<PAGE>
As filed with the Securities and Exchange Commission
on June 28, 1995
Securities Act File No. 2-94841
Investment Company Act File No. 811-4170
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. 11 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 12 [x]
(Check appropriate box or boxes)
Counsellors New York Tax Exempt 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 New York Tax Exempt Fund
466 Lexington Avenue
New York, New York 10017-3147
..........................................
(Name and Address of Agent for Service)
Copy to:
Rose F. DiMartino, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4669
Page 1 of Pages
Exhibit Index at Page
<PAGE>
It is proposed that this filing will become effective (check
appropriate box):
[x] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
-------------------------------------------------------------
DECLARATION PURSUANT TO RULE 24f-2
Registrant has registered an indefinite number or amount of
securities under the Securities Act of 1933, as amended, pursuant to Section
(a)(1) of Rule 24f-2 under the Investment Company Act of 1940, as amended.
The Rule 24f-2 Notice for Registrant's fiscal year ending on February 28, 1995
was filed on April 27, 1995.
<PAGE>1
WARBURG, PINCUS NEW YORK TAX EXEMPT FUND
FORM N-1A
CROSS REFERENCE SHEET
Part A
Item No. Prospectus Heading
- -------- ------------------
1. Cover Page.................. Cover Page
2. Synopsis.................... The Funds' Expenses
3. Condensed Financial
Information................ Financial Highlights;
Performance
4. General Description of
Registrant................. Cover Page;
Investment Objectives
and Policies; Investment
Guidelines; General
Information
5. Management of the Fund...... Management of the Funds
6. Capital Stock and Other
Securities................. General Information;
Shareholder Servicing
7. Purchase of Securities
Being Offered.............. How to Purchase Shares;
Management of the Funds;
Shareholder Servicing
8. Redemption or Repurchase.... How to Redeem and
Exchange Shares
9. Pending Legal Proceedings... Not applicable
<PAGE>2
Part B Statement of Additional
Item No. Information Heading
- -------- -----------------------
10. Cover Page.................. Cover Page
11. Table of Contents........... Contents
12. General Information and
History.................... Management of the Fund--
Organization of the Fund;
Notes to Financial
Statements; See
Prospectus--"General
Information"
13. Investment Objectives and
Policies................... Investment Objective;
Municipal Securities;
Investment Policies
14. Management of the Fund...... Management of the Fund;
See Prospectus--
"Management of the Funds"
15. Control Persons and
Principal Holders of
Securities................. Management of the Fund;
Miscellaneous;
See Prospectus--
"Management of the Funds"
16. Investment Advisory and
Other Services............. Management of the Fund;
See Prospectus--
"Management of the Funds"
and "Shareholder Servicing"
17. Brokerage Allocation
and Other Practices........ Investment Policies--
Portfolio Transactions
18. Capital Stock and Other
Securities................. Management of the Fund--
Organization of the Fund
and Shareholder Servicing;
See Prospectus --
"General Information"
<PAGE>3
Part B Statement of Additional
Item No. Information Heading
- -------- -----------------------
19. Purchase, Redemption and
Pricing of Securities
Being Offered.............. Additional Purchase and
Redemption Information;
See Prospectus--
"How to Purchase Shares,"
"How to Redeem
and Exchange Shares"
and "Net Asset Value"
20. Tax Status.................. Additional Information
Concerning Taxes;
See Prospectus--
"Dividends, Distributions
and Taxes"
21. Underwriters................ See Prospectus--
"Management of the Funds"
and "Shareholder Servicing"
22. Calculation
of Performance Data........ Determination of Yield
23. Financial Statements........ Report of Coopers &
Lybrand L.L.P., Independent
Auditors; Financial
Statements
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
amendment.
<PAGE>
[Logo]
PROSPECTUS
JUNE 29, 1995
[ ] WARBURG PINCUS CASH RESERVE FUND
[ ] WARBURG PINCUS NEW YORK TAX EXEMPT FUND
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 28, 1995
WARBURG PINCUS FUNDS
P.O. BOX 9030
BOSTON, MASSACHUSETTS 02205-9030
TELEPHONE NUMBER (800) 888-6878
PROSPECTUS June 29, 1995
Warburg Pincus Funds are a family of open-end mutual funds that offer investors
a variety of investment opportunities. Two money market funds are described in
this Prospectus:
WARBURG, PINCUS CASH RESERVE FUND is designed to provide investors with high
current income consistent with liquidity and stability of principal.
WARBURG, PINCUS NEW YORK TAX EXEMPT FUND is designed to provide investors with
as high a level of current income that is exempt from federal, New York State
and New York City personal income taxes as is consistent with preservation of
capital and liquidity.
