequent to purchase by the Fund, convertible
securities may cease to be rated or a rating may be reduced below the minimum
required for purchase by the Fund. Neither event will require sale of such
securities, although Warburg will consider such event in its determination of
whether the Fund should continue to hold the securities.
WARRANTS. The Fund may invest up to 10% of its total assets in warrants.
Warrants are securities that give the holder the right, but not the obligation,
to purchase 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.
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, see "Portfolio
Investments" and "Certain Investment Strategies" in this Prospectus.
EMERGING MARKETS. Investing in securities of issuers located in emerging
markets involves not only the risks described below, with respect to investing
in foreign securities, but also other risks, including exposure to economic
structures that are generally less diverse and mature than, and to political
systems that can be expected to have less stability than, those of developed
countries. For example, many investments in emerging markets experienced
significant declines in value due to political and currency volatility in
emerging market countries during the latter part of 1997. Other characteristics
of emerging markets that may affect investment there include certain national
policies that may restrict investment by foreigners in issuers or industries
deemed sensitive to relevant national interests and the absence of developed
6
<PAGE> 13
legal structures governing private and foreign investments and private property.
The typically small size of the markets for securities of issuers located in
emerging markets and the possibility of a low or nonexistent volume of trading
in those securities may also result in a lack of liquidity and in price
volatility of those securities.
EMERGING GROWTH AND SMALLER CAPITALIZATION COMPANIES; UNSEASONED
ISSUERS. Investing in securities of emerging growth, small- and medium-sized
companies and companies with continuous operations of less than three years
("unseasoned issuers") may involve greater risks than investing in larger, more
established companies since these securities may have limited marketability and,
thus, may be more volatile than securities of larger, more established companies
or the market averages in general. Because such companies 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. These companies may have limited product lines, markets or
financial resources and may lack management depth. In addition, these companies
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 these 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 that seek capital appreciation by investing in more established, 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 "Securities Act"), but that can be sold to "qualified institutional buyers"
in accordance with Rule 144A under the Securities 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 Fund's
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
7
<PAGE> 14
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.
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 but increases an
investor's risk 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.
YEAR 2000 COMPLIANCE. Many services provided to the Fund and its shareholders
by Warburg, Counsellors Securities Inc., the Fund's distributor ("Counsellors
Securities"), Counsellors Funds Service, Inc. ("Counsellors Service")
(collectively, the "Warburg Service Providers") and the Fund's other service
providers rely on the functioning of their respective computer systems. Many
computer systems cannot distinguish the year 2000 from the year 1900, with
resulting potential difficulty in performing various calculations (the "Year
2000 Issue"). The Year 2000 Issue could potentially have an adverse impact on
the handling of security trades, the payment of interest and dividends, pricing,
account services and other Fund operations.
The Warburg Service Providers recognize the importance of the Year 2000 Issue
and are taking appropriate steps necessary in preparation for the year 2000. At
this time, there can be no assurance that these steps will be sufficient to
avoid any adverse impact on the Fund nor can there be any assurance that the
Year 2000 Issue will not have an adverse effect on the Fund's investments or on
global markets or economies, generally. In addition, it has been reported that
foreign institutions have made less progress in addressing the Year 2000 Issue
than major U.S. entities, which could adversely affect the Fund's foreign
investments.
The Warburg Service Providers anticipate that their systems and those of the
Fund's other service providers will be adapted in time for the year 2000. To
further this goal, the Warburg Service Providers have coordinated a plan to
8
<PAGE> 15
repair, adapt or replace systems that are not year 2000 compliant, and are
seeking to obtain similar representations from the Fund's other major service
providers. The Warburg Service Providers will be monitoring the Year 2000 Issue
in an effort to ensure appropriate preparation.
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 relevant 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 100%. High
portfolio turnover rates (100% or more) may result in higher dealer mark-ups 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. 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
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Although there is no intention of doing so during the coming year, the Fund is
authorized to: (i) purchase securities on a when-issued basis and purchase or
sell securities for delayed delivery, (ii) lend portfolio securities, and (iii)
enter into reverse repurchase agreements and dollar rolls. The Fund may also
invest in asset-backed securities, mortgaged-backed securities, zero coupon
securities and stand-by commitments, although the Fund currently anticipates
that during the coming year such investments will each not exceed 5% of net
assets. Detailed information concerning the Fund's strategies and related risks
is contained below and in the Statement of Additional Information.
FOREIGN SECURITIES. The Fund will ordinarily hold no less than 65% of its
total assets in 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 domestic 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
9
<PAGE> 16
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. The risks associated with investing in securities of non-U.S.
issuers are generally heightened for investments in securities of issuers in
emerging markets.
DEPOSITARY RECEIPTS. Certain of the above risks may be involved with American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and
International Depositary Receipts ("IDRs"), instruments that evidence ownership
in underlying securities issued by a foreign corporation. ADRs, EDRs and IDRs
may not necessarily be denominated in the same currency as the securities whose
ownership they represent. ADRs are typically issued by a U.S. bank or trust
company. EDRs (sometimes referred to as Continental Depositary Receipts) are
issued in Europe, and IDRs (sometimes referred to as Global Depositary Receipts)
are issued outside the United States, each typically by non-U.S. banks and trust
companies.
STRATEGIC AND OTHER TRANSACTIONS. At the discretion of Warburg, the Fund may,
but is not required to, engage in a number of strategies involving options,
futures, forward currency contracts and swaps. 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, (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
10
<PAGE> 17
exchanges and other applicable regulatory authorities.
Securities Options and Stock Index Options. The Fund may write covered call
options and put options on up to 25% of the net asset value of the stock and
debt securities in its portfolio and will realize fees (referred to as
"premiums") for granting the rights evidenced by the options. The Fund may also
utilize up to 10% of its assets to purchase options on stocks and debt
securities that are traded on U.S. and foreign exchanges, as well as
over-the-counter ("OTC") options. 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 on a security 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 15% 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 common 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 foreign
currency, 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 foreign currency or 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, exchange rate 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.
Currency Exchange Transactions. The Fund will conduct its currency exchange
transactions either (i) on a spot (i.e., cash) basis at the rate prevailing in
the currency exchange market, (ii) through entering into futures contracts or
11
<PAGE> 18
options on futures contracts (as described above), (iii) through entering into
forward contracts to purchase or sell currency or (iv) by purchasing exchange-
traded currency options. A forward currency contract involves an obligation to
purchase or sell a specific currency at a future date at a price set at the time
of the contract. An option on a foreign currency operates similarly to an option
on a security. Risks associated with currency forward contracts and purchasing
currency options are similar to those described in this Prospectus for futures
contracts and securities and stock index options. In addition, the use of
currency transactions could result in losses from the imposition of foreign
exchange controls, suspension of settlement or other governmental actions or
unexpected events.
Swaps. The Fund may enter into swaps relating to indexes, currencies and
equity interests of foreign issuers without limit. A swap transaction is an
agreement between the Fund and a counterparty to act in accordance with the
terms of the swap contract. Index swaps involve the exchange by the Fund with
another party of the respective amounts payable with respect to a notional
principal amount related to one or more indexes. Currency swaps involve the
exchange of cash flows on a notional amount of two or more currencies based on
their relative future values. An equity swap is an agreement to exchange streams
of payments computed by reference to a notional amount based on the performance
of a basket of stocks or a single stock. The Fund may enter into these
transactions to preserve a return or spread on a particular investment or
portion of its assets, to protect against currency fluctuations, as a duration
management technique or to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date. The Fund may also
use these transactions for speculative purposes, such as to obtain the price
performance of a security without actually purchasing the security in
circumstances where, for example, the subject security is illiquid, is
unavailable for direct investment or available only on less attractive terms.
Swaps have risks associated with them, including possible default by the
counterparty to the transaction, illiquidity and, where swaps are used as
hedges, the risk that the use of a swap could result in losses greater than if
the swap had not been employed.
The Fund will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the agreement, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Swaps do not involve the delivery
of securities, other underlying assets or principal. Accordingly, the risk of
loss with respect to swaps is limited to the net amount of payments that the
Fund is contractually obligated to make. If the counterparty to a swap defaults,
the Fund's risk of loss consists of the net amount of payments that the Fund is
contractually entitled to receive. Where swaps are entered into for good faith
hedging purposes, Warburg believes such obligations do not constitute senior
securities under the 1940 Act and, accordingly, will not treat them as being
subject to the Fund's borrowing restrictions. Where swaps are entered
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<PAGE> 19
into for other than hedging purposes, the Fund will segregate an amount of cash
or liquid securities having a value equal to the accrued excess of its
obligations over its entitlements with respect to each swap on a daily basis.
Hedging Considerations. The Fund may engage in options, futures, currency
transactions and swaps 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, futures contracts, currency exchange
transactions and swaps 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 predict correctly 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 a 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; currency, interest rate and stock index
futures contracts and options on these futures contracts; and forward currency
contracts and swaps. The use of these strategies may require that the Fund
maintain cash or 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, financial instrument or currency 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 securities it does not own in
anticipation of a decline in the market price of the securities. The current
market value of the securities sold short (excluding short sales "against the
box") will not exceed 10% of the Fund's assets.
13
<PAGE> 20
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 will make a profit or incur a loss as a
result of a short sale depending on whether the price of the securities
decreases or increases between the date of the short sale and the date on which
the Fund purchases the security to replace the borrowed securities that have
been sold. The amount of any loss would be increased (and any gain decreased) by
any premium or interest the Fund is required to pay in connection with a short
sale.
The Fund's obligation to replace the securities borrowed in connection with a
short sale will be secured by cash or 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 liquid 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, a 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 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," may be entered into by the Fund, for
example, to lock in a sale price for a security the Fund does not wish to sell
immediately. 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. 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.
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) repurchase agreements with maturities greater than seven days; (iii) time
deposits maturing in more than seven calendar days; and (iv) certain Rule 144A
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<PAGE> 21
Securities. 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
total assets, and may pledge its assets to the extent necessary to secure
permitted borrowings. Whenever borrowings (including reverse repurchase
agreements) exceed 5% of the Fund's 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 investment adviser to the
Fund. 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 1.10% 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 borne by the Fund.
Warburg is a professional investment advisory firm which provides investment
services to investment companies, employee benefit plans, endowment funds,
foundations and other institutions and individuals. As of , 1998, Warburg
managed approximately $ billion of assets, including approximately $
billion of investment company assets. Incorporated in 1970, Warburg is
indirectly controlled by Warburg, Pincus & Co. ("WP&Co."), which has no business
other than being a holding company of Warburg and its affiliates. Lionel I.
Pincus, the managing partner of WP&Co., may be deemed to control both WP&Co. and
Warburg. Warburg's address is 466 Lexington Avenue, New York, New York
10017-3147.
PORTFOLIO MANAGERS. Harold E. Sharon has been Portfolio Manager of the Fund,
and J.H. Cullum Clark, CFA, has been Associate Portfolio Manager of the Fund,
since the Fund's inception. Mr. Sharon, a Managing Director of Warburg, has been
with Warburg since March 1998. Mr. Sharon was also a Vice President and
Portfolio Manager at Warburg from 1990-1994. From September 1994 through
February 1998, he was an executive director and portfolio manager at CIBC
Oppenheimer. Mr. Clark, a Senior Vice President of
15
<PAGE> 22
Warburg, has been with Warburg since 1996, before which time he was an
analyst and portfolio manager with Brown Brothers Harriman.
CO-ADMINISTRATORS. The Fund employs 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 their various service providers, furnishing corporate
secretarial services, which include preparing materials for meetings of the
Board, preparing proxy statements and annual and semiannual reports, assisting
in the preparation of tax returns 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 Inc. ("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 .12% of the Fund's first $250
million in average daily net assets, .10% of the next $250 million in average
daily net assets, .08% of the next $250 million in average daily net assets, and
.05% of average daily net assets over $750 million, subject in each case to a
minimum annual fee and exclusive of out-of-pocket expenses. PFPC has its
principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.
CUSTODIANS. State Street Bank and Trust Company ("State Street") serves as
custodian of the Fund's non-U.S. assets. PNC Bank, National Association ("PNC")
serves as custodian of the Fund's U.S. assets. State Street's principal business
address is 225 Franklin Street, Boston, Massachusetts 02110. Like PFPC, PNC is a
subsidiary of PNC Bank Corp. and its principal business address is 1600 Market
Street, Philadelphia, Pennsylvania 19103.
TRANSFER AGENT. State Street also serves as shareholder servicing agent,
transfer agent and dividend disbursing agent for the Fund. It has delegated to
Boston Financial Data Services, Inc., a 50% owned subsidiary ("BFDS"),
responsibility for most shareholder servicing functions. 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. 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
attributa-
16
<PAGE> 23
ble to, (i) the sale of the Common Shares, (ii) ongoing servicing and/or
maintenance of the accounts of Common Shareholders of a 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 consider 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 for qualified recipients 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. Incentives
may include opportunities to attend business meetings, conferences, sales or
training programs for recipients' employees or clients and other programs or
events and may also include opportunities to participate in advertising or sales
campaigns and/or shareholder services and programs regarding one or more Warburg
Pincus Funds. Warburg or its affiliates may pay for travel, meals and lodging in
connection with these promotional activities. 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 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 positions and
principal occupations during the past five years is set forth in the Statement
of Additional Information.
HOW TO OPEN AN ACCOUNT
- --------------------------------------------------------------------------------
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
OR
Overnight to:
BFDS
Attn: Warburg Pincus Funds
2 Heritage Drive
North Quincy, Massachusetts 02171
Completed and signed account applications should be sent to the above.
RETIREMENT PLANS AND UTMA/UGMA ACCOUNTS. For information (i) about
17
<PAGE> 24
investing in the Fund through a tax-advantaged retirement plan, such as an
Individual Retirement Account ("IRA"), or (ii) about opening a Uniform Transfers
to Minors Act ("UTMA") account or Uniform Gifts to Minors Act ("UGMA") account,
an investor should telephone Warburg Pincus Funds at (800) 927-2874 or write to
Warburg Pincus Funds at an address set forth above. Investors should consult
their own tax advisers about the establishment of retirement plans and UTMA or
UGMA accounts.
CHANGES TO ACCOUNT. For information on how to make changes to an account,
including changes to account registration, address and/or privileges, an
investor should telephone Warburg Pincus Funds at (800) 927-2874. Shareholders
are responsible for maintaining current account registration and addresses with
the Fund. No interest will be paid on amounts represented by uncashed
distribution or redemption checks.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
Common Shares of the Fund may be purchased either by mail or, with special
advance instructions, by wire and automated clearing house transactions ("ACH on
Demand").
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 or by ACH on Demand,
as described below. For certain retirement plans (described above) and UTMA/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 Warburg or its affiliates or persons with whom Warburg has entered
into an investment advisory agreement. Existing investors will be 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. The Fund reserves
the right to suspend the offering of shares for a period of time or to reject
any specific purchase order. 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 an 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 prior
18
<PAGE> 25
to the close of regular trading on The New York Stock Exchange, Inc. (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 at or
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 payment is 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 using
the following wire address:
State Street Bank and Trust Company
ABA# 0110 000 28
Attn: Mutual Funds/Custody Department
Warburg Pincus International Small Company Fund
DDA# 9904-649-2
F/F/C: [Account Number and Account Registration]
If a telephone order is received prior to 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. However, if a wire in proper
form that is not preceded by a telephone order is received at or 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.
AUTOMATIC MONTHLY INVESTMENT PLAN AND ACH ON DEMAND. The Automatic Monthly
Investment Plan allows shareholders to authorize the Fund or its agent 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
19
<PAGE> 26
month. Shareholders may also purchase shares by calling Warburg Pincus Funds at
(800) 927-2874 on any business day to request direct debit or credit (for
redemptions) of their bank account through an ACH on Demand transaction.
To establish the Automatic Monthly Investment Plan and/or ACH on Demand
option, obtain a separate application or complete the relevant section of the
account application. Only an account maintained at a financial institution which
is an automated clearing house member may be used, and one common name must
appear on both the shareholder's Fund registration and bank account
registration. Shareholders using this service must satisfy the initial
investment minimum for the Fund prior to or concurrent with the start of any
Automatic Monthly Investment Plan or ACH on Demand transaction. Please contact
Warburg Pincus Funds at (800) 927-2874 for additional information. Investors
should allow a period of up to 30 days in order to implement an Automatic
Investment Plan. The failure to provide complete information could result in
further delays.
If an ACH on Demand transaction request is received prior to the close of
regular trading on the NYSE, the shares will be priced according to the net
asset value of Fund shares on that day and are entitled to dividends and
distributions beginning on that day. If a request is received at or after the
close of regular trading on the NYSE, the shares will be priced at the Fund's
net asset value on the following business day.
TELEPHONE TRANSACTIONS. Unless otherwise indicated on the account application
or if the ACH on Demand option is elected, an investor may request transactions
by telephone. Investors should realize that in conducting transactions by
telephone they may be giving up a measure of security that they may have if they
were to conduct such transactions in writing. 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 designed to give reasonable assurance 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.
