<PAGE> 1
As filed with the U.S. Securities and Exchange Commission
on August 5, 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 Global Telecommunications 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 Global Telecommunications 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
787 Seventh Avenue
New York, New York 10019-6099
<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>
Title of Securities Proposed Maximum Proposed Maximum
Being Registered Amount Being Offering Price per Aggregate Amount of
Registered Unit Offering Price Registration 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 GLOBAL TELECOMMUNICATIONS FUND, INC.
FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Part A
Item No. Prospectus Heading
- -------- ------------------
<S> <C> <C>
1. Cover Page.................................................... Cover Page
2. Synopsis...................................................... The Funds' Expenses
3. Condensed Financial Information............................... Not applicable
4. General Description of
Registrant.................................................. Cover Page; Investment Objectives and Policies; Risk
Factors and Special Considerations and Certain
Investment Strategies; Investment Guidelines; General
Information
5. Management of the Fund........................................ Management of the Funds
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 Funds; 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............................... Directors and Officers
13. Investment Objectives
and Policies................................................ Common Investment Objectives and Policies
14. Management of the Registrant.................................. Directors and Officers
15. Control Persons and Principal
Holders of Securities....................................... Directors and Officers; See Prospectus-- "Management
of the Funds"
16. Investment Advisory and
Other Services.............................................. Investment Advisory and Servicing Arrangements; See
Prospectus-- "Management of the Funds"
17. Brokerage Allocation
and Other Practices......................................... Common Investment Policies --
Portfolio Transactions; See Prospectus-- "Portfolio
Transactions and Turnover Rate"
18. Capital Stock and Other
Securities.................................................. Additional Information Concerning the Company
Shares; See Prospectus-"General Information"
19. Purchase, Redemption and Pricing
of Securities Being Offered................................. Purchase and Redemption Information; See
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
Prospectus-"How to Open an Account," "How to Purchase
Shares," "How to Redeem and Exchange Shares," "Net
Asset Value"
20. Tax Status.................................................... Taxes; See Prospectus--"Dividends, Distributions and
Taxes"
21. Underwriters.................................................. Common Investment Policies-- Portfolio Transactions;
See Prospectus-- "Management of the Funds"
22. Calculation of Performance Data............................... Performance and Yield Information
23. Financial Statements.......................................... Financial Statements; Report of PricewaterhouseCoopers
LLP, 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 AUGUST 5, 1998
PROSPECTUS
September ___, 1998
WARBURG PINCUS
EMERGING MARKETS II FUND
---------------
WARBURG PINCUS
GLOBAL TELECOMMUNICATIONS FUND
---------------
WARBURG PINCUS
INTERNATIONAL GROWTH FUND
[WARBURG PINCUS FUNDS LOGO]
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> 7
SUBJECT TO COMPLETION, DATED [AUGUST 4], 1998
PROSPECTUS September __, 1998
Warburg Pincus Funds is a family of open-end mutual funds that offer investors a
variety of investment opportunities. Three funds are described in this
Prospectus:
WARBURG PINCUS EMERGING MARKETS II FUND seeks to provide long-term appreciation
of capital. The Fund will invest primarily in equity securities in emerging
country markets.
WARBURG PINCUS GLOBAL TELECOMMUNICATIONS FUND seeks to provide long-term
appreciation of capital. The Fund will invest primarily in equity securities of
telecommunications companies, both foreign and domestic.
WARBURG PINCUS INTERNATIONAL GROWTH FUND seeks to provide long-term appreciation
of capital. The Fund will invest primarily in equity securities of non-U.S.
issuers.
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."
BEA Associates ("BEA") serves as the investment adviser to each of the Funds.
NO LOAD CLASS OF COMMON SHARES
Common Shares that are "no load" are offered by this Prospectus (i)
directly from the Funds' 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 each Fund is $2,500 and the minimum
subsequent investment is $250. The minimum initial investment for Individual
Retirement Accounts, Uniform Transfers/Gifts to Minors Act accounts and through
the Automatic Investment Plans is $1,000 and the minimum subsequent investment
in each of these is $100. See "How to Purchase Shares."
This Prospectus briefly sets forth certain information about the Funds that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about each
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 Funds. 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 FUNDS 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 FUNDS 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.
<PAGE> 8
THE FUNDS' EXPENSES
Although authorized to offer three separate classes of shares (Common
Shares, Institutional Shares and Advisor Shares), each of the Warburg Pincus
Emerging Markets II Fund ("Emerging Markets Fund"), Warburg Pincus Global
Telecommunications Fund ("Global Telecommunications Fund") and Warburg Pincus
International Growth Fund ("International Growth Fund") (each, a "Fund")
currently offers two separate classes of shares: Common Shares and Institutional
Shares. For a description of Institutional Shares and Advisor Shares see
"General Information." Common Shares of each Fund pay the Funds' distributor a
12b-1 fee. See "Management of the Funds -- Distributor."
<TABLE>
<CAPTION>
GLOBAL
EMERGING TELE-
MARKETS COMMUNICATIONS INTERNATIONAL
FUND FUND GROWTH FUND
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price) 0 0 0
Annual Fund Operating Expenses
(as a percentage of average net assets) Management Fees .98% .00% .80%
12b-1 Fees .25% .25% .25%
Other Expenses .52% 1.40% .36%
------ ------ ------
Total Fund Operating Expenses (after fee waivers and
expense reimbursements)+ 1.75% 1.65% 1.41%
====== ====== ======
EXAMPLE
You would pay the following expenses on a $1,000
investment, assuming
(1)5% annual return and (2) redemption at the end of each time
period:
1 year $ 18 $ 17 $ 14
3 years $ 55 $ 52 $ 45
</TABLE>
+ The Funds' investment adviser and Counsellors Funds Service,
Inc., the Funds' co-administrator ("Counsellors Service"), have
undertaken to limit Total Fund Operating Expenses of each of the Funds
for the one-year period following the closing date of the
reorganization of the relevant BEA Fund to the extent necessary for the
net expense ratio of each Fund to be no higher than that of the
corresponding series of The RBB Fund, Inc., for the thirty-day period
ending on the closing date of the reorganization of such series. (For a
description of the reorganization, see "General Information.") The
resulting Total Fund Operating Expenses limit may be greater or less
than the estimate shown above. There is no obligation to continue these
waivers after that time. Absent such waivers and/or reimbursements,
Management Fees for the Emerging Markets Fund, Global
Telecommunications Fund and International Growth Fund would equal
1.00%, 1.00% and .80% , respectively; Other Expenses would equal .67%,
7.13% and .48%, respectively; and Total Fund Operating Expenses would
equal 1.92%, 8.38% and 1.53%, respectively. Other Expenses for the
Funds are based on annualized estimates of expenses for the fiscal year
ending August 31, 1999, net of any fee waivers or expense
reimbursements.
---------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a Common Shareholder of each Fund. Certain
broker-dealers and financial institutions also may charge their clients fees in
connection with investments in a 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, each Fund's
actual performance will vary and may result in a return greater or less than 5%.
Long-term shareholders of each Fund may pay more than the economic equivalent of
the maximum sales charges permitted by the National Association of Securities
Dealers, Inc.
2
<PAGE> 9
FINANCIAL HIGHLIGHTS
Common Shares of each of the Funds had not been issued as of August 31,
1997 and, accordingly, no financial information is provided with respect to such
shares. The following information with respect to Advisor Shares of the
corresponding series of The RBB Fund, Inc. (the "BEA Funds"), the assets and
liabilities of which are expected to be acquired by the corresponding Warburg
Pincus Fund (see "General Information" below), has been derived from
information audited by PricewaterhouseCoopers LLP, independent accountants,
whose report dated October 17, 1997 is contained in the BEA Funds' annual
report, dated August 31, 1997. The report and the semi-annual report for the
period ended February 28, 1998 are incorporated by reference in the Funds'
Statements of Additional Information and may be obtained without charge by
calling the BEA Advisor Funds at (800) 401-2230.
BEA EMERGING MARKETS EQUITY FUND
<TABLE>
<CAPTION>
FOR THE SIX FOR THE PERIOD
MONTHS ENDED NOVEMBER 1, 1996*
FEBRUARY 28, TO AUGUST 31,
1998 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
Net asset value, beginning of period $ 19.60 $ 18.08
--------- ---------
Income from investment operations:
Net investment income (loss) (0.06) 0.18
Net gain (loss) on securities (realized and
unrealized) (1.77) 1.40
--------- ---------
Total from investment operations (1.83) 1.58
--------- ---------
Less Dividends and Distributions:
Dividends from net investment income (0.12) (0.06)
Distributions from capitalized gains (1.04) --
--------- ---------
Total Distributions (1.16) (0.06)
--------- ---------
Net asset value, end of period $ 16.61 $ 19.60
========= =========
Total return (9.43)%+ 8.76%+
Ratios/Supplemental Data:
Net assets, end of period (000s omitted) $ 12 $ 4
Ratio of expenses to average net assets: 1.84%@** 1.75%@**
Ratio of net investment income (loss) to average
net assets 0.21%** 0.88%**
Fund turnover rate 87%+ 147%+
Average commission rate++ $ 0.0013 $ 0.0004
</TABLE>
@ Without the voluntary waiver of advisory fees and administration fees and
without the reimbursement of operating expenses, the ratios of expenses to
average net assets for the BEA Emerging Markets Fund Advisor Class would
have been 2.35% annualized for the six months ended February 28, 1998 and
1.92% annualized for the period ended August 31, 1997.
** Annualized.
+ Not annualized.
++ Computed by dividing the total amount of brokerage commissions paid by the
total shares of investment securities purchased and sold during the period
for which commissions were charged, as required by the Securities and
Exchange Commission ("SEC") for fiscal years beginning after September 1,
1995.
* Commencement of operations.
3
<PAGE> 10
BEA GLOBAL TELECOMMUNICATIONS FUND
<TABLE>
<CAPTION>
FOR THE SIX FOR THE PERIOD
MONTHS ENDED NOVEMBER 1, 1996*
FEBRUARY 28, TO AUGUST 31,
1998 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
Net asset value, beginning of period $ 17.30 $ 15.00
--------- ---------
Income from investment operations:
Net investment income (loss) (0.05) 0.02
Net gain (loss) on securities (realized and
unrealized) 5.35 2.28
--------- ---------
Total from investment operations 5.30 2.30
--------- ---------
Less Dividends and Distributions:
Dividends from net investment income -- --
Distributions from capitalized gains (1.04) --
--------- ---------
Total Distributions (1.04) --
--------- ---------
Net asset value, end of period $ 21.56 $ 17.30
========= =========
Total return 31.61%+ 15.33%+
Ratios/Supplemental Data:
Net assets, end of period (000s omitted) $ 876 $ 569
Ratio of expenses to average net assets: 1.65%@** 1.65%@**
Ratio of net investment income (loss) to average
net assets (0.48)%** 0.16%**
Fund turnover rate 38%+ 43%+
Average commission rate++ $ 0.0017 $ 0.0035
</TABLE>
@ Without the voluntary waiver of advisory fees and administration fees, the
ratios of expenses to average net assets for the BEA U.S. Core Equity Fund
Advisor Class would have been 5.43% annualized for the six months ended
February 28, 1998 and 8.38% annualized for the period ended August 31,
1997.
** Annualized.
+ Not annualized.
++ Computed by dividing the total amount of brokerage commissions paid by the
total shares of investment securities purchased and sold during the period
for which commissions were charged, as required by the SEC for fiscal years
beginning after September 1, 1995.
* Commencement of operations.
4
<PAGE> 11
BEA INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
FOR THE SIX FOR THE PERIOD
MONTHS ENDED NOVEMBER 1, 1996*
FEBRUARY 28, TO AUGUST 31,
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
Net asset value, beginning of period $ 22.17 $ 19.67
----------- -----------
Income from investment operations:
Net investment income (loss) (0.12) 0.36
Net gain (loss) on securities (realized and
unrealized) 3.29 2.40
----------- -----------
Total from investment operations 3.17 2.76
----------- -----------
Less Dividends and Distributions:
Dividends from net investment income -- (0.26)
Distributions from capitalized gains (2.93) --
----------- -----------
Total Distributions (2.93) (0.26)
----------- -----------
Net asset value, end of period $ 22.41 $ 22.17
=========== ===========
Total return 15.55%+ 14.14%+
Ratios/Supplemental Data:
Net assets, end of period (000s omitted) $ 1,463 $ 147
Ratio of expenses to average net assets: 1.42%@** 1.43%@**
Ratio of net investment income (loss) to average
net assets (0.41)%** 1.15%**
Fund turnover rate 64%+ 126%+
Average commission rate++ $ 0.0187 $ 0.0039
</TABLE>
@ Without the voluntary waiver of advisory fees and administration fees, the
ratios of expenses to average net assets for the BEA International Fund
Advisor Class would have been 1.51% annualized for the six months ended
February 28, 1998 and 1.53% annualized for the period ended August 31,
1997.
** Annualized.
+ Not annualized.
++ Computed by dividing the total amount of brokerage commissions paid by the
total shares of investment securities purchased and sold during the period
for which commissions were charged, as required by the SEC for fiscal years
beginning after September 1, 1995.
* Commencement of operations.
5
<PAGE> 12
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Fund may not be changed without the
affirmative vote of a majority of the Fund's outstanding shares (as defined in
the Investment Company Act of 1940, as amended (the "1940 Act")). As with other
mutual funds, there can be no assurance that any Fund will achieve its
investment objective. Because of their different investment emphases, each Fund
should be considered as a specialized investment portfolio and not as a balanced
investment program by itself. The Statement of Additional Information contains a
more detailed description of the various investments and investment techniques
used by the Funds.
EMERGING MARKETS FUND
The investment objective of the Emerging Markets Fund is to provide
long-term appreciation of capital. The Fund seeks to achieve this objective by
investing primarily in equity securities of issuers in "Emerging Markets." As
used in this Prospectus, an Emerging Market is any country which is generally
considered to be an emerging or developing country by the World Bank and the
International Finance Corporation, as well as countries that are classified by
the United Nations as emerging or developing, at the time of the Fund's
investment. The countries that currently will not be considered Emerging Markets
include: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany,
Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway,
Portugal, Spain, Switzerland, the United Kingdom and the United States. Under
normal market conditions, the Fund will invest a minimum of 80% of its total
assets in equity securities of issuers in Emerging Markets. The Fund will not
necessarily seek to diversify investments on a geographical basis or on the
basis of the level of economic development of any particular country. The Fund
will at all times, except during defensive periods, maintain investments in at
least three Emerging Market countries.
The Fund normally will not select portfolio securities on the basis of
their dividend or income potential unless BEA or Credit Suisse Asset Management
Ltd., the Fund's sub-investment adviser ("CSAM" and collectively with BEA, as
applicable, the "Adviser"), believes the income will contribute to the
securities' capital appreciation potential.
An equity security of an issuer in an Emerging Market is defined as common
stock and preferred stock (including convertible preferred stock); bonds, notes
and debentures convertible into common or preferred stock; stock purchase
warrants and rights; equity interests in trusts and partnerships; and depository
receipts of companies: (i) the principal securities trading market for which is
in an Emerging Market; (ii) whose principal trading market is in any country,
provided that, alone or on a consolidated basis, they derive 50% or more of
their annual revenue from either goods produced, sales made or services
performed in Emerging Markets; or (iii) that are organized under the laws of,
and with a principal office in, an Emerging Market. Determinations as to
eligibility will be made by BEA based on publicly available information and
inquiries made to the companies.
To the extent that the Fund's assets are not invested as described above,
the remainder of the assets may be invested in government or corporate debt
securities of Emerging Market or developed countries, although the Fund does not
presently intend to invest more than 5% of its net assets in debt securities.
Debt securities may include lower-rated debt securities. See "Risk Factors and
Special Considerations -- Lower-Rated Securities."
GLOBAL TELECOMMUNICATIONS FUND
The Global Telecommunications Fund's investment objective is to provide
long-term capital appreciation. The Fund will pursue its objective by investing
primarily in equity securities of telecommunications companies, both foreign and
domestic. It is the policy of the Fund under normal market conditions to invest
not less than 65% of its total assets in equity securities (including common and
preferred stocks, convertible securities and warrants to acquire such equity
securities) of telecommunications companies. The Fund will invest in convertible
securities based on their underlying equity characteristics without regard to
the credit rating of such securities. Such convertible securities may include
lower-quality high yielding securities. See "Risk Factors and Special
Considerations -- Lower-Rated Securities." As a Fund investing in global
markets, at least 65% of the Fund's investments will be made in at least three
different countries.
6
<PAGE> 13
The Fund considers telecommunications companies to be those which are
engaged primarily in designing, developing, operating, financing, manufacturing
or providing the following activities, products and services: communications
equipment and service (including equipment and services for both data and voice
transmission); electronic components and equipment; broadcast (including
television and radio, satellite, microwave and cable television); computer
equipment, mobile telecommunications and cellular radio and paging; electronic
mail; local and wide area networking and linkage of work and data processing
systems; publishing and information systems; video and telex; and emerging
technologies combining telephone, television and/or computer systems
(collectively, "telecommunications activities"). A "telecommunications company"
is an entity in which (i) at least 50% of either its revenue or earnings was
derived from telecommunications activities, or (ii) at least 50% of its assets
was devoted to telecommunications activities based on the company's most recent
fiscal year. The remainder of the assets of the Fund may be invested in equity
or non-equity securities issued by companies that are not primarily engaged in
telecommunications activities.
Because the Fund will concentrate its investments in the telecommunications
industry, its investments may be subject to greater risk and market fluctuation
than a fund that has securities representing a broader range of investment
alternatives.
Telecommunications industries may be subject to greater governmental
regulation than many other industries and changes in governmental policies and
the need for regulatory approvals may have a material effect on the products and
services of this industry. Telephone operating companies in the United States,
for example, are subject to both federal and state regulation affecting
permitted rates of return and the kinds of services that may be offered.
INTERNATIONAL GROWTH FUND
The International Growth Fund's investment objective is to provide
long-term appreciation of capital. The Fund will pursue its objective by
investing primarily in equity securities of non-U.S. issuers. The Fund defines
equity securities of non-U.S. issuers as securities of issuers whose principal
activities are outside the United States. The Fund expects that its investments
will be concentrated in, but not limited to, Argentina, Australia, Austria,
Brazil, Canada, Chile, Columbia, Denmark, Finland, France, Germany, Greece,
Hungary, Israel, Italy, Japan, Malaysia, Mexico, the Netherlands, New Zealand,
Norway, Portugal, Singapore, South Africa, South Korea, Spain, Sweden,
Switzerland, Thailand, the United Kingdom and Venezuela. The Fund may invest in
securities of issuers in Emerging Markets, as defined above under "Investment
Objectives and Policies -- Emerging Markets Fund," but does not expect to invest
more than 40% of its total assets (at the time of purchase) in securities of
issuers in Emerging Markets. The Fund will invest in securities of issuers from
at least three countries outside the United States.
Under normal market conditions, the Fund will invest a minimum of 80% of
its total assets in equity securities of non-U.S. issuers. Such equity
securities may include common stock and preferred stock (including convertible
preferred stock); bonds, notes and debentures convertible into common or
preferred stock; stock purchase warrants and rights; equity interests in trusts
and partnerships; and depository receipts of companies. In choosing investments,
the Adviser looks for companies that present attractive opportunities for
capital growth.
The Fund may invest up to 20% of its total assets in debt securities issued
by U.S. or foreign governments or corporations, although it does not currently
intend to invest more than 5% of its net assets in debt securities. The Fund has
no limitation on the maturity or the credit quality of the debt securities in
which it invests, which may include lower-rated debt securities. See "Risk
Factors and Special Considerations -- Lower-Rated Securities."
PORTFOLIO INVESTMENTS
TEMPORARY INVESTMENTS. For defensive purposes or during temporary periods
in which the Fund's Adviser believes changes in economic, financial or political
conditions make it advisable, each Fund may reduce its holdings in other
securities and invest up to 100% of its assets in cash or certain short-term
(less than twelve months to maturity) and medium-term (not greater than five
years to maturity) interest-bearing instruments or deposits of United States and
foreign issuers. Such investments may include, but are not limited to,
commercial paper, certificates of deposit, variable or floating rate notes,
bankers' acceptances, time deposits, government securities and money market
deposit accounts. See Statement of Additional Information,
7
<PAGE> 14
"Common Investment Policies -- Temporary Investments." The Funds may also hold
cash or cash equivalents pending investment.
RULE 144A SECURITIES. Rule 144A Securities (as defined below) are
securities which are restricted as to resale to the general public, but which
may be resold to "qualified institutional buyers." Each Fund may invest in Rule
144A Securities that the Fund's Adviser has determined are liquid pursuant to
guidelines established by the Fund's Board of Directors.
BORROWING. Each Fund may borrow up to 33-1/3 percent of its total assets
without obtaining shareholder approval. The Funds intend to borrow or to engage
in reverse repurchase agreements or dollar roll transactions only for temporary
or emergency purposes. See Statement of Additional Information, "Common
Investment Policies -- All Funds -- Reverse Repurchase Agreements" and
"-- Borrowing."
LENDING OF PORTFOLIO SECURITIES. Each Fund may also lend its portfolio
securities to financial institutions against collateral consisting of cash, U.S.
Government securities or irrevocable bank letters of credit, which are equal at
all times to at least 102% of the value of the securities loaned (105% in the
case of foreign securities loaned). Such loans would involve risks of delay in
receiving additional collateral in the event the value of the collateral
decreased below the value of the securities loaned or of delay in recovering the
securities loaned or even loss of rights in the collateral should the borrower
of the securities fail financially. However, loans will be made only to
borrowers deemed by the Fund's Adviser to be of good standing and only when, in
the Adviser's judgment, the income to be earned from the loans justifies the
attendant risks. Any loans of a Fund's securities will be fully collateralized
and marked to market daily. A Fund may not make loans in excess of 50% of the
value of its total assets immediately before such loans.
INVESTMENT COMPANIES. Each Fund may invest in securities issued by other
investment companies to the extent permitted by the 1940 Act. As a shareholder
of another investment company, each Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
U.S. GOVERNMENT SECURITIES. The obligations issued or guaranteed by the
U.S. government in which each Fund may invest include direct obligations of the
U.S. Treasury and obligations issued by U.S. government agencies and
instrumentalities. Included among direct obligations of the United States are
Treasury Bills, Treasury Notes and Treasury Bonds, which differ principally in
terms of their maturities. Treasury Bills have maturities of less than one year,
Treasury Notes have maturities of one to 10 years and Treasury Bonds generally
have maturities of greater than 10 years at the date of issuance. Included among
the obligations issued by agencies and instrumentalities of the United States
are: instruments that are supported by the full faith and credit of the United
States (such as certificates issued by the Government National Mortgage
Association ("GNMA")); instruments that are supported by the right of the issuer
to borrow from the U.S. Treasury (such as securities of Federal Home Loan
Banks); and instruments that are supported by the credit of the instrumentality
(such as Federal National Mortgage Association ("FNMA") and Federal Home Loan
Mortgage Corporation ("FHLMC") bonds).
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 related to each Fund's investments, see "Portfolio
Investments" and "Certain Investment Strategies."
FOREIGN SECURITIES. Investing in the securities of non-U.S. issuers
involves opportunities and risks that are different from investing in the
securities of U.S. issuers. The risks associated with investing in securities of
non-U.S. issuers are generally heightened for investments in securities of
issuers in emerging markets.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and the Funds may hold from time to time various
foreign currencies pending their investment in foreign securities or their
conversion into U.S. dollars, the value of the Funds' assets as measured in U.S.
dollars may be affected favorably or unfavorably by changes in exchange rates.
In addition, investors should realize that the value of the Funds' investments
may be adversely affected by changes in political or social conditions,
diplomatic relations, confiscatory taxation, expropriation, limitation on the
removal of funds or assets, or imposition of (or change in) exchange control
regulations in those foreign nations. In addition, changes in government
administrations or economic or monetary policies in the U.S. or abroad could
result in appreciation or depreciation of portfolio securities and could
favorably or adversely affect the Funds' operations. Furthermore, the economies
of individual foreign nations may differ from that of the United States, whether
favorably or unfavorably, in areas such as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payments position. Any foreign
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investments made by the Funds must be made in compliance with U.S. and foreign
currency restrictions and tax laws restricting the amounts and types of foreign
investments.
In general, less information is publicly available with respect to certain
foreign issuers than is available with respect to U.S. companies. Most foreign
companies are also not subject to the uniform accounting and financial reporting
requirements applicable to issuers in the United States. The Funds' foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities in U.S. companies. Expenses relating to
foreign investments are generally higher than those relating to domestic
securities. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers in foreign countries
than in the United States.
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.
FOREIGN CURRENCY TRANSACTIONS. The over the counter market in forward
foreign currency exchange contracts offers less protection against defaults by
the other party to such instruments than is available for currency instruments
traded on an exchange. Such contracts are subject to the risk that the
counterparty to the contract will default on its obligations. Since these
contracts are not guaranteed by an exchange or clearinghouse, a default on the
contract would deprive a Fund of unrealized profits, transaction costs or the
benefits of a currency hedge or force a Fund to cover its purchase or sale
commitments, if any, at the current market price. A Fund will not enter into
forward foreign currency exchange contracts unless the credit quality of the
unsecured senior debt or the claims-paying ability of the counterparty is
considered to be investment grade by the Fund's Adviser.