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. ALTHOUGH EACH FUND SEEKS TO MAINTAIN A CONSTANT NET ASSET VALUE OF
$1.00 PER SHARE, THERE CAN BE NO ASSURANCE THAT IT CAN DO SO ON A CONTINUING
BASIS.
NO LOAD SHARES Fund shares are sold and redeemed at net asset value without the
imposition of a sales or redemption charge by the Fund. Each Fund offers a class
of shares that is 'no-load,' which means that there are no sales charges,
commissions, 12b-1 plan or other deferred sales charges applicable to the class.
LOW MINIMUM INVESTMENT The minimum initial investment in each Fund is $1,000
($500 for an IRA or Uniform Gift to Minors Act account in the case of the Cash
Reserve Fund) and the minimum subsequent investment is $100. Through the
Automatic Monthly Investment Plan, subsequent investment minimums may be as low
as $50. See 'How to Purchase Shares.'
This Prospectus briefly sets forth certain information about the 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, contained in a Statement of Additional Information, has been filed with
the Securities and Exchange Commission and is available to investors without
charge by calling Warburg Pincus Funds at (800) 257-5614. Information regarding
the status of shareholder accounts may be obtained by calling Warburg Pincus
Funds at (800) 888-6878. The Statements of Additional Information bear the same
date as this Prospectus and are incorporated by reference in their entirety into
this Prospectus.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
- --------------------------------------------------------------------------------
THE FUNDS' EXPENSES
<TABLE>
<CAPTION>
CASH RESERVE TAX EXEMPT
FUND* FUND*
------------ ----------
<S> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)..... 0 0
Annual Fund Operating Expenses (as a percentage of average net assets) (after fee
waivers)
Management Fees................................................................. .36% .28%
12b-1 Fees...................................................................... 0 0
Other Expenses.................................................................. .19 .27
Total Fund Operating Expenses................................................... .55% .55%
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.............................................................................. $ 6 $ 6
3 Years............................................................................. $ 18 $ 18
5 Years............................................................................. $ 31 $ 31
10 Years............................................................................. $ 69 $ 69
</TABLE>
------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as an investor in each Fund. Certain broker-dealers and
financial institutions also may charge their clients fees in connection with
investments in Fund shares, which fees are not reflected in the table. Absent
the waiver of certain fees payable to the Funds' investment adviser and
sub-investment adviser and administrator, the Management Fees for Warburg,
Pincus Cash Reserve Fund (the 'Cash Reserve Fund') and Warburg, Pincus Tax
Exempt Fund (the 'Tax Exempt Fund') would have equalled .50%, Other Expenses
would have equalled .24% and .32%, respectively, and the Total Fund Operating
Expenses would have equalled .74% and .82%, respectively, of average net assets
with respect to each Fund. 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%.
- ------------
* Each Fund's Board of Directors (the 'Board') has approved a Distribution
Plan and a Shareholder Services Plan pursuant to which the Fund is authorized to
pay each participating service organization a fee based on the value of the
average daily net assets of its customers invested in the Fund. See 'Shareholder
Servicing.'
2
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each period)
The information regarding each Fund for the five fiscal years ending
February 28, 1995 has been derived from information audited by Coopers & Lybrand
L.L.P., independent auditors, whose report dated March 31, 1995 appears in the
relevant Fund's Statement of Additional Information. Further information is
contained in the Funds' annual report, dated February 28, 1995, copies of which
may be obtained without charge by calling Warburg Pincus Funds at (800)
257-5614.