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. Funds-Network(TM) Program; Jack White &
Company, Inc.; and Waterhouse Securities, Inc. Generally, these programs require
customers to pay either no or low transaction fees in connection with purchases,
exchanges or redemptions. The Fund is also available through certain
broker-dealers, financial institutions and other industry professionals
(including the brokerage firms offering the programs described above,
collectively, "Service Organizations"), which 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
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<PAGE> 27
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 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, exchange 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 the Fund in accordance with their agreements with the Fund and with
clients or customers.
Service Organizations or, if applicable, their designees may enter confirmed
purchase or redemption 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. The Fund may be deemed to have received a
purchase or redemption order when a Service Organization, or, if applicable, its
authorized designee, accepts the order. Such orders received by the Fund in
proper form will be priced at the Fund's net asset value next computed after
they are accepted by the Service Organization or its authorized designee.
For administration, subaccounting, transfer agency and/or other services,
Counsellors Securities or its affiliates may pay Service Organizations and
certain recordkeeping organizations a fee of up to .40% (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 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.
GENERAL. The Fund reserves the right to reject any specific purchase order,
including certain purchases made by exchange (see "How to Redeem and Exchange
Shares -- Exchange of Shares" below). Purchase orders may be refused if, in
Warburg's judgment, the Fund would be unable to invest the money effectively in
accordance with its investment objective and policies, or would otherwise
potentially be adversely affected. The Fund may discontinue sales of its shares
if management believes that a substantial further increase in assets may
adversely affect that Fund's ability to achieve its investment objective. In
such event, however, it is anticipated that existing shareholders would
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<PAGE> 28
be permitted to continue to authorize investment in such Fund and to reinvest
any dividends or capital gains distributions.
HOW TO REDEEM AND EXCHANGE SHARES
- --------------------------------------------------------------------------------
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 Fund may either be redeemed by mail or by telephone. If
an investor desires to redeem his shares by mail, a written request for
redemption should be sent to Warburg Pincus Funds at an 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. Payment of redemption proceeds may be delayed in
connection with account changes. 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. 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. The Fund
currently does not 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 Funds by telephone, an
investor may deliver the redemption request to Warburg Pincus Funds by mail at
an address shown above under "How to Open an Account." Although the Fund will
redeem shares purchased by check, through the Automatic Monthly Investment Plan
or by ACH on Demand before the check or funds clear, payments of the redemption
proceeds will be delayed for up to five days (for funds received through the
Automatic Monthly Investment Plan or by ACH on Demand) or up to ten days (for
check purchases) from the date of purchase. Investors should consider purchasing
shares using a certified or bank check, money order or federal funds wire if
they anticipate an immediate need for redemption proceeds.
If a redemption order is received by a 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 at or 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
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<PAGE> 29
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 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 UTMA 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.
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 the 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 its 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 will be effected without a sales charge
but must satisfy the minimum dollar amount necessary for new purchases. The Fund
may refuse exchange purchases at any time without prior notice. 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;
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<PAGE> 30
- - 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 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 primarily in a broadly diversified portfolio
of equity securities of domestic companies;
- - WARBURG PINCUS STRATEGIC VALUE FUND -- an equity fund seeking long-term
capital appreciation by investing in undervalued companies and market sectors;
- - 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;
- - 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 principally in equity securities of
U.S. and foreign issuers in their post-venture capital stage of
- ---------------
* Warburg Pincus Small Company Growth Fund is currently closed to certain new
investors; the Small Company Growth Fund's prospectus describes the types of
investors that may purchase shares.
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<PAGE> 31
development;
- - WARBURG PINCUS MAJOR FOREIGN MARKETS FUND -- an equity fund seeking long-term
capital appreciation by investing in equity securities of issuers consisting
of companies in major foreign securities markets;
- - 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 the 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.
The Fund reserves the right to refuse exchange purchases by any person or
group if, in Warburg's judgment, the Fund would be unable to invest the money
effectively in accordance with its investment objective and policies, or would
otherwise potentially be adversely affected. Examples of when an exchange
purchase could be refused are when the Fund receives or anticipates receiving
large exchange orders at or about the same time and/or when a pattern of
exchanges within a short period of time (often associated with a "market timing"
strategy) is discerned. The Fund reserves the right to terminate or modify the
exchange privilege at any time upon 30 days' notice to shareholders.
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 less
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
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<PAGE> 32
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
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 an 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 Internal Revenue Code of 1986, as amended
(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 derived from net
realized short-term capital gains are taxable to investors as ordinary income
whether received in cash or reinvested in additional Fund shares. Distributions
derived from net realized long-term capital gains will be taxable to investors
as long-term capital gains, regardless of how long investors have held Fund
shares or whether such distributions are received in cash or reinvested in Fund
shares. As a general rule, an investor's gain or loss on a sale or redemption of
Fund shares will be a long-term capital gain or loss if the investor has held
the shares for more than one year and will be a short-term capital gain or loss
if the investor has held the 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.
The Taxpayer Relief Act of 1997 made certain changes to the Code with respect
to taxation of long-term capital gains earned by taxpayers other than a
corporation. In general, for sales made after May 6, 1997, the maximum tax rate
for individual taxpayers on net long-term capital gains is lowered to 20% for
most assets (including long-term capital gains recognized by shareholders on the
sale or redemption of Fund shares that were held as capital assets). This 20%
rate applies to sales on or after July 29, 1997 only if the asset was held for
more than 18 months at the time of disposition. Capital gains on the disposition
of assets on or after July 29, 1997 held for more than one year and up to 18
months at the time of disposition will be taxed as "mid-term gain" at a maximum
rate of 28%. A rate of 18% instead of 20% will apply after December 31, 2000 for
assets held for more than five years. However, the 18% rate
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<PAGE> 33
applies only to assets acquired after December 31, 2000 unless the taxpayer
elects to treat an asset held prior to such date as sold for fair market value
on January 1, 2001. In the case of individuals whose ordinary income is taxed at
a 15% rate, the 20% rate is reduced to 10% and the 10% rate for assets held for
more than five years is reduced to 8%. The Fund will provide information
relating to that portion of a "capital gain dividend" that may be treated by
investors as eligible for the reduced capital gains rate for capital assets held
for more than 18 months.
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, will not result in unrelated business
taxable income to a tax-exempt investor. The Fund's dividends may qualify for
the dividends received deduction for corporations to the extent they are derived
from dividends attributable to certain types of stock issued by U.S. domestic
corporations.
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 United States 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 consists 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 a 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 income 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 unre-
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<PAGE> 34
lated 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.
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, Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, 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 and intends to have the net asset value of Common Shares listed in The
Wall Street Journal each business day under the heading "Warburg Pincus Funds."
From time to time, the Fund may advertise the average annual total return of its
Common Shares over various periods of time. 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
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<PAGE> 35
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,
investors should bear in mind that the Fund seeks capital appreciation over a
period of time 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 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
total return. Current total return figures may be obtained by calling Warburg
Pincus Funds at (800) 927-2874.
The Fund may compare its performance with (i) 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 Morgan Stanley Capital International
EAFE(R) Small Cap Index and/or other indexes prepared by Morgan Stanley relating
to securities represented in the Fund; or (iii) 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 Business Daily, Money, Morningstar,
Mutual Fund Magazine, SmartMoney, The Wall Street Journal and Worth.
Morningstar, Inc. rates funds in broad categories based on risk/reward analyses
over various time periods. In addition, each 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 data generated by Lipper Analytical
Services, Inc. or similar investment services that monitor mutual funds.
In reports or other communications to investors or in advertising, the Fund
may also describe the general biography or work experience of the portfolio
29
<PAGE> 36
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; analysis of holdings by industry, country, credit quality
and other characteristics; and comparison and analysis of the Fund with respect
to relevant market and industry benchmarks. The Fund may also discuss measures
of risk, the continuum of risk and return relating to different investments and
the potential impact of foreign stocks on a portfolio otherwise composed of
domestic securities.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
ORGANIZATION. The Fund was incorporated on April 2, 1998 under the laws of the
State of Maryland under the name "Warburg, Pincus International Small Company
Fund, Inc."
The Fund's charter authorizes its Board to issue three billion full and
fractional shares of capital stock, $.001 par value per share, of which one
billion shares are designated Common Shares and two 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 its shares into one or more series and,
without shareholder approval, may increase the number of authorized shares of
the Fund.
MULTI-CLASS STRUCTURE. Although the Fund currently offers only Common Shares,
the Fund is authorized to offer a separate class of shares, the Advisor Shares.
Individual investors will only be able to purchase Advisor Shares through
institutional shareholders of record, broker-dealers, financial institutions,
depository institutions, retirement plans and financial intermediaries. Shares
of each class will 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 to be paid by the Advisor Shares, the total
return on such shares can be expected to be lower than the total return on
Common Shares. Once offered, investors will be able to 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
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<PAGE> 37
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 relevant
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 a 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 or investment made through the Automatic Monthly
Investment Plan). 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 or on the Warburg Pincus Funds Web site
at www.warburg.com.
------------------------------
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.
31
<PAGE> 38
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Fund's Expenses...................................... 2
Investment Objective and Policies........................ 2
Portfolio Investments.................................... 4
Risk Factors and Special Considerations.................. 6
Portfolio Transactions and Turnover Rate................. 9
Certain Investment Strategies............................ 9
Investment Guidelines.................................... 14
Management of the Fund................................... 15
How to Open an Account................................... 17
How to Purchase Shares................................... 18
How to Redeem and Exchange Shares........................ 22
Dividends, Distributions and Taxes....................... 25
Net Asset Value.......................................... 28
Performance.............................................. 28
General Information...................................... 30
</TABLE>
[WARBURG PINCUS FUNDS LOGO]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874)
www.warburg.com
COUNSELLORS SECURITIES INC., DISTRIBUTOR. WPISM-1-0698
<PAGE> 39
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
ANY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE
A PROSPECTUS.
SUBJECT TO COMPLETION, DATED APRIL 7, 1998
STATEMENT OF ADDITIONAL INFORMATION
[INSERT], 1998
WARBURG PINCUS INTERNATIONAL SMALL COMPANY FUND
P.O. Box 9030, Boston, Massachusetts 02205-9030
For information, call (800) WARBURG
CONTENTS Page
Investment Objective.......................................................1
Investment Policies........................................................1
Management of the Fund.....................................................26
Additional Purchase and Redemption Information.............................32
Exchange Privilege.........................................................33
Additional Information Concerning Taxes....................................34
Determination of Performance...............................................39
Independent Accountants and Counsel........................................41
Financial Statement........................................................41
Appendix - Description of Ratings.........................................A-1
This Statement of Additional Information is meant to be read in
conjunction with the Prospectus for the Common Shares of Warburg Pincus
International Small Company Fund (the "Fund"), dated [INSERT], 1998, as amended
or supplemented from time to time, and is incorporated by reference in its
entirety into the Prospectus. 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 Prospectus
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> 40
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 Prospectus.
Options, Futures and Currency Exchange Transactions
Securities Options. The Fund may write covered put and call options on
stock and debt securities. The Fund may purchase covered put and call options
that are traded on foreign and U.S. exchanges, as well as over-the-counter
("OTC").
The Fund will realize 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 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
<PAGE> 41
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 that can write put and call options on securities may
write (i) in-the-money call options when Warburg Pincus Asset Management, Inc.,
each 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 OTC market. When the Fund has purchased an option and engages in a
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
2
<PAGE> 42
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 OTC market may be more limited
than for exchange-traded options and may also involve the risk that securities
dealers participating in OTC transactions would fail to meet their obligations
to the Fund. The Fund, however, intends to purchase OTC 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, 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 Funds will be able to purchase on
a particular security.
Securities Index Options. The Fund may purchase and write
exchange-listed and OTC put and call options on securities indexes. A securities
index measures the movement of a certain group of securities by assigning
relative values to the securities included in the index, fluctuating with
changes in the market values of the securities included in the index. Some
securities index options are based on a broad market index, such as the 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.
3
<PAGE> 43
Options on securities indexes are similar to options on securities
except that (i) the expiration cycles of securities index options are monthly,
while those of securities options are currently quarterly, and (ii) the delivery
requirements are different. Instead of giving the right to take or make delivery
of securities at a specified price, an option on a securities 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 securities 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. Securities 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 securities 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 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 securities 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
4
<PAGE> 44
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 Fund reserves the right to engage in transactions involving futures
contracts and options on futures contracts to the extent allowed by CFTC
regulations in effect from time to time and in accordance with the Fund's
policies. There is no overall limit on the percentage of Fund assets that may be
at risk with respect to futures activities.
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. A securities 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 liquid securities acceptable to
the broker, equal to approximately 1% to 10% of the contract amount (this 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 securities
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
5
<PAGE> 45
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 securities 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 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
6
<PAGE> 46
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.
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
7
<PAGE> 47
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 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 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 securities 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 security. 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. Securities 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 securities 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 securities index and movements in the price
of securities index futures, a correct forecast of general market trends by
Warburg still may not result in a successful hedging transaction.
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<PAGE> 48
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 rate or
securities markets, as the case may be, and to predict correctly 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.
Asset Coverage for Forward Contracts, Options, Futures and Options on
Futures. As described in the Prospectus, the Fund will comply with guidelines
established by the U.S. Securities and Exchange Commission (the "SEC") with
respect to coverage of forward currency contracts; options written by the Fund
on currencies, securities, if applicable, 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
liquid securities.
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.
Foreign Currency Exchange. Since the Fund will 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 assets denominated in that foreign currency.
Changes in foreign currency
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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 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 the yen against
the U.S. dollar, particularly the forward market in foreign exchange, currency
options and currency futures. See "Currency Transactions" and "Futures
Activities" above.
Information. The majority of the securities held by the Fund will not
be registered with, nor will 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.
Political Instability. 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 and
neighboring countries.
Delays. 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.
Increased Expenses. The operating expenses of the Fund can be expected
to be higher than that of an investment company investing exclusively in U.S.
securities, since the expenses of the Fund, such as custodial costs, valuation
costs and communication costs, as well as the rate of the investment advisory
fees, though similar to such expenses of some other international funds, are
higher than those costs incurred by other investment companies not investing in
foreign securities.
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Foreign Debt Securities. The returns on foreign debt securities reflect
interest rates and other market conditions prevailing in those countries and the
effect of gains and losses in the denominated currencies against the U.S.
dollar, which have had a substantial impact on investment in foreign
fixed-income securities. 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.
The foreign government securities in which the Fund may invest
generally consist of obligations issued or backed by national, state or
provincial governments or similar political subdivisions or central banks in
foreign countries. Foreign government securities also include debt obligations
of supranational entities, which include international organizations designated
or backed by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples include the International Bank for Reconstruction and Development (the
"World Bank"), the European Coal and Steel Community, the Asian Development Bank
and the InterAmerican Development Bank.
Foreign government securities also include debt securities of
"quasi-governmental agencies" and debt securities denominated in multinational
currency units of an issuer (including supranational issuers). Debt securities
of quasi-governmental agencies are issued by entities owned by either a
national, state or equivalent government or are obligations of a political unit
that is not backed by the national government's full faith and credit and
general taxing powers. An example of a multinational currency unit is the
European Currency Unit ("ECU"). An ECU represents specified amounts of the
currencies of certain member states of the European Economic Community. The
specific amounts of currencies comprising the ECU may be adjusted by the Council
of Ministers of the European Community to reflect changes in relative values of
the underlying currencies.
General. 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.
Japanese Investments. Securities in Japan are denominated and quoted in
"yen." Yen are fully convertible and transferable based on floating exchange
rates into all currencies, without administrative or legal restrictions for both
non-residents and residents of Japan. In determining the net asset value of
shares of the Fund, assets or liabilities initially expressed in terms of
Japanese yen will be translated into U.S. dollars at the current selling rate of
Japanese yen against U.S. dollars. As a result, in the absence of a successful
currency hedge, the value of the Fund's assets as measured in U.S. dollars may
be affected favorably or unfavorably by fluctuations in the value of Japanese
yen relative to the U.S. dollar.
The decline in the Japanese securities markets since 1989 has
contributed to a weakness in the Japanese economy, and the impact of a further
decline cannot be ascertained. The common stocks of many Japanese companies
continue to trade at high price-earnings
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<PAGE> 51
ratios in comparison with those in the United States, even after the recent
market decline. Differences in accounting methods make it difficult to compare
the earnings of Japanese companies with those of companies in other countries,
especially the United States.
Japan is largely dependent upon foreign economies for raw materials.
International trade is important to Japan's economy, as exports provide the
means to pay for many of the raw materials it must import. Because of the
concentration of Japanese exports in highly visible products such as
automobiles, machine tools and semiconductors, and the large trade surpluses
ensuing therefrom, Japan has entered a difficult phase in its relations with its
trading partners, particularly with respect to the United States, with whom the
trade imbalance is the greatest.