Currency exchange rates may fluctuate significantly over short periods of
time. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or perceived changes in interest rates and other complex
factors as seen from an international perspective. Currency exchange rates also
can be affected unpredictably by intervention by U.S. or foreign governments or
central banks, or the failure to intervene, or by currency controls or political
developments in the United States or abroad. The foreign currency market offers
less protection against defaults in the forward trading of currencies than is
available when trading in currencies occurs on an exchange. Since a forward
currency contract is not guaranteed by an exchange or clearinghouse, a default
on the contract would deprive a Fund of unrealized profits or force such Fund to
cover its commitments for purchase or resale, if any, at the current market
price.
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
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.
LOWER-RATED SECURITIES. The widespread expansion of government, consumer
and corporate debt within the economy has made the corporate sector, especially
cyclically sensitive industries, more vulnerable to economic downturns or
increased interest rates. Because lower-rated debt securities involve issuers
with weaker credit fundamentals (such as debt-to-equity ratios, interest charge
coverage, earnings history and the like), an economic downturn, or increases in
interest rates, could severely disrupt the
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<PAGE> 16
market for lower-rated debt securities and adversely affect the value of
outstanding debt securities and the ability of the issuers to repay principal
and interest.
Lower-rated debt securities (commonly known as "junk bonds") possess
speculative characteristics and are subject to greater market fluctuations and
risk of lost income and principal than higher-rated debt securities for a
variety of reasons. The markets for and prices of lower-rated debt securities
have been found to be less sensitive to interest rate changes than higher-rated
investments, but more sensitive to adverse economic changes or individual
corporate developments. Also, during an economic downturn or substantial period
of rising interest rates, highly leveraged issuers may experience financial
stress which would adversely affect their ability to service their principal and
interest payment obligations, to meet projected business goals and to obtain
additional financing. If the issuer of a debt security owned by a Fund
defaulted, the Fund could incur additional expenses in seeking recovery with no
guaranty of recovery. In addition, periods of economic uncertainty and changes
can be expected to result in increased volatility of market prices of
lower-rated debt securities and a Fund's net asset value. Lower-rated debt
securities also present risks based on payment expectations. For example,
lower-rated debt securities may contain redemption or call provisions. If an
issuer exercises these provisions in a declining interest rate market, a Fund
would have to replace the security with a lower yielding security, resulting in
a decreased return for investors. Conversely, a lower-rated debt security's
value will decrease in a rising interest rate market, as will the value of a
Fund's assets. If a Fund experiences unexpected net redemptions, this may force
it to sell its lower-rated debt securities, without regard to their investment
merits, thereby decreasing the asset base upon which a Fund's expenses can be
spread and possibly reducing a Fund's rate of return.
In addition, to the extent that there is no established retail secondary
market, there may be thin trading of lower-rated debt securities, and this may
have an impact on the ability of the Fund's Adviser to both value accurately
lower-rated debt securities and the Fund's assets, and to dispose of the debt
securities. Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the value and liquidity of lower-rated debt
securities, especially in a thinly traded market.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. Each 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"). A Rule 144A Security will be considered illiquid and therefore
subject to each Fund's limitation on the purchase of illiquid securities, unless
the Fund's Board determines on an ongoing basis that an adequate trading market
exists for the security. In addition to an adequate trading market, the Board
will also consider factors such as trading activity, availability of reliable
price information and other relevant information in determining whether a Rule
144A Security is liquid. This investment practice could have the effect of
increasing the level of illiquidity in the Funds to the extent that qualified
institutional buyers become uninterested for a time in purchasing Rule 144A
Securities. The Board of each Fund will carefully monitor any investments by the
Fund in Rule 144A Securities. The Boards may adopt guidelines and delegate to
the relevant Fund's Adviser the daily function of determining and monitoring the
liquidity of Rule 144A Securities, although each Board will retain ultimate
responsibility for any determination regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities) may involve
a high degree of business and financial risk and may result in substantial
losses. These securities may be less liquid than publicly traded securities, and
a 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 price realized from these 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 that would be applicable if their securities were
publicly traded. A 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.
NON-DIVERSIFIED STATUS. Each Fund is classified as a non-diversified
investment company under the 1940 Act, which means that each Fund is not limited
by the 1940 Act in the proportion of its assets that it may invest in the
obligations of a single issuer. Each Fund will, however, comply with
diversification requirements imposed by the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated investment company. As a
non-diversified investment company, each Fund may invest a greater proportion of
its assets in the obligations of a small number of issuers and, as a result, may
be subject to greater risk with respect to portfolio securities. To the extent
that a Fund assumes large positions in the securities of a small number of
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<PAGE> 17
issuers, its return may fluctuate to a greater extent than that of a diversified
company as a result of changes in the financial condition or in the market's
assessment of the issuers.
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, more established 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 growth of capital by investing in
more established, larger companies.
YEAR 2000 COMPLIANCE. Many services provided to a Fund and their
shareholders by BEA, CSAM, Counsellors Securities Inc., the Funds' distributor
("Counsellors Securities"), certain of the latter's affiliates (collectively,
the "Service Providers"), and the Funds' 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 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 Funds nor can there be any assurance that the Year 2000
Issue will not have an adverse effect on the Funds' investments or on global
markets or economies, generally.
The Service Providers anticipate that their systems and those of the Funds'
other service providers will be adapted in time for the year 2000. To further
this goal, the Service Providers have coordinated a plan to repair, adapt or
replace systems that are not year 2000 compliant, and are seeking to obtain
similar representations from the Funds' other major service providers. The
Service Providers will be monitoring the Year 2000 Issue in an effort to ensure
appropriate preparation.
GENERAL. Investment methods described in this prospectus are among those
which the Funds have the power to utilize. Accordingly, reference to any
particular method or technique carries no implication that it will be utilized
or, if it is, that it will be successful.
PORTFOLIO TRANSACTIONS AND TURNOVER RATE
A Fund will attempt to purchase securities with the intent of holding them
for investment but may purchase and sell portfolio securities whenever the
Fund's Adviser believes it to be in the best interests of the relevant Fund. The
Fund's Adviser will effect portfolio transactions in each Fund without regard to
holding periods if, in its judgment, such transactions are advisable in light of
general market, economic or financial conditions. Portfolio turnover may vary
greatly from year to year as well as within a particular year. It is not
possible to predict each Fund's portfolio turnover rate. However, it is
anticipated that, under normal market conditions, each 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.
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All orders for transactions in securities or options on behalf of a Fund
are placed by the Fund's Adviser with broker-dealers that it selects, including
Counsellors Securities and affiliates of Credit Suisse Group ("Credit Suisse").
A Fund may utilize Counsellors Securities or affiliates of Credit Suisse in
connection with a purchase or sale of securities when the Fund's Adviser
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
FOREIGN CURRENCY TRANSACTIONS. The Funds may also enter into contracts to
purchase and sell forward foreign currency exchange contracts to seek to enhance
total return. A forward foreign currency exchange contract is a negotiated
agreement to exchange currency at a future time at a rate or rates that may be
higher or lower than those available on a "spot" (or cash) basis. A Fund may
enter into these contracts for purposes of increasing exposure to a foreign
currency or to shift exposure to foreign currency fluctuations from one country
to another. To the extent that such contracts are entered into to enhance total
return, they are considered speculative. If a Fund enters into such a contract
for any purpose, the Fund will be required to maintain cash or liquid assets in
an amount equal to the value of the Fund's total assets committed to the
consummation of the contract. The Funds will not invest more than 50% of their
respective total assets in such contracts for the purpose of enhancing total
return. There is no limit on the amount of assets that the Funds may invest in
such transactions for hedging purposes.
MORTGAGE-RELATED PASS-THROUGHS AND DERIVATIVES. The Funds may invest in
mortgage-related securities. Purchasable mortgage-related securities are
represented by pools of mortgage loans assembled for sale to investors by
various governmental agencies such as GNMA and government-related organizations
such as FNMA and the FHLMC, as well as by private issuers such as commercial
investment banks, savings and loan institutions, mortgage bankers and private
mortgage insurance companies. As with other interest-bearing securities, the
prices of such securities are inversely affected by changes in interest rates.
However, though the value of a mortgage-related security may decline when
interest rates rise, the converse is not necessarily true because in periods of
declining interest rates mortgages underlying securities are prone to
prepayment. For this and other reasons, a mortgage-related security's stated
maturity may be shortened by an unscheduled prepayment on underlying mortgages
and, therefore, it is not possible to predict accurately the security's return
to these Funds.
Mortgage-related securities acquired by these Funds may include
collateralized mortgage obligations ("CMOs") issued by FNMA, FHLMC or other U.S.
Government agencies or instrumentalities, as well as by private issuers. These
securities may be considered mortgage derivatives. CMOs provide an investor with
a specified interest in the cash flow of a pool of underlying mortgages or other
mortgage-related securities.
ASSET-BACKED SECURITIES. The Funds may purchase asset-backed securities,
which represent a participation in, or are secured by and payable from, a stream
of payments generated by particular assets, most often a pool of assets similar
to one another. Assets generating such payments will consist of such instruments
as motor vehicle installment purchase obligations, credit card receivables and
home equity loans.
Asset-backed securities may involve certain risks arising primarily from
the nature of the underlying assets (i.e., credit card and automobile loan
receivables as opposed to real estate mortgages). For example, credit card
receivables are generally unsecured and may require the repossession of personal
property upon the default of the debtor which may be difficult or impracticable
in some cases. Asset-backed securities are considered an industry for industry
concentration purposes, and the Funds will therefore not purchase any
asset-backed securities which would cause 25% or more of a Fund's total assets
at the time of purchase to be invested in asset-backed securities.
CONVERTIBLE SECURITIES. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Before conversion, convertible securities have
characteristics similar to nonconvertible debt securities in that they
ordinarily provide a stable stream of income with generally higher yields than
those of common stocks of the same or similar issuers. The Funds will
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<PAGE> 19
invest in convertible securities without regard to their credit ratings. See
"Risk Factors and Special Considerations -- Lower- Rated Securities."
INVESTMENT GUIDELINES
Each 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 Securities. Each Fund may borrow from banks and enter into reverse
repurchase agreements and dollar rolls for temporary or emergency purposes, such
as meeting redemption requests, provided that reverse repurchase agreements and
any other borrowing by the Fund may not exceed 33-1/3% of total assets, and may
pledge its assets to the extent necessary to secure permitted borrowings.
Whenever borrowings (including reverse repurchase agreements, dollar rolls and
borrowings from banks) exceed 5% of a Fund's assets, the Fund will not make any
investments (including roll-overs). Except for the limitations on borrowing and
the limitation on further investments when borrowings exceed 5% of Fund assets,
the investment guidelines set forth in this paragraph may be changed at any time
without shareholder consent by vote of the Board of each Fund, subject to the
limitations contained in the 1940 Act. A complete list of investment
restrictions that each 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 under "Investment
Limitations."
Any investment policy or limitation which involves a maximum or minimum
percentage of securities shall not be considered to be violated unless an excess
over or a deficiency under the percentage occurs immediately after, and is
caused by, an acquisition or disposition of securities or utilization of assets
by a Fund.
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISER AND SUB-INVESTMENT ADVISER. BEA serves as the Investment
Adviser for each of the Funds pursuant to investment advisory agreements and
CSAM serves as sub-investment adviser to the Emerging Markets II Fund pursuant
to a sub-investment advisory agreement (collectively, the "Advisory
Agreements"). BEA is a general partnership organized under the laws of the State
of New York in December 1990 and, together with its predecessor firms, has been
engaged in the investment advisory business for over 60 years. BEA is a
wholly-owned subsidiary of Credit Suisse and the U.S. arm of Credit Suisse Asset
Management. BEA is a diversified investment adviser managing global equity,
fixed-income and derivative securities accounts for corporate pension and
profit-sharing plans, state pension funds, union funds, endowments and other
charitable institutions. As of June 30, 1998, BEA managed approximately $35.6
billion in assets. BEA currently acts as investment adviser for eleven other
investment companies registered under the 1940 Act, and acts as sub-adviser to
certain portfolios of thirteen other registered investment companies. BEA is a
registered investment adviser under the Investment Advisers Act of 1940, as
amended. BEA's principal offices are located at One Citicorp Center, 153 East
53rd Street, New York, New York 10022.
CSAM is a wholly-owned subsidiary of Credit Suisse. Credit Suisse had
identified BEA and CSAM as its leading institutional international asset
management product centers. As of June 30, 1998, CSAM managed $35 billion in
discretionary assets. CSAM Limited is a registered investment adviser under the
Investment Advisers Act of 1940, as amended. CSAM's principal offices are
located at Beaufort House, 15 St. Botolph Street, GB-London EC3A 7JJ.
For the advisory services provided and expenses assumed by BEA, the Global
Telecommunications Fund and the International Growth Fund each pay BEA a fee
computed at an annual rate of 1.00% and .80%, respectively, of the Fund's
average net assets, computed daily and payable quarterly. For the advisory
services provided and expenses assumed by BEA, the Emerging Markets Fund pays
BEA a fee computed at an annual rate of 1.00% of the Fund's average net assets,
computed daily and payable quarterly out of which BEA pays CSAM for
sub-investment advisory services. BEA, CSAM and each Fund's co-administrators
may, at their discretion, from time to time agree to voluntarily waive all or
any portion of their fees and temporarily limit the expenses to be borne by the
Funds.
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The Advisory Agreements provide that the Adviser shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Funds in
connection with the matters to which the Advisory Agreements relate.
PORTFOLIO MANAGERS. Emerging Markets Fund and International Growth Fund.
The day-to-day portfolio management of the Emerging Markets II Fund and
International Growth Fund is the responsibility of the BEA International Equity
Management Team. The Team consists of the following investment professionals:
William P. Sterling (Executive Director), Steven D. Bleiberg (Managing
Director), Richard Watt (Managing Director), Susan Boland (Senior Vice
President), Emily Alejos (Vice President) and Robert B. Hrabchak (Vice
President). Mr. Sterling joined BEA in 1995, prior to which time he was the head
of International Economics at Merrill Lynch & Company. Mr. Watt joined BEA in
1995, prior to which time he was the head of emerging markets investments and
research at Gartmore Investment Limited in London. Mr. Bleiberg has been engaged
as an investment professional with BEA for more than five years. Ms. Boland
joined BEA in 1996, prior to which time she was a director and portfolio manager
for Barran & Partners Limited where she managed a hedge fund that invested in
European equities. Prior to 1995, she was a partner and European portfolio
manager for Teton Partners. Ms. Alejos joined BEA in 1997, prior to which time
she was a vice president and an emerging markets portfolio manager with Bankers
Trust. Mr. Hrabchak joined BEA in 1997, prior to which time he was a senior
portfolio manager at Merrill Lynch Asset Management in Hong Kong, where he
chaired the Asia Pacific Investment Strategy Committee and managed institutional
portfolios. Prior to 1995, he was an associate in investment banking at Salomon
Brothers.
Global Telecommunications Fund. The day-to-day portfolio management of
the Global Telecommunications Fund is the responsibility of the BEA Global
Telecommunications Management Team. The Team consists of the following
investment professionals: William P. Sterling (Executive Director), Steven D.
Bleiberg (Managing Director), Richard Watt (Managing Director), James Abate
(Senior Vice President), Stephen Waite (Vice President), Emily Alejos (Vice
President) and Robert Hrabchak (Vice President). Mr. Abate joined BEA in 1995;
previously, he was a Managing Director for Vert Independent Capital Research.
Prior to joining Vert, Mr. Abate was a manager in Price Waterhouse's
Valuation/Corporate Finance Group. Mr. Waite joined BEA in 1995, prior to which
he was vice president and senior European economist for Merrill Lynch & Company
in London.
CO-ADMINISTRATORS. The Funds employ Counsellors Service, a wholly owned
subsidiary of Warburg Pincus Asset Management, Inc., the investment adviser to
certain other Warburg Pincus Funds ("Warburg"), as a co-administrator. As
co-administrator, Counsellors Service provides shareholder liaison services to
the Funds 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 Funds and their various
service providers, furnishing corporate secretarial services, which include
preparing certain materials for meetings of the Board, assisting in the
preparation of proxy statements, annual and semiannual reports and tax returns
and monitoring and developing compliance procedures for the Funds. As
compensation, each Fund pays Counsellors Service a fee calculated at an annual
rate of .05% of the Fund's first $125 million in average daily net assets
attributable to the Common Shares and .10% of average daily net assets
attributable to the Common Shares over $125 million.
Each 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 Funds each pay PFPC a fee calculated at an annual rate of .125% of each
Fund's average daily net assets, 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.
CUSTODIAN. Brown Brothers Harriman & Co. ("BBH") serves as custodian of
each Fund's assets. BBH's principal business address is 40 Water Street, Boston,
Massachusetts 02109.
TRANSFER AGENT. State Street Bank and Trust Company ("State Street") serves
as shareholder servicing agent, transfer agent and dividend disbursing agent for
the Funds. It has delegated to Boston Financial Data Services, Inc., an
affiliated company ("BFDS"), responsibility for most shareholder servicing
functions. State Street's principal business address is 225 Franklin Street,
Boston, Massachusetts 02110. BFDS's principal business address is 2 Heritage
Drive, North Quincy, Massachusetts 02171.
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DISTRIBUTOR. Counsellors Securities serves as distributor of the shares of
the Funds. Counsellors Securities is a wholly owned subsidiary of Warburg and is
located at 466 Lexington Avenue, New York, New York 10017-3147. Counsellors
Securities receives a fee at an annual rate equal to .25% of the average daily
net assets of each Fund's Common Shares for distribution services, pursuant to a
shareholder servicing and distribution plan (the "12b-1 Plan") adopted by each
Fund pursuant to Rule 12b-1 under the 1940 Act. Amounts paid to Counsellors
Securities under a 12b-1 Plan may be used by Counsellors Securities to cover
expenses that are primarily intended to result in, or that are primarily
attributable to, (i) the sale of the Common Shares, (ii) ongoing servicing
and/or maintenance of the accounts of Common Shareholders of 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 Plans.
Payments under the 12b-1 Plans are not tied exclusively to the distribution
expenses actually incurred by Counsellors Securities and the payments may exceed
distribution expenses actually incurred. The Boards of each Fund evaluate the
appropriateness of the 12b-1 Plans 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 Plans.
BEA, CSAM, Counsellors Securities or an affiliate of either may, at its own
expense, provide promotional incentives for qualified recipients who support the
sale of shares of a 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. BEA, CSAM, Counsellors
Securities or an affiliate of either 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 each Fund manage its day-to-day
operations and are directly responsible to the Board. The Boards set broad
policies for each Fund and choose its officers. A list of the Directors and
officers of each 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 a 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
investing in the Funds 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
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<PAGE> 22
for maintaining current account registration and addresses with a Fund. No
interest will be paid on amounts represented by uncashed distribution or
redemption checks.
HOW TO PURCHASE SHARES
Common Shares of each 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 each Fund is $2,500 and the minimum
subsequent investment is $250, except that subsequent minimum investments can be
as low as $100 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 $1,000. 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, BEA or their 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 minimum investment 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 Funds 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 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 a 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
[Insert Warburg Pincus Fund name(s) here]
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
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<PAGE> 23
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 a Fund or its agent to debit
their bank account monthly ($100 minimum) for the purchase of Fund shares on or
about either the tenth or twentieth calendar day of each 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 relevant
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 a 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 each 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 each 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 Funds are 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 Funds, which are in addition to or
different than those described in this Prospectus, and may charge their clients
or customers direct fees. Certain features of the Funds, 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 Funds. 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 Funds in
accordance with their agreements with the Funds 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 Funds' 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. A Fund may be deemed to have received
a purchase or redemption order when a Service Organization, or, if applicable,
its authorized designee, accepts the
17
<PAGE> 24
order. Such orders received by a 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 .35% (the "Service Fee") (or
up to .40% in connection with certain retirement plan programs) of the average
annual value of accounts with the Funds maintained by such Service Organizations
or recordkeepers. A portion of the Service Fee may be borne by the Funds 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 Funds' 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. Each 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 BEA's judgment, a Fund would be unable to invest the money effectively in
accordance with its investment objective and policies, or would otherwise
potentially be adversely affected. A 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 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 a Fund may redeem (sell) his shares on
any day that the Fund's net asset value is calculated (see "Net Asset Value"
below).
Common Shares of the Funds may either be redeemed by mail or by telephone.
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. No Fund
currently imposes a service charge for effecting wire transfers but each Fund
reserves the right to do so in the future. During periods of significant
economic or market change, telephone redemptions may be difficult to implement.
If an investor is unable to contact Warburg Pincus Funds by telephone, an
investor may deliver the redemption request to Warburg Pincus Funds by mail at
an address shown above under "How to Open an Account." Although each 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
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 BEA, immediate payment would adversely affect a
Fund, each Fund reserves the right to pay the redemption proceeds within seven
days after the redemption order is effected. Furthermore, each
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<PAGE> 25
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 $500, each 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. Each Fund offers investors an automatic
cash withdrawal plan under which investors may elect to receive periodic cash
payments of at least $250 monthly or quarterly. To establish this service,
complete the "Automatic Withdrawal Plan" section of the account application and
attach a voided check from the bank account to be credited. For further
information regarding the automatic cash withdrawal plan or to modify or
terminate the plan, investors should contact Warburg Pincus Funds at (800)
927-2874.
EXCHANGE OF SHARES. An investor may exchange Common Shares of a Fund for
Common Shares of another Fund or 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. A Fund may refuse exchange purchases at any time
without prior notice.
The exchange privilege is available to shareholders residing in any state
in which the Common Shares being acquired may legally be sold. When an investor
effects an exchange of shares, the exchange is treated for federal income tax
purposes as a redemption. Therefore, the investor may realize a taxable gain or
loss in connection with the exchange. Investors wishing to exchange Common
Shares of a Fund for Common Shares in another Warburg Pincus Fund should review
the prospectus of the other fund prior to making an exchange. For further
information regarding the exchange privilege or to obtain a current prospectus
for another Warburg Pincus Fund, an investor should contact Warburg Pincus Funds
at (800) 927-2874.
Each Fund reserves the right to refuse exchange purchases by any person or
group if, in BEA'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 a 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. Each 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. Each 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. Each Fund will distribute substantially all of its net
realized capital gains and all net investment income, if any, to its
shareholders annually. Net investment income earned on weekends and when the
NYSE is not open will be computed as of the next business day. Unless an
investor instructs a Fund to pay dividends or distributions in cash, dividends
and distributions will automatically be reinvested in additional Common Shares
of the relevant 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.
A 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.
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<PAGE> 26
TAXES. Each Fund intends to qualify each year as a "regulated investment
company" within the meaning of the Code. Each 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. Each 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 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%. Each 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 Funds, but investors not subject to tax on their income will not be required
to pay tax on amounts distributed to them. A Fund's investment activities,
including short sales of securities, will not result in unrelated business
taxable income to a tax-exempt investor. A 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 Funds 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 a
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. A 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, each 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.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. Each investor will also receive, if
applicable, various written notices after the close of a Fund's prior taxable
year with respect to certain dividends and distributions which were received
from the Fund during the Fund's prior taxable year. Investors should consult
their own tax advisers with specific reference to their own tax situations,
including their state and local tax liabilities.
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<PAGE> 27
NET ASSET VALUE
Each 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 each 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 Funds quote the performance of Common Shares separately from
Institutional Shares and Advisor Shares. The net asset value of Common Shares is
listed in The Wall Street Journal each business day under the heading "Warburg
Pincus Funds." From time to time, each 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 Shares
assuming that any income dividends and/or capital gain distributions made by a
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 each Fund seeks long-term appreciation and
that such return may not be representative of any Fund's return over a longer
market cycle. Each 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 Funds'
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 Funds may also from time to time include in advertisings an aggregate
total return figure or a total return figure that is not calculated according to
the standardized formula in order to compare more accurately a Fund's
performance with other measures of investment return. For example, a Fund's
total return or expense ratio may be compared with data published by Lipper
Analytical Services, Inc., CDA/Weisenberger Investment Technologies, Inc.,
Mutual Fund Forecaster or Morningstar, Inc., or with the performance of the
Standard & Poor's 500 Stock Index, Standard & Poor's MidCap 400 Index, Moody's
Bond Survey Bond Index, Wilshire 5000 Index, Lehman Brothers Bond Indexes,
Morgan
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<PAGE> 28
Stanley Composite Index EAFE, Morgan Stanley Composite Index-Free Emerging
Markets, JP Morgan Global Government Bond Index (Unhedged), First Boston High
Yield Index, Consumer Price Index, Bond Buyer's 20-Bond Index, Dow Jones
Industrial Average, Salomon Smith Barney U.S. 1-Month Treasury Bill Index(TM),
national publications such as Money, Forbes, Barron's, The Wall Street Journal
or the New York Times or publications of a local or regional nature, and other
industry publications. For these purposes, the performance of a Fund, as well as
the performance published by such services or experienced by such indices, will
usually not reflect redemption fees, the inclusion of which would reduce
performance results. If a Fund advertises non-standard computations, however,
the Fund will disclose such fees, and will also disclose that the performance
data do not reflect such fees and that inclusion of such fees would reduce the
performance quoted.