CASH RESERVE FUND
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
--------------------------------------------------------------------------------------------
2/28/95 2/28/94 2/28/93 2/29/92 2/28/91 2/28/90 2/28/89 2/29/88
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- --------
Income from Investment
Operations
Net Investment Income.......... .0426 .0273 .0322 .0542 .0760 .0870 .0747 .0651
Net Gains (Losses) on
Securities (both realized and
unrealized).................. 0 0 0 .0010 0 0 0 0
-------- -------- -------- -------- -------- -------- -------- --------
Total from Investment
Operations................... .0426 .0273 .0322 .0552 .0760 .0870 .0747 .0651
-------- -------- -------- -------- -------- -------- -------- --------
Less Distributions
Dividends (from net investment
income)...................... (.0426) (.0273) (.0322) (.0542) (.0760) (.0870) (.0747) (.0651)
Distributions (from capital
gains)....................... 0 0 0 (.0010) 0 0 0 0
-------- -------- -------- -------- -------- -------- -------- --------
Total Distributions............ (.0426) (.0273) (.0322) (.0552) (.0760) (.0870) (.0747) (.0651)
-------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of Period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Total Return....................... 4.35% 2.76% 3.27% 5.66% 7.87% 9.05% 7.73% 6.70%
Ratios/Supplemental Data
Net Assets, End of Period (000s)... $403,211 $277,557 $287,723 $426,479 $361,428 $365,008 $209,538 $259,398
Ratios to Average Daily Net Assets
Operating expenses............. .55% .54% .50% .50% .50% .50% .50% .46%
Net investment income.......... 4.41% 2.73% 3.22% 5.45% 7.59% 8.59% 7.51% 6.54%
Decrease reflected in above
expense ratios due to
waivers/reimbursements....... .19% .13% .17% .16% .13% .12% .16% .19%
<CAPTION>
FOR THE
PERIOD
4/16/85
(COMMENCEMENT
OF
OPERATIONS)
THROUGH
2/28/87 2/28/86
-------- -------------
<S> <C> <C>
Net Asset Value, Beginning of
Period........................... $ 1.00 $ 1.00
-------- -------------
Income from Investment
Operations
Net Investment Income.......... .0614 .0662
Net Gains (Losses) on
Securities (both realized and
unrealized).................. 0 0
-------- -------------
Total from Investment
Operations................... .0614 .0662
-------- -------------
Less Distributions
Dividends (from net investment
income)...................... (.0614) (.0662)
Distributions (from capital
gains)....................... 0 0
-------- -------------
Total Distributions............ (.0614) (.0662)
-------- -------------
Net Asset Value, End of Period..... $ 1.00 $ 1.00
-------- -------------
-------- -------------
Total Return....................... 6.39% 6.82%*
Ratios/Supplemental Data
Net Assets, End of Period (000s)... $193,669 $ 78,228
Ratios to Average Daily Net Assets
Operating expenses............. .45% .36%*
Net investment income.......... 5.92% 7.59%*
Decrease reflected in above
expense ratios due to
waivers/reimbursements....... .19% .35%*
</TABLE>
- ------------
* Annualized.
3
<PAGE>
TAX EXEMPT FUND(1)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------------------------------------------------------------------------
2/28/95 2/28/94 2/28/93 2/29/92 2/28/91 2/28/90 2/28/89 2/29/88
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------- -------
Total Income from Investment Operations
Net Investment Income.................. .0246 .0175 .0224 .0329 .0486 .0527 .0461 .0404
------- ------- ------- ------- ------- ------- ------- -------
Less Distributions
Dividends (from net investment
income).............................. (.0246) (.0175) (.0224) (.0329) (.0486) (.0527) (.0461) (.0404)
------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of Period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Total Return............................... 2.48% 1.77% 2.26% 3.34% 4.97% 5.40% 4.70% 4.10%
Ratios/Supplemental Data
Net Assets, End of Period (000s)........... $77,111 $65,984 $76,995 $65,438 $85,783 $87,283 $58,112 $87,721
Ratios to Average Daily Net Assets
Operating expenses..................... .55% .54% .50% .50% .50% .50% .50% .46%
Net investment income.................. 2.46% 1.75% 2.23% 3.27% 4.84% 5.38% 4.57% 4.03%
Decrease reflected in above expense
ratios due to waivers/
reimbursements....................... .27% .19% .28% .23% .21% .21% .25% .23%
<CAPTION>
FOR THE
PERIOD
4/18/85
(COMMENCEMENT
OF
OPERATIONS)
THROUGH
2/28/87 2/28/86
-------- -------------
<S> <C> <C>
Net Asset Value, Beginning of Period....... $ 1.00 $ 1.00
-------- -------------
Total Income from Investment Operations
Net Investment Income.................. .0376 .0413
-------- -------------
Less Distributions
Dividends (from net investment
income).............................. (.0376) (.0413)
-------- -------------
Net Asset Value, End of Period............. $ 1.00 $ 1.00
-------- -------------
-------- -------------
Total Return............................... 3.83% 4.20%*
Ratios/Supplemental Data
Net Assets, End of Period (000s)........... $112,413 $69,583
Ratios to Average Daily Net Assets
Operating expenses..................... .45% .37%*
Net investment income.................. 3.72% 4.86%*
Decrease reflected in above expense
ratios due to waivers/
reimbursements....................... .20% .33%*
</TABLE>
- ------------
* Annualized.
(1) Although the annual report contains information for Series 2 Shares of the
Tax Exempt Fund, Financial Highlights have not been provided for this class
of shares, which ceased being offered on June 9, 1995.
4
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The CASH RESERVE FUND is a diversified money market mutual fund whose investment
objective is high current income consistent with liquidity and stability of
principal. The TAX EXEMPT FUND is a non-diversified money market mutual fund
whose objective is to provide investors with as high a level of current interest
income that is exempt from federal, New York State and New York City personal
income taxes as is consistent with preservation of capital and liquidity. Each
objective may be changed only with the approval of the investors in that Fund.