Japan has a parliamentary form of government. In 1993, a coalition
government was formed which, for the first time since 1955, did not include the
Liberal Democratic Party. Since mid-1993, there have been several changes in
leadership in Japan. What, if any, effect the current political situation will
have on prospective regulatory reforms in the Japanese economy cannot be
predicted. Recent and future developments in Japan and neighboring Asian
countries may lead to changes in policy that might adversely affect the Fund
investing there.
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 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. The market values of below
investment grade securities and unrated securities of comparable quality tend to
react less to fluctuations in interest rate levels than do those of investment
grade securities and the market values of certain of these securities also tend
to be more sensitive to individual corporate developments and changes in
economic conditions than below investment grade securities. In addition, these
securities generally present a higher degree of credit risk. Issuers of these
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
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is significantly greater because below investment grade securities generally are
unsecured and frequently are subordinated to prior payment of senior
indebtedness.
The market for below investment grade 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.
The Fund may have difficulty disposing of certain of these securities
because there may be a thin trading market. Because there is no established
retail secondary market for many of these securities, the Fund anticipates 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
investment grade 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 liquidity needs or in response to a
specific economic event such as a deterioration in the creditworthiness of the
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 valuing the Fund and calculating net asset value.
The market value of securities rated below investment grade is more
volatile than that of investment grade securities. Factors adversely impacting
the market value of these securities will adversely impact the Fund's net asset
value. The Fund will rely on the judgment, analysis and experience of Warburg in
evaluating the creditworthiness of an issuer. In this evaluation, Warburg will
take into consideration, among other things, the issuer's financial resources,
its sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters. Normally, below
investment grade securities and comparable unrated securities are not intended
for short-term investment. The Fund may incur additional expenses to the extent
it is required to seek recovery upon a default in the payment of principal or
interest on its portfolio holdings of such securities.
Mortgage-Backed Securities. The Fund may invest up to 5% of its net
assets in U.S. and foreign governmental and private mortgage-backed securities.
Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property. The
mortgages backing these securities include, among other mortgage instruments,
conventional 30-year fixed-rate mortgages, 15-year fixed-rate mortgages,
graduated payment mortgages and adjustable rate mortgages. The government or the
issuing agency typically guarantees the payment of interest and principal of
these securities. However, the guarantees do not extend to the securities' yield
or value, which are likely to vary inversely with fluctuations in interest
rates, nor do the guarantees extend to the yield or value of the Fund's shares.
These securities generally are "pass-through" instruments, through which the
holders receive a share of all interest and principal payments from the
mortgages underlying the securities, net of certain fees.
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. The average life of pass-through pools
varies with the maturities of the
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underlying mortgage loans. A pool's term may be shortened by unscheduled or
early payments of principal on the underlying mortgages. The occurrence of
mortgage prepayments is affected by various factors, including the level of
interest rates, general economic conditions, the location, scheduled maturity
and age of the mortgage and other social and demographic conditions. Because
prepayment rates of individual pools vary widely, it is not possible to predict
accurately the average life of a particular pool. For pools of fixed-rate
30-year mortgages, a common industry practice in the U.S. has been to assume
that prepayments will result in a 12-year average life. At present, pools,
particularly those with loans with other maturities or different
characteristics, are priced on an assumption of average life determined for each
pool. In periods of falling interest rates, the rate of prepayment tends to
increase, thereby shortening the actual average life of a pool of
mortgage-related securities. Conversely, in periods of rising rates the rate of
prepayment tends to decrease, thereby lengthening the actual average life of the
pool. However, these effects may not be present, or may differ in degree, if the
mortgage loans in the pools have adjustable interest rates or other special
payment terms, such as a prepayment charge. Actual prepayment experience may
cause the yield of mortgage-backed securities to differ from the assumed average
life yield. Reinvestment of prepayments may occur at higher or lower interest
rates than the original investment, thus affecting the Fund's yield. In
addition, mortgage-backed securities issued by certain non-government entities
and collateralized mortgage obligations may be less marketable than other
securities.
The rate of interest on mortgage-backed securities is lower than the
interest rates paid on the mortgages included in the underlying pool due to the
annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificate holders and to any guarantor, such as GNMA, and
due to any yield retained by the issuer. Actual yield to the holder may vary
from the coupon rate, even if adjustable, if the mortgage-backed securities are
purchased or traded in the secondary market at a premium or discount. In
addition, there is normally some delay between the time the issuer receives
mortgage payments from the servicer and the time the issuer makes the payments
on the mortgage-backed securities, and this delay reduces the effective yield to
the holder of such securities.
Asset-Backed Securities. The Fund may invest up to 5% of its net assets
in U.S. and foreign governmental and private asset-backed securities.
Asset-backed securities represent participations in, or are secured by and
payable from, assets such as motor vehicle installment sales, installment loan
contracts, leases of various types of real and personal property and receivables
from revolving credit (credit card) agreements. Such assets are securitized
through the use of trusts and special purpose corporations. Payments or
distributions of principal and interest may be guaranteed up to certain amounts
and for a certain time period by a letter of credit or a pool insurance policy
issued by a financial institution unaffiliated with the trust or corporation.
Asset-backed securities present certain risks that are not presented by
other securities in which the Fund may invest. Automobile receivables generally
are secured by automobiles. Most issuers of automobile receivables permit the
loan servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
asset-backed securities. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws, the
trustee for the
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<PAGE> 54
holders of the automobile receivables may not have a proper security interest in
the underlying automobiles. Therefore, there is the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support
payments on these securities. Credit card receivables are generally unsecured,
and the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due.
Because asset-backed securities are relatively new, the market experience in
these securities is limited, and the market's ability to sustain liquidity
through all phases of the market cycle has not been tested.
Zero Coupon Securities. The Fund may invest in "zero coupon" U.S.
Treasury, foreign government and U.S. and foreign corporate 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
included 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.
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.
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 20% of
the Fund's total assets taken at value. The Fund will not lend portfolio
securities to affiliates of Warburg unless it has applied for and
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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 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.
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).
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 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 prices obtained on such securities
may be higher or lower than the prices 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
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<PAGE> 56
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.
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 kind
and amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities. These securities constitute the
Fund's long position.
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 Funds do 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). 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 transactions 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.
If the Fund effects a short sale of securities at a time when it has an
unrealized gain on the securities, it may be required to recognize that gain as
if it had actually sold the securities (as a "constructive sale") on the date it
effects the short sale. However, such constructive sale treatment may not apply
if the Fund closes out the short sale with securities other than the appreciated
securities held at the time of the short sale and if certain other conditions
are satisfied. Uncertainty regarding the tax consequences of effecting short
sales may limit the extent to which the Fund may effect short sales.
Emerging Growth and Smaller Capitalization Companies; Unseasoned
Issuers. Investments in securities of small- and medium-sized, emerging growth
companies and 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
financial disclosure requirements, illiquidity of securities and markets, higher
brokerage commissions and fees and greater market risk in general. In addition,
securities of these companies may involve greater risks since these securities
may have limited marketability and, thus, may be more volatile.
Depositary Receipts. The assets of the Fund may be invested in the
securities of foreign issuers in the form of American Depositary Receipts
("ADRs"), European Depositary
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Receipts ("EDRs") and International Depositary Receipts ("IDRs"). 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 evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes referred
to as Continental Depositary Receipts, are receipts issued in Europe, and IDRs,
which are sometimes referred to as Global Depositary Receipts, are issued
outside the United States. EDRs and IDRs are typically issued by non-U.S. banks
and trust companies and 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 IDRs in bearer form are designed for use in
European and non-U.S. securities markets, respectively.
Warrants. The Fund may invest up to 10% of net assets in warrants 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, repurchase agreements which have a maturity of longer than
seven days, certain Rule 144A Securities (as defined below), and time deposits
maturing in more 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. 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 without borrowing. 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,
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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 or 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).
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. Investments (including
roll-overs) will not be made when borrowings exceed 5% of the Fund's net 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
19
<PAGE> 59
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 the
Fund's obligation to repurchase the securities, and the Fund's 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 approved
custodian, cash or liquid securities 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.
Stand-By Commitments. The Fund may acquire "stand-by commitments" with
respect to securities held in its portfolio. Under a stand-by commitment, a
dealer agrees to purchase at the Fund's option specified securities at a
specified price. The Fund's right to exercise stand-by commitments is
unconditional and unqualified. Stand-by commitments acquired by the Fund may
also be referred to as "put" options. A stand-by commitment is not transferable
by the Fund, although the Fund can sell the underlying securities to a third
party at any time.
The principal risk of stand-by commitments is that the writer of a
commitment may default on its obligation to repurchase the securities acquired
with it. The Fund intends to enter into stand-by commitments only with brokers,
dealers and banks that, in the opinion of Warburg, present minimal credit risks.
In evaluating the creditworthiness of the issuer of a stand-by commitment,
Warburg will periodically review relevant financial information concerning the
issuer's assets, liabilities and contingent claims. The Fund will acquire
stand-by commitments only in order to facilitate portfolio liquidity and does
not intend to exercise its rights under stand-by commitments for trading
purposes.
The amount payable to the Fund upon its exercise of a stand-by
commitment is normally (i) the Fund's acquisition cost of the securities
(excluding any accrued interest which the Fund paid on their acquisition), less
any amortized market premium or plus any amortized market or original issue
discount during the period the Fund owned the securities, plus (ii) all interest
accrued on the securities since the last interest payment date during that
period.
The Fund expects that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
20
<PAGE> 60
manner for outstanding stand-by commitments held in the Fund's portfolio will
not exceed 1/2 of 1% of the value of the Fund's total assets calculated
immediately after each stand-by commitment is acquired.
The Fund would acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition of a stand-by commitment would not affect the
valuation or assumed maturity of the underlying securities. Stand-by commitments
acquired by the Fund would be valued at zero in determining net asset value.
Where the Fund paid any consideration directly or indirectly for a stand-by
commitment, its cost would be reflected as unrealized depreciation for the
period during which the commitment was held by the Fund. Stand-by commitments
would not affect the average weighted maturity of the Fund's portfolio.
Other Investment Limitations
The investment limitations numbered 1 through 9 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 10 through 14 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 roll
transactions 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 and 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. 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.
3. 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.
4. Make loans, except that the Fund may purchase or hold fixed-income
securities, including structured securities, lend portfolio securities and enter
into repurchase agreements.
21
<PAGE> 61
5. Underwrite any securities issued by others except to the extent that
the investment in restricted securities and the sale of securities in accordance
with the Fund's investment objective, policies and limitations may be deemed to
be underwriting.
6. Purchase or sell real estate or invest in oil, gas or mineral
exploration or development programs, except that the Fund may invest in (a)
securities secured by real estate, mortgages or interests therein and (b)
securities of companies that invest in or sponsor oil, gas or mineral
exploration or development programs.
7. 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.
8. Invest in commodities, except that the Fund may purchase and sell
futures contracts, including those relating to securities, currencies and
indices, and options on futures contracts, securities, currencies or indices,
and purchase and sell currencies on a forward commitment or delayed-delivery
basis and enter into stand-by commitments.
9. Issue any senior security except as permitted in the Fund's
investment limitations.
10. 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.
11. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow and in connection with the writing of covered put
and call options and 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.
12. 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.
13. 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 10%
of the value of the Fund's net assets.
14. Make additional investments (including roll-overs) if the Fund's
borrowings exceed 5% of its net assets.
If a percentage restriction (other than the percentage limitation set
forth in No. 1) is adhered to at the time of an investment, a later increase or
decrease in the percentage
22
<PAGE> 62
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 Prospectus discusses 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 OTC 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 Fund's 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.
Notwithstanding the foregoing, 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 New York Stock Exchange, Inc. (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 does not take place contemporaneously
with the determination of the prices of the majority of the Fund's securities.
All assets and liabilities initially expressed in foreign currency values will
be converted into U.S. dollar values at the prevailing exchange 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.
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<PAGE> 63
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 OTC markets, but the price of
securities traded in OTC 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, as
amended) 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 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,
24
<PAGE> 64
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, Warburg may aggregate the securities to be sold or purchased
for the Fund 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, 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. See the Prospectus,
"Shareholder Servicing."
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.
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<PAGE> 65
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. Consequently, the
annual portfolio turnover rate of the Fund may be higher than mutual funds
having a similar objective that do not utilize these strategies.
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.
Richard N. Cooper* (63) Director
Harvard University Professor at Harvard University; National
1737 Cambridge Street Intelligence Council from June 1995 until
Cambridge, Massachusetts 02138 January 1997; Director or Trustee of
CircuitCity Stores, Inc. (retail
electronics and appliances) and Phoenix
Home Life Mutual InsuranceCompany;
Director/Trustee of other investment
companies advised by Warburg.
Jack W. Fritz (71) Director
2425 North Fish Creek Road Private investor; Consultant and Director
P.O. Box 483 of Fritz Broadcasting, Inc. and Fritz
Wilson, Wyoming 83014 Communications (developers and operators
of radio stations); Director of Advo,
Inc. (directmail advertising);
Director/Trustee of other investment
companies advised by Warburg.
- ----------
* Indicates a Director who is an "interested person" of the Fund as
defined in the 1940 Act.
26
<PAGE> 66
John L. Furth* (67) Chairman of the Board
466 Lexington Avenue Vice Chairman, Managing Director and
New York, New York 10017-3147 Director of Warburg; Associated with
Warburg since 1970; Director of
Counsellors Securities; Chairman of the
Board of other investment companies
advised by Warburg.
Jeffrey E. Garten (51) Director
Box 208200 Dean of Yale School of Management and
New Haven, Connecticut 06520-8200 William S. Beinecke Professor in the
Practice of International Trade and
Finance; Undersecretary of Commerce for
International Trade from November 1993 to
October 1995; Professor at Columbia
University from September 1992 to
November 1993; Director/Trustee of
other investment companies advised by
Warburg.
Thomas A. Melfe (66) Director
30 Rockefeller Plaza Partner in the law firm of Donovan
New York, New York 10112 Leisure Newton & Irvine; Chairman of the
Board, Municipal Fund for New York
Investors, Inc.; Director/Trustee of
other investment companies advised by
Warburg.
Arnold M. Reichman* (49) Director
466 Lexington Avenue Managing Director, Chief Operating
New York, New York 10017-3147 Officer and Assistant Secretary of
Warburg; Director of The RBB Fund, Inc.;
Associated with Warburg since 1984;
Director and officer of Counsellors
Securities; Director/Trustee of other
investment companies advised by Warburg.
- ----------
* Indicates a Director who is an "interested person" of the Fund as
defined in the 1940 Act.
27
<PAGE> 67
Alexander B. Trowbridge (68) Director
1317 F Street President of Trowbridge Partners, Inc.
5th Floor (business consulting) from January
Washington, DC 20004 1990 to November 1996; Director or
Trustee of New England Mutual Life
Insurance Co., ICOS Corporation
(biopharmaceuticals), Waste Management,
Inc. (solid and hazardous waste
collection and disposal), IRI
International (energy services), 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);
Director/Trustee of other investment
companies advised by Warburg.
Eugene L. Podsiadlo (41) President
466 Lexington Avenue Managing Director of Warburg; Associated
New York, New York 10017-3147 with Warburg since 1991; Officer of
Counsellors Securities and other
investment companies advised by Warburg.
Stephen Distler (44) Vice President
466 Lexington Avenue Managing Director of Warburg; Associated
New York, New York 10017-3147 with Warburg since 1984; Treasurer of
Counsellors Securities; Officer of other
investment companies advised by Warburg.
Eugene P. Grace (46) Vice President and Secretary
466 Lexington Avenue Senior Vice President of Warburg;
New York, New York 10017-3147 Associated with Warburg since April 1994;
Attorney-at-law from September 1989-April
1994; Life insurance agent, New York Life
Insurance Company from 1993 to 1994;
Officer of Counsellors Securities and
other investment companies advised by
Warburg.
Howard Conroy, CPA (44) Vice President and Chief Financial
466 Lexington Avenue Officer
New York, New York 10017-3147 Vice President of Warburg; Associated
with Warburg since 1992; Officer of other
investment companies advised by Warburg.
28
<PAGE> 68
Daniel S. Madden, CPA (32) Treasurer and Chief Accounting Officer
466 Lexington Avenue Vice President of Warburg; Associated
New York, New York 10017-3147 with Warburg since 1995; Associated
with BlackRock Financial Management,
Inc. from September 1994 to October
1995; Associated with BEA Associates
from April 1993 to September 1994;
Associated with Ernst & Young LLP from
1990 to 1993; Officer of other
investment companies advised by
Warburg.
Janna Manes, Esq. (30) Assistant Secretary
466 Lexington Avenue Vice President of Warburg; Associated
New York, New York 10017-3147 with Warburg since 1996; Associated with
the law firm of Willkie Farr & Gallagher
from 1993 to 1996; Officer of other
investment companies advised by Warburg.