In reports or other communications to investors or in advertising, each
Fund may also describe the general biography or work experience of the portfolio
managers of the Fund and may include quotations attributable to the portfolio
managers describing approaches taken in managing the Fund's investments,
research methodology underlying stock selection or the Fund's investment
objective. In addition, a 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. Each 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 Emerging Markets Fund, Global Telecommunications Fund
and International Growth Fund were each incorporated on July 31, 1998 under the
laws of the State of Maryland under the name "Warburg, Pincus Emerging Markets
II Fund, Inc.," "Warburg, Pincus Global Telecommunications Fund, Inc.," and
"Warburg, Pincus International Growth Fund, Inc.," respectively. On August __ ,
1998, the Funds and The RBB Fund, Inc. entered into an Agreement and Plan of
Reorganization whereby the Funds agreed to acquire all of the assets and
liabilities of the corresponding BEA Funds (the "Reorganization").
The Reorganization is expected to be completed on or about October 2, 1998.
Each 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, one billion shares are designated
Institutional Shares and one billion shares are designated Advisor Shares. Under
each 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. A 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. Each Fund currently offers another class of shares,
the Institutional Shares, pursuant to a separate prospectus. Individual
investors may only purchase Institutional Shares and, if and when offered,
Advisor Shares, through institutional shareholders of record, broker-dealers,
financial institutions, depository institutions, retirement plans and financial
intermediaries. Shares of each class represent equal pro rata interests in the
respective Fund and accrue dividends and calculate net asset value and
performance quotations in the same manner. Because of the higher fees paid by
Common Shares and Advisor Shares, the total return on Common Shares can be
expected to be lower than the total return on Institutional Shares and the total
return of Advisor Shares can be expected to be lower than the total return on
Common Shares and Institutional Shares. Investors may obtain information
concerning the Institutional Shares and, if and when offered, the Advisor Shares
from their investment professional or by calling Counsellors Securities at (800)
369-2728. Unless the context clearly suggests otherwise, references to a Fund in
this Prospectus are to a Fund as a whole and not to any particular class of the
Fund's shares.
VOTING RIGHTS. Investors in a Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of a
Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the Board unless
and until such time as less than a majority of the members holding office have
been elected by investors. Any Director of a 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
22
<PAGE> 29
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). Each 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.
The Common Share prospectuses of the Funds are combined in this Prospectus.
Each Fund offers only its own shares, yet it is possible that a Fund might
become liable for a misstatement, inaccuracy or omission in this Prospectus with
regard to another Fund.
-----------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE FUNDS'
STATEMENT OF ADDITIONAL INFORMATION OR THE FUNDS' OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE FUNDS, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY EACH FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
COMMON SHARES OF THE FUNDS IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFER MAY NOT LAWFULLY BE MADE.
23
<PAGE> 30
TABLE OF CONTENTS
THE FUNDS' EXPENSES................................2
FINANCIAL HIGHLIGHTS...............................3
INVESTMENT OBJECTIVES AND POLICIES.................6
PORTFOLIO INVESTMENTS..............................7
RISK FACTORS AND SPECIAL CONSIDERATIONS............8
PORTFOLIO TRANSACTIONS AND TURNOVER RATE..........11
CERTAIN INVESTMENT STRATEGIES.....................12
INVESTMENT GUIDELINES.............................13
MANAGEMENT OF THE FUNDS...........................13
HOW TO OPEN AN ACCOUNT............................15
HOW TO PURCHASE SHARES............................16
HOW TO REDEEM AND EXCHANGE SHARES.................18
DIVIDENDS, DISTRIBUTIONS AND TAXES................19
NET ASSET VALUE...................................21
PERFORMANCE.......................................21
GENERAL INFORMATION...............................22
[Warburg Pincus Funds Logo]
P.O. Box 9030, Boston, MA 02205-9030
800-WARBURG (800-927-2874)
www.warburg.com
COUNSELLORS SECURITIES INC., DISTRIBUTOR. WP_1-0898
24
<PAGE> 31
SUBJECT TO COMPLETION, DATED AUGUST 5, 1998
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.
STATEMENT OF ADDITIONAL INFORMATION
September [INSERT], 1998
WARBURG, PINCUS INTERNATIONAL GROWTH FUND, INC.
WARBURG, PINCUS EMERGING MARKETS II FUND, INC.
WARBURG, PINCUS U.S. STRUCTURED CORE EQUITY FUND, INC.
WARBURG, PINCUS U.S. CORE FIXED INCOME FUND, INC.
WARBURG, PINCUS STRATEGIC GLOBAL FIXED INCOME FUND, INC.
WARBURG, PINCUS GLOBAL TELECOMMUNICATIONS FUND, INC.
WARBURG, PINCUS HIGH YIELD FUND, INC.
WARBURG, PINCUS MUNICIPAL BOND FUND, INC.
WARBURG, PINCUS SELECT ECONOMIC VALUE EQUITY FUND, INC.
P.O. Box 9030, Boston, Massachusetts 02205-9030
For information, call (800) WARBURG s.
This combined Statement of Additional Information is meant to
be read in conjunction with the Prospectuses for the Common Shares of Warburg,
Pincus International Growth, Warburg, Pincus Emerging Markets II, Warburg,
Pincus U.S. Structured Core Equity, Warburg, Pincus U.S. Core Fixed Income,
Warburg, Pincus Strategic Global Fixed Income, Warburg, Pincus Global
Telecommunications, Warburg, Pincus High Yield, Warburg, Pincus Municipal Bond
and Warburg, Pincus Select Economic Value Equity Funds (collectively, the
"Funds"), dated September __, 1998, as amended or supplemented from time to
time, and is incorporated by reference in its entirety into those Prospectuses.
Because this Statement of Additional Information is not itself a prospectus, no
investment in shares of a Fund should be made solely upon the information
contained herein. Copies of the Funds' Prospectuses and information regarding
each 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 Funds at the same number or by writing to the Fund, P.O.
Box 9030, Boston, Massachusetts 02205-9030.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS STATEMENT OF ADDITIONAL INFORMATION IN
CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUNDS OR THEIR DISTRIBUTOR. THE STATEMENT OF ADDITIONAL INFORMATION DOES
NOT CONSTITUTE AN OFFERING BY THE FUNDS OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
<PAGE> 32
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
GENERAL...........................................................................................................1
COMMON INVESTMENT POLICIES -- ALL FUNDS...........................................................................1
COMMON INVESTMENT OBJECTIVES AND POLICIES -- WARBURG, PINCUS INTERNATIONAL
GROWTH, WARBURG, PINCUS EMERGING MARKETS GROWTH, WARBURG, PINCUS U.S. STRUCTURED
CORE EQUITY, WARBURG, PINCUS U.S. CORE FIXED INCOME, WARBURG, PINCUS GLOBAL
TELECOMMUNICATIONS, WARBURG, PINCUS HIGH YIELD, WARBURG, PINCUS STRATEGIC GLOBAL
FIXED INCOME AND WARBURG, PINCUS SELECT ECONOMIC VALUE EQUITY FUNDS ..............................................8
SUPPLEMENTAL INVESTMENT OBJECTIVES AND POLICIES -- WARBURG, PINCUS INTERNATIONAL
GROWTH, WARBURG, PINCUS EMERGING MARKETS GROWTH, WARBURG, PINCUS U.S. STRUCTURED
CORE EQUITY, WARBURG, PINCUS GLOBAL TELECOMMUNICATIONS AND WARBURG, PINCUS
SELECT ECONOMIC VALUE EQUITY FUNDS ..............................................................................22
SUPPLEMENTAL INVESTMENT OBJECTIVES AND POLICIES -- WARBURG, PINCUS GLOBAL
TELECOMMUNICATIONS FUND .........................................................................................22
SUPPLEMENTAL INVESTMENT POLICIES -- WARBURG, PINCUS MUNICIPAL BOND FUND .........................................23
INVESTMENT LIMITATIONS...........................................................................................24
RISK FACTORS.....................................................................................................26
DIRECTORS AND OFFICERS...........................................................................................31
DIRECTORS' ESTIMATED COMPENSATION THROUGH AUGUST 31, 1999........................................................35
INVESTMENT ADVISORY AND SERVICING ARRANGEMENTS...................................................................35
PORTFOLIO TRANSACTIONS AND TURNOVER RATE.........................................................................41
PURCHASE AND REDEMPTION INFORMATION..............................................................................45
VALUATION OF SHARES..............................................................................................45
PERFORMANCE AND YIELD INFORMATION................................................................................47
TAXES............................................................................................................50
ADDITIONAL INFORMATION CONCERNING THE FUNDS' SHARES..............................................................59
MISCELLANEOUS....................................................................................................59
INDEPENDENT ACCOUNTANTS AND COUNSEL..............................................................................61
FINANCIAL STATEMENTS.............................................................................................61
APPENDIX A......................................................................................................A-1
APPENDIX B......................................................................................................B-1
</TABLE>
i
<PAGE> 33
GENERAL
The investment objective of the Warburg, Pincus International
Growth ("International Growth"), Warburg, Pincus Emerging Markets II ("Emerging
Markets II"), Warburg, Pincus Global Telecommunications ("Global
Telecommunications"), Warburg, Pincus International Growth ("International
Growth"), Warburg, Pincus Select Economic Value Equity ("Select Equity") and
Warburg, Pincus U.S. Structured Core Equity ("U.S. Equity") Funds is to provide
long-term appreciation of capital.
The investment objective of the Warburg, Pincus Long-Short
Market Neutral Fund ("Long-Short Neutral Fund") is long-term capital
appreciation while minimizing exposure to general equity market risk.
The investment objective of the Warburg, Pincus High Yield
("High Yield"), Warburg, Pincus Municipal Bond ("Municipal Bond"), Warburg,
Pincus Strategic Global Fixed Income ("Global Income") and Warburg, Pincus U.S.
Core Fixed Income (U.S. Fixed Income") Funds is to provide high total return.
The investment objective of the Warburg, Pincus Long-Short
Equity Fund ("Long-Short Equity Fund") is to provide a total return greater than
that of the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500
Index").
Each of the Funds is an open-end management investment
company. Each Fund was organized as a Maryland corporation on [INSERT], 1988.
Unless otherwise indicated, the following investment policies
may be changed by the Funds' Board of Directors without an affirmative vote of
shareholders. Capitalized terms used herein and not otherwise defined have the
same meanings as are given to such terms in the Funds' combined Prospectuses.
COMMON INVESTMENT POLICIES -- ALL FUNDS
The following supplements the information contained in the
Prospectus concerning the investment objectives and policies of, and techniques
used by the Funds.
NON-DIVERSIFIED STATUS. Each Fund is classified as
non-diversified within the meaning of the Investment Company Act of 1940 (the
"1940 Act"), which means that each Fund is not limited by such Act in the
proportion of its assets that it may invest in securities of a single issuer.
Each Fund's investments will be limited, however, in order to qualify as a
"regulated investment company" for purposes of the Internal Revenue Code of
1986, as amended (the "Code"). See "Taxes." To qualify, each Fund will comply
with certain requirements, including limiting its investments so that at the
close of each quarter of the
<PAGE> 34
taxable year (i) not more than 25% of the market value of each Fund's total
assets will be invested in the securities of a single issuer, and (ii) with
respect to 50% of the market value of its total assets, not more than 5% of the
market value of each Fund's total assets will be invested in the securities of a
single issuer and each Fund will not own more than 10% of the outstanding voting
securities of a single issuer. To the extent that each Fund assumes large
positions in the securities of a small number of issuers, each Fund's return may
fluctuate to a greater extent than that of a diversified company as a result of
changes in the financial condition or in the market's assessment of the issuers.
TEMPORARY INVESTMENTS. The short-term and medium-term debt
securities in which a Fund may invest for temporary defensive purposes consist
of: (a) obligations of the United States or foreign governments, their
respective agencies or instrumentalities; (b) bank deposits and bank obligations
(including certificates of deposit, time deposits and bankers' acceptances) of
U.S. or foreign banks denominated in any currency; (c) floating rate securities
and other instruments denominated in any currency issued by international
development agencies; (d) finance company and corporate commercial paper and
other short-term corporate debt obligations of U.S. and foreign corporations;
and (e) repurchase agreements with banks and broker-dealers with respect to such
securities.
REPURCHASE AGREEMENTS. Each Fund may agree to purchase
securities from a bank or recognized securities dealer and simultaneously commit
to resell the securities to the bank or dealer at an agreed-upon date and price
reflecting a market rate of interest unrelated to the coupon rate or maturity of
the purchased securities ("repurchase agreements"). Such Fund would maintain
custody of the underlying securities prior to their repurchase; thus, the
obligation of the bank or dealer to pay the repurchase price on the date agreed
to would be, in effect, secured by such securities. If the value of such
securities were less than the repurchase price, plus interest, the other party
to the agreement would be required to provide additional collateral so that at
all times the collateral is at least equal to the repurchase price plus accrued
interest. Default by or bankruptcy of a seller would expose a Fund to possible
loss because of adverse market action, expenses and/or delays in connection with
the disposition of the underlying obligations. The financial institutions with
which a Fund may enter into repurchase agreements will be banks and non-bank
dealers of U.S. Government securities that are listed on the Federal Reserve
Bank of New York's list of reporting dealers, if such banks and non-bank dealers
are deemed creditworthy by the Fund's adviser. A Fund's adviser will continue to
monitor creditworthiness of the seller under a repurchase agreement, and will
require the seller to maintain during the term of the agreement the value of the
securities subject to the agreement to equal at least the repurchase price
(including accrued interest). In addition, the
-2-
<PAGE> 35
Fund's adviser will require that the value of this collateral, after transaction
costs (including loss of interest) reasonably expected to be incurred on a
default, be equal to or greater than the repurchase price (including accrued
premium) provided in the repurchase agreement or the daily amortization of the
difference between the purchase price and the repurchase price specified in the
repurchase agreement. The Fund's adviser will mark-to-market daily the value of
the securities. There are no percentage limits on a Fund's ability to enter into
repurchase agreements. Repurchase agreements are considered to be loans by the
Fund under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. Each Fund may
enter into reverse repurchase agreements with respect to portfolio securities
for temporary purposes (such as to obtain cash to meet redemption requests when
the liquidation of portfolio securities is deemed disadvantageous or
inconvenient by the Adviser). Reverse repurchase agreements involve the sale of
securities held by a Fund pursuant to such Fund's agreement to repurchase them
at a mutually agreed upon date, price and rate of interest. At the time a 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). A Fund's liquidity and ability to manage its assets might be affected
when it sets aside cash or portfolio securities to cover such commitments.
Reverse repurchase agreements involve the risk that the market value of the
securities retained in lieu of sale may decline below the price of the
securities a Fund has sold but is obligated to repurchase. In the event the
buyer of securities under a reverse repurchase agreement files for bankruptcy or
becomes insolvent, such buyer or its trustee or receiver may receive an
extension of time to determine whether to enforce a Fund's obligation to
repurchase the securities, and a Fund's use of the proceeds of the reverse
repurchase agreement may effectively be restricted pending such decision.
Reverse repurchase agreements are considered to be borrowings under the 1940
Act. Each Fund also may enter into "dollar rolls," in which it sells fixed
income securities for delivery in the current month and simultaneously contracts
to repurchase substantially similar (same type, coupon and maturity) securities
on a specified future date. During the roll period, a Fund would forgo principal
and interest paid on such securities. A 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. The Funds do not presently intend to invest more than 5% of net assets in
reverse repurchase agreements or dollar rolls.
-3-
<PAGE> 36
WHEN-ISSUED SECURITIES, DELAYED DELIVERY TRANSACTIONS AND
FORWARD COMMITMENTS. Each Fund may purchase securities on a when-issued basis or
on a forward commitment basis, and it may purchase or sell securities for
delayed delivery. These transactions occur when securities are purchased or sold
by a Fund with payment and delivery taking place in the future to secure what is
considered an advantageous yield and price to a Fund at the time of entering
into the transaction. Although the Funds have not established a limit on the
percentage of their assets that may be committed in connection with such
transactions, they will maintain segregated accounts with their custodian
consisting of cash or liquid securities denominated in U.S. dollars or non-U.S.
currencies in an aggregate amount equal to the amount of their commitment in
connection with such purchase transactions. 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 assets fall below the amount of its
commitment. Each Fund's liquidity and ability to manage its assets might be
affected when it sets aside cash or portfolio fund securities to cover such
commitments. When a Fund engages in when-issued transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in the
Fund incurring a loss or missing an opportunity to obtain a price considered to
be advantageous. When-issued and forward commitment transactions involve the
risk that the price or yield obtained in a transaction may be less favorable
than the price or yield available in the market when the securities delivery
takes place. Each Fund currently anticipates that when-issued securities will
not exceed 25% of its net assets. Each Fund does not intend to engage in
when-issued purchases and forward commitments for speculative purposes but only
in furtherance of its investment objectives.
STAND-BY COMMITMENT AGREEMENTS. Each Fund may from time to
time enter into stand-by commitment agreements. Such agreements commit a Fund,
for a stated period of time, to purchase a stated amount of a fixed income
securities which may be issued and sold to the Fund at the option of the issuer.
The price and coupon of the security is fixed at the time of the commitment. At
the time of entering into the agreement, a Fund is paid a commitment fee,
regardless of whether or not the security is ultimately issued. A Fund will
enter into such agreements only for the purpose of investing in the security
underlying the commitment at a yield and price that is considered advantageous
to a Fund. Each Fund will not enter into a stand-by commitment with a remaining
term in excess of 45 days and it will limit its investment in such commitments
so that the aggregate purchase price of the securities subject to such
commitments, together with the value of portfolio securities subject to legal
restrictions on resale, will not exceed 10% of its assets taken at the time of
acquisition of such commitment or security. Each Fund will at all times maintain
a segregated account with its custodian consisting of cash or liquid securities
denominated in U.S. dollars or non-U.S. currencies in an aggregate amount equal
-4-
<PAGE> 37
to the purchase price of the securities underlying the commitment. 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 assets fall
below the amount of the purchase price. A Fund's liquidity and ability to manage
its assets might be affected when it sets aside cash or portfolio securities to
cover such commitments.
There can be no assurance that the securities subject to a
stand-by commitment will be issued and the value of the security, if issued, on
the delivery date may be more or less than its purchase price. Because the
issuance of the security underlying the commitment is at the option of the
issuer, a Fund may bear the risk of a decline in the value of such security and
may not benefit from an appreciation in the value of the security during the
commitment period.
The purchase of a security subject to a stand-by commitment
agreement and the related commitment fee will be recorded on the date on which
the security can reasonably be expected to be issued, and the value of the
security will be adjusted by the amount of the commitment fee. In the event the
security is not issued, the commitment fee will be recorded as income on the
expiration date of the stand-by commitment. The Funds do not presently intend to
invest more than 5% of net assets in stand-by commitment agreements.
ILLIQUID SECURITIES. Each Fund does not presently intend to
invest more than 15% of its net assets in illiquid securities (including
repurchase agreements which have a maturity of longer than seven days),
including securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale. The term
"illiquid securities" for this purpose means securities that cannot be disposed
of within seven days in the ordinary course of business at approximately the
amount at which the Fund has valued the securities. Such securities may include,
among other things, loan participations and assignments, options purchased in
the over-the-counter markets, repurchase agreements maturing in more than seven
days, structured notes and restricted securities other than Rule 144A securities
that the Adviser has determined are liquid pursuant to guidelines established by
the Funds' Board of Directors. Because of the absence of any liquid trading
market currently for these investments, a 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 a Fund.
Securities that have legal or contractual restrictions on resale but have a
readily available market are not considered illiquid for purposes of this
limitation. With respect to each Fund, repurchase agreements subject to demand
are deemed to have a maturity equal to the notice period.
-5-
<PAGE> 38
Mutual funds do not typically hold a significant amount of
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and a mutual fund might be
unable to dispose of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty satisfying redemptions
within seven days. A mutual fund might also have to register such restricted
securities in order to dispose of them, resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.
If otherwise consistent with their investment objectives and
policies, the Funds may purchase securities that are not registered under the
Securities Act but can be sold to "qualified institutional buyers" in accordance
with Rule 144A under the Securities Act. These securities will not be considered
illiquid so long as it is determined by the Adviser, under guidelines approved
by the Board of Directors, that an adequate trading market exists for the
securities. A Fund's investment in Rule 144A securities could increase the level
of illiquidity during any period that qualified institutional buyers become
uninterested in purchasing these securities.
The Adviser will monitor the liquidity of restricted
securities in a Fund under the supervision of the Board of Directors. In
reaching liquidity decisions, the Adviser may consider, among others, the
following factors: (1) the unregistered nature of the security; (2) the
frequency of trades and quotes for the security; (3) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (4) dealer undertakings to make a market in the security and (5) 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). Where there are no readily available market
quotations, the security shall be valued at fair value as determined in good
faith by the Board of Directors of the Funds.
EMERGING GROWTH AND SMALLER CAPITALIZATION COMPANIES;
UNSEASONED ISSUERS. Each Fund will not invest in securities of unseasoned
issuers, including equity securities of unseasoned issuers which are not readily
marketable, if the aggregate investment in such securities would exceed 5% of
such Fund's net assets. The term "unseasoned" refers to issuers which, together
with their predecessors, have been in operation for less than three years.
LENDING OF PORTFOLIO SECURITIES. To increase income on its
investments, a Fund may lend its portfolio securities with an aggregate value of
up to 50% of its total assets (in the case of the Select Equity Fund, up to
33-1/3% of its total assets, including the loan collateral) to broker/dealers
and other
-6-
<PAGE> 39
institutional investors. Each Fund may lend its portfolio securities on a short
or long term basis to broker-dealers or institutional investors that the Adviser
deems qualified, but only when the borrower maintains, with a Fund's custodian,
collateral either in cash or money market instruments, in an amount at least
equal to the market value of the securities loaned (for the Select Equity Fund,
at least equal to 102% of the market value of the Securities loaned), plus
accrued interest and dividends, determined on a daily basis and adjusted
accordingly. Collateral for such loans may include cash, securities of the U.S.
Government or its agencies or instrumentalities or an irrevocable letter of
credit issued by a bank which is deemed creditworthy by the Adviser. In
determining whether to lend securities to a particular broker-dealer or
institutional investor, the Adviser will consider, and during the period of the
loan will monitor, all relevant facts and circumstances, including the
creditworthiness of the borrower. Such loans would involve risks of delay in
receiving additional collateral in the event the value of the collateral
decreased below the value of the securities loaned or of delay in recovering the
securities loaned or even the loss of rights in the collateral should the
borrower of the securities fail financially. Default by or bankruptcy of a
borrower would expose the Funds to possible loss because of adverse market
action, expenses and/or delays in connection with the disposition of the
underlying securities.
BORROWING. Each Fund may borrow up to 33 1/3 percent of its
total assets. The Adviser intends to borrow only for temporary or emergency
purposes, including to meet Fund redemption requests so as to permit the orderly
disposition of portfolio securities, or to facilitate settlement transactions on
portfolio securities. Additional investments will not be made when borrowings
exceed 5% of a Fund's total assets. Although the principal of such borrowings
will be fixed, a Fund's assets may change in value during the time the borrowing
is outstanding. Each 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.
COMMON INVESTMENT OBJECTIVES AND POLICIES -- INTERNATIONAL GROWTH, EMERGING
MARKETS GROWTH, U.S. EQUITY, U.S. FIXED INCOME, GLOBAL TELECOMMUNICATIONS, HIGH
YIELD, GLOBAL INCOME AND SELECT EQUITY FUNDS
U.S. GOVERNMENT SECURITIES. The U.S. Government securities in
which a Fund may invest include direct obligations of the U.S. Treasury (such as
Treasury bills, notes and bonds) and obligations issued by U.S. Government
agencies and instrumentalities, including securities that are supported by the
full faith and credit of the United States and securities that
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are supported primarily or solely by the creditworthiness of the issuer (such as
securities of the Federal Home Loan Banks, the Student Loan Marketing
Association and the Tennessee Valley Authority).
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 Funds 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.
BRADY BONDS. Each Fund may invest in so-called "Brady Bonds,"
which are securities created through the exchange of existing commercial bank
loans to Latin American public and private entities for new bonds in connection
with debt restructurings under a debt restructuring plan announced by former
U.S. Secretary of the Treasury Nicholas F. Brady (the "Brady Plan"). Brady Bonds
may be collateralized or uncollateralized, are issued in various currencies
(primarily the
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U.S. dollar) and are currently actively traded in the over-the-counter secondary
market for Latin American debt instruments.
Dollar-denominated, collateralized Brady Bonds, which may be
fixed rate par bonds or floating rate discount bonds, are collateralized in full
as to principal by U.S. Treasury zero coupon bonds having the same maturity as
the bonds. Interest payments on these Brady Bonds generally are collateralized
by cash or securities in an amount that, in the case of fixed rate bonds, is
equal to at least one year of rolling interest payments or, in the case of
floating rate bonds, initially is equal to at least one year's rolling interest
payments based on the applicable interest rate at that time and is adjusted at
regular intervals thereafter.
All Mexican Brady Bonds issued to date, except New Money
Bonds, have principal repayments at final maturity fully collateralized by U.S.
Treasury zero coupon bonds (or comparable collateral in other currencies) and
interest coupon payments collateralized on an 18-month rolling-forward basis by
funds held in escrow by an agent for the bondholders. Approximately half of the
Venezuelan Brady Bonds issued to date have principal repayments at final
maturity collateralized by U.S. Treasury zero coupon bonds (or comparable
collateral in other currencies), while slightly more than half have interest
coupon payments collateralized on a 14-month rolling-forward basis by securities
held by the Federal Reserve Bank of New York as collateral agent.
Brady Bonds are often viewed as having three or four valuation
components: the collateralized repayment of principal at final maturity; the
collateralized interest payments; the uncollateralized interest payments; and
any uncollateralized repayment of principal at maturity (these uncollateralized
amounts constituting the "residual risk").
LOAN PARTICIPATIONS AND ASSIGNMENTS. Each Fund may invest in
fixed and floating rate loans ("Loans") arranged through private negotiations
between a foreign government and one or more financial institutions ("Lenders").
The majority of the Funds' investments in Loans in Latin America are expected to
be in the form of participations in Loans ("Participations") and assignments of
portions of Loans from third parties ("Assignments"). Participations typically
will result in a Fund having a contractual relationship only with the Lender,
not with the borrower. A participating Fund will have the right to receive
payments of principal, interest and any fees to which it is entitled only from
the Lender selling the Participation and only upon receipt by the Lender of the
payments from the borrower. In connection with purchasing Participations, a Fund
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the Loan ("Loan Agreement"), nor any
rights of set-off against the borrower, and a Fund may not directly benefit from
any collateral supporting the Loan in which it has purchased the Participation.
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As a result, participating Funds will assume the credit risk of both the
borrower and the Lender that is selling the Participation. In the event of the
insolvency of the Lender selling a Participation, a Fund may be treated as a
general creditor of the Lender and may not benefit from any set-off between the
Lender and the borrower. The Funds will acquire Participations only if the
Lender interpositioned between the Funds and the borrower is determined by the
Adviser to be creditworthy. Each Fund currently anticipates that it will not
invest more than 5% of its net assets in Loan Participations and Assignments.
CONVERTIBLE SECURITIES. A convertible security is a bond,
debenture, note, preferred stock or other security that may be converted into or
exchanged for a prescribed amount of common stock of the same or a different
issuer within a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Before conversion, convertible
securities have characteristics similar to nonconvertible debt securities in
that they ordinarily provide a stable stream of income with generally higher
yields than those of common stocks of the same or similar issuers. Convertible
securities rank senior to common stock in a corporation's capital structure but
are usually subordinated to comparable nonconvertible securities. While no
securities investment is completely without risk, investments in convertible
securities generally entail less risk than the corporation's common stock,
although the extent to which such risk is reduced depends in large measure upon
the degree to which the convertible security sells above its value as a
fixed-income security. Convertible securities have unique investment
characteristics in that they generally (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (2) are
less subject to fluctuation in value than the underlying stock since they have
fixed-income characteristics and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases. Most
convertible securities currently are issued by U.S. companies, although a
substantial Eurodollar convertible securities market has developed, and the
markets for convertible securities denominated in local currencies are
increasing.
The value of a convertible security is a function of its
"investment value" (determined by its yield in comparison with the yields of
other securities of comparable maturity and quality that do not have a
conversion privilege) and its "conversion value" (the security's worth, at
market value, if converted into the underlying common stock). The investment
value of a convertible security is influenced by changes in interest rates, with
investment value declining as interest rates increase and increasing as interest
rates decline. The credit standing of the issuer and other factors also may have
an effect
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on the convertible security's investment value. The conversion value
of a convertible security is determined by the market price of the underlying
common stock. If the conversion value is low relative to the investment value,
the price of the convertible security is governed principally by its investment
value. Generally the conversion value decreases as the convertible security
approaches maturity. To the extent the market price of the underlying common
stock approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. A convertible
security generally will sell at a premium over its conversion value by the
extent to which investors place value on the right to acquire the underlying
common stock while holding a fixed-income security.
The Funds have no current intention of converting any
convertible securities they may own into equity securities or holding them as
equity securities upon conversion, although they may do so for temporary
purposes. A convertible security might be subject to redemption at the option of
the issuer at a price established in the convertible security's governing
instrument. If a convertible security held by a Fund is called for redemption,
the Fund will be required to permit the issuer to redeem the security, convert
it into the underlying common stock or sell it to a third party. The Funds will
invest in convertible securities without regard to their credit rating. See
"Risk Factors and Special Considerations -- Lower-Rated Securities" in the
Prospectus.
MORTGAGE-BACKED SECURITIES. The Funds may invest in
mortgage-backed securities, such as those issued by the Government National
Mortgage Association ("GNMA"), the Federal National Mortgage Association
("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") or certain
foreign issuers, as well as by private issuers such as commercial investment
banks, savings and loan institutions, mortgage bankers and private mortgage
insurance companies. 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
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underlying instruments and the associated average life assumption. The average
life of pass-through pools varies with the maturities of the 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.
Although certain mortgage-related securities are guaranteed by
a third party or are otherwise similarly secured, the market value of the
security, which may fluctuate, is not so secured. If a Fund purchases a
mortgage-related security at a premium, that portion may be lost if there is a
decline in the market value of the security whether resulting from increases in
interest rates or prepayment of the underlying mortgage collateral. As with
other interest-bearing securities, the prices of such securities are inversely
affected by changes in interest rates. However, though the value of a
mortgage-related security may decline when interest rates rise, the converse is
not necessarily true because in periods of declining interest rates mortgages
underlying securities are prone to prepayment. 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 a Fund's yield. For this and other reasons, a mortgage-related
security's stated maturity may be shortened by an unscheduled prepayment on
underlying mortgages and, therefore, it is not possible to predict accurately
the security's return to a Fund. Mortgage-related securities provide regular
payments consisting of interest and principal. No assurance can be given as to
the return a Fund will receive when these amounts are reinvested.
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
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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.
COLLATERALIZED MORTGAGE OBLIGATIONS. The Funds may also
purchase collateralized mortgage obligations ("CMOs") issued by a U.S.
Government instrumentality which are backed by a portfolio of mortgages or
mortgage-backed securities. The issuer's obligations to make interest and
principal payments is secured by the underlying portfolio of mortgages or
mortgage-backed securities. Generally, CMOs are partitioned into several classes
with a ranked priority by which the classes of obligations are redeemed. These
securities may be considered mortgage derivatives. The Funds may only invest in
CMOs issued by FHLMC, FNMA or other agencies of the U.S. Government or
instrumentalities established or sponsored by the U.S. Government.
CMOs provide an investor with a specified interest in the cash
flow of a pool of underlying mortgages or other mortgage-related securities.
Issuers of CMOs frequently elect to be taxed as pass-through entities known as
real estate mortgage investment conduits ("REMICs"). CMOs are issued in multiple
classes, each with a specified fixed or floating interest rate and a final
distribution date. Coupons can be fixed or variable. If variable, they can move
with or in the reverse direction of interest rates. The coupon changes could be
a multiple of the actual rate change and there may be limitations on what the
coupon can be. Cash flows of pools can also be divided into a principal only
class and an interest only class. In this case the principal only class will
only receive principal cash flows from the pool. All interest cash flows go to
the interest only class. The relative payment rights of the various CMO classes
may be structured in many ways, either sequentially or by other rules of
priority. Generally, payments of principal are applied to the CMO classes in the
order of their respective stated maturities, so that no principal payments will
be made on a CMO class until all other classes having an earlier stated maturity
date are paid in full. Sometimes, however, CMO classes are "parallel pay," i.e.
payments of principal are made to two or more classes concurrently. CMOs may
exhibit more or less price volatility and interest rate risk than other types of
mortgaged-related obligations.
The CMO structure returns principal to investors sequentially,
rather than according to the pro rata method of a pass-through. In the
traditional CMO structure, all classes (called tranches) receive interest at a
stated rate, but only one
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class at a time receives principal. All principal payments received on the
underlying mortgages or securities are first paid to the "fastest pay" tranche.
After this tranche is retired, the next tranche in the sequence becomes the
exclusive recipient of principal payments. This sequential process continues
until the last tranche is retired. In the event of sufficient early repayments
on the underlying mortgages, the "fastest-pay" tranche generally will be retired
prior to its maturity. Thus the early retirement of a particular tranche of a
CMO held by a Fund would have the same effect as the prepayment of mortgages
underlying a mortgage-backed pass-through security as described above.
ASSET-BACKED SECURITIES. Each Fund may invest in asset-backed
securities, which 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. The Funds may also invest in
other types of asset-backed securities that may be available in the future. 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. The estimated life of an asset-backed security
varies with the prepayment experience with respect to the underlying debt
instruments. The rate of such prepayments, and hence the life of the
asset-backed security, will be primarily a function of current market rates,
although other economic and demographic factors will be involved. In certain
circumstances, asset-backed securities may be considered illiquid securities
subject to the percentage limitations described above. Asset-backed securities
are considered an industry for industry concentration purposes, and a Fund will
therefore not purchase any asset-backed securities which would cause 25% or more
of a Fund's net assets at the time of purchase to be invested in asset-backed
securities.
Asset-backed securities present certain risks that are not
presented by other securities in which a 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 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
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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.
ZERO COUPON SECURITIES. Each 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 receipts or certificates representing interests
in such stripped debt obligations and coupons. Each Fund currently anticipates
that zero coupon securities will not exceed 5% of its net assets. 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 Funds anticipate that they 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.
STRUCTURED NOTES. The Funds may invest in structured notes.
The distinguishing feature of a structured note is that the amount of interest
and/or principal payable on the notes is based on the performance of a benchmark
asset or market other than fixed-income securities or interest rates. Examples
of a benchmark include stock prices, currency exchange rates and physical
commodity prices. Investing in a structured note allows a Fund to gain exposure
to the benchmark market while fixing the maximum loss that the Fund may
experience in the event that the market does not perform as expected. The
performance tie can be a straight relationship or leveraged, although the
Adviser generally will not use leverage in its structured note strategies.
Normally, these bonds are issued by U.S. Government Agencies and investment
banks arrange the structuring. Depending on the terms of the note, a Fund may
forego all or part of the interest and principal that would be payable on a
comparable conventional note; a Fund's loss cannot exceed this foregone interest
and/or principal. An investment in a structured note involves risks similar to
those associated with a direct investment in the benchmark asset. Structured
notes will be treated as illiquid securities for investment limitation purposes.
ADDITIONAL INVESTMENT CONSIDERATIONS AND RISKS--NON-INVESTMENT
GRADE FIXED-INCOME SECURITIES. When and if available, fixed-income securities
may be purchased by a Fund at a discount from face value. From time to time, a
Fund may purchase securities in default with respect to the paying of principal
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and/or interest at the time acquired if, in the opinion of the Adviser, such
securities have the potential for future capital appreciation.
Debt securities purchased by the Funds may bear fixed, fixed
and contingent or variable rates of interest and may involve equity features
such as conversion or exchange rights or warrants for the acquisition of stock
of the same or a different issuer; participations based on revenues, sales or
profits, or the purchase of common stock in a unit transaction (where corporate
debt securities and common stock are offered as a unit). Conversion of certain
debt securities may reduce net income per share and net asset value per share.
The occurrence of any income dilution of previously outstanding shares of common
stock when debt securities are converted will depend upon whether a Fund can,
from the investments made with the proceeds of the debt securities, earn an
amount per share issuable upon conversion at least equal to the amount earned
with respect to shares of common stock outstanding prior to conversion. If debt
securities are converted at a time when the net asset value per share of common
stock is greater than the conversion price, the conversion will result in a
decrease or dilution in then current net asset value per share of common stock.
The value of the lower rated fixed income securities that the
Funds purchase may fluctuate more than the value of higher rated debt
securities. These lower rated fixed income securities generally tend to reflect
short-term corporate and market developments to a greater extent than higher
rated securities which react primarily to fluctuations in the general level of
interest rates. Changes in the value of securities subsequent to their
acquisition will not affect cash income or yields to maturity to a Fund but will
be reflected in the net asset value of a Fund's shares. The Funds attempt to
reduce risk through credit analysis and attention to current developments and
trends in both the economy and financial markets. There can be no assurance that
such attempts will be successful.
Lower-rated debt securities may include zero coupon securities
or pay-in-kind securities. A zero coupon security bears no interest but is
issued at a discount from its value at maturity. When held to maturity, its
entire return equals the difference between its issue price and its maturity
value. Pay-in-kind securities typically do not provide for cash interest
payments but instead provide for the issuance of additional debt securities of
the issuer in the face amount of the interest payment amount due in lieu of a
cash payment. The market prices of both of these securities are affected to a
greater extent by interest rate changes and thereby tend to be more volatile
than securities which pay interest periodically and in cash.
There are also special considerations associated with
investing in lower-rated debt securities structured as zero coupon or
pay-in-kind securities. For example, a Fund must
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include the interest ("original issue discount") on these securities in
determining the amount of its required distributions to shareholders for federal
income tax and federal excise tax purposes, even though it receives no cash
interest until the security's maturity or payment date. Therefore, in order to
satisfy these distribution requirements, a Fund may have to sell some of its
assets without regard to their investment merit to obtain cash to distribute to
shareholders. These actions may occur under disadvantageous circumstances and
are likely to reduce a Fund's assets and may thereby increase its expense ratio
and decrease its rate of return. For additional information concerning these tax
considerations, see "Taxes" below. From time to time, a Fund may also purchase
securities not paying interest at the time acquired if, in the opinion of the
Fund's Adviser, such securities have the potential for future income or capital
appreciation.
HEDGING. Each of the Funds may engage in various hedging
strategies. See "Certain Investment Strategies -- Foreign Currency Transactions"
in the Prospectus.
FORWARD CURRENCY CONTRACTS. Each Fund may use forward currency
contracts to protect against uncertainty in the level of future exchange rates
and to enhance total return. The Funds may also enter into forward currency
contracts with respect to specific transactions. For example, when a Fund
anticipates the receipt in a foreign currency of interest payments on a security
that it holds, a Fund may desire to "lock-in" the U.S. dollar price of the
security or the U.S. dollar equivalent of such payment, as the case may be, by
entering into a forward contract for the purchase or sale, for a fixed amount of
U.S. dollars, of the amount of foreign currency involved in the underlying
transaction. A Fund will thereby be able to protect itself against a possible
loss resulting from an adverse change in the relationship between the currency
exchange rates during the period between the date on which the security is
purchased or sold, or on which the payment is declared, and the date on which
such payments are made or received.
The precise matching of the forward contract amounts and the
value of the securities involved will not generally be possible because the
future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. Accordingly,
it may be necessary for a Fund to purchase additional foreign currency on the
spot (i.e., cash) market (and bear the expense of such purchase) if the market
value of the security is less than the amount of foreign currency the Fund is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency. Conversely, it may be necessary to sell on the
spot market some of the foreign currency received upon the sale of a Fund
security if its market value exceeds the amount of foreign currency a Fund is
obligated to deliver. The projection
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of short-term currency market movements is extremely difficult, and the
successful execution of a short-term hedging strategy is highly uncertain.
Forward contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing a Fund to sustain losses on
these contracts and transaction costs. A Fund may enter into a forward contract
and maintain a net exposure on such contract only if (1) the consummation of the
contract would not obligate a Fund to deliver an amount of foreign currency in
excess of the value of a Fund's portfolio securities or other assets denominated
in that currency or (2) a Fund maintains cash or liquid securities in a
segregated account with its custodian in the amount prescribed. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated into the longer term investment decisions made with regard to
overall diversification strategies. However, the Adviser believes that it is
important to have the flexibility to enter into such forward contracts when it
determines that the best interests of a Fund will be served.
At or before the maturity date of a forward contract requiring
a Fund to sell a currency, the Funds may either sell a portfolio security and
use the sale proceeds to make delivery of the currency or retain the security
and offset its contractual obligation to deliver the currency by purchasing a
second contract pursuant to which the Fund will obtain, on the same maturity
date, the same amount of the currency that it is obligated to deliver.
Similarly, the Funds may close out a forward contract requiring them to purchase
a specified currency by entering into a second contract entitling them to sell
the same amount of the same currency on the maturity date of the first contract.
A Fund would realize a gain or loss as a result of entering into such an
offsetting forward currency contract under either circumstance to the extent the
exchange rate or rates between the currencies involved moved between the
execution dates of the first contract and the offsetting contract.
The cost to a Fund of engaging in forward currency contracts
will vary with factors such as the currencies involved, the length of the
contract period and the market conditions then prevailing. Because forward
currency contracts are usually entered into on a principal basis, no fees or
commissions are involved. The use of forward currency contracts will not
eliminate fluctuations in the prices of the underlying securities a Fund owns or
intends to acquire, but it will fix a rate of exchange in advance. In addition,
although forward currency contracts limit the risk of loss due to a decline in
the value of the hedged currencies, at the same time they limit any potential
gain that might result should the value of the currencies increase. Moreover,
investors should be aware that dollar-denominated securities may not be
available in some or all foreign countries, that the forward currency market for
the purchase of U.S. dollars in many foreign countries is not highly
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developed and that in certain countries no forward market for foreign currencies
currently exists or that such market may be closed to investment by a Fund.
Although a Fund will value its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign currencies into
U.S. dollars on a daily basis. The Funds may convert foreign currency from time
to time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference between the prices at which they are
buying and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to a Fund at one rate, while offering a lesser rate of exchange
should a Fund desire to resell that currency to the dealer.
OPTIONS AND FUTURES CONTRACTS. The Funds, except the Municipal
Bond Fund, may write covered call options, buy put options, buy call options and
write put options, without limitation except as noted in this paragraph. Such
options may relate to particular securities or to various indexes and may or may
not be listed on a national securities exchange and issued by the Options
Clearing Corporation. The Funds may also invest in futures contracts and options
on futures contracts (index futures contracts or interest rate futures
contracts, as applicable) for hedging purposes (including currency hedging) or
for other purposes so long as aggregate initial margins and premiums required
for non-hedging positions do not exceed 5% of its net assets, after taking into
account any unrealized profits and losses on any such contracts it has entered
into. See Appendix "B" for a description of futures contracts and options on
futures contracts and the risks thereof.
Options trading is a highly specialized activity which entails
greater than ordinary investment risks. Options on particular securities may be
more volatile than the underlying securities, and therefore, on a percentage
basis, an investment in the underlying securities themselves. A Fund will write
call options only if they are "covered." In the case of a call option on a
security, the option is "covered" if a Fund owns the security underlying the
call or has an absolute and immediate right to acquire that security without
additional cash consideration (or, if additional cash consideration is required,
liquid assets in such amount as are held in a segregated account by its
custodian) upon conversion or exchange of other securities held by it. For a
call option on an index, the option is covered if a Fund maintains with its
custodian liquid assets equal to the contract value. A call option is also
covered if a Fund holds a call on the same security or index as the call written
where the exercise price of the call held is (i) equal to or less than the
exercise price of the call written, or (ii) greater than the exercise price of
the call written provided the difference is maintained by the Fund in liquid
assets in a segregated account with its custodian.
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<PAGE> 52
When a Fund purchases a put option, the premium paid by it is
recorded as an asset of the Fund. When a Fund writes an option, an amount equal
to the net premium (the premium less the commission) received by the Fund is
included in the liability section of the Fund's statement of assets and
liabilities as a deferred credit. The amount of this asset or deferred credit
will be subsequently marked-to-market to reflect the current value of the option
purchased or written. The current value of the traded option is the last sale
price or, in the absence of a sale, the mean between the last bid and asked
prices. If an option purchased by a Fund expires unexercised, the Fund realizes
a loss equal to the premium paid. If the Fund enters into a closing sale
transaction on an option purchased by it, the Fund will realize a gain if the
premium received by the Fund on the closing transaction is more than the premium
paid to purchase the option, or a loss if it is less. If an option written by a
Fund expires on the stipulated expiration date or if the Fund enters into a
closing purchase transaction, it will realize a gain (or loss if the cost of a
closing purchase transaction exceeds the net premium received when the option is
sold) and the deferred credit related to such option will be eliminated. If an
option written by a Fund is exercised, the proceeds of the sale will be
increased by the net premium originally received and the Fund will realize a
gain or loss.
There are several risks associated with transactions in
options on securities and indexes. For example, there are significant
differences between the securities and options markets that could result in an
imperfect correlation between these markets, causing a given transaction not to
achieve its objectives. In addition, a liquid secondary market for particular
options, whether traded over-the-counter or on a national securities exchange
("Exchange"), may be absent for reasons which include the following: there may
be insufficient trading interest in certain options; restrictions may be imposed
by an Exchange on opening transactions or closing transactions or both; trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities; unusual or
unforeseen circumstances may interrupt normal operations on an Exchange; the
facilities of an Exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or one or more Exchanges
could, for economic or other reasons, decide or be compelled at some future date
to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that Exchange (or in that class
or series of options) would cease to exist, although outstanding options that
had been issued by the Options Clearing Corporation as a result of trades on
that Exchange would continue to be exercisable in accordance with their terms.
SHORT SALES "AGAINST THE BOX." In a short sale, a Fund sells a
borrowed security and has a corresponding obligation to the lender to return the
identical security. Each Fund may
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<PAGE> 53
engage in short sales if at the time of the short sale it owns or has the right
to obtain, at no additional cost, an equal amount of the security being sold
short. This investment technique is known as a short sale "against the box." In
a short sale, a seller does not immediately deliver the securities sold and is
said to have a short position in those securities until delivery occurs. If a
Fund engages in a short sale, the collateral for the short position will be
maintained by the Fund's custodian or a 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. A Fund may, however, make a
short sale as a hedge, when it believes that the price of a security may
decline, causing a decline in the value of a security owned by the Fund (or a
security convertible or exchangeable for such security), or when the Fund wants
to sell the security at an attractive current price, but also wishes possibly to
defer recognition of gain or loss for federal income tax purposes. (A short sale
against the box will defer recognition of gain for federal income tax purposes
only if the Fund subsequently closes the short position by making a purchase of
the relevant securities no later than 30 days after the end of the taxable
year.) In such case, any future losses in the Fund's long position should be
reduced by a gain in the short position. Conversely, any gain in the long
position should be reduced by a loss in the short position. The extent to which
such gains or losses are reduced will depend upon the amount of the security
sold short relative to the amount the Fund owns. There will be certain
additional transaction costs associated with short sales against the box, but
the Fund will endeavor to offset these costs with the income from the investment
of the cash proceeds of short sales. The Funds do not presently intend to invest
more than 5% of net assets in short sales against the box.
SECTION 4(2) PAPER. "Section 4(2) paper" is commercial paper
which is issued in reliance on the "private placement" exemption from
registration which is afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) paper is restricted as to disposition under the federal securities
laws and is generally sold to institutional investors such as the Funds which
agree that they are purchasing the paper for investment and not with a view to
public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) paper normally is resold to other institutional
investors through or with the assistance of investment dealers who make a market
in the Section 4(2) paper, thereby providing liquidity. See "Illiquid
Securities" above. See Appendix "A" for a list of commercial paper ratings.
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<PAGE> 54
SUPPLEMENTAL INVESTMENT OBJECTIVES AND POLICIES --
INTERNATIONAL GROWTH, EMERGING MARKETS GROWTH, U.S. EQUITY,
GLOBAL TELECOMMUNICATIONS AND SELECT EQUITY FUNDS
RIGHTS OFFERINGS AND PURCHASE WARRANTS. Rights offerings and
purchase warrants are privileges issued by a corporation which enable the owner
to subscribe to and purchase a specified number of shares of the corporation at
a specified price during a specified period of time. Subscription rights
normally have a short lifespan to expiration. The purchase of rights or warrants
involves the risk that a Fund could lose the purchase value of a right or
warrant if the right to subscribe to additional shares is not executed prior to
the rights and warrants expiration. Also, the purchase of rights and/or warrants
involves the risk that the effective price paid for the right and/or warrant
added to the subscription price of the related security may exceed the value of
the subscribed security's market price such as when there is no movement in the
level of the underlying security.
SUPPLEMENTAL INVESTMENT OBJECTIVES AND POLICIES --
GLOBAL TELECOMMUNICATIONS FUND
Telecommunications companies in both developed and emerging
countries are undergoing significant change due to varying and evolving levels
of governmental regulation or deregulation and other factors. As a result,
competitive pressures are intense and the securities of such companies may be
subject to rapid price volatility. Telecommunications regulation typically
limits rates charged, returns earned, providers of services, types of services,
ownership, areas served and terms for dealing with competitors and customers.
Telecommunications regulation generally has tended to be less stringent for
newer services than for traditional telephone service, although there can be no
assurances that such newer services will not be heavily regulated in the future.