No employee of Warburg, 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 [INSERT] and [INSERT] 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' Total Compensation:
<TABLE>
<CAPTION>
All Investment Companies
Name of Director The Fund+ Managed by Warburg++
---------------- --------- ------------------------
<S> <C> <C>
John L. Furth* None None
Arnold M. Reichman* None None
Richard N. Cooper [$INSERT] [$INSERT]
Jack W. Fritz [$INSERT] [$INSERT]
Jeffrey E. Garten [$INSERT] $0**
Thomas A. Melfe [$INSERT] [$INSERT]
Alexander B. Trowbridge [$INSERT] [$INSERT]
</TABLE>
- ------------------
+ Amounts shown are estimates of payments to be made for the remaining
period of the fiscal year ending October 31, 1998 pursuant to existing
arrangements.
++ Each Director serves as a Director or Trustee of [INSERT] investment
companies advised by Warburg.
* Mr. Furth and Mr. Reichman receive compensation as affiliates of Warburg
and, accordingly, receive no compensation from the Fund or any other
investment company advised by Warburg.
** Mr. Garten became a Director or Trustee of the other investment companies
managed by Warburg effective February 6, 1998 and, accordingly, received
no compensation from these funds for the fiscal year ended October 31,
1997.
29
<PAGE> 69
Portfolio Managers
Mr. Harold E. Sharon has been Portfolio Manager of the Fund since the
Fund's inception. Mr. Sharon has been with Warburg since 1998. Prior to joining
Warburg, Mr. Sharon was an executive director and portfolio manager at CIBC
Oppenheimer from 1994-1998. Mr. Sharon was previously a Vice President and
Portfolio Manager at Warburg from 1990-1994. Mr. Sharon earned a B.S. Degree
with honors from the University of Rochester and an M.S. degree in Management
from the Sloan School of Management, M.I.T.
Mr. J.H. Cullum Clark, CFA, has been Associate Portfolio Manager of the
Fund since the Fund's inception. Mr. Clark is a Vice President of Warburg and is
an analyst at Warburg. Prior to joining Warburg, Mr. Clark was an analyst and
portfolio manager at Brown Brothers Harriman from 1993 to 1996 and a research
assistant at the U.S. Senate Select Committee on Intelligence from 1992 to 1993.
Mr. Clark received an A.M. degree from Harvard University and a B.A. degree from
Yale University. Mr. Clark also studied at the Stanford Inter-University Center
for Japanese Language Studies in 1990.
Investment Adviser and Co-Administrators
Warburg serves as investment adviser to the Fund, and Counsellors Funds
Service, Inc. ("Counsellors Service") and PFPC serve as co-administrators to the
Fund, each pursuant to separate written agreements (the "Advisory Agreement,"
"Counsellors Service Co-Administration Agreement" and the "PFPC
Co-Administration Agreement," respectively). The services to be 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
Prospectus. 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 Prospectus, "Management of the Fund."
Custodians and Transfer Agent
State Street Bank and Trust Company ("State Street") serves as custodian
of the Fund's non-U.S. assets, and PNC Bank, National Association ("PNC") serves
as custodian of the Fund's U.S. assets. Pursuant to separate custodian
agreements (the "Custodian Agreements"), State Street and PNC each will (i)
maintain a separate account or accounts in the name of the Fund, (ii) hold and
transfer portfolio securities on account of the Fund, (iii) make receipts and
disbursements of money on behalf of the Fund, (iv) collect and receive all
income and other payments and distributions for the account of the Fund's
portfolio securities and (v) make periodic reports to the Board concerning the
Fund's custodial arrangements. State Street is authorized to select one or more
foreign banking institutions and foreign securities depositories to serve as
sub-custodian on behalf of the Fund, and PNC is authorized to select one or more
domestic banks or trust companies to serve as sub-custodian on behalf of the
Fund. 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. PNC is
an indirect, wholly
30
<PAGE> 70
owned subsidiary of PNC Bank Corp., and its principal business address is 1600
Market Street, Philadelphia, Pennsylvania 19103. The principal business address
of State Street is 225 Franklin Street, Boston, Massachusetts 02110.
State Street will also serve 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 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.
BFDS's principal business address is 2 Heritage Drive, North Quincy,
Massachusetts 02171.
Organization of the Fund
All shareholders of the Fund in the 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
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.
31
<PAGE> 71
Pursuant to the 12b-1 Plan, Counsellors Securities will provide the Fund's
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. Agreements will be governed by a
distribution plan (the "Distribution Plan") pursuant to Rule 12b-1 under the
1940 Act. The Distribution Plan requires the Board, at least quarterly, to
receive and review written reports of amounts expended under the Distribution
Plan and the purpose 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 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 or indirect financial interest in the
operation of the Distribution Plans or the 12b-1 Plans, as the case may be
("Independent Directors"). Any material amendment of the Distribution Plan or
12b-1 Plan would require the approval of the Board in the same manner. Neither
the Distribution Plan nor the 12b-1 Plan may be amended to increase materially
the amount to be spent thereunder without shareholder approval of the relevant
class of shares. The Distribution Plan or 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 relevant class
of shares of the Fund.
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 Prospectus under "Net Asset Value."
32
<PAGE> 72
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 should not be considered as income from investment in 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 Prospectus. Exchanges may also be
made between certain Warburg Pincus Advisor Funds.
The exchange privilege enables shareholders to acquire shares in the Fund
with a different investment objective when they believe that a shift between
funds is an appropriate investment decision. Subject to the restrictions on
exchange purchases contained in the Prospectus and any other applicable
restrictions, 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 the 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.
Subject to the restrictions described above, 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.
33
<PAGE> 73
The exchange privilege may be modified or terminated at any time upon 30 days'
notice to shareholders.
ADDITIONAL INFORMATION CONCERNING TAXES
The following is a summary of the material United States federal income
tax considerations regarding the purchase, ownership and disposition of shares
in the Fund. Each prospective shareholder is urged to consult his own tax
adviser with respect to the specific federal, state, local and foreign tax
consequences of investing in the Fund. The summary is based on the laws in
effect on the date of this Statement of Additional Information, which are
subject to change.
The Fund and its Investments
The Fund intends to qualify to be treated as a regulated investment
company each taxable year under the Code. To so qualify, the Fund must, among
other things: (a) derive at least 90% of its gross income in each taxable year
from dividends, interest, payments with respect to securities, loans and gains
from the sale or other disposition of stock or securities or foreign currencies,
or other income (including, but not limited to, gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies; and (b) diversify its holdings so that, at the
end of each quarter of the Fund's taxable year, (i) at least 50% of the market
value of the Fund's assets is represented by cash, securities of other regulated
investment companies, United States government securities and other securities,
with such other securities limited, in respect of any one issuer, to an amount
not greater than 5% of the Fund's assets and not greater than 10% of the
outstanding voting securities of such issuer and (ii) not more than 25% of the
value of its assets is invested in the securities (other than United States
government securities or securities of other regulated investment companies) of
any one issuer or any two or more issuers that the Fund controls and are
determined to be engaged in the same or similar trades or businesses or related
trades or businesses. The Fund expects that all of its foreign currency gains
will be directly related to its principal business of investing in stocks and
securities.
As a regulated investment company, the Fund will not be subject to United
States federal income tax on its net investment income (i.e., income other than
its net realized long- and short-term capital gains) and its net realized long-
and short-term capital gains, if any, that it distributes to its shareholders,
provided that an amount equal to at least 90% of the sum of its investment
company taxable income (i.e., 90% of its taxable income minus the excess, if
any, of its net realized long-term capital gains over its net realized
short-term capital losses (including any capital loss carryovers), plus or minus
certain other adjustments as specified in the Code) and its net tax-exempt
income for the taxable year is distributed, but will be subject to tax at
regular corporate rates on any taxable income or gains that it does not
distribute. Furthermore, the Fund will be subject to a United States corporate
income tax with respect to such distributed amounts in any year that it fails to
qualify as a regulated investment company or fails to meet this distribution
requirement. Any dividend declared by the Fund in October, November or December
of any calendar year and payable to shareholders of record on a specified date
in such a month shall be deemed to have been received by each shareholder on
December 31 of such calendar year and to have been paid by the Fund not later
than such
34
<PAGE> 74
December 31, provided that such dividend is actually paid by the Fund during
January of the following calendar year.
The Fund intends to distribute annually to its shareholders substantially
all of its investment company taxable income. The Board will determine annually
whether to distribute any net realized long-term capital gains in excess of net
realized short-term capital losses (including any capital loss carryovers). The
Fund currently expects to distribute any excess annually to its shareholders.
However, if the Fund retains for investment an amount equal to all or a portion
of its net long-term capital gains in excess of its net short-term capital
losses and capital loss carryovers, it will be subject to a corporate tax
(currently at a rate of 35%) on the amount retained. In that event, the Fund
will designate such retained amounts as undistributed capital gains in a notice
to its shareholders who (a) will be required to include in income for United
Stares federal income tax purposes, as long-term capital gains, their
proportionate shares of the undistributed amount, (b) will be entitled to credit
their proportionate shares of the 35% tax paid by the Fund on the undistributed
amount against their United States federal income tax liabilities, if any, and
to claim refunds to the extent their credits exceed their liabilities, if any,
and (c) will be entitled to increase their tax basis, for United States federal
income tax purposes, in their shares by an amount equal to 65% of the amount of
undistributed capital gains included in the shareholder's income. Organizations
or persons not subject to federal income tax on such capital gains will be
entitled to a refund of their pro rata share of such taxes paid by the Fund upon
filing appropriate returns or claims for refund with the Internal Revenue
Service (the "IRS"). Even if the Fund makes such an election, it is possible
that the Fund may incur an excise tax as a result of not having distributed net
capital gains.
The Code imposes a 4% nondeductible excise tax on the Fund to the extent
the Fund does not distribute by the end of any calendar year at least 98% of its
net investment income for that year and 98% of the net amount of its capital
gains (both long-and short-term) for the one-year period ending, as a general
rule, on October 31 of that year. For this purpose, however, any income or gain
retained by the Fund that is subject to corporate income tax will be considered
to have been distributed by year-end. In addition, the minimum amounts that must
be distributed in any year to avoid the excise tax will be increased or
decreased to reflect any underdistribution or overdistribution, as the case may
be, from the previous year. The Fund anticipates that it will pay such dividends
and will make such distributions as are necessary in order to avoid the
application of this tax.
With regard to the Fund's investments in foreign securities, exchange
control regulations may restrict repatriations of investment income and capital
or the proceeds of securities sales by foreign investors such as the Fund and
may limit the Fund's ability to pay sufficient dividends and to make sufficient
distributions to satisfy the 90% and excise tax distribution requirements.
If, in any taxable year, the Fund fails to qualify as a regulated
investment company under the Code, it would be taxed in the same manner as an
ordinary corporation and distributions to its shareholders would not be
deductible by the Fund in computing its taxable income. In addition, in the
event of a failure to qualify, the Fund's distributions, to the extent derived
from the Fund's current or accumulated earnings and profits would constitute
dividends (eligible for the corporate dividends-received deduction) which are
taxable to
35
<PAGE> 75
shareholders as ordinary income, even though those distributions might otherwise
(at least in part) have been treated in the shareholders' hands as long-term
capital gains. If the Fund fails to qualify as a regulated investment company in
any year, it must pay out its earnings and profits accumulated in that year in
order to qualify again as a regulated investment company. In addition, if the
Fund failed to qualify as a regulated investment company for a period greater
than one taxable year, the Fund may be required to recognize any net built-in
gains (the excess of the aggregate gains, including items of income, over
aggregate losses that would have been realized if it had been liquidated) in
order to qualify as a regulated investment company in a subsequent year.
The Fund's short sales against the box, if any, and transactions in
foreign currencies, forward contracts, options and futures contracts (including
options and futures 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 realized by the Fund (i.e., may affect whether gains or losses
are ordinary or capital), accelerate recognition of income to the Fund and defer
Fund losses. These rules could therefore affect the character, amount and timing
of distributions to shareholders. These provisions also (a) will require the
Fund to mark-to-market certain types of the positions in its portfolio (i.e.,
treat them as if they were closed out) and (b) 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 in order to mitigate the effect of these rules and
prevent disqualification of the Fund as a regulated investment company.
The Fund's investments in zero coupon securities, if any, 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.
Passive Foreign Investment Companies. If the Fund purchases shares in
certain foreign investment entities, called "passive foreign investment
companies" (a "PFIC"), it may be subject to United States federal income tax on
a portion of any "excess distribution" or gain from the disposition of such
shares even if such income is distributed as a taxable dividend by the Fund to
its shareholders. Additional charges in the nature of interest may be imposed on
the Fund in respect of deferred taxes arising from such distributions or gains.
[Any tax paid by the Fund as a result of its ownership of shares in a PFIC will
not give rise to any deduction or credit to the Fund or any shareholder.] If the
Fund were to invest in a PFIC and elected to treat the PFIC as a "qualified
electing fund" under the Code, in lieu of the foregoing requirements, the Fund
might be required to include in income each year a portion of the ordinary
earnings and net capital gains of the qualified election fund, even if not
distributed to the Fund, and such amounts would be subject to the 90% and excise
tax distribution requirements described above. In order to make this election,
the Fund would be required to
36
<PAGE> 76
obtain certain annual information from the passive foreign investment companies
in which it invests, which may be difficult or not possible to obtain. If the
Fund were able to make the election described in this paragraph, the Fund would
not be able to treat any portion of the long-term capital gains included in
income pursuant to the election as eligible for the 20% maximum capital gains
rate. On October 9, 1997, the Ways and Means Committee of the U.S. Congress
approved technical corrections legislation that would treat PFICs as
pass-through entities for purposes of applying the 20% rate to the portion of a
PFIC's long-term gain attributable to assets held more than 18 months.
Recently, legislation was enacted that provides a mark-to-market election
for regulated investment companies effective for taxable years beginning after
December 31, 1997. This election would result in a Fund being treated as if it
had sold and repurchased all of the PFIC stock at the end of each year. In this
case, the Fund would report gains as ordinary income and would deduct losses as
ordinary losses to the extent of previously recognized gains. The election, once
made, would be effective for all subsequent taxable years of the Fund, unless
revoked with the consent of the IRS. By making the election, the Fund could
potentially ameliorate the adverse tax consequences with respect to its
ownership of shares in a PFIC, but in any particular year may be required to
recognize income in excess of the distributions it receives from PFICs and its
proceeds from dispositions of PFIC company stock. The Fund may have to
distribute this "phantom" income and gain to satisfy its distribution
requirement and to avoid imposition of the 4% excise tax. The Fund will make the
appropriate tax elections, if possible, and take any additional steps that are
necessary to mitigate the effect of these rules.
Dividends and Distributions. Dividends of net investment income and
distributions of net realized short-term capital gains are taxable to a United
States shareholder as ordinary income, whether paid in cash or in shares.
Distributions of net-long-term capital gains, if any, that the Fund designates
as capital gains dividends are taxable as long-term capital gains, whether paid
in cash or in shares and regardless of how long a shareholder has held shares of
the Fund. Dividends and distributions paid by the Fund (except for the portion
thereof, if any, attributable to dividends on stock of U.S. corporations
received by the Fund) will not qualify for the deduction for dividends received
by corporations. Distributions in excess of the Fund's current and accumulated
earnings and profits will, as to each shareholder, be treated as a tax-free
return of capital, to the extent of a shareholder's basis in his shares of the
Fund, and as a capital gain thereafter (if the shareholder holds his shares of
the Fund as capital assets).
Shareholders receiving dividends or distributions in the form of
additional shares should be treated for United States federal income tax
purposes as receiving a distribution in the amount equal to the amount of money
that the shareholders receiving cash dividends or distributions will receive,
and should have a cost basis in the shares received equal to such amount.
Investors considering buying shares just prior to a dividend or capital
gain distribution should be aware that, although the price of shares just
purchased at that time may reflect the amount of the forthcoming distribution,
such dividend or distribution may nevertheless be taxable to them.
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<PAGE> 77
If the Fund is the holder of record of any stock on the record date for
any dividends payable with respect to such stock, such dividends are included in
the Fund's gross income not as of the date received but as of the later of (a)
the date such stock became ex-dividend with respect to such dividends (i.e., the
date on which a buyer of the stock would not be entitled to receive the
declared, but unpaid, dividends) or (b) the date the Fund acquired such stock.
Accordingly, in order to satisfy its income distribution requirements, the Fund
may be required to pay dividends based on anticipated earnings, and shareholders
may receive dividends in an earlier year than would otherwise be the case.