Regulation may also limit the use of new technologies and hamper efficient
depreciation of existing assets. If regulation limits the use of new
technologies by established carriers or forces cross-subsidies, large private
networks may emerge. Service providers may also be subject to regulations
regarding ownership and control, providers of services, subscription rates and
technical standards.
Companies offering telephone services are experiencing
increasing competition from cellular telephones, and the cellular telephone
industry, because it has a limited operating history, faces uncertainty
concerning the future of the industry and demand for cellular telephones. All
telecommunications companies in both developed and emerging countries are
subject to the additional risk that technological innovations will make their
products and services obsolete. While telephone companies in developed countries
and certain emerging countries may pay an above average dividend, the Fund's
investment decisions are based
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<PAGE> 55
upon capital appreciation potential rather than income considerations.
SUPPLEMENTAL INVESTMENT POLICIES --
MUNICIPAL BOND FUND
Opinions relating to the validity of Municipal Obligations and
to the exemption of interest thereon from federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance, and opinions
relating to the validity of and the tax-exempt status of payments received by
the Fund from tax-exempt derivative securities are rendered by counsel to the
respective sponsors of such securities. The Fund and the Adviser will rely on
such opinions and will not review independently the underlying proceedings
relating to the issuance of Municipal Obligations, the creation of any
tax-exempt derivative securities, or the basis for such opinions.
The Tax Reform Act of 1986 substantially revised provisions of
prior law affecting the issuance and use of proceeds of certain Municipal
Obligations. A new definition of private activity bonds applies to many types of
bonds, including those which were industrial development bonds under prior law.
Interest on private activity bonds issued after August 15, 1986 is tax-exempt
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified in those respective
categories. In addition, interest on certain private activity bonds issued after
August 7, 1986 that is received by taxpayers subject to federal alternative
minimum tax is taxable. The Act has generally not changed the tax treatment of
bonds issued to finance governmental operations. As used in this Statement of
Additional Information, the term "private activity bonds" also includes
industrial development revenue bonds issued prior to the effective date of the
provisions of the Tax Reform Act of 1986. Investors should also be aware of the
possibility of state and local alternative minimum or minimum income tax
liability on interest from Alternative Minimum Tax Securities.
Although the Municipal Bond Fund may invest 25% or more of its
net assets in Municipal Obligations the interest on which is paid solely from
revenues of similar projects, and may invest up to 40% of its total assets in
private activity bonds when added together with any taxable investments held by
the Municipal Bond Fund, it does not presently intend to do so unless in the
opinion of the Adviser the investment is warranted. To the extent the Municipal
Bond Fund's assets are invested in Municipal Obligations payable from the
revenues of similar projects or are invested in private activity bonds, the
Municipal Bond Fund will be subject to the peculiar risks presented by the laws
and economic conditions relating to such projects and bonds to a greater extent
than it would be if its assets were not so invested.
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<PAGE> 56
INVESTMENT LIMITATIONS
The Funds have adopted the following fundamental investment
limitations, which may not be changed without the affirmative vote of the
holders of a majority of the Fund's outstanding Shares (as defined in Section
2(a)(42) of the 1940 Act). Each Fund may not:
1. Borrow money, except from banks, and only if after such
borrowing there is asset coverage of at least 300% for all borrowings of the
Fund; or mortgage, pledge or hypothecate any of its assets except in connection
with any such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 33 1/3% of the value of the Fund's total assets at the time
of such borrowing;
2. Issue any senior securities, except as permitted under the
1940 Act;
3. Act as an underwriter of securities within the meaning of
the Securities Act, except insofar as it might be deemed to be an underwriter
upon disposition of certain portfolio securities acquired within the limitation
on purchases of restricted securities;
4. Purchase or sell real estate (including real estate limited
partnership interests), provided that a Fund may invest in securities secured by
real estate or interests therein or issued by companies that invest in real
estate or interests therein;
5. Purchase or sell commodities or commodity contracts, except
that a Fund may deal in forward foreign exchange transactions between currencies
of the different countries in which it may invest and purchase and sell stock
index and currency options, stock index futures, financial futures and currency
futures contracts and related options on such futures;
6. Make loans, except through loans of portfolio instruments
and repurchase agreements, provided that for purposes of this restriction the
acquisition of bonds, debentures or other debt instruments or interests therein
and investment in government obligations, Loan Participations and Assignments,
short-term commercial paper, certificates of deposit and bankers' acceptances
shall not be deemed to be the making of a loan; and
7. Except for the Global Telecommunications Fund, 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 one or more
issuers conducting their principal business activities in the same industry,
provided that (a) there is no limitation with respect to (i) instruments issued
or guaranteed by the United States, any state,
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territory or possession of the United States, the District of Columbia or any of
their authorities, agencies, instrumentalities or political subdivisions, and
(ii) repurchase agreements secured by the instruments described in clause (i);
(b) wholly-owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activities of the parents; and (c) utilities will be divided according to their
services, for example, gas, gas transmission, electric and gas, electric and
telephone will each be considered a separate industry. The Telecommunications
Fund will concentrate in the telecommunications industry.
For purposes of Investment Limitation No. 1, collateral
arrangements with respect to, if applicable, the writing of options, futures
contracts, options on futures contracts, forward currency contracts and
collateral arrangements with respect to initial and variation margin are not
deemed to be a pledge of assets and neither such arrangements nor the purchase
or sale of futures or related options are deemed to be the issuance of a senior
security for purposes of Investment Limitation No. 2.
In addition to the fundamental investment limitations
specified above, a Fund may not:
1. Make investments for the purpose of exercising control or
management, but investments by a Fund in wholly-owned investment
entities created under the laws of certain countries will not be deemed
the making of investments for the purpose of exercising control or
management;
2. Purchase securities on margin, except for short-term
credits necessary for clearance of portfolio transactions, and except
that a Fund may make margin deposits in connection with its use of
options, futures contracts, options on futures contracts and forward
contracts;
3. Purchase or sell interests in mineral leases, oil, gas or
other mineral exploration or development programs, except that a Fund
may invest in securities issued by companies that engage in oil, gas or
other mineral exploration or development activities; and
The policies set forth above are not fundamental and thus may
be changed by the Funds' Board of Directors without a vote of the shareholders.
Except as required by the 1940 Act with respect to the
borrowing of money, if a percentage restriction is adhered to at the time of
investment, a later increase or decrease in percentage resulting from a change
in market values of portfolio securities or amount of total or net assets will
not be considered a violation of any of the foregoing restrictions.
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<PAGE> 58
Securities held by a Fund generally may not be purchased from,
sold or loaned to the Adviser or its affiliates or any of their directors,
officers or employees, acting as principal, unless pursuant to a rule or
exemptive order under the 1940 Act.
RISK FACTORS
FOREIGN SECURITIES. Investments in foreign securities are
subject to certain risks, as discussed below.
Political, Economic and Market Factors. Investments in foreign
securities involve risks relating to political and economic developments abroad,
as well as those that result from the differences between the regulations to
which U.S. and foreign issuers are subject. These risks may include
expropriation, confiscatory taxation, withholding taxes on dividends and
interest, limitations on the use or transfer of a Fund's assets and political or
social instability or diplomatic developments. 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.
Securities of many foreign issuers may be less liquid, and their prices may be
more volatile, than those of securities of comparable U.S. issuers. Brokerage
commissions, custodial services and other costs relating to investment in
foreign securities markets are generally more expensive than in the United
States. Such markets have different clearance and settlement procedures and in
certain markets there have been times when settlements have been unable to keep
pace with the volume of securities transactions, making it difficult to conduct
such transactions. There is generally less government supervision and regulation
of exchanges, brokers and issuers in foreign securities markets than there is in
the United States.
In addition, substantial limitations may exist in certain
countries with respect to the Funds' ability to repatriate investment income,
capital or the proceeds of sales of securities by foreign investors. The Funds
could be adversely affected by delays in, or a refusal to grant, any required
government approval for repatriation of capital, as well as by the application
to the Funds of any restrictions on investments.
Reporting Standards. Most of the foreign securities held by
the Funds will not be registered with the SEC, nor will the issuers thereof be
subject to SEC or other U.S. reporting requirements. Accordingly, there will be
less publicly available information concerning foreign issuers of securities
held by the Funds than will be available concerning U.S. companies. Foreign
companies, and in particular, companies in emerging markets, are not generally
subject to uniform accounting, auditing and
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financial reporting standards or to other regulatory requirements comparable to
those applicable to U.S. companies.
Exchange Rate Fluctuations. Because foreign securities
ordinarily will be denominated in currencies other than the U.S. dollar, changes
in foreign currency exchange rates will affect a Fund's net asset value, the
value of interest and dividends earned, gains and losses realized on the sale of
securities and net investment income and capital gain, if any, to be distributed
to shareholders by a Fund. If the value of a foreign currency rises against the
U.S. dollar, the value of a Fund's assets denominated in that currency will
increase; conversely, if the value of a foreign currency declines against the
U.S. dollar, the value of a Fund's assets denominated in that currency will
decrease. The exchange rates between the U.S. dollar and other currencies are
determined by supply and demand in the currency exchange markets, international
balances of payments, government intervention, speculation and other economic
and political conditions.
Investment Controls. In certain countries that currently
prohibit direct foreign investment in the securities of their companies,
indirect foreign investment in the securities of companies listed and traded on
the stock exchanges in these countries is permitted through investment funds
which have been specifically authorized. The Funds may invest in these
investment funds and registered investment companies subject to the provisions
of the 1940 Act. If these Funds invest in such investment companies, they will
each bear their proportionate share of the costs incurred by such companies,
including investment advisory fees.
Clearance and Settlement Procedures. Delays in clearance and
settlement could result in temporary periods when assets of a Fund are
uninvested and no return is earned thereon. The inability of a Fund to make
intended security purchases due to settlement problems could cause a Fund to
miss attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems could result either in losses to a Fund due
to subsequent declines in the value of such portfolio security or, if a Fund has
entered into a contract to sell the security, could result in possible liability
to the purchaser.
Operating Expenses. The costs attributable to foreign
investing that a Fund must bear frequently are higher than those attributable to
domestic investing. For example, the cost of maintaining custody of foreign
securities exceeds custodian costs for domestic securities. Investment income on
certain foreign securities in which a Fund may invest may be subject to foreign
withholding or other taxes that could reduce the return on those securities. Tax
treaties between the United States and foreign countries however, may reduce or
eliminate the amount of foreign tax to which a Fund would be subject.
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LOWER-RATED OR NON-RATED CRITERIA FOR DEBT SECURITIES. The
High Yield, U.S. Fixed Income, Global Income, and the Municipal Bond Funds have
established no rating criteria for the debt securities in which they may invest.
Issuers of low rated or non-rated securities ("high yield" securities, commonly
known as "junk bonds") may be highly leveraged and may not have available to
them more traditional methods of financing. Therefore, the risks associated with
acquiring the securities of such issuers generally are greater than is the case
with higher rated securities. For example, during an economic downturn or a
sustained period of rising interest rates, issuers of high yield securities may
be more likely to experience financial stress, especially if such issuers are
highly leveraged. During such periods, such issuers may not have sufficient
revenues to meet their interest payment obligations. The issuer's ability to
service its debt obligations also may be adversely affected by specific issuer
developments, or the issuer's inability to meet specific projected business
forecasts, or the unavailability of additional financing. The risk of loss due
to default by the issuer is significantly greater for the holders of lower-rated
securities because such securities may be unsecured and may be subordinated to
other creditors of the issuer.
Lower-rated securities frequently have call or redemption
features which would permit an issuer to repurchase the security from a Fund. If
a call were exercised by the issuer during a period of declining interest rates,
a Fund likely would have to replace such called security with a lower yielding
security, thus decreasing the net investment income to a Fund and dividends to
shareholders.
A Fund may have difficulty disposing of certain lower-rated
securities because there may be a thin trading market for such securities. The
secondary trading market for high yield securities is generally not as liquid as
the secondary market for higher rated securities. Reduced secondary market
liquidity may have an adverse impact on market price and a Fund's ability to
dispose of particular issues when necessary to meet a Fund's liquidity needs or
in response to a specific economic event such as a deterioration in the
creditworthiness of the issuer.
Adverse publicity and investor perceptions, which may not be
based on fundamental analysis, also may decrease the value and liquidity of
lower-rated securities, particularly in a thinly traded market. Factors
adversely affecting the market value of lower-rated securities are likely to
adversely affect a Fund's net asset value. In addition, a Fund may incur
additional expenses to the extent it is required to seek recovery upon a default
on a portfolio holding or participate in the restructuring of the obligation.
Finally, there are risks involved in applying credit ratings
as a method for evaluating lower-rated debt securities. For example, credit
ratings evaluate the safety of principal and
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interest payments, not the market risks involved in lower-rated debt securities.
Since credit rating agencies may fail to change the credit ratings in a timely
manner to reflect subsequent events, the Adviser will monitor the issuers of
lower-rated debt securities in the Funds to determine if the issuers will have
sufficient cash flow and profits to meet required principal and interest
payments, and to assure the debt securities' liquidity so the Funds can meet
redemption requests. The Adviser will not necessarily dispose of a portfolio
security when its ratings have been changed.
SOVEREIGN DEBT. Investments in sovereign debt involve special
risks. The issuer of the debt or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal or interest
when due in accordance with the terms of such debt, and the Fund may have
limited legal recourse in the event of a default.
Sovereign debt differs from debt obligations issued by private
entities in that, generally, remedies for defaults must be pursued in the courts
of the defaulting party. Legal recourse is therefore somewhat limited. Political
conditions, especially a sovereign entity's willingness to meet the terms of its
debt obligations, are of considerable significance. Also, there can be no
assurance that the holders of commercial bank loans to the same sovereign entity
may not contest payments to the holders of sovereign debt in the event of
default under commercial bank loan agreements.
A sovereign debtor's willingness or ability to repay principal
and pay interest in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's policy
toward principal international lenders and the political constraints to which a
sovereign debtor may be subject. Increased protectionism on the part of a
country's trading partners, or political changes in those countries, could also
adversely affect its exports. Such events could diminish a country's trade
account surplus, if any, or the credit standing of a particular local government
or agency.
The occurrence of political, social or diplomatic changes in
one or more of the countries issuing sovereign debt could adversely affect a
Fund's investments. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their sovereign debt. While the Adviser intends to manage the Funds in a manner
that will minimize the exposure to such risks, there can be no assurance that
adverse political changes will not cause a Fund to suffer a loss of interest or
principal on any of its holdings.
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<PAGE> 62
Investors should also be aware that certain sovereign debt
instruments in which a Fund may invest involve great risk. Sovereign debt issued
by issuers in many emerging markets generally is deemed to be the equivalent in
terms of quality to securities rated below investment grade by Moody's and S&P.
Such securities are regarded as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligations and involve major risk exposure to adverse conditions.
Some of such sovereign debt, which may not be paying interest currently or may
be in payment default, may be comparable to securities rated "D" by S&P or "C"
by Moody's. A Fund may have difficulty disposing of certain sovereign debt
obligations because there may be a limited trading market for such securities.
Because there is no liquid secondary market for many of these securities, the
Funds anticipate that such securities could be sold only to a limited number of
dealers or institutional investors. The lack of a liquid secondary market may
have an adverse impact on the market price of such securities and a Fund's
ability to dispose of particular issues when necessary to meet a Fund's
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 a
Fund to obtain accurate market quotations for purposes of valuing a Fund's
portfolio and calculating its net asset value. When and if available, fixed
income securities may be purchased by a Fund at a discount from face value.
However, the Funds do not intend to hold such securities to maturity for the
purpose of achieving potential capital gains, unless current yields on these
securities remain attractive. From time to time, a Fund may purchase securities
not paying interest at the time acquired if, in the opinion of the Adviser, such
securities have the potential for future income or capital appreciation.
DIRECTORS AND OFFICERS
The directors and executive officers of the Funds, their ages,
business addresses and principal occupations during the past five years are:
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<TABLE>
<S> <C>
Richard N. Cooper* (64) Director
Harvard University Professor at Harvard University; National Intelligence
1737 Cambridge Street Council from June 1995 until January 1997; Director or
Cambridge, Massachusetts 02138 Trustee of Circuit City Stores, Inc. (retail electronics
and appliances) and Phoenix Home Life Mutual Insurance
Company; Director/Trustee of other investment companies
advised by Warburg.
Jack W. Fritz (71) Director
2425 North Fish Creek Road Private investor; Consultant and Director of Fritz
P.O. Box 483 Broadcasting, Inc. and Fritz Communications (developers
Wilson, Wyoming 83014 and operators of radio stations); Director of Advo, Inc.
(direct mail advertising); Director/Trustee of other
investment companies advised by Warburg.
John L. Furth* (67) Chairman of the Board
466 Lexington Avenue Vice Chairman, Managing Director and Director of
New York, New York 10017-3147 Warburg; Associated with Warburg since 1970; Director of
Counsellors Securities; Chairman of the Board of other
investment companies advised by Warburg.
</TABLE>
- ----------------------
* Indicates a Director who is an "interested person" of the Funds as
defined in the 1940 Act.
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<PAGE> 64
<TABLE>
<S> <C>
Jeffrey E. Garten (51) Director
Box 208200 Dean of Yale School of Management and William S.
New Haven, Connecticut 06520-8200 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.
[Director to be Elected] Director
[Insert Biography]
Arnold M. Reichman* (50) Director
466 Lexington Avenue Managing Director, Chief Operating Officer and Assistant
New York, New York 10017-3147 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.
</TABLE>
- --------
* Indicates a Director who is an "interested person" of the Funds as
defined in the 1940 Act.
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<PAGE> 65
<TABLE>
<S> <C>
Alexander B. Trowbridge (68) Director
1317 F Street President of Trowbridge Partners, Inc. (business
5th Floor consulting) from January 1990 to November 1996; Director
Washington, DC 20004 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.
[Insert BEA Director] Director
[Insert Biography]
Eugene L. Podsiadlo (41) President
466 Lexington Avenue Managing Director of Warburg; Associated with Warburg
New York, New York 10017-3147 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 with Warburg
New York, New York 10017-3147 since 1984; Treasurer of Counsellors Securities; Officer
of other investment companies advised by Warburg.
</TABLE>
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<PAGE> 66
<TABLE>
<S> <C>
Eugene P. Grace (46) Vice President and Secretary
466 Lexington Avenue Senior Vice President of Warburg; Associated with
New York, New York 10017-3147 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 Officer
466 Lexington Avenue Vice President of Warburg; Associated with Warburg since
New York, New York 10017-3147 1992; Officer of other investment companies advised by
Warburg.
Daniel S. Madden, CPA (32) Treasurer and Chief Accounting Officer
466 Lexington Avenue Vice President of Warburg; Associated with Warburg
New York, New York 10017-3147 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 with Warburg since
New York, New York 10017-3147 1996; Associated with the law firm of Willkie Farr &
Gallagher from 1993 to 1996; Officer of other investment
companies advised by Warburg.
Hal Liebes (34) Assistant Secretary
153 East 53rd Street Senior Vice President and General Counsel of BEA from
New York, New York 10022 March 1997 to present; Vice President and Legal Counsel for
BEA from June 1995 to March 1997; Chief Compliance Officer,
CS First Boston Investment Management from 1994 to 1995; Staff
Attorney, Division of Enforcement, U.S. Securities and Exchange
Commission from 1991 to 1994; Associate, Morgan, Lewis & Bockius
from 1989 to 1991; Officer of other investment companies advised
by BEA.
Michael A. Pignataro (38) Assistant Secretary
153 East 53rd Street Vice President of BEA from December 1995 to present; Assistant
New York, New York 10022 Vice President and Chief Administrative Officer for Investment
Companies of BEA from 1989 to December 1995; Officer of other
investment companies advised by BEA.
Rocco A. Del Guercio (35) Assistant Treasurer
153 East 53rd Street Administrative Officer for BEA-advised investment companies from
New York, New York 1002 June 1996 to the present; Assistant Treasurer, Bankers Trust Corp.
-- Fund Administration from March 1994 to June 1996; Mutual Fund
Accounting Supervisor, Dreyfus Corporation from April 1987 to
March 1994; Officer of other investment companies advised by BEA.
Wendy S. Setnicka (33) Assistant Treasurer
153 East 53rd Street Assistant Vice President of BEA from January 1997 to the present;
New York, New York 10022 Administrative Officer for Investment Companies of BEA from November
1993 to the present; Supervisor of Fund Accounting and Administration
at Reich & Tang LP from June 1989 to November 1993; Officer of other
investment companies advised by BEA.
</TABLE>
No employee of Warburg, PFPC Inc. and Counsellor Funds
Service, Inc., the Funds' co-administrators ("PFPC" and "Counsellors Funds
Service," respectively), or any of their affiliates, receives any compensation
from the Funds for acting as an officer or director of a Fund. Each Director who
is not a director, trustee, officer or employee of Warburg, PFPC, Counsellors
Funds Service or any of their affiliates receives an
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<PAGE> 67
annual fee of $500 and $250 for each meeting of the Boards attended by him for
his services as Director, and is reimbursed for expenses incurred in connection
with his attendance at Board meetings. Each member of the Audit Committee
receives an annual fee of $250, and the chairman of the Audit Committee receives
an annual fee of $325.
DIRECTORS' ESTIMATED COMPENSATION THROUGH AUGUST 31, 1999
<TABLE>
<CAPTION>
All
Interna- Emerging U.S. Equity U.S. Global Global High Yield Munici- Investment
tional Markets Growth Fund Fixed Income Telecommuni- Fund pal Companies
Name of Growth Fund Income Fund cations Bond Fund Managed by
Director Fund Fund Fund Warburg+
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
John L. Furth* None None None None None
- ------------------------------------------------------------------------------------------------------------------------------
Arnold M.
Reichman* None None None None None
- ------------------------------------------------------------------------------------------------------------------------------
Richard N.
Cooper $44,500
- ------------------------------------------------------------------------------------------------------------------------------
Jack W. $44,500
Fritz
- ------------------------------------------------------------------------------------------------------------------------------
[***] None
- ------------------------------------------------------------------------------------------------------------------------------
[***] $44,500
- ------------------------------------------------------------------------------------------------------------------------------
Alexander B.
Trowbridge $44,500
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------
+ Each Director also serves as a Director or Trustee of 40 investment
companies advised by Warburg.
* Mr. Furth and Mr. Reichman receive compensation as affiliates of
Warburg and, accordingly, receive no compensation from the Funds or any
other investment company advised by Warburg.
As of [INSERT], 1998, Directors and officers as a group, owned
of record less than 1% of each Fund's outstanding Common Shares. No Director or
officer owned any of the Funds' outstanding Advisor Shares.
INVESTMENT ADVISORY AND SERVICING ARRANGEMENTS
ADVISORY AGREEMENTS. BEA Associates (the "Adviser" or "BEA")
renders advisory and administrative services to each of the Funds pursuant to
Investment Advisory Agreements and Credit Suisse Asset Management Limited
("CSAM") serves as Sub-investment Adviser to the Global Income and Emerging
Markets II Funds pursuant to a Sub-investment Advisory Agreement (collectively,
the "Advisory Agreements"). Prior to the Reorganization, BEA rendered advisory
services to the predecessor to the Funds, corresponding series of The RBB Fund
(the "BEA Funds"). The
-35-
<PAGE> 68
Advisory Agreements relating to the BEA Funds are dated September 16, 1992 for
International Growth, the Emerging Markets Growth and the High Yield Funds;
dated August 31, 1993 for the U.S. Equity, the U.S. Fixed Income, the Global
Income and Municipal Bond Funds; and dated July 10, 1996 for the Global
Telecommunications Fund. Such advisory agreements are hereinafter collectively
referred to as the "BEA Advisory Agreements." The services provided by, and the
fees payable by the BEA Funds to BEA under the BEA Advisory Agreements are
described in the Prospectuses.
BEA is a diversified investment adviser, managing global
equity, fixed income and derivative securities accounts for private individuals,
as well as corporate pension and profit-sharing plans, state pension funds,
union funds, endowments and other charitable institutions. As of June 30, 1998,
BEA managed approximately $[INSERT] billion in assets. BEA is a wholly-owned
subsidiary of Credit Suisse, the second largest Swiss bank, which in turn is a
subsidiary of CS Holding, a Swiss corporation. Active employees of BEA have a
long-term equity incentive plan. BEA is a registered investment advisor under
the Investment Advisors Act of 1940, as amended.
As an investment adviser, BEA emphasizes a global investment
strategy. BEA currently acts as investment adviser for eleven other investment
companies registered under the 1940 Act. They are: BEA Strategic Global Income
Fund, Inc., BEA Income Fund, Inc., The Brazilian Equity Fund, Inc., The Chile
Fund, Inc., The Emerging Markets Infrastructure Fund, Inc., The Emerging Markets
Telecommunications Fund, Inc., The First Israel Fund, Inc., The Indonesia Fund,
Inc., The Latin America Equity Fund, Inc., The Latin America Investment Fund,
Inc., and The Portugal Fund, Inc. In addition, BEA acts as sub-adviser to
certain portfolios of twelve other registered investment companies: Frank
Russell Investment Company (Fixed Income III Fund and Multi-strategy Bond Fund),
Oppenheimer (LifeSpan Balanced Fund, LifeSpan Income Fund and LifeSpan Growth
Fund), Panorama (LifeSpan Balanced Account, LifeSpan Capital Appreciation
Account and LifeSpan Diversified Income Account), SEI Institutional Managed
Trust (High Yield Bond Fund), WNL Series Trust (BEA Growth and Income Fund),
Touchstone International Equity Fund and Touchstone Variable Annuity
International Equity Fund.
CSAM is a wholly-owned subsidiary of Credit Suisse. Credit
Suisse had identified BEA and CSAM as its leading institutional international
asset management product centers. As of May 31, 1998, CSAM managed $143 billion
in discretionary assets. CSAM Limited is a registered investment adviser under
the Investment Advisers Act of 1940, as amended. CSAM's principal offices are
located at [INSERT].
BEA has sole investment discretion for the Funds and will make
all decisions affecting assets in the Funds under the
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<PAGE> 69
supervision of the Funds' Board of Directors and in accordance with each Fund's
stated policies. BEA will select investments for the Funds and will place
purchase and sale orders on behalf of the Funds. For its services to the
International Growth, Emerging Markets II, U.S. Equity, U.S. Fixed Income,
Global Income, Global Telecommunications, High Yield, Municipal Bond and Select
Equity Funds, BEA will be paid (before any voluntary waivers or reimbursements)
a monthly fee computed at an annual rate of .80%, 1.00%, .75%, .375%, .50%,
1.00%, .70%, .70% and, .75% of average daily net assets, respectively.
For the fiscal years ended August 31, the BEA Funds paid BEA
advisory fees and BEA waived fees and/or reimbursed expenses of the BEA Funds as
follows:
AUGUST 31, 1997
<TABLE>
<CAPTION>
Fees Paid
BEA Fund (after waivers) Waivers Reimbursements
-------- --------------- ------- --------------
<S> <C> <C> <C>
International Equity $5,300,316 $ 0 $ 0
Emerging Markets Equity $ 988,002 $ 18,498 $ 0
U.S. Core Equity $ 537,237 $ 27,626 $ 0
U.S. Core Fixed Income $ 357,196 $ 177,539 $ 0
Strategic Global $ 180,945 $ 27,305 $ 0
Fixed Income
Global Telecommunications $ 0 $ 3,745 $ 20,903
High Yield $ 393,841 $ 233,336 $ 0
Municipal Bond $ 91,093 $ 44,791 $ 0
Select Economic N/A N/A N/A
Value Equity
</TABLE>
AUGUST 31, 1996
<TABLE>
<CAPTION>
Fees Paid
BEA Fund (after waivers) Waivers Reimbursements
-------- --------------- ------- --------------
<S> <C> <C> <C>
International Equity $5,993,072 $ 0 $ 0
Emerging Markets Equity $1,289,739 $ 0 $ 0
U.S. Core Equity $ 234,890 $ 93,430 $ 0
U.S. Core Fixed Income $ 316,147 $ 134,639 $ 0
Strategic Global $ 103,144 $ 53,915 $ 0
Fixed Income
Global Telecommunications N/A N/A N/A
</TABLE>
-37-
<PAGE> 70
<TABLE>
<CAPTION>
Fees Paid
BEA Fund (after waivers) Waivers Reimbursements
-------- --------------- ------- --------------
<S> <C> <C> <C>
High Yield $ 542,590 $ 100,763 $ 0
Municipal Bond $ 92,994 $ 68,790 $ 0
Select Economic N/A N/A N/A
Value Equity
</TABLE>
AUGUST 31, 1995
<TABLE>
<CAPTION>
Fees Paid
BEA Fund (after waivers) Waivers Reimbursements
-------- --------------- ------- --------------
<S> <C> <C> <C>
International Equity $6,012,837 $ 0 $ 0
Emerging Markets Equity $1,250,012 $ 33,702 $ 0
U.S. Core Equity $ 77,156 $ 88,725 $ 0
U.S. Core Fixed Income $ 133,139 $ 121,336 $ 0
Strategic Global $ 18,914 $ 68,558 $ 0
Fixed Income
Global Telecommunications N/A N/A N/A
High Yield $1,002,002 $ 0 $ 0
Municipal Bond $ 295,376 $ 38,740 $ 0
Select Economic N/A N/A N/A
Value Equity
</TABLE>
Each class of a Fund bears all of its own expenses not
specifically assumed by the Adviser. General expenses of the Funds not readily
identifiable as belonging to a particular Fund are allocated among all
investment funds by or under the direction of the Funds' Board of Directors in
such manner as the Board determines fair and accurate. Each of the Common Shares
and the Institutional Shares of the Funds pays its own administration fees, and
may pay a different share than the other classes of the Funds of other expenses
(excluding advisory and custodial fees) if those expenses are actually incurred
in a different amount by the Institutional Class or if either the Common or
Institutional Class receives different services.
Under the Advisory Agreements, BEA will not be liable for any
error of judgment or mistake of law or for any loss suffered by a Fund in
connection with the matters to which the Advisory Agreements relate.
The Advisory Agreements and the Sub-investment Advisory
Agreements, if applicable; for each Fund were approved on July 20, 1998 by vote
of the Funds' Board of Directors, including a majority of those directors who
are not parties to the Advisory Agreements or interested persons (as defined in
the 1940 Act) of such parties (collectively, the "Warburg Advisory Agreements").
The Warburg Advisory Agreements were approved by each Fund's initial
shareholder. Each Warburg Advisory Agreement is terminable by
-38-
<PAGE> 71
vote of the Funds' Board of Directors or by the holders of a majority of the
outstanding voting securities of the relevant Fund, at any time without penalty,
on 60 days' written notice to BEA. Each of the Warburg Advisory Agreements may
also be terminated by BEA on 60 days' written notice to the Fund. Each of the
Warburg Advisory Agreements terminates automatically in the event of assignment
thereof.
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. Brown Brothers
Harriman & Co. ("BBH") acts as the custodian for the Funds and also acts as the
custodian for the Fund's foreign securities pursuant to a Custodian Agreement
(the "Custodian Agreement"). Under the Custodian Agreement, BBH (a) maintains a
separate account or accounts in the name of each Fund, (b) holds and transfers
portfolio securities on account of each Fund, (c) accepts receipts and makes
disbursements of money on behalf of each Fund, (d) collects and receives all
income and other payments and distributions on account of each Fund's portfolio
securities, and (e) makes periodic reports to the Funds' Board of Directors
concerning each Fund's operations. BBH is authorized to select one or more banks
or trust companies to serve as sub-custodian on behalf of the Funds, provided
that BBH remains responsible for the performance of all its duties under the
Custodian Agreement and holds the Funds harmless from the negligent acts and
omissions of any sub-custodian. For its services to the Funds under the
Custodian Agreement, BBH receives a fee which is calculated based upon each
Fund's average daily gross assets, exclusive of transaction charges and
out-of-pocket expenses, which are also charged to the Funds.
State Street Bank and Trust Company ("State Street") serves as
the transfer agent for the Funds. It has delegated to Boston Financial Data
Services, Inc. ("BFDS"), an indirect wholly-owned subsidiary, responsibility for
most transfer agent servicing functions. State Street serves as the transfer and
dividend disbursing agent for the Funds pursuant to a Transfer Agency Agreement,
as supplemented (collectively, the "Transfer Agency Agreement"), under which it
(a) issues and redeems shares of each of the Funds, (b) addresses and mails all
communications by each Fund to record owners of shares of each such Fund,
including reports to shareholders, dividend and distribution notices and proxy
materials for its meetings of shareholders, (c) maintains shareholder accounts
and, if requested, sub-accounts and (d) makes periodic reports to the Funds'
Board of Directors concerning the operations of each Fund. For its services to
the Funds under the Transfer Agency Agreement, State Street receives a fee on a
per transaction basis.
ADMINISTRATION AND ACCOUNTING SERVICES AND ADMINISTRATIVE
SERVICES AGREEMENTS. Counsellors Funds Service, Inc. ("Counsellors Funds
Service") and PFPC, Inc., an indirect,
-39-
<PAGE> 72
wholly owned subsidiary of PNC Bank Corp. ("PFPC"), both serve as
co-administrators to the Funds pursuant to separate written agreements (the
"Counsellors Service Co-Administration Agreements" and the "PFPC
Co-Administration Agreements," respectively). Prior to the Reorganization of the
Funds, BEA and PFPC served as co administrators to the Advisor Class of the BEA
Funds. The services provided by, and the fees payable by the Funds to Cousellors
Service under the Counsellor Service Co-Administration Agreements and PFPC under
the PFPC Co-Administration Agreements are described in the Prospectuses for each
of the Funds. Each class of shares of the Funds bears its proportionate share of
fees payable to Counsellors Service and PFPC in the proportion that its assets
bear to the aggregate assets of the Funds at the time of calculation. See the
Prospectuses, "Management of the Fund(s)."
For the period from commencement of operations (the Global
Telecommunications Fund commenced operations December 4, 1996; all other Funds
commenced operations November 1, 1996) and ending August 31, 1997, the Advisor
Class for the BEA Funds paid BEA and PFPC administration fees and BEA and PFPC
waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
BEA* PFPC*
Fee Fees
Paid Paid
(after (after
BEA Fund waivers) Waivers Reimbursements BEA Fund waivers) Waivers Reimbursements
-------- -------- ------- -------------- --------- --------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
International Equity $ 0 $ 31 $ 0 International Equity $785,014 $43,161 $0
Emerging Markets Equity $ 0 $ 2 $ 0 Emerging Markets Equity $125,801 $ 12 $0
High Yield $ 0 $ 29 $ 0 High Yield $ 89,597 $22,399 $0
Global Telecommunications $ 0 $ 187 $ 0 Global Telecommunications $ 0 $ 468 $0
</TABLE>
- ------------
* Advisor Shares for the BEA U.S. Core Equity, BEA U.S. Core Fixed
Income, BEA Strategic Global Fixed Income, BEA Municipal Bond, and BEA
Select Economic Value Equity Funds were not offered during this time
period.
DISTRIBUTION AND SHAREHOLDER SERVICING. The Funds have each
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 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 the 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
-40-
<PAGE> 73
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.
Pursuant to the 12b-1 Plan, Counsellor Securities provides the
Board with periodic reports of amounts expended under the 12b-1 Plan and the
purpose for which the expenditures were made.
The 12b-1 Plans will continue in effect for so long as their
continuance is specifically approved at least annually by each Fund's Board,
including a majority of the Directors/Trustees who are not interested persons of
the Fund and who have no direct or indirect financial interest in the operation
of the 12b-1 Plan ("Independent Directors/Trustees"). Any material amendment of
the 12b-1 Plan would require the approval of the Board in the manner described
above. The 12b-1 Plan may not be amended to increase materially the amount to be
spent thereunder without shareholder approval of the Common Shares. The 12b-1
Plan may be terminated at any time, without penalty, by vote of a majority of
the Independent Directors/Trustees or by a vote of the majority of the
outstanding voting securities of the Common Shares of a Fund.
PORTFOLIO TRANSACTIONS AND TURNOVER RATE
Subject to policies established by the Board of Directors, BEA
is responsible for the execution of portfolio transactions and the allocation of
brokerage transactions for the Funds. In executing portfolio transactions, BEA
seeks to obtain the best net results for a Fund, taking into account such
factors as the price (including the applicable brokerage commission or dealer
spread), size of the order, difficulty of execution and operational facilities
of the firm involved. While BEA generally seeks reasonably competitive
commission rates, payment of the lowest commission or spread is not necessarily
consistent with obtaining the best results in particular transactions.
Portfolio transactions for the Funds may be effected on
domestic or foreign securities exchanges. In transactions for
-41-
<PAGE> 74
securities not actively traded on a domestic or foreign securities exchange, a
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 Funds have no obligation to deal with
any broker in the execution of transactions in portfolio securities. The Funds
may use affiliates of Credit Suisse, BEA's parent company, in connection with
the purchase or sale of securities in accordance with rules or exemptive orders
adopted by the Securities and Exchange Commission (the "SEC") when BEA believes
that the charge for the transaction does not exceed usual and customary levels.
Commission rates for brokerage transactions on foreign stock
exchanges are generally fixed. The reasonableness of any negotiated commission
paid by the Funds will be evaluated on the basis of the difficulty involved in
execution, the time taken to conclude the transaction, the extent of the
broker's commitment, if any, of its own capital and the amount involved in the
transaction. It should be noted that commission rates in U.S. markets are
negotiated.
In the case of over-the-counter issues, there is generally no
stated commission, but the price usually includes an undisclosed commission or
markup, and the Fund will normally deal with the principal market makers unless
it can obtain better terms elsewhere.
For the fiscal years ended August 31, the corresponding series
of The RBB Fund paid brokerage commissions as follows:
AUGUST 31, 1997
<TABLE>
<CAPTION>
BEA Fund Brokerage Commission
- -------- --------------------
<S> <C>
International Equity $5,041,204
Emerging Markets Equity $1,074,701
U.S. Core Equity $ 181,354
U.S. Core Fixed Income $ 0
Strategic Global Fixed Income $ 0
Global Telecommunications $ 1,261
High Yield $ 0
Municipal Bond $ 0
Select Economic Value Equity N/A
AUGUST 31, 1996
</TABLE>
-42-
<PAGE> 75
<TABLE>
<CAPTION>
BEA Fund Brokerage Commission
- -------- --------------------
<S> <C>
International Equity $3,385,421
Emerging Markets Equity $ 713,193
U.S. Core Equity $ 182,796
U.S. Core Fixed Income $ 0
Strategic Global Fixed Income $ 0
Global Telecommunications $ N/A
High Yield $ 0
Municipal Bond $ 0
Select Economic Value Equity N/A
</TABLE>
AUGUST 31, 1995
<TABLE>
<CAPTION>
BEA Fund Brokerage Commission
- -------- --------------------
<S> <C>
International Equity $3,943,441
Emerging Markets Equity $ 778,886
U.S. Core Equity $ 110,474
U.S. Core Fixed Income $ 0
Strategic Global Fixed Income $ 0
Global Telecommunications $ N/A
High Yield $ 0
Municipal Bond $ 0
Select Economic Value Equity N/A
</TABLE>
No Fund has any obligation to deal with any broker or group of
brokers in the execution of portfolio transactions. BEA may, consistent with the
interests of a Fund and subject to the approval of the Board of Directors,
select brokers on the basis of the research, statistical and pricing services
they provide to a Fund and other clients of BEA. Information and research
received from such brokers will be in addition to, and not in lieu of, the
services required to be performed by BEA under its respective contracts. A
commission paid to such brokers may be higher than that which another qualified
broker would have charged for effecting the same transaction, provided that BEA,
as applicable, determines in good faith that such commission is reasonable in
terms either of the transaction or the overall responsibility of BEA to a Fund
and its other clients and that the total commissions paid by a Fund will be
reasonable in relation to the benefits to a Fund over the long-term.
Corporate debt and U.S. Government securities are generally
traded on the over-the-counter market on a "net" basis without a stated
commission, through dealers acting for their own account and not as brokers. The
Funds will primarily engage in transactions with these dealers or deal directly
with the issuer unless a better price or execution could be obtained by using a
broker. Prices paid to a dealer in debt securities will generally include a
"spread," which is the difference between the prices at which the dealer is
willing to purchase and sell the specific security at the time, and includes the
dealer's normal profit.
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<PAGE> 76
BEA may seek to obtain an undertaking from issuers of
commercial paper or dealers selling commercial paper to consider the repurchase
of such securities from a Fund prior to their maturity at their original cost
plus interest (sometimes adjusted to reflect the actual maturity of the
securities), if it believes that a Fund's anticipated need for liquidity makes
such action desirable. Any such repurchase prior to maturity reduces the
possibility that a Fund would incur a capital loss in liquidating commercial
paper (for which there is no established market), especially if interest rates
have risen since acquisition of the particular commercial paper.
Investment decisions for each Fund and for other investment
accounts managed by BEA are made independently of each other in the light of
differing conditions. However, the same investment decision may be made for two
or more of such accounts. In such cases, simultaneous transactions are
inevitable. Purchases or sales are then averaged as to price and allocated as to
amount according to a formula deemed equitable to each such account. While in
some cases this practice could have a detrimental effect upon the price or value
of the security as far as a Fund is concerned, in other cases it is believed to
be beneficial to a Fund. A Fund will not purchase securities during the
existence of any underwriting or selling group relating to such security of
which BEA or any affiliated person (as defined in the 1940 Act) thereof is a
member except pursuant to procedures adopted by the Funds' Board of Directors
pursuant to Rule 10f-3 under the 1940 Act.
In no instance will portfolio securities be purchased from or
sold to the Distributor, BEA or CSAM or any affiliated person of the foregoing
entities except as permitted by SEC exemptive order or by applicable law.
Each of the Funds expects that its annual portfolio turnover
rate will not exceed [100%] under normal market conditions. A high rate of
portfolio turnover (100% or more) involves correspondingly greater brokerage
commission expenses and other transaction costs, which must be borne directly by
a Fund. Each of the Funds anticipates that its annual portfolio turnover rate
will vary from year to year. The portfolio turnover rate is calculated by
dividing the lesser of a Fund's annual sales or purchases of portfolio
securities (exclusive of purchases or sales of securities whose maturities at
the time of acquisition were one year or less) by the monthly average value of
the securities in the Fund during the year.
[The Funds have the benefit of an exemptive order issued by
the SEC under the 1940 Act authorizing the Funds and other investment companies
advised by BEA to acquire jointly securities issued in private placements,
subject to the terms and conditions of the order.]
-44-
<PAGE> 77
PURCHASE AND REDEMPTION INFORMATION
The Funds reserve the right, if conditions exist which make
cash payments undesirable, to honor any request for redemption of a Fund's
shares by making payment in whole or in part in securities chosen by the Funds
and valued in the same way as they would be valued for purposes of computing a
Fund's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash. Investors may
also be required to bear certain transaction costs associated with redemptions
in kind. The Funds have elected, however, to be governed by Rule 18f-1 under the
1940 Act so that a Fund is obligated to redeem its shares solely in cash up to
the lesser of $250,000 or 1% of its net asset value during any 90-day period for
any one shareholder of a Fund.
Under the 1940 Act, a Fund may suspend the right to redemption
or postpone the date of payment upon redemption for any period during which The
New York Stock Exchange, Inc. (the "NYSE") is closed (other than customary
weekend and holiday closings), or during which trading on said Exchange is
restricted, or during which (as determined by the SEC by rule or regulation) an
emergency exists as a result of which disposal or valuation of Fund securities
is not reasonably practicable, or for such other periods as the SEC may permit.
(A Fund may also suspend or postpone the recordation of the transfer of its
shares upon the occurrence of any of the foregoing conditions.)
VALUATION OF SHARES
The net asset values per share of each class of the Funds are
calculated separately from each other class as of the close of regular trading
of the NYSE on each Business Day. The net asset value per share, the value of an
individual share in a Fund, is computed by adding the value of the proportionate
interest of each class of a Fund in the Fund's securities, cash and other
assets, subtracting the actual and accrued liabilities of the class and dividing
the result by the number of outstanding shares of such class. "Business Day"
means each weekday when the NYSE is open. Currently, the NYSE is 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 the preceding Friday or subsequent Monday when one of these holidays falls
on a Saturday or Sunday. Securities which are listed on stock exchanges, whether
U.S. or foreign are valued at the last sale price on the day the securities are
valued or, lacking any sales on such day, at the mean of the bid and asked
prices available prior to the valuation. Fund securities primarily traded in
foreign markets may be traded in such markets on days which are not Business
Days. Because net asset value per share of each Fund is determined only on
Business Days, the net asset value of shares of a Fund may be significantly
affected on days when an investor does not have access to the Fund. If on any
Business Day, a foreign securities
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<PAGE> 78
exchange or foreign market is closed, the securities traded on such exchange or
in such market will be valued at the market sale price reported on the previous
business day of such foreign exchange or market. In cases where securities are
traded on more than one exchange, the securities are generally valued on the
exchange designated by the Board of Directors or its delegates as the primary
market. Securities traded in the over-the-counter market and listed on the
National Association of Securities Dealers Automatic Quotation System ("NASDAQ")
are valued at the last trade price listed on the NASDAQ at the close of regular
trading (generally 4:00 p.m. Eastern Time); securities listed on NASDAQ for
which there were no sales on that day and other over-the-counter securities are
valued at the mean of the bid and asked prices available prior to valuation.
Securities for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of the Funds'
Board of Directors. The amortized cost method of valuation may also be used with
respect to debt obligations with sixty days or less remaining to maturity. Any
assets which are denominated in a foreign currency are converted into U.S.
dollars at the prevailing market rates for purposes of calculating net asset
value.
Foreign currency exchange rates are generally determined prior
to the close of the NYSE. Occasionally, events affecting the value of foreign
securities and such exchange rates occur between the time at which they are
determined and the close of the NYSE, which events will not be reflected in a
computation of the Fund's net asset value. If events materially affecting the
value of such securities or assets or currency exchange rates occurred during
such time period, the securities or assets would be valued at their fair value
as determined in good faith by or under the direction of the Board of Directors.
The foreign currency exchange transactions of a Fund conducted on a spot basis
will be valued at the spot rate for purchasing or selling currency prevailing on
the foreign exchange market. Under normal market conditions this rate differs
from the prevailing exchange rate by an amount generally less than one-tenth of
one percent due to the costs of converting from one currency to another.
In determining the approximate market value of portfolio
investments, the Funds may employ outside organizations, which may use a matrix
or formula method that takes into consideration market indices, matrices, yield
curves and other specific adjustments. This may result in the securities being
valued at a price different from the price that would have been determined had
the matrix or formula method not been used. All cash, receivables and current
payables are carried on the Funds' books at their face value. Other assets, if
any, are valued at fair value as determined in good faith by the Funds' Board of
Directors.
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<PAGE> 79
PERFORMANCE AND YIELD INFORMATION
TOTAL RETURN. Each Fund that advertises its "average annual
total return" computes such return separately for each class of shares by
determining the average annual compounded rate of return during specified
periods that equates the initial amount invested to the ending redeemable value
of such investment according to the following formula:
ERV 1/n
T = [(-----) - 1]
P
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the l, 5 or 10 year
(or other) periods at the end of the applicable
period (or a fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in
years.
Each Fund that advertises its "aggregate total return"
computes such returns separately for each class of shares by determining the
aggregate compounded rates of return during specified periods that likewise
equate the initial amount invested to the ending redeemable value of such
investment. The formula for calculating aggregate total return is as follows:
ERV
Aggregate Total Return = [(-----) - l]
P
The calculations are made assuming that (1) all dividends and
capital gain distributions are reinvested on the reinvestment dates at the price
per share existing on the reinvestment date, (2) all recurring fees charged to
all shareholder accounts are included, and (3) for any account fees that vary
with the size of the account, a mean (or median) account size in the Fund during
the periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period.
The aggregate total returns for the Advisor Class of the BEA
Funds for the period ended August 31, 1997 since inception are as follows:
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<PAGE> 80
<TABLE>
<CAPTION>
BEA Fund Inception Date Aggregate Return
- -------- -------------- ----------------
<S> <C> <C>
International Equity 10/1/92 14.14%
Emerging Markets Equity 2/1/93 8.76%
High Yield 11/1/96 11.49
Global Telecommunications 6/20/94 15.33%
</TABLE>
The Funds may also from time to time include in such
advertising an aggregate total return figure or a total return figure that is
not calculated according to the formula set forth above in order to compare more
accurately a Fund's performance with other measures of investment return. For
example, in comparing a Fund's total return with data published by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. or Weisenberger
Investment Company Service, or with the performance of the Standard & Poor's 500
Stock Index or the Dow Jones Industrial Average, as appropriate, a Fund may
calculate its aggregate and/or average annual total return for the specified
periods of time by assuming the investment of $10,000 in Fund shares and
assuming the reinvestment of each dividend or other distribution at net asset
value on the reinvestment date. The Funds do not, for these purposes, deduct
from the initial value invested any amount representing sales charges. The Funds
will, however, disclose the maximum sales charge and will also disclose that the
performance data do not reflect sales charges and that inclusion of sales
charges would reduce the performance quoted. Such alternative total return
information will be given no greater prominence in such advertising than the
information prescribed under SEC rules, and all advertisements containing
performance data will include a legend disclosing that such performance data
represent past performance and that the investment return and principal value of
an investment will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
YIELD. Certain Funds may advertise a 30-day (or one month)
standard yield as described in the Prospectus. Such yields are calculated
separately for each class of shares in each Fund in accordance with the method
prescribed by the SEC for mutual funds:
a - b 6
YIELD = 2[( - - - - +1) - 1)]
cd
Where: a = dividends and interest earned by a Fund during the
period;
b = expenses accrued for the period (net of
reimbursements);
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<PAGE> 81
c = average daily number of shares outstanding during
the period, entitled to receive dividends; and
d = maximum offering price per share on the last day of
the period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the Fund. Except as noted below, interest
earned on debt obligations held by a Fund is calculated by computing the yield
to maturity of each obligation based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the obligation for each day of the subsequent month that the obligation is held
by the Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market value of such debt obligations. Expenses accrued
for the period (variable "b" in the formula) include all recurring fees charged
by a Fund to all shareholder accounts in proportion to the length of the base
period and the Fund's mean (or median) account size. Undeclared earned income
will be subtracted from the offering price per share (variable "d" in the
formula).