Sales of Shares. Upon the sale or exchange of his shares, a shareholder
will realize a taxable gain or loss equal to the difference between the amount
realized and his basis in his 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 will be long-term capital gain or loss if the shares are held for
more than one year and short-term capital gain or loss if the shares are held
for one year or less. Any loss realized on a sale or exchange will be disallowed
to the extent the shares disposed of are replaced, including replacement through
the reinvesting of dividends and capital gains distributions in the Fund, within
a 61-day period 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. Any loss realized by a shareholder
on the sale of the Fund share held by the shareholder for six months or less
will be treated for United States federal income tax purposes as a long-term
capital loss to the extent of any distributions or deemed distributions of
long-term capital gains received by the shareholder with respect to such share.
Backup Withholding. The Fund may be required to withhold, for United
States federal income tax purposes, 31% of the dividends and 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 IRS that they are subject to backup withholding. Certain
shareholders are exempt from backup withholding. Backup withholding is not an
additional tax and any amount withheld may be credited against a shareholder's
United States federal income tax liabilities.
Notices. Shareholders will be notified annually by the Fund as to the
United States federal income tax status of the dividends, distributions and
deemed distributions attributable to undistributed capital gains (discussed
above in "The Fund and its Investments") made by the Fund to its shareholders.
Furthermore, shareholders will also receive, if appropriate, various written
notices after the close of the Fund's taxable year regarding the United States
federal income tax status of certain dividends, distributions and deemed
distributions that were paid (or that are treated as having been paid) by the
Fund to its shareholders during the preceding taxable year.
Other Taxation
Distributions also may be subject to additional state, local and foreign
taxes depending on each shareholder's particular situation.
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<PAGE> 78
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES
AFFECTING THE FUND AND ITS 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.
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)(n) = 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. Investors should note that this performance may not be representative of
the Fund's total return in longer market cycles.
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
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 may
reduce its exposure to country-specific economic problems. Warburg 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
39
<PAGE> 79
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.
To illustrate this point, the performance of international
equity securities, as measured by the Morgan Stanley Capital International
(EAFE) Europe, Australia, Far East Index (the "EAFE Index"), has equaled or
exceeded that of domestic equity securities, as measured by the Standard &
Poor's 500 Composite Stock Index (the "S&P 500 Index") in 14 of the last 26
years. The following table compares annual total returns of the EAFE Index and
the S&P 500 Index for the calendar years shown.
EAFE INDEX VS. S&P 500 INDEX
1972-1997
ANNUAL TOTAL RETURN+
<TABLE>
<CAPTION>
YEAR EAFE INDEX S&P 500 INDEX
---- ---------- -------------
<S> <C> <C>
1972* 33.28 15.63
1973* -16.82 -17.37
1974* -25.60 -29.72
1975 31.21 31.55
1976 -.36 19.15
1977* 14.61 -11.50
1978* 28.91 1.06
1979 1.82 12.31
1980 19.01 25.77
1981* -4.85 -9.73
1982 -4.63 14.76
1983* 20.91 17.27
1984* 5.02 1.40
1985* 52.97 26.33
1986* 66.80 14.62
1987* 23.18 2.03
1988* 26.66 12.40
1989 9.22 27.25
1990 -24.71 -6.56
1991 10.19 26.31
1992 -13.89 4.46
1993* 30.49 7.06
1994* 6.24 -1.54
1995 9.42 34.11
1996 4.40 20.26
1997 0.24 31.01
</TABLE>
- --------------------
+ Without reinvestment of dividends.
* The EAFE Index has outperformed the S&P 500 Index 14 out of the last 26
years.
40
<PAGE> 80
The quoted performance information shown above is not intended
to indicate the future performance of the Fund.
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 each Fund. The statement of assets and liabilities
of the Fund, as of [INSERT], 1998, 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.
41
<PAGE> 81
APPENDIX
DESCRIPTION OF RATINGS
Commercial Paper Ratings
Commercial paper rated A-1 by Standard and Poor's Ratings
Services ("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 Service, 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.
BB, B and CCC - 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.
A-1
<PAGE> 82
BB - Debt rated BB has less near-term vulnerability to default
than other speculative issues. However, it faces 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 has 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.
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.
A-2
<PAGE> 83
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.
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 comprise 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.
A-3
<PAGE> 84
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements --
(1) Financial Statements included in Part B.1
(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 Articles of Incorporation.
2 By-Laws.
3 Not applicable.
4 Registrant's Forms of Stock Certificates.*
5 Form of Investment Advisory Agreement.
6 Form of Distribution Agreement.
7 Not applicable.
8(a) Custodian Agreement with PNC Bank, National
Association.*
(b) Custodian Agreement with State Street Bank
and Trust Company.*
9(a) Transfer Agency and Service Agreement.*
(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 &
(b) Gallagher, counsel to the Fund.*
Opinion and Consent of Venable, Baetjer
and Howard, LLP, Maryland counsel to the
Fund.*
11 Consent of Coopers & Lybrand L.L.P.,
Independent Accountants.*
- --------
* To be filed by amendment.
<PAGE> 85
12 Not applicable.
13 Form of Purchase Agreement.
14 Not applicable
15(a) Form of Shareholder Servicing and
Distribution Plan.
(b) Form of Distribution Plan.
16 Not applicable.
17 Not applicable
18 Form of 18f-3 Plan.
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 Asset Management, 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.
Item 27. Indemnification
Registrant, officers and directors of Warburg, 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
<PAGE> 86
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, 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
Asset Management Holdings, Inc., 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,
<PAGE> 87
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, Inc.; Warburg Pincus Growth &
Income Fund; Warburg Pincus Health Sciences Fund; Warburg Pincus Institutional
Fund; Warburg Pincus Intermediate Maturity Government Fund; Warburg Pincus
International Equity Fund; Warburg Pincus Japan Growth Fund; Warburg Pincus
Japan OTC Fund; Warburg Pincus Major Foreign Markets 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 Growth
Fund; Warburg Pincus Small Company Value Fund; Warburg Pincus Strategic Value
Fund; Warburg Pincus Trust; and Warburg Pincus Trust II.
(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 International Small Company
Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(Fund's Articles of Incorporation, By-Laws and minute
books)
(2) Warburg Pincus Asset Management, 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)
<PAGE> 88
(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 custodian,
transfer agent and dividend disbursing agent)
(7) Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, Massachusetts 02171
(records relating to its functions as transfer agent
and dividend disbursing agent)
(8) PNC Bank, National Association
Broad and Chestnut Streets
Philadelphia, Pennsylvania 19101
(records relating to its functions as custodian)
(9) 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.
(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 Fund, upon request and without charge.
(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> 89
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 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 7th day of April, 1998.
WARBURG, PINCUS INTERNATIONAL SMALL
COMPANY FUND, INC.
By: /s/Eugene L. Podsiadlo
-------------------------------------
Eugene L. Podsiadlo
President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
@@
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/John L. Furth Chairman of the Board of April 7, 1998
- ---------------- Directors
John L. Furth
/s/Eugene L. Podsiadlo President April 7, 1998
- ----------------------
Eugene L. Podsiadlo
/s/Howard Conroy Vice President and Chief April 7, 1998
- ---------------- Financial Officer
Howard Conroy
/s/Daniel S. Madden Treasurer and Chief April 7, 1998
- ------------------- Accounting Officer
Daniel S. Madden
/s/Richard N. Cooper Director April 7, 1998
- --------------------
Richard N. Cooper
/s/Jack W. Fritz Director April 7, 1998
- -----------------
Jack W. Fritz
/s/Jeffrey E. Garten Director April 7, 1998
- ---------------------
Jeffrey E. Garten
/s/Thomas A. Melfe Director April 7, 1998
- -------------------
Thomas A. Melfe
/s/Arnold M. Reichman Director April 7, 1998
- ----------------------
Arnold M. Reichman
/s/Alexander B. Trowbridge Director April 7, 1998
- ---------------------------
Alexander B. Trowbridge
@@
</TABLE>
<PAGE> 90
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
1 Articles of Incorporation
2 By-Laws
5 Form of Investment Advisory Agreement
6 Form of Distribution Agreement
9(b) Form of Co-Administration Agreement with Counsellors
Funds Service, Inc.
9(c) Form of Co-Administration Agreement with
PFPC Inc.
13 Form of Purchase Agreement
15(a) Form of Shareholder Servicing and
Distribution Plan
15(b) Form of Distribution Plan
18 Form of 18f-3 Plan
<PAGE> 1
EXHIBIT 1
ARTICLES OF INCORPORATION
OF
WARBURG, PINCUS INTERNATIONAL SMALL COMPANY FUND, INC.
ARTICLE I
INCORPORATOR
The undersigned, John H. Kim, whose post office address is c/o
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New York,
New York 10022, being at least 18 years of age, does hereby act as an
incorporator and forms a corporation under the Maryland General Corporation Law.
ARTICLE II
NAME
The name of the corporation is Warburg, Pincus International
Small Company Fund, Inc. (the "Corporation").
ARTICLE III
PURPOSES AND POWERS
To conduct and carry on the business of an investment company.
(1) To hold, invest and reinvest its assets in securities and other
investments or to hold part or all of its assets in cash.
(2) To issue and sell shares of its capital stock in such amounts, on such
terms and conditions, for such purposes and for such amount or kind of
consideration as may now or hereafter be permitted by law.
(3) To redeem, purchase or acquire in any other manner, hold, dispose of,
resell, transfer, reissue or cancel (all without the vote or consent of
the stockholders of the Corporation) shares of its capital stock, in
any manner and to the extent now or hereafter permitted by law and by
this Charter.
(4) To do any and all additional acts and to exercise any and all
additional powers or rights as may be necessary, incidental,
appropriate or desirable for the accomplishment of all or any of the
foregoing purposes.
(5) The Corporation shall be authorized to exercise and enjoy all of the
powers, rights and privileges granted to, or
<PAGE> 2
conferred upon, corporations by the Maryland General Corporation Law
now or hereafter in force, and the enumeration of the foregoing shall
not be deemed to exclude any powers, rights or privileges so granted or
conferred.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the
Corporation in the State of Maryland is c/o The Corporation Trust Company
Incorporated, 32 South Street, Baltimore, Maryland 21202. The name and address
of the resident agent of the Corporation in the State of Maryland is The
Corporation Trust Company Incorporated, a Maryland corporation, 32 South Street,
Baltimore, Maryland 21202.
ARTICLE V
CAPITAL STOCK
(1)
(A) The total number of shares of capital stock that the
Corporation shall have authority to issue is three billion
(3,000,000,000) shares, of the par value of one tenth of one
cent ($.001) per share and of the aggregate par value of three
million dollars ($3,000,000), all of which three billion
(3,000,000,000) shares are designated Common Stock.
(B)
(i) One billion (1,000,000,000) shares of Common Stock
have been divided into and classified initially as a
series of Common Stock, designated "Common Shares."
(ii) Two billion (2,000,000,000) shares of Common Stock
have been divided into and classified initially as a
series of Common Stock, designated "Advisor Shares."
(C) Each Common Share will have the same preferences, conversion
and other rights, voting powers, restrictions, limitations as
to dividends, qualifications and terms and conditions of
redemption as every other share of Common Stock, except that,
subject to the provisions of any governing order, rule or
regulation issued pursuant to the Investment Company Act of
1940, as amended (the "1940 Act"):
(i) Common Shares will share equally with Common Stock
other than Common Shares ("Non-Common
-2-
<PAGE> 3
Shares") in the income, earnings and profits derived
from investment and reinvestment of the assets
belonging to the Corporation and will be charged
equally with Non-Common Shares with the liabilities
and expenses of the Corporation, except that Common
Shares will bear the expense of payments made
pursuant to any agreements entered into by the
Corporation pursuant to any shareholder services plan
and/or distribution plan adopted by the Corporation
with respect to Common Shares;
(ii) On any matter submitted to a vote of shareholders of
the Corporation that pertains to the agreements or
expenses described in clause (C)(i) above (or to any
plan adopted by the Corporation relating to said
agreements or expenses), only Common Shares will be
entitled to vote, except that if said matter affects
Non-Common Shares, Non-Common Shares will also be
entitled to vote, and in such case Common Shares will
be voted in the aggregate together with such
Non-Common Shares and not by series except where
otherwise required by law. Common Shares will not be
entitled to vote on any matter that does not affect
Common Shares (except where otherwise required by
law) even though the matter is submitted to a vote of
the holders of Non-Common Shares; and
(iii) The Board of Directors of the Corporation in its sole
discretion may determine whether a matter affects a
particular class or series of Corporation shares.
(D) Each Advisor Share will have the same preferences, conversion
and other rights, voting powers, restrictions, limitations as
to dividends, qualifications and terms and conditions of
redemption as every other share of Common Stock, except that,
subject to the provisions of any governing order, rule or
regulation issued pursuant to the 1940 Act:
(i) Advisor Shares will share equally with Common Stock
other than Advisor Shares ("Non-Advisor Shares") in
the income, earnings and profits derived from
investment and reinvestment of the assets belonging
to the Corporation and will be charged equally with
Non-Advisor Shares with the liabilities and expenses
of the Corporation, except that Advisor Shares will
bear the expense of payments made
-3-
<PAGE> 4
pursuant to any agreements entered into by the
Corporation pursuant to any shareholder services plan
and/or distribution plan adopted by the Corporation
with respect to Advisor Shares;
(ii) On any matter submitted to a vote of shareholders of
the Corporation that pertains to the agreements or
expenses described in clause (D)(i) above (or to any
plan adopted by the Corporation relating to said
agreements or expenses), only Advisor Shares will be
entitled to vote, except that if said matter affects
Non-Advisor Shares, Non-Advisor Shares will also be
entitled to vote, and in such case Advisor Shares
will be voted in the aggregate together with such
Non-Advisor Shares and not by series except where
otherwise required by law. Advisor Shares will not be
entitled to vote on any matter that does not affect
Advisor Shares (except where otherwise required by
law) even though the matter is submitted to a vote of
the holders of Non-Advisor Shares; and
(iii) The Board of Directors of the Corporation in its sole
discretion may determine whether a matter affects a
particular class or series of Corporation shares.
(2) Any fractional share shall carry proportionately the rights of a whole
share including, without limitation, the right to vote and the right to
receive dividends. A fractional share shall not, however, have the
right to receive a certificate evidencing it.
(3) All persons who shall acquire stock in the Corporation shall acquire
the same subject to the provisions of this Charter and the By-Laws of
the Corporation.
(4) No holder of stock of the Corporation by virtue of being such a holder
shall have any preemptive or other right to purchase or subscribe for
any shares of the Corporation's capital stock or any other security
that the Corporation may issue or sell (whether out of the number of
shares authorized by this Charter or out of any shares of the
Corporation's capital stock that the Corporation may acquire) other
than a right that the Board of Directors in its discretion may
determine to grant.
(5) The Board of Directors shall have authority by resolution to classify
or to reclassify, as the case may be, any authorized but unissued
shares of capital stock from time to time by setting or changing in any
one or more respects the
-4-
<PAGE> 5
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of
redemption of the capital stock.
(6) Notwithstanding any provision of law requiring any action to be taken
or authorized by the affirmative vote of a greater proportion of the
votes of all classes or of any class of stock of the Corporation, such
action shall be effective and valid if taken or authorized by the
affirmative vote of a majority of the total number of votes entitled to
be cast thereon, except as otherwise provided in this Charter.
(7) The presence in person or by proxy of the holders of one-third of the
shares of stock of the Corporation entitled to vote (without regard to
class) shall constitute a quorum at any meeting of the stockholders,
except with respect to any matter which, under applicable statutes or
regulatory requirements, requires approval by a separate vote of one or
more classes of stock, in which case the presence in person or by proxy
of the holders of one-third of the shares of stock of each class
required to vote as a class on the matter shall constitute a quorum.
ARTICLE VI
REDEMPTION
Each holder of shares of the Corporation's capital stock shall
be entitled to require the Corporation to redeem all or any part of the shares
of capital stock of the Corporation standing in the name of the holder on the
books of the Corporation, and all shares of capital stock issued by the
Corporation shall be subject to redemption by the Corporation, at the redemption
price of the shares as in effect from time to time as may be determined by or
pursuant to the direction of the Board of Directors of the Corporation in
accordance with the provisions of Article VII, subject to the right of the Board
of Directors of the Corporation to suspend the right of redemption or postpone
the date of payment of the redemption price in accordance with provisions of
applicable law. Without limiting the generality of the foregoing, the
Corporation shall, to the extent permitted by applicable law, have the right at
any time to redeem the shares owned by any holder of capital stock of the
Corporation (i) if the redemption is, in the opinion of the Board of Directors
of the Corporation, desirable in order to prevent the Corporation from being
deemed a "personal holding company" within the meaning of the Internal Revenue
Code of 1986, as amended, or (ii) if the value of the shares in the account
maintained by the Corporation or its transfer agent for any class of stock for
the stockholder is below an amount determined from time to time by the Board of
Directors of the Corporation (the "Minimum Account Balance") and the stockholder
has been given at least 60 (sixty) days' written notice of the redemption and
has failed to make additional purchases of shares in an amount sufficient to
bring the value in
-5-
<PAGE> 6
his account to at least the Minimum Account Balance before the redemption is
effected by the Corporation. Payment of the redemption price shall be made in
cash by the Corporation at the time and in the manner as may be determined from
time to time by the Board of Directors of the Corporation unless, in the opinion
of the Board of Directors, which shall be conclusive, conditions exist that make
payment wholly in cash unwise or undesirable; in such event the Corporation may
make payment wholly or partly by securities or other property included in the
assets belonging or allocable to the class of the shares for which redemption is
being sought, the value of which shall be determined as provided herein. The
Board of Directors may establish procedures for redemption of shares.
ARTICLE VII
BOARD OF DIRECTORS
(1) The number of directors constituting the Board of Directors shall be
one or such other number as may be set forth in the By-Laws or
determined by the Board of Directors pursuant to the By-Laws. The
number of Directors shall at no time be less than the minimum number
required under the Maryland General Corporation Law. Arnold M. Reichman
has been appointed director of the Corporation to hold office until the
first annual meeting of stockholders or until his successor is elected
and qualified.
(2) In furtherance, and not in limitation, of the powers conferred by the
Maryland General Corporation Law, the Board of Directors is expressly
authorized:
(i) To make, alter or repeal the By-Laws of the
Corporation, except where such power is reserved by
the By-Laws to the stockholders, and except as
otherwise required by the 1940 Act.
(ii) From time to time to determine whether and to what
extent and at what times and places and under what
conditions and regulations the books and accounts of
the Corporation, or any of them other than the stock
ledger, shall be open to the inspection of the
stockholders. No stockholder shall have any right to
inspect any account or book or document of the
Corporation, except as conferred by law or authorized
by resolution of the Board of Directors or of the
stockholders.
(iii) Without the assent or vote of the stockholders, to
authorize the issuance from time to time of shares of
the stock of any class of the Corporation, whether
now or
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hereafter authorized, and securities convertible into
shares of stock of the Corporation of any class or
classes, whether now or hereafter authorized, for
such consideration as the Board of Directors may deem
advisable.
(iv) Without the assent or vote of the stockholders, to
authorize and issue obligations of the Corporation,
secured and unsecured, as the Board of Directors may
determine, and to authorize and cause to be executed
mortgages and liens upon the real or personal
property of the Corporation.
(v) Notwithstanding anything in this Charter to the
contrary, to establish in its absolute discretion the
basis or method for determining the value of the
assets belonging to any class, the value of the
liabilities belonging to any class and the net asset
value of each share of any class of the Corporation's
stock.
(vi) To determine in accordance with generally accepted
accounting principles and practices what constitutes
net profits, earnings, surplus or net assets in
excess of capital, and to determine what accounting
periods shall be used by the Corporation for any
purpose; to set apart out of any funds of the
Corporation reserves for such purposes as it shall
determine and to abolish the same; to declare and pay
any dividends and distributions in cash, securities
or other property from surplus or any other funds
legally available therefor, at such intervals as it
shall determine; to declare dividends or
distributions by means of a formula or other method
of determination, at meetings held less frequently
than the frequency of the effectiveness of such
declarations; and to establish payment dates for
dividends or any other distributions on any basis,
including dates occurring less frequently than the
effectiveness of declarations thereof.
(vii) In addition to the powers and authorities granted
herein and by statute expressly conferred upon it,
the Board of Directors is authorized to exercise all
powers and do all acts that may be exercised or done
by the Corporation pursuant to the provisions of the
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laws of the State of Maryland, this Charter and the
By-Laws of the Corporation.
(3) Any determination made in good faith, and in accordance with applicable
law and generally accepted accounting principles and practices, if
applicable, by or pursuant to the direction of the Board of Directors,
with respect to the amount of assets, obligations or liabilities of the
Corporation, as to the amount of net income of the Corporation from
dividends and interest for any period or amounts at any time legally
available for the payment of dividends, as to the amount of any
reserves or charges set up and the propriety thereof, as to the time of
or purpose for creating reserves or as to the use, alteration or
cancellation of any reserves or charges (whether or not any obligation
or liability for which the reserves or charges have been created has
been paid or discharged or is then or thereafter required to be paid or
discharged), as to the value of any security owned by the Corporation,
the determination of the net asset value of shares of any class of the
Corporation's capital stock, or as to any other matters relating to the
issuance, sale or other acquisition or disposition of securities or
shares of capital stock of the Corporation, and any reasonable
determination made in good faith by the Board of Directors regarding
whether any transaction constitutes a purchase of securities on
"margin," a sale of securities "short," or an underwriting of the sale
of, or a participation in any underwriting or selling group in
connection with the public distribution of, any securities, shall be
final and conclusive, and shall be binding upon the Corporation and all
holders of its capital stock, past, present and future, and shares of
the capital stock of the Corporation are issued and sold on the
condition and understanding, evidenced by the purchase of shares of
capital stock or acceptance of share certificates, that any and all
such determinations shall be binding as aforesaid. No provision of this
Charter shall be effective to (i) require a waiver of compliance with
any provision of the Securities Act of 1933, as amended, or the 1940
Act, or of any valid rule, regulation or order of the Securities and
Exchange Commission under those Acts or (ii) protect or purport to
protect any director or officer of the Corporation against any
liability to the Corporation or its security holders 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.
ARTICLE VIII
INDEMNIFICATION AND LIMITATION OF LIABILITY
(1) To the fullest extent that limitations on the liability of directors
and officers are permitted by the Maryland General
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Corporation Law, no director or officer of the Corporation shall have
any liability to the Corporation or its stockholders for money damages.
This limitation on liability applies to events occurring at the time a
person serves as a director or officer of the Corporation whether or
not such person is a director or officer at the time of any proceeding
in which liability is asserted.
(2) The Corporation shall indemnify and advance expenses to its currently
acting and its former directors to the fullest extent that
indemnification of directors and advancement of expenses to directors
is permitted by the Maryland General Corporation Law. The Corporation
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.
(3) No provision of this Article VIII shall be effective to protect or
purport to protect any director or officer of the Corporation against
any liability to the Corporation 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.
(4) References to the Maryland General Corporation Law in this Article VIII
are to the law as from time to time amended. No amendment to this
Charter shall affect any right of any person under this Article VIII
based on any event, omission or proceeding prior to such amendment. The
term "Charter" as used herein shall have the meaning set forth in the
Maryland General Corporation Law and includes these Articles of
Incorporation and all amendments thereto.
ARTICLE IX
AMENDMENTS
The Corporation reserves the right from time to time to make
any amendment to its Charter, now or hereafter authorized by law, including any
amendment that alters the contract rights, as expressly set forth in this
Charter, of any outstanding stock, and all rights at any time conferred upon the
stockholders of the Corporation by its Charter are granted subject to the
provisions of this Article and the reservation of the right to amend the Charter
herein contained.
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IN WITNESS WHEREOF, I have adopted and signed these Articles
of Incorporation and do hereby acknowledge that the adoption and signing are my
act.
/s/John H. Kim
-------------------------------
John H. Kim
Incorporator
Dated the 2nd day of April, 1998
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EXHIBIT 2
BY-LAWS
OF
WARBURG, PINCUS INTERNATIONAL SMALL COMPANY FUND, INC.
A Maryland Corporation
ARTICLE I
STOCKHOLDERS
SECTION 1. Annual Meetings. No annual meeting of the
stockholders of the Warburg, Pincus International Small Company Fund, Inc. (the
"Corporation") shall be held in any year in which the election of directors is
not required to be acted upon under the Investment Company Act of 1940, as
amended (the "1940 Act"), unless otherwise determined by the Board of Directors.
An annual meeting may be held at any place within the United States as may be
determined by the Board of Directors and as shall be designated in the notice of
the meeting, at the time specified by the Board of Directors. Any business of
the Corporation may be transacted at an annual meeting without being
specifically designated in the notice unless otherwise provided by statute, the
Corporation's Charter or these By-Laws.
SECTION 2. Special Meetings. Special meetings of the
stockholders for any purpose or purposes, unless otherwise prescribed by statute
or by the Corporation's Charter, may be held at any place within the United
States, and may be called at any time by the Board of Directors or by the
President, and shall be called by the President or Secretary at the request in
writing of a majority of the Board of Directors or at the request in writing of
stockholders entitled to cast at least 10% (ten percent) of the votes entitled
to be cast at the meeting upon payment by such stockholders to the Corporation
of the reasonably estimated cost of preparing and mailing a notice of the
meeting (which estimated cost shall be provided to such stockholders by the
Secretary of the Corporation). Notwithstanding the foregoing, unless requested
by stockholders entitled to cast a majority of the votes entitled to be cast at
the meeting, a special meeting of the stockholders need not be called at the
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request of stockholders to consider any matter which is substantially the same
as a matter voted on at any special meeting of the stockholders held during the
preceding 12 (twelve) months. A written request shall state the purpose or
purposes of the proposed meeting.
SECTION 3. Notice of Meetings. Written or printed notice of
the purpose or purposes and of the time and place of every meeting of the
stockholders shall be given by the Secretary of the Corporation to each
stockholder of record entitled to vote at the meeting, by placing the notice in
the mail at least 10 (ten) days, but not more than 90 (ninety) days, prior to
the date designated for the meeting addressed to each stockholder at his address
appearing on the books of the Corporation or supplied by the stockholder to the
Corporation for the purpose of notice. The notice of any meeting of stockholders
may be accompanied by a form of proxy approved by the Board of Directors in
favor of the actions or the election of persons as the Board of Directors may
select. Notice of any meeting of stockholders shall be deemed waived by any
stockholder who attends the meeting in person or by proxy, or who before or
after the meeting submits a signed waiver of notice that is filed with the
records of the meeting.
SECTION 4. Quorum. Except as otherwise provided by statute or
by the Corporation's Charter, the presence in person or by proxy of stockholders
of the Corporation entitled to cast at least one-third of the votes to be cast
shall constitute a quorum at each meeting of the stockholders and all questions
shall be decided by majority of the votes cast (except with respect to the
election of directors, which shall be by a plurality of votes cast). In the
absence of a quorum, the stockholders present in person or by proxy, by majority
vote and without notice other than by announcement, may adjourn the meeting from
time to time as provided in Section 5 of this Article I until a quorum shall
attend. The stockholders present at any duly organized meeting may continue to
do business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum. The absence from any meeting in person
or by proxy of holders of the number of shares of stock of the Corporation in
excess of a majority that may be required by Maryland law, the 1940 Act, or any
other applicable statute, the Corporation's Charter or these By-Laws, for action
upon any given matter shall not prevent action at the meeting on any other
matter or matters that may properly come before the meeting, so long as there
are present, in person or by proxy, holders of the number of shares of stock of
the Corporation required for action upon such other matter or matters.
SECTION 5. Adjournment. Any meeting of the stockholders may be
adjourned from time to time, without notice other than by announcement at the
meeting at which the adjournment is taken. At any adjourned meeting at which a
quorum shall be present, any action may be taken that could have been taken at
the meeting originally called. A meeting of the
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stockholders may not be adjourned without further notice to a date more than 120
(one hundred twenty) days after the original record date determined pursuant to
Section 9 of this Article I.
SECTION 6. Organization. At every meeting of the stockholders,
the Chairman of the Board, or in his absence or inability to act (or if there is
none), the President, or in his absence or inability to act, a Vice President,
or in the absence or inability to act of the Chairman of the Board, the
President and all the Vice Presidents, a chairman chosen by the stockholders
shall act as chairman of the meeting. The Secretary, or in his absence or
inability to act, a person appointed by the chairman of the meeting, shall act
as secretary of the meeting and keep the minutes of the meeting.
SECTION 7. Order of Business. The order of business at all
meetings of the stockholders shall be as determined by the chairman of the
meeting.
SECTION 8. Voting. Except as otherwise provided by statute or
the Corporation's Charter, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of stock standing in his name on the
records of the Corporation as of the record date determined pursuant to Section
9 of this Article I.
Each stockholder entitled to vote at any meeting of
stockholders may authorize another person to act as proxy for the stockholder
by, (a) signing a writing authorizing another person to act as proxy, or (b) any
other means permitted by law. Signing may be accomplished by the stockholder or
the stockholder's authorized agent signing the writing or causing the
stockholder's signature to be affixed to the writing by any reasonable means,
including facsimile signature.
If a vote shall be taken on any question other than the
election of directors, which shall be by written ballot, then unless required by
statute or these By-Laws, or determined by the chairman of the meeting to be
advisable, any such vote need not be by ballot. On a vote by ballot, each ballot
shall be signed by the stockholder voting, or by his proxy, and shall state the
number of shares voted.
SECTION 9. Fixing of Record Date. The Board of Directors may
set a record date for the purpose of determining stockholders entitled to vote
at any meeting of the stockholders. The record date for a particular meeting
shall be not more than 90 (ninety) nor fewer than 10 (ten) days before the date
of the meeting. All persons who were holders of record of shares as of the
record date of a meeting, and no others, shall be entitled to vote at such
meeting and any adjournment thereof.
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SECTION 10. Inspectors. The Board of Directors may, in advance
of any meeting of stockholders, appoint one or more inspectors to act at the
meeting or at any adjournment of the meeting. If the inspectors shall not be so
appointed or if any of them shall fail to appear or act, the chairman of the
meeting may, and on the request of any stockholder entitled to vote at the
meeting shall, appoint inspectors. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath to execute faithfully the
duties of inspector at the meeting with strict impartiality and according to the
best of his ability. The inspectors shall determine the number of shares
outstanding and the voting power of each share, the number of shares represented
at the meeting, the existence of a quorum and the validity and effect of
proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the result, and do those acts
as are proper to conduct the election or vote with fairness to all stockholders.
On request of the chairman of the meeting or any stockholder entitled to vote at
the meeting, the inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a certificate of any fact
found by them. No director or candidate for the office of director shall act as
inspector of an election of directors. Inspectors need not be stockholders of
the Corporation.
SECTION 11. Consent of Stockholders in Lieu of Meeting. Except
as otherwise provided by statute or the Corporation's Charter, any action
required to be taken at any meeting of stockholders, or any action that may be
taken at any meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if the following are filed with the
records of stockholders' meetings: (a) a unanimous written consent that sets
forth the action and is signed by each stockholder entitled to vote on the
matter; and (b) a written waiver of notice and any right to dissent signed by
each stockholder entitled to notice of the meeting but not entitled to vote at
the meeting.
SECTION 12. Notice of Stockholder Business.
(a) At any annual or special meeting of the stockholders, only
such business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual or special meeting business
must be, (i), (A) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, (B) otherwise properly
brought before the meeting by or at the direction of the Board of Directors, or
(C) subject to the provisions of Section 13 of this Article I, otherwise
properly brought before the meeting by a stockholder, and (ii) a proper subject
under applicable law for stockholder action.
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(b) For business to be properly brought before an annual or
special meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, any such
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation not later than 60 (sixty) days prior to the date of
the meeting; provided, however, that if less than 70 (seventy) days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, any such notice by a stockholder to be timely must be so received
not later than the close of business on the tenth day following the day on which
notice of the date of the annual or special meeting was given or such public
disclosure was made.
(c) Any such notice by a stockholder shall set forth as to
each matter the stockholder proposes to bring before the annual or special
meeting, (i) a brief description of the business desired to be brought before
the annual or special meeting and the reasons for conducting such business at
the annual or special meeting, (ii) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (iii) the class
and number of shares of the capital stock of the Corporation which are
beneficially owned by the stockholder, and (iv) any material interest of the
stockholder in such business.
(d) Notwithstanding anything in the By-Laws to the contrary,
no business shall be conducted at any annual or special meeting except in
accordance with the procedures set forth in this Section 12. The chairman of the
annual or special meeting shall, if the facts warrant, determine and declare to
the meeting that business was not properly brought before the meeting and in
accordance with the provisions of this Section 12, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be considered or transacted.
SECTION 13. Stockholder Business not Eligible for
Consideration.
(a) Notwithstanding anything in these By-Laws to the contrary,
any proposal that is otherwise properly brought before an annual or special
meeting by a stockholder will not be eligible for consideration by the
stockholders at such annual or special meeting if such proposal is substantially
the same as a matter properly brought before such annual or special meeting by
or at the direction of the Board of Directors of the Corporation. The chairman
of such annual or special meeting shall, if the facts warrant, determine and
declare that a stockholder proposal is substantially the same as a matter
properly brought before the meeting by or at the direction of the Board of
Directors, and, if he should so determine, he shall so declare to the meeting
and any such stockholder proposal shall not be considered at the meeting.
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(b) This Section 13 shall not be construed or applied to make
ineligible for consideration by the stockholders at any annual or special
meeting any stockholder proposal required to be included in the Corporation's
proxy statement relating to such meeting pursuant to Rule 14a-8 under the
Securities Exchange Act of 1934 (the "Exchange Act"), or any successor rule
thereto.