With respect to receivables-backed obligations that are
expected to be subject to monthly payments of principal and interest
("pay-downs"), (i) gain or loss attributable to actual monthly pay downs are
accounted for as an increase or decrease to interest income during the period,
and (ii) each Fund may elect either (a) to amortize the discount and premium on
the remaining security, based on the cost of the security, to the weighted
average maturity date, if such information is available, or to the remaining
term of the security, if any, if the weighted average date is not available or
(b) not to amortize discount or premium on the remaining security.
Based on the foregoing calculation, the Standard Yield for the
Advisor Class of the BEA High Yield Fund for the 30-day period ended August 31,
1997 was 9.31%.
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<PAGE> 82
TAXES
GENERAL TAX CONSEQUENCES TO THE FUNDS AND ITS SHAREHOLDERS.
The following is only a summary of certain additional tax considerations
generally affecting the Funds and their shareholders that are not described in
the Funds' Prospectuses. No attempt is made to present a detailed explanation of
the tax treatment of the Funds or their shareholders, and the discussion in this
Statement of Additional Information and in the Prospectus is not intended as a
substitute for careful tax planning. Investors are urged to consult their tax
advisers with specific reference to their own tax situation.
Each Fund has elected to be taxed as a regulated investment
company under Part I of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company, each Fund is exempt
from federal income tax on its net investment income and realized capital gains
which it distributes to shareholders, provided that it (a) distributes an amount
equal to the sum of (i) at least 90% of its investment company taxable income
(net taxable investment income and the excess of net short-term capital gain
over net long-term capital loss), if any, for the year and (ii) at least 90% of
its net tax-exempt interest income, if any, for the year (the "Distribution
Requirement"), and (b) satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income and net
tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year will
satisfy the Distribution Requirement. The Distribution Requirement for any year
may be waived if a regulated investment company establishes to the satisfaction
of the Internal Revenue Service that it is unable to satisfy the Distribution
Requirement by reason of distributions previously made for the purpose of
avoiding liability for federal excise tax (discussed below).
In addition to satisfaction of the Distribution Requirement
each Fund must derive at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans and gains from the sale or
other disposition of stock or securities or foreign currencies, or from other
income derived with respect to its business of investing in such stock,
securities, or currencies (the "Income Requirement").
Future Treasury regulations may provide that currency gains
that are not "directly related" to a Fund's principal business of investing in
stock or securities (or in options or futures with respect to stock or
securities) will not satisfy the Income Requirement. Income derived by a
regulated investment company from a partnership or trust (including a foreign
entity that is classified as a partnership or trust for U.S. federal income tax
purposes) will satisfy the Income Requirement only to the extent such income is
attributable to items of income of the partnership or trust that would satisfy
the Income Requirement if
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<PAGE> 83
they were realized by a regulated investment company in the same manner as
realized by the partnership or trust.
In addition to the foregoing requirements, at the close of
each quarter of its taxable year, at least 50% of the value of each Fund's
assets must consist of cash and cash items, U.S. Government securities,
securities of other regulated investment companies, and securities of other
issuers (as to which the Fund has not invested more than 5% of the value of its
total assets in securities of such issuer and as to which the Fund does not hold
more than 10% of the outstanding voting securities of such issuer), and no more
than 25% of the value of each Fund's total assets may be invested in the
securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more issuers
which such Fund controls and which are engaged in the same or similar trades or
businesses (the "Asset Diversification Requirement").
The Internal Revenue Service has taken the position, in
informal rulings issued to other taxpayers, that the issuer of a repurchase
agreement is the bank or dealer from which securities are purchased. A Fund will
not enter into repurchase agreements with any one bank or dealer if entering
into such agreements would, under the informal position expressed by the
Internal Revenue Service, cause it to fail to satisfy the Asset Diversification
Requirement.
Distributions of investment company taxable income will be
taxable (subject to the possible allowance of the dividend received deduction
described below) to shareholders as ordinary income, regardless of whether such
distributions are paid in cash or are reinvested in shares. Shareholders
receiving any distribution from the Funds in the form of additional shares will
be treated as receiving a taxable distribution in an amount equal to the fair
market value of the shares received, determined as of the reinvestment date.
Each Fund intends to distribute to shareholders its excess of
net long-term capital gain over net short-term capital loss ("net capital
gain"), if any, for each taxable year. Such gain is distributed as a capital
gain dividend and is taxable to shareholders as mid-term or other long-term
capital gain, regardless of the length of time the shareholder has held his
shares, whether such gain was recognized by the Fund prior to the date on which
a shareholder acquired shares of the Fund and whether the distribution was paid
in cash or reinvested in shares. The aggregate amount of distributions
designated by any Fund as capital gain dividends may not exceed the net capital
gain of such Fund for any taxable year, determined by excluding any net
long-term capital loss attributable to transactions occurring after October 31
of such year and by treating any such loss as if it arose on the first day of
the following taxable year. Such distributions will be designated as capital
gain dividends in a written notice mailed by the Funds to shareholders
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<PAGE> 84
not later than 60 days after the close of each Fund's respective taxable year.
In the case of corporate shareholders, distributions (other
than capital gain dividends) of a Fund for any taxable year will qualify for the
70% dividends received deduction, only to the extent of the gross amount of
"qualifying dividends" received by such Fund for the year. Generally, a dividend
will be treated as a "qualifying dividend" only if it has been received from a
domestic corporation. However, if a Fund owns at least 10 percent of the stock
(by vote and value) of certain foreign corporations with U.S. source income,
then a portion of the dividends paid by such foreign corporations may constitute
"qualifying dividends." A dividend received by a taxpayer will not be treated as
a "qualifying dividend" if (1) it has been received with respect to any share of
stock that the taxpayer has held for 45 days (90 days in the case of certain
preferred stock) or less (excluding any day more than 45 days (or 90 days in the
case of certain preferred stock) after the date on which the stock becomes
ex-dividend), or (2) to the extent that the taxpayer is under an obligation
(pursuant to a short sale or otherwise) to make related payments with respect to
positions in substantially similar or related property. The Funds will designate
the portion, if any, of the distribution made by a Fund that qualifies for the
dividends received deduction in a written notice mailed by the Funds to
shareholders not later than 60 days after the close of the Fund's taxable year.
Investors should be aware that any loss realized upon the
sale, exchange or redemption of shares held for six months or less will be
treated as a long-term capital loss to the extent any capital gain dividends
have been paid with respect to such shares.
The Municipal Bond Fund is designed to provide investors with
current tax-exempt interest income. Exempt interest dividends distributed to
shareholders by this Fund are not included in the shareholder's gross income for
regular federal income tax purpose. In order for the Municipal Bond Fund to pay
exempt interest dividends during any taxable year, at the close of each fiscal
quarter at least 50% of the value of the Fund must consist of exempt interest
obligations.
In addition, the Municipal Bond Fund may not be an appropriate
investment for entities which are "substantial users" of facilities financed by
private activity bonds or "related persons" thereof. "Substantial user" is
defined under U.S. Treasury Regulations to include a nonexempt person who
regularly uses a part of such facilities in his trade or business and (a) whose
gross revenues are more than 5% of the total revenue derived by all users of
such facilities, (b) who occupies more than 5% of the entire usable area of such
facilities, or (c) for whom such facilities or a part thereof were specifically
constructed, reconstructed or acquired. "Related persons"
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<PAGE> 85
include certain related natural persons, affiliated corporations, a partnership
and its partners and an S corporation and its shareholder.
A Fund may acquire standby commitments with respect to
Municipal Obligations held in its portfolio and will treat any interest received
on Municipal Obligations subject to such stand-by commitments as tax-exempt
income. In Rev. Rul. 82-144, 1982-2 C.B. 34, the Internal Revenue Service held
that a mutual fund acquired ownership of municipal obligations for federal
income tax purposes, even though the fund simultaneously purchased "put"
agreements with respect to the same municipal obligations from the seller of the
obligations. The Funds will not engage in transactions involving the use of
stand-by commitments that differ materially from the transaction described in
Rev. Rul. 82-144 without first obtaining a private letter ruling from the
Internal Revenue Service or the opinion of counsel.
Interest on indebtedness incurred by a shareholder to purchase
or carry shares if the Municipal Bond Fund is not deductible for income tax
purposes of (as expected) the Municipal Bond Fund distributes exempt interest
dividends during the shareholder's taxable year. Receipt of exempt interest
dividends may result in collateral federal income tax consequences to certain
other taxpayers, including persons subject to alternative minimum tax (see
Prospectus and discussion below), financial institutions, property and casualty
insurance companies, individual recipients of Social Security or Railroad
Retirement benefits, and foreign corporations engaged in a trade or business in
the United States. Prospective investors should consult their own tax advisers
as to such consequences.
Corporate taxpayers may be liable for alternative minimum tax,
which is imposed at the rate of 20% of "alternative minimum taxable income"
(less, in the case of corporate shareholders with "alternative minimum taxable
income" of less than $310,000, the applicable "exemption amount"), in lieu of
the regular corporate income tax. "Alternative minimum taxable income," is equal
to "taxable income," (as determined for corporate income regular tax purposes)
with certain adjustments. Although corporate taxpayers in determining
"alternative minimum taxable income" are allowed to exclude exempt interest
dividends (other than exempt interest dividends derived from certain private
activity bonds ("AMT Preference Dividends"), as explained in the Prospectus) and
to utilize the 70% dividends received deduction at the first level of
computation, the Code requires (as a second computational step) that
"alternative minimum taxable income" be increased by 75% of the excess of
"adjusted current earnings" over other "alternative minimum taxable income."
Corporate shareholders will have to take into account (1) all
exempt interest dividends and (2) the full amount of all dividends from a Fund
that are treated as "qualifying dividends"
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<PAGE> 86
for purposes of the dividends received deduction in determining their "adjusted
current earnings." As much as 75% of any exempt interest dividend and 82.5% of
any "qualifying dividend" received by a corporate shareholder could, as a
consequence, be subject to alternative minimum tax. Exempt interest dividends
received by such a corporate shareholder may accordingly be subject to
alternative minimum tax at an effective rate of 15%.
Corporate investors should also note that the Superfund
Amendments and Reauthorization Act of 1986 imposes an environmental tax on
corporate taxpayers of 0.14% of the excess of "alternative minimum taxable
income" (with certain modifications) over $2,000,000 for taxable years beginning
after 1986 and before 1996, regardless of whether such taxpayers are liable for
alternative minimum tax.
If for any taxable year any Fund does not qualify as a
regulated investment company, all of its taxable income will be subject to tax
at regular corporate rates without any deduction for distributions to
shareholders, and all distributions will be taxable as ordinary dividends
(including amounts derived from interest on Municipal Obligations in the case of
the Municipal Bond Fund) to the extent of such Fund's current and accumulated
earnings and profits. Such distributions will be eligible for the dividends
received deduction in the case of corporate shareholders. Investors should be
aware that any loss realized on a sale of shares of a Fund will be disallowed to
the extent an investor repurchases shares of the same Fund within a period of 61
days (beginning 30 days before and ending 30 days after the day of disposition
of the shares). Dividends paid by a Fund in the form of shares within the 61-day
period would be treated as a purchase for this purpose.
The Code imposes a non-deductible 4% excise tax on regulated
investment companies that do not distribute with respect to each calendar year
an amount equal to 98% of their ordinary income for the calendar year plus 98%
of their capital gain net income for the one-year period ending on October 31 of
such calendar year. The balance of such income must be distributed during the
next calendar year. For the foregoing purposes, a company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year. Because each Fund intends to distribute all of its
taxable income currently, no Fund anticipates incurring any liability for this
excise tax. However, investors should note that a Fund may in certain
circumstances be required to liquidate investments in order to make sufficient
distributions to avoid excise tax liability.
The Funds will be required in certain cases to withhold and
remit to the United States Treasury 31% of dividends paid to any shareholder (1)
who has provided either an incorrect tax identification number or no number at
all, (2) who is subject to backup withholding by the Internal Revenue Service
for failure to
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<PAGE> 87
report the receipt of interest or dividend income properly, or (3) who has
failed to certify to the Funds that he is not subject to backup withholding or
that he is an "exempt recipient."
The foregoing general discussion of federal income tax
consequences is based on the Code and the regulations issued thereunder as in
effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
Although each Fund expects to qualify as a "regulated
investment company" and to be relieved of all or substantially all federal
income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, each Fund may be subject to the tax laws of such states or
localities.
Certain states exempt from state income taxation dividends
paid by a regulated investment company that are derived from interest on U.S.
Government obligations. Each Fund will accordingly inform its shareholders
annually of the percentage, if any, of its ordinary dividends that is derived
from interest on U.S. Government obligations. Shareholders should consult with
their tax advisers as to the availability and extent of any applicable state
income tax exemption.
SPECIAL TAX CONSIDERATIONS. The following discussion relates
to the particular federal income tax consequences of the investment policies of
the Funds. The ability of the Funds to engage in options, short sale and futures
activities will be somewhat limited by the requirements for their continued
qualification as regulated investment companies under the Code, in particular
the Distribution Requirement and the Asset Diversification Requirement.
Straddles. The options transactions that the Funds enter into may
result in "straddles" for federal income tax purposes. The straddle rules of the
Code may affect the character of gains and losses realized by the Funds. In
addition, losses realized by the Funds on positions that are part of a straddle
may be deferred under the straddle rules, rather than being taken into account
in calculating the investment company taxable income and net capital gain of the
Funds for the taxable year in which such losses are realized. Losses realized
prior to October 31 of any year may be similarly deferred under the straddle
rules in determining the "required distribution" that the Funds must make in
order to avoid federal excise tax. Furthermore, in determining their investment
company taxable income and ordinary income, the Funds may be required to
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<PAGE> 88
capitalize, rather than deduct currently, any interest expense on indebtedness
incurred or continued to purchase or carry any positions that are part of a
straddle. The tax consequences to the Funds of holding straddle positions may be
further affected by various elections provided under the Code and Treasury
regulations, but at the present time the Funds are uncertain which (if any) of
these elections they will make.
Because only a few regulations implementing the straddle rules have
been promulgated by the U.S. Treasury, the tax consequences to the Funds of
engaging in options transactions are not entirely clear. Nevertheless, it is
evident that application of the straddle rules may substantially increase or
decrease the amount which must be distributed to shareholders in satisfaction of
the Distribution Requirement (or to avoid federal excise tax liability) for any
taxable year in comparison to a fund that did not engage in options
transactions.
Options And Section 1256 Contracts. The writer of a covered put or
call option generally does not recognize income upon receipt of the option
premium. If the option expires unexercised or is closed on an exchange, the
writer generally recognizes short-term capital gain. If the option is exercised,
the premium is included in the consideration received by the writer in
determining the capital gain or loss recognized in the resultant sale. However,
certain options transactions that the Funds enter into, as well as futures
transactions and transactions in forward foreign currency contracts that are
traded in the interbank market entered into by the Funds, will be subject to
special tax treatment as "Section 1256 contracts." Section 1256 contracts are
treated as if they are sold for their fair market value on the last business day
of the taxable year (i.e., marked-to-market), regardless of whether a taxpayer's
obligations (or rights) under such contracts have terminated (by delivery,
exercise, entering into a closing transaction or otherwise) as of such date. Any
gain or loss recognized as a consequence of the year-end marking-to-market of
Section 1256 contracts is combined (after application of the straddle rules that
are described above) with any other gain or loss that was previously recognized
upon the termination of Section 1256 contracts during that taxable year. The net
amount of such gain or loss for the entire taxable year is generally treated as
60% long-term capital gain or loss and 40% short-term capital gain or loss,
except in the case of marked-to-market forward foreign currency contracts for
which such gain or loss is treated as ordinary income or loss. Such short-term
capital gain (and, in the case of marked-to-market forward foreign currency
contracts, such ordinary income) would be included in determining the investment
company taxable income of the relevant Fund for purposes of the Distribution
Requirement, even if it were wholly attributable to the year-end
marking-to-market of Section 1256 contracts that the relevant Fund continued to
hold. Investors should also note that Section 1256 contracts will be treated as
having been sold on October 31 in calculating the "required
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<PAGE> 89
distribution" that a Fund must make to avoid federal excise tax liability.
Each of the Funds may elect not to have the year-end mark-to-market
rule apply to Section 1256 contracts that are part of a "mixed straddle" with
other investments of such Fund that are not Section 1256 contracts (the "Mixed
Straddle Election").
Foreign Currency Transactions. In general, gains from "foreign
currencies" and from foreign currency options, foreign currency futures and
forward foreign exchange contracts relating to investments in stock, securities
or foreign currencies will be qualifying income for purposes of determining
whether the Fund qualifies as a RIC. It is currently unclear, however, who will
be treated as the issuer of a foreign currency instrument or how foreign
currency options, futures or forward foreign currency contracts will be valued
for purposes of the Asset Diversification Requirement. A Fund may request a
private letter ruling from the Internal Revenue Service for guidance on some or
all of these issues.
Under Code Section 988 special rules are provided for certain
transactions in a foreign currency other than the taxpayer's functional currency
(i.e., unless certain special rules apply, currencies other than the U.S.
dollar). In general, foreign currency gains or losses from certain forward
contracts, from futures contracts that are not "regulated futures contracts",
and from unlisted options will be treated as ordinary income or loss. In certain
circumstances where the transaction is not undertaken as part of a straddle, a
Fund may elect capital gain or loss treatment for such transactions.
Alternatively, a Fund may elect ordinary income or loss treatment for
transactions in futures contracts and options on foreign currency that would
otherwise produce capital gain or loss. In general gains or losses from a
foreign currency transaction subject to Code Section 988 will increase or
decrease the amount of the Fund's investment company taxable income available to
be distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund's net capital gain. Additionally, if losses
from a foreign currency transaction subject to Code Section 988 exceed other
investment company taxable income during a taxable year, a Fund will not be able
to make any ordinary dividend distributions, and any distributions made before
the losses were realized but in the same taxable year would be recharacterized
as a return of capital to shareholders, thereby reducing each shareholder's
basis in his Shares.
Passive Foreign Investment Companies. If a Fund acquires
shares in certain foreign investment entities, called "passive foreign
investment companies" ("PFIC"), such Fund may be subject to "deferred" federal
income tax on a portion of any "excess distribution" received with respect to
such shares or on a portion of any gain recognized upon a disposition of such
shares, notwithstanding the distribution of such income to the
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shareholders of such Fund. Additional charges in the nature of interest may also
be imposed on a Fund in respect of such deferred taxes. However, in lieu of
sustaining the foregoing tax consequences, a Fund may elect to have its
investment in any PFIC taxed as an investment in a "qualified electing fund"
("QEF"). A Fund making a QEF election would be required to include in its income
each year a ratable portion, whether or not distributed, of the ordinary
earnings and net capital gain of the QEF. Any such QEF inclusions would have to
be taken into account by a Fund for purposes of satisfying the Distribution
Requirement and the excise tax distribution requirement.
Recently enacted changes to the Code will permit a Fund to
elect (in lieu of paying deferred tax or making a QEF election) to
mark-to-market annually any PFIC shares that it owns and to include any gains
(but not losses) that it was deemed to realize as ordinary income. A Fund
generally will not be subject to deferred federal income tax on any gains that
it is deemed to realize as a consequence of making a mark-to-market election,
but such gains will be taken into account by the Fund for purposes of satisfying
the Distribution Requirement and the excise tax distribution requirement. The
mark-to-market provisions will generally apply to the Fund's taxable years
beginning after December 31, 1997.
Asset Diversification Requirement. For purposes of the Asset
Diversification Requirement, the issuer of a call option on a security
(including an option written on an exchange) will be deemed to be the issuer of
the underlying security. The Internal Revenue Service has informally ruled,
however, that a call option that is written by a fund need not be counted for
purposes of the Asset Diversification Requirement where the fund holds the
underlying security. However, the Internal Revenue Service has also informally
ruled that a put option written by a fund must be treated as a separate asset
and its value measured by "the value of the underlying security" for purposes of
the Asset Diversification Requirement, regardless (apparently) of whether it is
"covered" under the rules of the exchange. The Internal Revenue Service has not
explained whether in valuing a written put option in this manner a fund should
use the current value of the underlying security (its prospective future
investment); the cash consideration that must be paid by the fund if the put
option is exercised (its liability); or some other measure that would take into
account the fund's unrealized profit or loss in writing the option. Under the
Code, a fund may not rely on informal rulings of the Internal Revenue Service
issued to other taxpayers. Consequently, a Fund may find it necessary to seek a
ruling from the Internal Revenue Service on this issue or to curtail its writing
of options in order to stay within the limits of the Asset Diversification
Requirement.
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<PAGE> 91
ADDITIONAL INFORMATION CONCERNING THE COMPANY SHARES
The Funds do not currently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The
Funds' By-Laws provide that shareholders collectively owning at least ten
percent of the outstanding shares of all classes of Common Stock of the Funds
have the right to call for a meeting of shareholders to consider the removal of
one or more directors. To the extent required by law, the Funds will assist in
shareholder communication in such matters.
MISCELLANEOUS
COUNSEL. The law firm of Willkie Farr & Gallagher, 787 Seventh
Avenue, New York, New York 10019-6099, serves as counsel to the Funds and the
non-interested directors.
CONTROL PERSONS. As of [INSERT], 1998, to the Fund's
knowledge, the following named persons at the addresses shown below owned of
record approximately 5% or more of the total outstanding shares of the class of
the BEA Fund indicated below. See "Additional Information Concerning the Fund's
Shares" above. The Funds do not know whether such persons also beneficially own
such shares.
<TABLE>
<CAPTION>
BEA FUND NAME AND ADDRESS PERCENT OWNED
-------- ---------------- -------------
<S> <C> <C>
BEA International Equity - Advisor BOB & Co 65.47%
Class PO Box 1809
Boston, MA 02105-1809
State Street Bank & Trust Co 16.80%
Cust for the IRA of
Gerald W. McKinney
5873 Cove Rd
Ellensburg, WA 98926-7963
Transcorp 8.09%
FBO William E. Burns
PO Box 6535
Englewood, Co 80155-6535
BEA High Yield Portfolio - Advisor Richard A. Wilson TTEE 10.81%
Class E. Francis Wilson TTEE
The Wilson Family Trust
7612 March Avenue
West Hills, CA 91304-5232
</TABLE>
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<PAGE> 92
<TABLE>
<CAPTION>
BEA FUND NAME AND ADDRESS PERCENT OWNED
-------- ---------------- -------------
<S> <C> <C>
Charles Schwab & Co. 88.82%
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
BEA Emerging Markets Equity Portfolio SEMA & Co 81.25%
- Advisor Class 12 E 49th St Fl 41
New York, NY 10017-1028
NFSC FEBO # 114-623016 14.43%
FMT CO CUST IRA
FBO Patricia F Powell
5811 Valley Oak Dr
Los Angeles, CA 90068-3650
BEA Strategic Global Sunkist Master Trust 52.79%
Fixed Income Portfolio 14130 Riverside Drive
(Class Z) Sherman Oaks, CA 91423-2313
Patterson & Co. 37.75%
P.O. Box 7829
Philadelphia, PA 19101-7829
State St Bank & Trust TTEE 5.36%
Fenway Holdings LLC Master Trust
PO Box 470
Boston, MA 02102-0470
BEA Municipal Bond Fund Portfolio William A. Marquard 39.48%
2199 Maysville Rd.
Carlisle, KY 40311-9716
Arnold Leon 13.16%
c/o Fiduciary Trust Company
P.O. Box 3199
Church Street Station
New York, NY 10008-3199
Irwin Bard 6.51%
1750 North East 183rd St. North
Miami Beach, FL 33179-4908
S. Finkelstein Family Fund 5.01%
1755 York Ave., Apt. 35 BC
New York, NY 10128-6827
BEA Global Telecommunications John B Hurford 36.22%
Portfolio- Advisor Class 153 E 53rd St Fl 57
New York, NY 10022-4611
</TABLE>
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<PAGE> 93
<TABLE>
<CAPTION>
BEA FUND NAME AND ADDRESS PERCENT OWNED
-------- ---------------- -------------
<S> <C> <C>
FTC & Co 18.35%
Attn Datalynx # B48
PO Box 173736
Denver, CO 80217-3736
E M Warburg Pincus & Co Inc 13.30%
ATTN Sandra Correale
466 Lexington Ave
New York, NY 10017-3140
Charles Schwab & Co 5.90%
Special Custody Account for the
Exclusive Benefit of
Customers
101 Montgomery Street
San Francisco, CA 94104-4122
</TABLE>
INDEPENDENT ACCOUNTANTS AND COUNSEL
PricewaterhouseCoopers LLP ("PWC"), with principal offices at
2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as independent
accountants for each Fund.