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ARTICLE II
BOARD OF DIRECTORS
SECTION 1. General Powers. Except as otherwise provided in the
Corporation's Charter, the business and affairs of the Corporation shall be
managed under the direction of its Board of Directors. All powers of the
Corporation may be exercised by or under authority of the Board of Directors
except as conferred on or reserved to the stockholders by law, by the
Corporation's Charter or by these By-Laws.
SECTION 2. Number of Directors. The number of directors shall
be fixed from time to time by resolution of the Board of Directors adopted by a
majority of the entire Board of Directors; provided, however, that the number of
directors shall in no event be fewer than one nor more than fifteen. Any vacancy
created by an increase in directors may be filled in accordance with Section 7
of this Article II. No reduction in the number of directors shall have the
effect of removing any director from office prior to the expiration of his term
unless the director is specifically removed pursuant to Section 6 of this
Article II at the time of the decrease. A director need not be a stockholder of
the Corporation, a citizen of the United States or a resident of the State of
Maryland.
SECTION 3. Election and Term of Directors. The term of office
of each director shall be from the time of his election and qualification until
his successor shall have been elected and shall have qualified, or until his
death, or until his resignation or removal as provided in these By-Laws, or as
otherwise provided by statute or the Corporation's Charter.
SECTION 4. Director Nominations.
(a) Only persons who are nominated in accordance with the
procedures set forth in this Section 4 shall be eligible for election or
re-election as directors. Nominations of persons for election or re-election to
the Board of Directors of the Corporation may be made at a meeting of
stockholders by or at the direction of the Board of Directors or by any
stockholder of the Corporation who is entitled to vote for the election of such
nominee at the meeting and who complies with the notice procedures set forth in
this Section 4.
(b) Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice
delivered in writing to the Secretary of the Corporation. To be timely, any such
notice by a stockholder must be delivered to or mailed and received at the
principal executive
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offices of the Corporation not later than 60 (sixty) days prior to the meeting;
provided, however, that if less than 70 (seventy) days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, any such
notice by a stockholder to be timely must be so received not later than the
close of business on the tenth day following the day on which notice of the date
of the meeting was given or such public disclosure was made.
(c) Any such notice by a stockholder shall set forth, (i) as
to each person whom the stockholder proposes to nominate for election or
re-election as a director, (A) the name, age, business address and residence
address of such person, (B) the principal occupation or employment of such
person, (C) the class and number of shares of the capital stock of the
Corporation which are beneficially owned by such person, and (D) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for the election of directors pursuant to Regulation
14A under the Exchange Act or any successor regulation thereto (including
without limitation such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected and whether any
person intends to seek reimbursement from the Corporation of the expenses of any
solicitation of proxies should such person be elected a director of the
Corporation); and (ii) as to the stockholder giving the notice, (A) the name and
address, as they appear on the Corporation's books, of such stockholder, and (B)
the class and number of shares of the capital stock of the Corporation which are
beneficially owned by such stockholder. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee.
(d) If a notice by a stockholder is required to be given
pursuant to this Section 4, no person shall be entitled to receive reimbursement
from the Corporation of the expenses of a solicitation of proxies for the
election as a director of a person named in such notice unless such notice
states that such reimbursement will be sought from the Corporation. No person
shall be eligible for election as a director of the Corporation unless nominated
in accordance with the procedures set forth in this Section 4. The chairman of
the meeting shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the procedures prescribed by
the By-Laws, and if he should so determine, he shall so declare to the meeting
and the defective nomination shall be disregarded for all purposes.
SECTION 5. Resignation. A director of the Corporation may
resign at any time by giving written notice of his resignation to the Board of
Directors or the Chairman of the Board or to the President or the Secretary of
the Corporation.
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Any resignation shall take effect at the time specified in it or, should the
time when it is to become effective not be specified in it, immediately upon its
receipt. Acceptance of a resignation shall not be necessary to make it effective
unless the resignation states otherwise.
SECTION 6. Removal of Directors. Any director of the
Corporation may be removed by the stockholders with or without cause at any time
by a vote of a majority of the votes entitled to be cast for the election of
directors.
SECTION 7. Vacancies. Subject to the provisions of the 1940
Act, any vacancies in the Board of Directors, whether arising from death,
resignation, removal or any other cause except an increase in the number of
directors, shall be filled by a vote of the majority of the Board of Directors
then in office even though that majority is less than a quorum, provided that no
vacancy or vacancies shall be filled by action of the remaining directors if,
after the filling of the vacancy or vacancies, fewer than two-thirds of the
directors then holding office shall have been elected by the stockholders of the
Corporation. A majority of the entire Board as calculated prior to Board
expansion may fill a vacancy which results from an increase in the number of
directors. In the event that at any time a vacancy exists in any office of a
director that may not be filled by the remaining directors, a special meeting of
the stockholders shall be held as promptly as possible and in any event within
60 (sixty) days, for the purpose of filling the vacancy or vacancies. Any
director elected or appointed to fill a vacancy shall hold office until a
successor has been chosen and qualifies or until his earlier death, resignation
or removal.
SECTION 8. Place of Meetings. Meetings of the Board may be
held at any place that the Board of Directors may from time to time determine or
that is specified in the notice of the meeting.
SECTION 9. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at the time and place determined by the
Board of Directors.
SECTION 10. Special Meetings. Special meetings of the Board of
Directors may be called by two or more directors of the Corporation or by the
Chairman of the Board or the President.
SECTION 11. Notice of Special Meetings. Notice of each special
meeting of the Board of Directors shall be given by the Secretary as hereinafter
provided. Each notice shall state the time and place of the meeting and shall be
delivered to each director, either personally or by telephone, facsimile
transmission or other standard form of telecommunication, at least 24
(twenty-four) hours before the time at which the meeting is to be held, or by
first-class mail, postage prepaid, addressed to the director at his residence or
usual place of business, and
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mailed at least 3 (three) days before the day on which the meeting is to be
held.
SECTION 12. Waiver of Notice of Meetings. Notice of any
special meeting need not be given to any director who shall, either before or
after the meeting, sign a written waiver of notice that is filed with the
records of the meeting or who shall attend the meeting.
SECTION 13. Quorum and Voting. One-third (but not fewer than
two unless there be only one director) of the members of the entire Board of
Directors shall be present in person at any meeting of the Board in order to
constitute a quorum for the transaction of business at the meeting, and except
as otherwise expressly required by statute, the Corporation's Charter, these
By-Laws, the 1940 Act, or any other applicable statute, the act of a majority of
the directors present at any meeting at which a quorum is present shall be the
act of the Board. In the absence of a quorum at any meeting of the Board, a
majority of the directors present may adjourn the meeting to another time and
place until a quorum shall be present. Notice of the time and place of any
adjourned meeting shall be given to the directors who were not present at the
time of the adjournment and, unless the time and place were announced at the
meeting at which the adjournment was taken, to the other directors. At any
adjourned meeting at which a quorum is present, any business may be transacted
that might have been transacted at the meeting as originally called.
SECTION 14. Organization. The Board of Directors may, by
resolution adopted by a majority of the entire Board, designate a Chairman of
the Board, who shall preside at each meeting of the Board. In the absence or
inability of the Chairman of the Board to act or if there is none, the
President, or, in his absence or inability to act, another director chosen by a
majority of the directors present, shall act as chairman of the meeting and
preside at the meeting. The Secretary, or, in his absence or inability to act,
any person appointed by the chairman, shall act as secretary of the meeting and
keep the minutes thereof.
SECTION 15. Committees. The Board of Directors may designate
one or more committees of the Board of Directors, each consisting of 2 (two) or
more directors. To the extent provided in the resolution, and permitted by law,
the committee or committees shall have and may exercise the powers of the Board
of Directors in the management of the business and affairs of the Corporation
and may authorize the seal of the Corporation to be affixed to all papers that
may require it. Any committee or committees shall have the name or names
determined from time to time by resolution adopted by the Board of Directors.
Each committee shall keep regular minutes of its meetings and report the same to
the Board of Directors when required. The members of a committee present at any
meeting, whether or not they
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<PAGE> 11
constitute a quorum, may appoint a director to act in the place of an absent
member.
SECTION 16. Written Consent of Directors in Lieu of a Meeting.
Subject to the provisions of the 1940 Act, any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee of the
Board may be taken without a meeting if all members of the Board or committee,
as the case may be, consent thereto in writing, and the writing or writings are
filed with the records of the Board's or such committee's meetings.
SECTION 17. Telephone Conference. Members of the Board of
Directors or any committee of the Board may participate in any Board or
committee meeting by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other at the same time. Participation by such means shall constitute
presence in person at the meeting.
SECTION 18. Compensation. Each director shall be entitled to
receive compensation, if any, as may from time to time be fixed by the Board of
Directors, including a fee for each meeting of the Board or any committee
thereof, regular or special, he attends. Directors may also be reimbursed by the
Corporation for all reasonable expenses incurred in traveling to and from the
place of a Board or committee meeting.
ARTICLE III
OFFICERS, AGENTS AND EMPLOYEES
SECTION 1. Number and Qualifications. The officers of the
Corporation shall be a President, a Secretary and a Treasurer, each of whom
shall be elected by the Board of Directors. The Board of Directors may elect or
appoint one or more Vice Presidents and may also appoint any other officers,
agents and employees it deems necessary or proper. Any two or more offices may
be held by the same person, except the offices of President and Vice President,
but no officer shall execute, acknowledge or verify any instrument in more than
one capacity. Officers shall be elected by the Board of Directors, each to hold
office until his successor shall have been duly elected and shall have
qualified, or until his death, or until his resignation or removal as provided
in these By-Laws. The Board of Directors may from time to time elect, or
designate to the President the power to appoint, such officers (including one or
more Assistant Vice Presidents, one or more Assistant Treasurers and one or more
Assistant Secretaries) and such agents as may be necessary or desirable for the
business of the Corporation. Such other
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<PAGE> 12
officers and agents shall have such duties and shall hold their offices for such
terms as may be prescribed by the Board or by the appointing authority.
SECTION 2. Resignations. Any officer of the Corporation may
resign at any time by giving written notice of his resignation to the Board of
Directors, the Chairman of the Board, the President or the Secretary. Any
resignation shall take effect at the time specified therein or, if the time when
it shall become effective is not specified therein, immediately upon its
receipt. Acceptance of a resignation shall not be necessary to make it effective
unless the resignation states otherwise.
SECTION 3. Removal of Officer, Agent or Employee. Any officer,
agent or employee of the Corporation may be removed by the Board of Directors
with or without cause at any time, and the Board may delegate the power of
removal as to agents and employees not elected or appointed by the Board of
Directors. Removal shall be without prejudice to the person's contract rights,
if any, but the appointment of any person as an officer, agent or employee of
the Corporation shall not of itself create contract rights.
SECTION 4. Vacancies. A vacancy in any office whether arising
from death, resignation, removal or any other cause, may be filled for the
unexpired portion of the term of the office that shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to the
office.
SECTION 5. Compensation. The compensation of the officers of
the Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer with respect to other officers under his control.
SECTION 6. Bonds or Other Security. If required by the Board,
any officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in an amount and with any
surety or sureties as the Board may require.
SECTION 7. President. The President shall be the chief
executive officer of the Corporation. In the absence or inability of the
Chairman of the Board to act (or if there is none), the President shall preside
at all meetings of the stockholders and of the Board of Directors. The President
shall have, subject to the control of the Board of Directors, general charge of
the business and affairs of the Corporation, and may employ and discharge
employees and agents of the Corporation, except those elected or appointed by
the Board, and he may delegate these powers.
SECTION 8. Vice President. Each Vice President shall have the
powers and perform the duties that the Board of Directors or the President may
from time to time prescribe.
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SECTION 9. Treasurer. Subject to the provisions of any
contract that may be entered into with any custodian pursuant to authority
granted by the Board of Directors, the Treasurer shall have charge of all
receipts and disbursements of the Corporation and shall have or provide for the
custody of the Corporation's funds and securities; he shall have full authority
to receive and give receipts for all money due and payable to the Corporation,
and to endorse checks, drafts and warrants, in its name and on its behalf and to
give full discharge for the same; he shall deposit all funds of the Corporation,
except those that may be required for current use, in such banks or other places
of deposit as the Board of Directors may from time to time designate; and, in
general, he shall perform all duties incident to the office of Treasurer and
such other duties as may from time to time be assigned to him by the Board of
Directors or the President.
SECTION 10. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for
the purpose, the minutes of all meetings of the Board of Directors, the
committees of the Board and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all stock certificates of the
Corporation (unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all other
documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and
other documents and records required by law to be kept and filed are properly
kept and filed; and
(e) in general, perform all the duties incident to the office
of Secretary and such other duties as from time to time may be assigned to him
by the Board of Directors or the President.
SECTION 11. Delegation of Duties. In case of the absence of
any officer of the Corporation, or for any other reason that the Board of
Directors may deem sufficient, the Board may confer for the time being the
powers or duties, or any of them, of such officer upon any other officer or upon
any director.
ARTICLE IV
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STOCK
SECTION 1. Stock Certificates. Each holder of stock of the
Corporation shall be entitled upon specific written request to such person as
may be designated by the Corporation to have a certificate or certificates, in a
form approved by the Board, representing the number of shares of stock of the
Corporation owned by him; provided, however, that certificates for fractional
shares will not be delivered in any case. The certificates representing shares
of stock shall be signed by or in the name of the Corporation by the Chairman of
the Board, President or a Vice President and by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer and sealed with the seal of
the Corporation. Any or all of the signatures or the seal on the certificate may
be facsimiles. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
shall be issued, it may be issued by the Corporation with the same effect as if
such officer, transfer agent or registrar were still in office at the date of
issue.
SECTION 2. Books of Account and Record of Stockholders. There
shall be kept at the principal executive office of the Corporation correct and
complete books and records of account of all the business and transactions of
the Corporation. There shall be made available upon request of any stockholder,
in accordance with Maryland law, a record containing the number of shares of
stock issued during a specified period not to exceed 12 (twelve) months and the
consideration received by the Corporation for each such share.
SECTION 3. Transfers of Shares. Transfers of shares of stock
of the Corporation shall be made on the stock records of the Corporation only by
the registered holder thereof, or by his attorney thereunto authorized by power
of attorney duly executed and filed with the Secretary or with a transfer agent
or transfer clerk, and on surrender of the certificate or certificates, if
issued, for the shares properly endorsed or accompanied by a duly executed stock
transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of the share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions and
to vote as the owner, and the Corporation shall not be bound to recognize any
equitable or legal claim to or interest in any such share or shares on the part
of any other person.
SECTION 4. Regulations. The Board of Directors may make any
additional rules and regulations, not inconsistent with
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these By-Laws, as it may deem expedient concerning the issue, transfer and
registration of certificates for shares of stock of the Corporation. It may
appoint, or authorize any officer or officers to appoint, one or more transfer
agents or one or more transfer clerks and one or more registrars and may require
all certificates for shares of stock to bear the signature or signatures of any
of them.
SECTION 5. Stolen, Lost, Destroyed or Mutilated Certificates.
The holder of any certificate representing shares of stock of the Corporation
shall immediately notify the Corporation of its theft, loss, destruction or
mutilation and the Corporation may issue a new certificate of stock in the place
of any certificate issued by it that has been alleged to have been stolen, lost
or destroyed or that shall have been mutilated. The Board may, in its
discretion, require the owner (or his legal representative) of a stolen, lost,
destroyed or mutilated certificate to give to the Corporation a bond in a sum,
limited or unlimited, and in a form and with any surety or sureties, as the
Board in its absolute discretion shall determine or to indemnify the Corporation
against any claim that may be made against it on account of the alleged theft,
loss, destruction or the mutilation of any such certificate, or issuance of a
new certificate. Anything herein to the contrary notwithstanding, the Board of
Directors, in its absolute discretion, may refuse to issue any such new
certificate, except pursuant to legal proceedings under the Maryland General
Corporation Law.
SECTION 6. Fixing of Record Date for Dividends, Distributions,
etc. The Board may fix, in advance, a date not more than 90 (ninety) days
preceding the date fixed for the payment of any dividend or the making of any
distribution or the allotment of rights to subscribe for securities of the
Corporation, or for the delivery of evidences of rights or evidences of
interests arising out of any change, conversion or exchange of common stock or
other securities, as the record date for the determination of the stockholders
entitled to receive any such dividend, distribution, allotment, rights or
interests, and in such case only the stockholders of record at the time so fixed
shall be entitled to receive such dividend, distribution, allotment, rights or
interests.
SECTION 7. Information to Stockholders and Others. Any
stockholder of the Corporation or his agent may inspect and copy during the
Corporation's usual business hours the Corporation's By-Laws, minutes of the
proceedings of its stockholders, annual statements of its affairs and voting
trust agreements on file at its principal office.
ARTICLE V
INDEMNIFICATION AND INSURANCE
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<PAGE> 16
SECTION 1. Indemnification of Directors and Officers. 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 the Corporation, or is or
was serving while a director or officer of the Corporation at the request of the
Corporation 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 the Corporation against
judgments, penalties, fines, excise taxes, 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 Securities Act of 1933, as amended (the
"Securities 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 the Corporation 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 his
office ("disabling conduct").
SECTION 2. Advances. Any current or former director or officer
of the Corporation claiming indemnification within the scope of this Article V
shall be entitled to advances from the Corporation for payment of the reasonable
expenses incurred by him in connection with proceedings to which he is a party
in the manner and to the full extent permissible under the Maryland General
Corporation Law, the Securities Act and the 1940 Act, as such statutes are now
or hereafter in force; provided however, that the person seeking indemnification
shall provide to the Corporation a written affirmation of his good faith belief
that the standard of conduct necessary for indemnification by the Corporation
has been met and a written undertaking to repay any such advance unless it is
ultimately determined that he is entitled to indemnification, and provided
further that at least one of the following additional conditions is met: (a) the
person seeking indemnification shall provide a security in form and amount
acceptable to the Corporation for his undertaking; (b) the Corporation is
insured against losses arising by reason of the advance; or (c) a majority of a
quorum of directors of the Corporation who are neither "interested persons" as
defined in Section 2(a)(19) of the 1940 Act, nor parties to the proceeding
("disinterested non-party directors"), or independent legal counsel, in a
written opinion, shall determine, based on a review of facts readily available
to the Corporation at the time the advance is proposed to be made, that there is
reason to believe that the person seeking indemnification will ultimately be
found to be entitled to indemnification.
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SECTION 3. Procedure. At the request of any current or former
director or officer, or any employee or agent whom the Corporation proposes to
indemnify, the Board of Directors shall determine, or cause to be determined, in
a manner consistent with the Maryland General Corporation Law, the Securities
Act and the 1940 Act, as such statutes are now or hereafter in force, whether
the standards required by this Article V have been met; provided, however, that
indemnification shall be made only following: (a) a final decision on the merits
by a court or other body before whom the proceeding was brought that the person
to be indemnified was not liable by reason of disabling conduct; or (b) in the
absence of such a decision, a reasonable determination, based upon a review of
the facts, that the person to be indemnified was not liable by reason of
disabling conduct by, (i) the vote of a majority of a quorum of disinterested
non-party directors, or (ii) an independent legal counsel in a written opinion.
SECTION 4. Indemnification of Employees and Agents. Employees
and agents who are not officers or directors of the Corporation may be
indemnified, and reasonable expenses may be advanced to such employees or
agents, in accordance with the procedures set forth in this Article V to the
extent permissible under the 1940 Act, the Securities Act and Maryland General
Corporation Law, as such statutes are now or hereafter in force, to the extent,
consistent with the foregoing, as may be provided by action of the Board of
Directors or by contract.
SECTION 5. Other Rights. The indemnification provided by this
Article V shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may be
entitled under any insurance or other agreement, vote of stockholders or
disinterested directors or otherwise, both as to action by a director or officer
of the Corporation in his official capacity and as to action by such person in
another capacity while holding such office or position, and shall continue as to
a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person.
SECTION 6. Insurance. The Corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or who, while a
director, officer, employee or agent of the Corporation, is or was serving at
the request of the Corporation as a director, officer, partner, trustee,
employee, agent or fiduciary of another corporation, partnership, joint venture,
trust, enterprise or employee benefit plan, against any liability asserted
against and incurred by him in any such capacity, or arising out of his status
as such, provided that no insurance may be obtained by the Corporation for
liabilities against which it would not have the power to indemnify him under
this Article V or applicable law.
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SECTION 7. Constituent, Resulting or Surviving Corporations.
For the purposes of this Article V, references to the "Corporation" shall
include all constituent corporations absorbed in a consolidation or merger as
well the resulting or surviving corporation so that any person who is or was a
director, officer, employee or agent of a constituent corporation or is or was
serving at the request of a constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise shall stand in the same position under this Article V with
respect to the resulting or surviving corporation as he would if he had served
the resulting or surviving corporation in the same capacity.
ARTICLE VI
SEAL
The seal of the Corporation shall be circular in form and
shall bear the name of the Corporation, the year of its incorporation, the words
"Corporate Seal" and "Maryland" and any emblem or device approved by the Board
of Directors. The seal may be used by causing it or a facsimile to be impressed
or affixed or in any other manner reproduced, or by placing the word "(seal)"
adjacent to the signature of the authorized officer of the Corporation.
ARTICLE VII
FISCAL YEAR
The Corporation's fiscal year shall be fixed by the Board of
Directors.
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ARTICLE VIII
AMENDMENTS
These By-Laws may be amended or repealed by the affirmative
vote of a majority of the Board of Directors at any regular or special meeting
of the Board of Directors, subject to the requirements of the 1940 Act.
As adopted, April 3, 1998
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EXHIBIT 5
INVESTMENT ADVISORY AGREEMENT
______________ ___, 1998
Warburg Pincus Asset Management, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
Warburg, Pincus International Small Company Fund, Inc. (the "Fund"), a
corporation organized and existing under the laws of the State of Maryland,
herewith confirms its agreement with Warburg Pincus Asset Management, 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
<PAGE> 2
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 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,
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<PAGE> 3
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 1.10% 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 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
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<PAGE> 4
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 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.
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<PAGE> 5
9. Term of Agreement
This Agreement shall continue until April 17, 1999 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 April 2, 1998, 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 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".
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<PAGE> 6
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 INTERNATIONAL SMALL
COMPANY FUND, INC.
By: _______________________
Name: ________________
Title: _______________
Accepted:
WARBURG PINCUS ASSET MANAGEMENT, INC.
By: _______________________
Name: ________________
Title: _______________
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<PAGE> 1
EXHIBIT 6
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 Fund (the "Fund") has
agreed that Counsellors Securities Inc. ("Counsellors Securities") shall be, for
the period of this Agreement, the distributor of shares of common stock of each
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
<PAGE> 2
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, 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 Asset Management, 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
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<PAGE> 3
("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 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
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<PAGE> 4
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.
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
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<PAGE> 5
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 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,
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<PAGE> 6
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 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
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<PAGE> 7
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 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
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<PAGE> 8
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 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.
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<PAGE> 9
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
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<PAGE> 10
(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.
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<PAGE> 11
7. Term of Agreement
This Agreement shall continue until April 17, 1999 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.
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<PAGE> 12
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 INTERNATIONAL SMALL
COMPANY FUND, INC.
By: ________________________________
Name: __________________________
Title: _________________________
Accepted:
COUNSELLORS SECURITIES INC.
By: ___________________________
Name: _____________________
Title: ____________________
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<PAGE> 1
EXHIBIT 9(b)
CO-ADMINISTRATION AGREEMENT
_________ ___, 1998
Counsellors Funds Service, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
Warburg, Pincus International Small Company 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 Asset Management, Inc. (the
"Adviser") as its investment adviser and
<PAGE> 2
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:
(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;
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<PAGE> 3
(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
(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
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<PAGE> 4
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
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
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<PAGE> 5
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, 1999 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.
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.
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<PAGE> 6
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 INTERNATIONAL SMALL
COMPANY FUND, INC.
By: _______________________
Name: __________________
Title: _________________
Accepted:
COUNSELLORS FUNDS SERVICE, INC.
By: _______________________________
Name: ____________________
Title: ___________________
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<PAGE> 1
EXHIBIT 9 (c)
CO-ADMINISTRATION AGREEMENT
TERMS AND CONDITIONS
This Agreement is made as of ____________ ___, 1998 by and
between Warburg, Pincus International Small Company 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.
<PAGE> 2
(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.
(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
2
<PAGE> 3
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 two Authorized Persons 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.
3. Delivery of Documents.
The Fund has provided or, where applicable, will provide PFPC
with the following:
3
<PAGE> 4
(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.
4
<PAGE> 5
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.
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
5
<PAGE> 6
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.
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.
6
<PAGE> 7
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
7
<PAGE> 8
made available to such accountants for the expression of their opinion, as such
may be required by the Fund from time to time.
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.
8
<PAGE> 9
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 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.
9
<PAGE> 10
(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;
(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;
10
<PAGE> 11
(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
11
<PAGE> 12
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
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;
12
<PAGE> 13
(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 address, 400 Bellevue Parkway, Wilmington, Delaware
19809; (b) if
13
<PAGE> 14
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.
14
<PAGE> 15
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.
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.
15
<PAGE> 16
By: ___________________________
Name: ______________________
Title: _____________________
WARBURG, PINCUS INTERNATIONAL SMALL
COMPANY FUND, INC.
By: __________________________
Name: _____________________
Title: ____________________
16
<PAGE> 17
APPENDIX A
None.
17
<PAGE> 18
_______ ___, 1998
Warburg, Pincus International Small Company 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 _________ ___, 1998 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.:
<TABLE>
<CAPTION>
Percentage Net Assets
---------- ----------
<S> <C> <C> <C>
0.12 First US$250,000,000
0.10 Next US$250,000,000
</TABLE>
<PAGE> 19
<TABLE>
<S> <C> <C> <C>
0.08 Next US$250,000,000
0.05 Over US$750,000,000
</TABLE>
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.
-2-
<PAGE> 20
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 INTERNATIONAL SMALL COMPANY FUND, INC.
By: __________________________
Name: _____________________
Title: ____________________
-3-
<PAGE> 1
EXHIBIT 13
PURCHASE AGREEMENT
Warburg, Pincus International Small Company Fund, Inc. (the
"Fund"), a corporation organized under the laws of the State of Maryland, and
Warburg Pincus Asset Management, Inc. ("Warburg") hereby agree as follows:
1. The Fund offers Warburg and Warburg hereby purchases 10,000
shares of common stock of the Fund, which shall be designated Common Shares,
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 a
certificate 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 such Shares 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 Initial Shares being redeemed bears to the Initial Shares
outstanding at the time of redemption. The parties hereby acknowledge that any
Shares acquired by Warburg other than the Initial Shares have not
<PAGE> 2
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 ________________, 1998.
WARBURG, PINCUS INTERNATIONAL SMALL
COMPANY FUND, INC.
By:_________________________________
Name:
Title:
ATTEST:
_______________
WARBURG PINCUS ASSET MANAGEMENT, INC.
By:_________________________________
Name:
Title:
ATTEST:
_______________
-2-
<PAGE> 1
EXHIBIT 15 (a)
SHAREHOLDER SERVICING AND DISTRIBUTION PLAN
This Shareholder Servicing and Distribution Plan ("Plan") is
adopted by Warburg, Pincus International Small Company 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 daily and paid monthly 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
<PAGE> 2
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 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
-2-
<PAGE> 3
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.
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
-3-
<PAGE> 4
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 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.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the Fund has executed this Plan as of the
_____ day of _______, 1998.
WARBURG, PINCUS INTERNATIONAL SMALL
COMPANY FUND, INC.
By:
Name: _____________________________
Title: ____________________________
-5-
<PAGE> 1
EXHIBIT 15 (b)
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 International Small Company 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 quarterly 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 calculated
daily and paid quarterly at an annual rate 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
<PAGE> 2
Shares, including, but not limited to: (a) costs of payments made to employees
that engage in the distribution of Advisor 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.
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Payments under this Plan are not tied exclusively to the
expenses for shareholder servicing, administration and distribution expenses
actually incurred by any Service Organization, and the payments may exceed
expenses actually incurred by any Service Organization.
Section 3. Additional Payments.
Counsellors Securities, Warburg Pincus Asset Management 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
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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 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.
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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 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.
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IN WITNESS WHEREOF, the Fund has executed the Plan as of
________ __, 1998.
WARBURG, PINCUS INTERNATIONAL SMALL
COMPANY FUND, INC.
By:___________________________
Name: _____________________
Title: ____________________
Acknowledged this
___________ day of ________, 1998
COUNSELLORS SECURITIES INC.
By:_____________________________
Name: _______________________
Title: ______________________
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EXHIBIT 18
WARBURG PINCUS FUNDS
RULE 18f-3 PLAN
Rule 18f-3 (the "Rule") under the Investment Company Act of 1940, as
amended (the "1940 Act"), requires that the Board of an investment company
desiring to offer multiple classes pursuant to the Rule adopt a plan setting
forth the separate arrangement and expense allocation of each class (a "Class"),
and any related conversion features or exchange privileges. The differences in
distribution arrangements and expenses among these classes of shares, and the
exchange features of each class, are set forth below in this Plan, which is
subject to change, to the extent permitted by law and by the governing documents
of each fund that adopts this Plan (the "Fund" and together the "Funds"), by
action of the governing Board of the Fund.
The governing Board, including a majority of the non-interested Board
members, of each Fund, or series thereof, which desires to offer multiple
classes has determined that the following Plan is in the best interests of each
class individually and the Fund as a whole:
1. Class Designation. Shares of a Fund or series of a Fund
shall be divided into Common Shares and Advisor Shares.
2. Differences in Services. Counsellors Securities Inc.
("CSI") will provide shareholder servicing and distribution services to holders
of Common Shares and Advisor Shares. Institutional shareholders of record may
also provide distribution services, shareholder services and/or administrative
and accounting services to or on behalf of their clients or customers who
beneficially own Advisor Shares.
3. Differences in Distribution Arrangements.
Common Shares. Common Shares are sold to the general public and are not
subject to any annual distribution fee, except for Funds that have adopted a
Shareholder Servicing and Distribution Plan adopted pursuant to Rule 12b-1 under
the 1940 Act, which Funds pay CSI .25% per annum for services under that Plan.
Specified minimum initial and subsequent purchase amounts are
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applicable to the Common Shares. Common Shares are available through certain
organizations that may or may not charge their customers administrative charges
or other direct fees in connection with investing in Common Shares. CSI may pay
certain financial institutions, broker-dealers and recordkeeping organizations a
fee based on the value of accounts maintained by such organizations in Common
Shares of a Fund.
Advisor Shares. Advisor Shares are available for purchase by financial
institutions, retirement plans, broker-dealers, depository institutions and
other financial intermediaries (collectively, "Institutions"). Advisor Shares
may be charged a shareholder service fee (the "Shareholder Service Fee") payable
at an annual rate of up to .25%, and a distribution and/or administrative
services fee (the "Distribution Service Fee") payable at an annual rate of up to
.50%, of the average daily net assets of such Class under a Distribution Plan
adopted pursuant to Rule 12b-1 under the 1940 Act. Payments may be made directly
out of the assets of the Fund or by CSI on its behalf. Additional payments may
be made by CSI or an affiliate thereof from time to time to Institutions for
providing distribution, administrative, accounting and/or other services with
respect to Advisor Shares. Payments by the Fund shall not be made to an
Institution pursuant to the Plan with respect to services for which Institutions
are otherwise compensated by CSI or an affiliate thereof. There is no minimum
amount of initial or subsequent purchases of Advisor Shares imposed on
Institutions.
General. CSI or an affiliate thereof may pay certain Fund transfer
agent fees and expenses related to accounts of customers of organizations that
have entered into agreements with CSI or the Fund. An 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 organization
that hold Common Shares or Advisor Shares.
Payments may be made to organizations the customers or clients of which
invest in a Fund's Common Shares or Advisor Shares by CSI or an affiliate
thereof from such entity's own resources, which may include a fee it receives
from the Fund.
4. Expense Allocation. The following expenses shall be allocated, to
the extent practicable, on a Class-by-Class basis: (a) fees under the
Shareholder Servicing and Distribution Plan or Distribution Plan, as applicable;
(b) transfer agent fees identified by the Fund's transfer agent as being
attributable to
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a specific Class; and (c) expenses incurred in connection with shareholders'
meetings as a result of issues relating to a specific Class.
The distribution, administrative and shareholder servicing fees and
other expenses listed above which are attributable to a particular Class are
charged directly to the net assets of the particular Class and, thus, are borne
on a pro rata basis by the outstanding shares of that Class; provided, however,
that money market funds and other funds making daily distributions of their net
investment income may allocate these items to each share regardless of class or
on the basis of relative net assets (settled shares), applied in each case
consistently.
5. Conversion Features. No Class shall be subject to any automatic
conversion feature.
6. Exchange Privileges. Shares of a Class shall be exchangeable only
for (a) shares of the same Class of other investment companies advised by
Warburg Pincus Asset Management, Inc. that are part of the same group of
investment companies and (b) shares of certain other investment companies
specified from time to time.
7. Additional Information. This Plan is qualified by and subject to the
terms of the then current prospectus for the applicable Class; provided,
however, that none of the terms set forth in any such prospectus shall be
inconsistent with the terms of the Classes contained in this Plan. The
prospectus for each Class contains additional information about that Class and
the applicable Fund's multiple class structure.
Dated: April 3, 1998
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