Willkie Farr & Gallagher serves as counsel for the Funds as
well as counsel to Warburg, Counsellors Service and Counsellors Securities.
FINANCIAL STATEMENTS
The Fund's financial statement follows the Report of
Independent Accountants.
Common Shares of each of the Funds had not been issued as of
August 31, 1997 and, accordingly, no financial information is provided with
respect to such shares. Financial information with respect to Advisor shares of
certain corresponding BEA Funds has been derived by PWC. The audited financial
statements and notes thereto in the BEA Funds' Annual Report to Shareholders for
the fiscal year ended August 31, 1997 (the "1997 Annual Report") and the
unaudited semi-annual report for the fiscal period ended February 28, 1998 (the
"1998 Semi-Annual Report") are incorporated by reference into this Statement of
Additional Information. No other parts of the 1997 Annual Report or 1998
Semi-Annual Report are incorporated by reference herein. The financial
statements included in the 1997 Annual Report have been audited by PWC. The
reports of PWC are incorporated herein by
-61-
<PAGE> 94
reference upon their authority as experts in accounting and auditing. Copies of
the 1997 Annual Report and the 1998 Semi-Annual Report may be obtained at no
charge by telephoning the Distributor at the telephone number appearing on the
front page of this Statement of Additional Information.
-62-
<PAGE> 95
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's Ratings Services ("S&P") commercial paper
rating is a current assessment of the likelihood of timely payment of debt
having an original maturity of no more than 365 days. The following summarizes
the rating categories used by Standard and Poor's for commercial paper:
"A-1" - The highest category 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.
"A-2" - Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
"A-3" - Issues carrying this designation have adequate
capacity for timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
"B" - Issues are regarded as having only a speculative
capacity for timely payment.
"C" - This rating is assigned to short-term debt obligations
with a doubtful capacity for payment.
"D" - Issues are in payment default. The "D" rating category
is used when interest payments of principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
Moody's Investors Service, Inc. ("Moody's") commercial paper
ratings are opinions of the ability of issuers to repay punctually senior debt
obligations not having an original maturity in excess of one year, unless
explicitly noted. The following summarizes the rating categories used by Moody's
for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high
A-1
<PAGE> 96
internal cash generation; and well-established access to a range of financial
markets and assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effects of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D-1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issues as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected.
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<PAGE> 97
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years.
The following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as the "F-1+" and "F-1" ratings.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment default.
"LOC" - The symbol "LOC" indicates that the rating is based on
a letter of credit issued by a commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the
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<PAGE> 98
degree of safety regarding timely repayment of principal and interest is strong,
the relative degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for
timely repayment. Where issues possess a particularly strong credit feature, a
rating of "A1+" is assigned.
"A2" - Obligations are supported by a satisfactory capacity
for timely repayment although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
"A3" - Obligations are supported by an adequate capacity for
timely repayment such capacity is more susceptible to adverse changes in
business, economic, or financial conditions than for obligations in higher
categories.
"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic, or financial
conditions.
"C" - Obligations for which there is a high risk of default or
which are currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
A-4
<PAGE> 99
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - Debt is more vulnerable to non-payment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic conditions
will likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
"CCC" - Debt is currently vulnerable to non-payment, and is
dependent upon favorable business, financial and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial or economic conditions, the obligor is not likely to
have the capacity to meet its financial commitment on the obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable
to non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. This
rating is used when payments on an obligation are not made on the date due, even
if the applicable grace period has not
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<PAGE> 100
expired, unless S & P believes that such payments will be made during such grace
period. "D" rating is also used upon the filing of a bankruptcy petition or the
taking of similar action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for
corporate and municipal long-term debt:
"Aaa" - Bonds 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 by an 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 are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds 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 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
A-6
<PAGE> 101
characteristics and in fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates
that the rating is provisional pending delivery of the bonds. The rating may be
revised prior to delivery if changes occur in the legal documents or the
underlying credit quality of the bonds.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols, Aa1, A1, Baa1, Ba1 and B1.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered to be of high credit quality.
Protection factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade.
A-7
<PAGE> 102
Although below investment grade, debt rated "BB" is deemed likely to meet
obligations when due. Debt rated "B" possesses the risk that obligations will
not be met when due. Debt rated "CCC" is well below investment grade and has
considerable uncertainty as to timely payment of principal, interest or
preferred dividends. Debt rated "DD" is a defaulted debt obligation, and the
rating "DP" represents preferred stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB" - Bonds considered to be speculative. The obligor's
ability to pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified, which could assist the obligor in satisfying its debt service
requirements.
"B" - Bonds are considered highly speculative. While
securities in this class are currently meeting debt service requirements, the
probability of continued timely payment of
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<PAGE> 103
principal and interest reflects the obligor's limited margin of safety and the
need for reasonable business and economic activity throughout the life of the
issue.
"CCC" - Bonds have certain identifiable characteristics that,
if not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
"CC" - Bonds are minimally protected. Default in payments of
interest and/or principal seems probable over time.
"C" - Bonds are in imminent default in payment of interest or
principal.
"DDD," "DD" and "D" - Bonds are in default on interest and/or
principal payments. Such securities are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents the highest potential for
recovery on these securities, and "D" represents the lowest potential for
recovery.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in
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<PAGE> 104
business, economic or financial conditions are more likely to lead to increased
investment risk than for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
below "AAA" to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
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<PAGE> 105
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality,
enjoying strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality, with
margins of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality,
carrying specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack
of margins of protection.
A-11
<PAGE> 106
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-12
<PAGE> 107
APPENDIX B
As stated in the Prospectus, the Funds may enter into certain
futures transactions. Such transactions are described in this Appendix.
I. Interest Rate Futures Contracts
Use of Interest Rate Futures Contracts. Bond prices are
established in both the cash market and the futures market. In the cash market,
bonds are purchased and sold with payment for the full purchase price of the
bond being made in cash, generally within five business days after the trade. In
the futures market, only a contract is made to purchase or sell a bond in the
future for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, a Fund may use interest rate futures
contracts as a defense, or hedge, against anticipated interest rate changes. As
described below, this would include the use of futures contract sales to protect
against expected increases in interest rates and futures contract purchases to
offset the impact of interest rate declines.
A Fund could accomplish a similar result to that which it
hopes to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market, the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Fund, by using futures contracts.
Description of Interest Rate Futures Contracts. An interest
rate futures contract sale would create an obligation by a Fund, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by a Fund, as purchaser, to take delivery of the specific
type of financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until at or near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
Although interest rate futures contracts by their terms call
for actual delivery or acceptance of securities, in most cases the contracts are
closed out before the settlement date without the making or taking of delivery
of securities. Closing out a futures contract sale is effected by a Fund
entering into a
B-1
<PAGE> 108
futures contract purchase for the same aggregate amount of the specific type of
financial instrument and the same delivery date. If the price of the sale
exceeds the price of the offsetting purchase, the Fund is immediately paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the Fund entering into
a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction
environment on the floors of several exchanges -- principally, the Chicago Board
of Trade, the Chicago Mercantile Exchange and the New York Futures Exchange.
Each exchange guarantees performance under contract provisions through a
clearing corporation, a nonprofit organization managed by the exchange
membership.
A public market now exists in futures contracts covering
various financial instruments including long-term U.S. Treasury Bonds and Notes;
Government National Mortgage Association (GNMA) modified pass-through mortgage
backed securities; three-month U.S. Treasury Bills; and ninety-day commercial
paper. The Funds may trade in any interest rate futures contracts for which
there exists a public market, including, without limitation, the foregoing
instruments.
With regard to each Fund, the Adviser also anticipates
engaging in transactions, from time to time, in foreign stock index futures such
as the ALL-ORDS (Australia), CAC-40 (France), TOPIX (Japan) and the FTSE-100
(United Kingdom).
II. Index Futures Contracts
General. A stock or bond index assigns relative values to the
stocks or bonds included in the index, which fluctuates with changes in the
market values of the stocks or bonds included. Some stock index futures
contracts are based on broad market indexes, such as Standard & Poor's 500 or
the New York Stock Exchange Composite Index. In contrast, certain exchanges
offer futures contracts on narrower market indexes, such as the Standard &
Poor's 100 or indexes based on an industry or market indexes, such as Standard &
Poor's 100 or indexes based on an industry or market segment, such as oil and
gas stocks. Futures contracts are traded on organized exchanges regulated by the
Commodity Futures Trading Commission. Transactions on such exchanges are cleared
through a clearing corporation, which guarantees the performance of the parties
to each contract. With regard to each Fund, to the extent consistent with its
investment objective, the Adviser anticipates engaging in transactions, from
time to time, in foreign stock index futures such as the ALL-ORDS
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<PAGE> 109
(Australia), CAC-40 (France), TOPIX (Japan) and the FTSE-100 (United Kingdom).
A Fund might sell index futures contracts in order to offset a
decrease in market value of its portfolio securities that might otherwise result
from a market decline. A Fund might do so either to hedge the value of its
portfolio as a whole, or to protect against declines, occurring prior to sales
of securities, in the value of the securities to be sold. Conversely, a Fund
might purchase index futures contracts in anticipation of purchases of
securities. A long futures position may be terminated without a corresponding
purchase of securities.
In addition, a Fund might utilize index futures contracts in
anticipation of changes in the composition of its portfolio holdings. For
example, in the event that a Fund expects to narrow the range of industry groups
represented in its holdings it may, prior to making purchases of the actual
securities, establish a long futures position based on a more restricted index,
such as an index comprised of securities of a particular industry group. A Fund
may also sell futures contracts in connection with this strategy, in order to
protect against the possibility that the value of the securities to be sold as
part of the restructuring of the portfolio will decline prior to the time of
sale.
III. Futures Contracts on Foreign Currencies
A futures contract on foreign currency creates a binding
obligation on one party to deliver, and a corresponding obligation on another
party to accept delivery of, a stated quantity of foreign currency, for an
amount fixed in U.S. dollars (or another currency). Foreign currency futures may
be used by a Fund to hedge against exposure to fluctuations in exchange rates
between different currencies arising from multinational transactions.
IV. Margin Payments
Unlike purchase or sales of portfolio securities, no price is
paid or received by a Fund upon the purchase or sale of a futures contract.
Initially, a Fund will be required to deposit with the broker or in a segregated
account with a custodian an amount of liquid assets known as initial margin,
based on the value of the contract. The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of funds by the customer
to finance the transactions. Rather, the initial margin 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. Subsequent payments, called variation margin,
to and from the broker, will be made on a daily basis as the price of the
B-3
<PAGE> 110
underlying instruments fluctuates making the long and short positions in the
futures contract more or less valuable, a process known as
marking-to-the-market. For example, when a particular Fund has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Fund will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where the Fund has purchased a
futures contract and the price of the future contract has declined in response
to a decrease in the underlying instruments, the position would be less valuable
and the Fund would be required to make a variation margin payment to the broker.
Prior to expiration of the futures contract, the Adviser may elect to close the
position by taking an opposite position, subject to the availability of a
secondary market, which will operate to terminate the Fund's position in the
futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the Fund, and the Fund
realizes a loss or gain.
V. Risks of Transactions in Futures Contracts
There are several risks in connection with the use of futures
by a Fund. One risk arises because of the imperfect correlation between
movements in the price of the futures and movements in the price of any
instruments which are the subject of a hedge. The price of the futures may move
more than or less than the price of the instruments being hedged. If the price
of the futures moves less than the price of the instruments which are the
subject of the hedge, the hedge will not be fully effective but, if the price of
the instruments being hedged has moved in an unfavorable direction, the Fund
would be in a better position than if it had not hedged at all. If the price of
the instruments being hedged has moved in a favorable direction, this advantage
will be partially offset by the loss on the futures. If the price of the futures
moves more than the price of the hedged instruments, the Fund involved will
experience either a loss or gain on the futures which will not be completely
offset by movements in the price of the instruments which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
instruments being hedged and movements in the price of futures contracts, a Fund
may buy or sell futures contracts in a greater dollar amount than the dollar
amount of instruments being hedged if the volatility over a particular time
period of the prices of such instruments has been greater than the volatility
over such time period of the future, or if otherwise deemed to be appropriate by
the Adviser. Conversely, a Fund may buy or sell fewer futures contracts if the
volatility over a particular time period of the prices of the instruments being
hedged is less than the volatility over such time period of the futures contract
being used, or if otherwise deemed to be appropriate by the Adviser. It is also
possible that, where a Fund has sold futures to hedge its portfolio against a
decline in the market, the market may advance and the
B-4
<PAGE> 111
value of instruments held in the Fund may decline. If this occurred, the Fund
would lose money on the futures and also experience a decline in value in its
portfolio securities.
When futures are purchased to hedge against a possible
increase in the price of securities or a currency before a Fund is able to
invest its cash (or cash equivalents) in an orderly fashion, it is possible that
the market may decline instead; if the Fund then concludes not to invest its
cash at that time because of concern as to possible further market decline or
for other reasons, the Fund will realize a loss on the futures contract that is
not offset by a reduction in the price of the instruments that were to be
purchased.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and any
instruments being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, 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 may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the adviser may still not
result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or
board of trade which provides a secondary market for such futures. Although the
Funds intend to purchase or sell futures only on exchanges or boards of trade
where there appear to be active secondary markets, there is no assurance that a
liquid secondary market on any exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, a Fund would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have been
used to hedge portfolio securities, such securities will not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of the securities, if any, may partially or completely offset losses on
the futures
B-5
<PAGE> 112
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary
market in a futures contract may be adversely affected by "daily price
fluctuation limits" established by commodity exchanges which limit the amount of
fluctuation in a futures contract price during a single trading day. Once the
daily limit has been reached in the contract, no trades may be entered into at a
price beyond the limit, thus preventing the liquidation of open futures
positions. The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.
Successful use of futures by a Fund is also subject to the
Adviser's ability to predict correctly movements in the direction of the market.
For example, if a particular Fund has hedged against the possibility of a
decline in the market adversely affecting securities held by it and securities
prices increase instead, the Fund will lose part or all of the benefit to the
increased value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Fund has insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising market. A Fund may
have to sell securities at a time when it may be disadvantageous to do so.
The risk of loss in trading futures contracts in some
strategies can be substantial, due both to the low margin deposits required, and
the extremely high degree of leverage involved in futures pricing. As a result,
a relatively small price movement in a futures contract may result in immediate
and substantial loss (as well as gain) to the investor. For example, if at the
time of purchase, 10% of the value of the futures contract is deposited as
margin, a subsequent 10% decrease in the value of the futures contract would
result in a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15% decrease would
result in a loss equal to 150% of the original margin deposit, before any
deduction for the transaction costs, if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the contract.
B-6
<PAGE> 113
VI. Options on Futures Contracts
A Fund may purchase and write options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer, of
an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing an option of the same series,
at which time the person entering into the closing transaction will realize a
gain or loss. A Fund will be required to deposit initial margin and variation
margin with respect to put and call options on futures contracts written by it
pursuant to brokers' requirements similar to those described above. Net option
premiums received will be included as initial margin deposits. As an example, in
anticipation of a decline in interest rates, a Fund may purchase call options on
futures contracts as a substitute for the purchase of futures contracts to hedge
against a possible increase in the price of securities which the Fund intends to
purchase. Similarly, if the value of the securities held by a Fund is expected
to decline as a result of an increase in interest rates, the Fund might purchase
put options or sell call options on futures contracts rather than sell futures
contracts.
Investments in futures options involve some of the same
considerations that are involved in connection with investments in futures
contracts (for example, the existence of a liquid secondary market). In
addition, the purchase or sale of an option also entails the risk that changes
in the value of the underlying futures contract will not correspond to changes
in the value of the option purchased. Depending on the pricing of the option
compared to either the futures contract upon which it is based, or upon the
price of the underlying securities or currencies, an option may or may not be
less risky than ownership of the futures contract or such securities or
currencies. In general, the market prices of options can be expected to be more
volatile than the market prices on the underlying futures contract. Compared to
the purchase or sale of futures contracts, however, the purchase of call or put
options on futures contracts may frequently involve less potential risk to a
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). The writing of an option on a futures contract
involves risks similar to those risks relating to the sale of futures contracts.
VII. Other Matters
Accounting for futures contracts will be in accordance with
generally accepted accounting principles.
B-7
<PAGE> 114
The Funds intend to comply with the regulations of the
Commodity Futures Trading Commission exempting the Funds from registration as a
"commodity pool operator."
B-8
<PAGE> 115
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements --
(1) Financial Statements included in Part B.*
(a) Report of PricewaterhouseCoopers LLP,
Independent Accountants*
(b) Statement of Net Assets and Liabilities*
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
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 Custodian Agreement with Brown Brothers Harriman & Co. *
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 & Gallagher, counsel
to the Fund. *
(b) Opinion and Consent of Venable, Baetjer and Howard,
LLP, Maryland counsel to the Fund. *
11 Consent of PricewaterhouseCoopers LLP, Independent
Accountants. *
12 Not applicable.
</TABLE>
- --------
* To be filed by amendment.
<PAGE> 116
<TABLE>
<S> <C>
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. *
</TABLE>
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 money damages, to the fullest
extent permitted by Maryland law. This limitation on liability applies to events
occurring at the
<PAGE> 117
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
BEA Associates ("BEA") acts as investment adviser to
the Registrant. BEA renders investment advice to a wide variety of individual
and institutional clients. The list required by this Item 28 of officers and
directors of BEA, together with information as to their other business,
profession, vocation or employment of a substantial nature during the past
<PAGE> 118
two years, is incorporated by reference to Schedules A and D of Form ADV filed
by BEA (SEC File No. 801-37170).
Item 29. Principal Underwriter
(a) Counsellors Securities will act as distributor
for Registrant, as well as for Warburg Pincus Balanced Fund; Warburg Pincus
Capital Appreciation Fund; Warburg Pincus Cash Reserve Fund; Warburg Pincus
Central and Eastern Europe Fund; Warburg Pincus Emerging Growth Fund; Warburg
Pincus Emerging Markets Fund; Warburg Pincus Emerging Markets II Fund; Warburg
Pincus European Equity Fund; Warburg Pincus Fixed Income Fund; Warburg Pincus
Global Fixed Income Fund; Warburg Pincus Global Post-Venture Capital Fund;
Warburg Pincus Global Telecommunications Fund; Warburg Pincus Growth & Income
Fund; Warburg Pincus Health Sciences Fund; Warburg Pincus High Yield Fund;
Warburg Pincus Institutional Fund; Warburg Pincus Intermediate Maturity
Government Fund; Warburg Pincus International Equity Fund; Warburg Pincus
International Growth Fund; Warburg Pincus International Small Company Fund;
Warburg Pincus Japan Growth Fund; Warburg Pincus Japan OTC Fund; Warburg Pincus
Long-Short Equity Fund; Warburg Pincus Long-Short Market Neutral Fund; Warburg
Pincus Major Foreign Markets Fund; Warburg Pincus Money Market Fund; Warburg
Pincus Municipal Bond Fund; Warburg Pincus New York Intermediate Municipal Fund;
Warburg Pincus New York Tax Exempt Fund; Warburg Pincus Post-Venture Capital
Fund; Warburg Pincus Select Economic Value Equity Fund; Warburg Pincus Small
Company Growth Fund; Warburg Pincus Small Company Value Fund; Warburg Pincus
Strategic Global Fixed Income Fund; Warburg Pincus Strategic Value Fund; Warburg
Pincus Tax Free Money Market Fund; Warburg Pincus Trust; Warburg Pincus Trust
II; Warburg Pincus U.S. Core Fixed Income Fund and Warburg Pincus U.S.
Core Equity Fund.
(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 Global Telecommunications
Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(Fund's Articles of Incorporation, By-Laws and
minute books)
(2) BEA Associates
One Citcorp Center
153 East 53rd Street
New York, New York 10022
<PAGE> 119
(records relating to its functions as
investment adviser)
(3) PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as
co-administrator)
(4) Counsellors Funds Service, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as
co-administrator)
(5) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(records relating to its functions as transfer agent
and dividend disbursing agent)
(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) Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
(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 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.
(b) 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
<PAGE> 120
Section 16(c) of the 1940 Act relating to communications with the
shareholders of certain common-law trusts.
(c) Registrant hereby undertakes not to sell its shares to the public,
except in connection with the reorganization, until the Fund files a
post-effective amendment to the Registration Statement including audited
financial statements.
<PAGE> 121
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 20th day of July, 1998.
WARBURG, PINCUS GLOBAL TELECOMMUNICATIONS
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 Directors July 20, 1998
- --------------------
John L. Furth
/s/Eugene L. Podsiadlo President July 20, 1998
- --------------------
Eugene L. Podsiadlo
/s/Howard Conroy Vice President and Chief Financial Officer July 20, 1998
- --------------------
Howard Conroy
/s/Daniel S. Madden Treasurer and Chief Accounting Officer July 20, 1998
- --------------------
Daniel S. Madden
/s/Richard N. Cooper Director July 20, 1998
- --------------------
Richard N. Cooper
/s/Jack W. Fritz Director July 20, 1998
- --------------------
Jack W. Fritz
/s/Jeffrey E. Garten Director July 20, 1998
- --------------------
Jeffrey E. Garten
/s/Arnold M. Reichman Director July 20, 1998
- --------------------
Arnold M. Reichman
/s/Alexander B. Trowbridge Director July 20, 1998
- --------------------
Alexander B. Trowbridge
@@
</TABLE>
<PAGE> 122
INDEX TO EXHIBITS
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Exhibit No. Description of Exhibit
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1 Articles of Incorporation
2 By-Laws
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ARTICLES OF INCORPORATION
OF
WARBURG, PINCUS GLOBAL TELECOMMUNICATIONS FUND, INC.
ARTICLE I
INCORPORATOR
The undersigned, John H. Kim, whose post office address is c/o
Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019-6099,
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 Global
Telecommunications 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
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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) One billion (1,000,000,000) shares of Common Stock
have been divided into and classified initially as a
series of Common Stock, designated "Institutional
Shares."
(iii) One billion (1,000,000,000) 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
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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 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 Institutional 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) Institutional Shares will share equally with Common
Stock other than Institutional Shares
("Non-Institutional Shares") in the income, earnings
and profits derived from investment
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and reinvestment of the assets belonging to the
Corporation and will be charged equally with
Non-Institutional Shares with the liabilities and
expenses of the Corporation, except that
Institutional 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 Institutional 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 Institutional Shares
will be entitled to vote, except that if said matter
affects Non-Institutional Shares, Non-Institutional
Shares will also be entitled to vote, and in such
case Institutional Shares will be voted in the
aggregate together with such Non-Institutional Shares
and not by series except where otherwise required by
law. Institutional Shares will not be entitled to
vote on any matter that does not affect Institutional
Shares (except where otherwise required by law) even
though the matter is submitted to a vote of the
holders of Non-Institutional 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.
(E) 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
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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 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 (E)(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
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time by setting or changing in any one or more respects the
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 notice of the redemption and has failed to make additional
purchases of shares in an amount
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sufficient to bring the value in 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 further indemnify and advance expenses to each person who at the
time of the execution of the Agreement and Plan of Reorganization
between the Corporation and The RBB Fund, Inc. (the "RBB Fund"), on
behalf of the BEA Global Telecommunications Fund (the "BEA Fund"),
served as a director or officer (an "Indemnified Person") of the RBB
Fund, against money damages actually and reasonably incurred by such
Indemnified Person in connection with any claim that is asserted
against such Indemnified Person arising out of such Indemnified
Person's service as a director or officer of the RBB Fund with respect
to matters specifically relating to the BEA Fund, provided that such
indemnification and advancement of expenses shall be permitted to the
fullest extent that is available under the Maryland General Corporation
law and other applicable 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, Indemnified
Persons, 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 or any
Indemnified Person 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.
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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.
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
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Incorporator
Dated the 30th day of July, 1998
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BY-LAWS
OF
WARBURG, PINCUS GLOBAL TELECOMMUNICATIONS FUND, INC.
A Maryland Corporation
ARTICLE I
STOCKHOLDERS
SECTION 1. Annual Meetings. No annual meeting of the
stockholders of the Warburg, Pincus Global Telecommunications 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
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
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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 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
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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.
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
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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.
(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.
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(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.
(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 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
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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. 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
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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 mailed at least 3 (three) days before the day on
which the meeting is to be held.
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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 constitute a quorum, may appoint a director to act
in the place of an absent member.
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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 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
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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.
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
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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.
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ARTICLE IV
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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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: (i) is a current or former director or officer of the Corporation, (ii)
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, or (iii) was, at the time of the execution of the
Agreement and Plan of Reorganization between the Corporation and The RBB Fund,
Inc. (the "RBB Fund"), on behalf of the BEA Global Telecommunications Fund (the
"BEA Fund"), a director or officer (an "Indemnified Person") of the RBB Fund,
and the claim asserted against such Indemnified Person arises out of the
Indemnified Person's service as a director or officer of the RBB Fund with
respect to matters specifically relating to the BEA Fund, 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 or Indemnified Person 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-
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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.
SECTION 3. Procedure. At the request of any current or former
director or officer, Indemnified Person, 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 or Indemnified Person 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
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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.
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, July 20th, 1998
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