There can be, of course, no assurance that a Fund will achieve its investment
objective. Investors should be aware that the market value of the obligations in
each Fund's portfolio can be expected to vary inversely to changes in prevailing
interest rates. See 'Certain Investment Strategies' for descriptions of certain
types of investments the Funds may make.
CASH RESERVE FUND
The Cash Reserve Fund will attempt to achieve its investment objective by
investing in a portfolio of 'money market' instruments consisting of United
States Treasury Bills, other obligations issued or guaranteed by the United
States government, its agencies or instrumentalities ('Government Securities');
bank and bank holding company obligations such as certificates of deposit,
bankers' acceptances, time deposits, commercial paper and debt obligations;
commercial paper and notes of other corporate issuers, including those with
floating or variable rates of interest (including variable rate master demand
notes) and repurchase agreements with respect to the foregoing.
The Cash Reserve Fund will concentrate its investments in the banking
industry except during temporary defensive periods. Up to 25% of the assets of
the Cash Reserve Fund may be invested at any time in the debt obligations of
issuers conducting their principal business activities in any industry other
than banking. In addition, the Cash Reserve Fund may invest up to 25% of its
assets in the debt obligations of a single issuer for a period of up to three
business days. Securities issued by the United States or its agencies or
instrumentalities may be purchased without regard to these limits.
TAX EXEMPT FUND
At least 80% of the Tax Exempt Fund's assets will be invested in short-term
tax-exempt debt obligations issued by or on behalf of the State of New York and
other states, territories and possessions of the United States, the District of
Columbia and their respective authorities, agencies, instrumentalities and
political subdivisions ('Municipal Securities'). Dividends paid by the Tax
Exempt Fund which are derived from interest attributable to tax-exempt
obligations of the State of New York and its political subdivisions, as well as
of certain other governmental issuers such as Puerto Rico ('New York Municipal
Securities'), will be excluded from gross income for federal income tax purposes
and exempt from New York State and New York City personal income taxes.
Dividends derived from interest on tax-exempt obligations of other governmental
issuers will be excluded from gross income for federal income tax purposes, but
will be subject to New York State and New York City personal income taxes. The
Tax Exempt Fund expects that, except during temporary defensive periods or when
acceptable securities are unavailable for investment by the Fund, at least 65%
of the Tax Exempt Fund's assets will be invested in New York Municipal
Securities.
Municipal Securities in which the Tax Exempt Fund may invest include
commercial paper, notes and bonds. Interest on certain bonds issued after August
7, 1986 to finance certain non-governmental activities ('Alternative Minimum Tax
Securities') is a preference item for purposes of the federal individual and
corporate alternative minimum taxes, but is exempt from
5
<PAGE>
regular federal income tax. The Fund is authorized to invest up to 20% of its
assets in Alternative Minimum Tax Securities. The alternative minimum tax is
a special tax that applies to a limited number of taxpayers who have certain
adjustments or tax preference items. Available returns on Alternative Minimum
Tax Securities acquired by the Fund may be lower than those from newly issued
Municipal Securities acquired by the Fund due to the possibility of federal,
state and local alternative minimum or minimum income tax liability on interest
from Alternative Minimum Tax Securities.
The Tax Exempt Fund may for defensive or other purposes invest in certain
short-term taxable securities when the Fund's investment adviser believes that
it would be in the best interests of the Fund's investors. Taxable securities in
which the Fund may invest on a short-term basis are Government Securities,
including repurchase agreements with banks or securities dealers involving such
securities, time deposits maturing in not more than seven days, other debt
securities, commercial paper and certificates of deposit issued by United States
branches of United States banks with assets of $1 billion or more. At no time
will more than 20% of the Fund's total assets be invested in taxable short-term
securities unless the Fund's investment adviser has determined to temporarily
adopt a defensive investment policy in the face of an anticipated softening in
the market for Municipal Securities in general.
GENERAL
PRICE AND PORTFOLIO MATURITY. Each Fund invests only in securities which are
purchased with and payable in U.S. dollars and which have (or, pursuant to
regulations adopted by the Securities and Exchange Commission (the 'SEC'), are
deemed to have) remaining maturities of thirteen months or less at the date of
purchase by the Fund. For this purpose, variable rate master demand notes (as
described below), which are payable on demand, or, under certain conditions, at
specified periodic intervals not exceeding thirteen months, in either case on
not more than 30 days' notice, will be deemed to have remaining maturities of
thirteen months or less. Each Fund maintains a dollar-weighted average portfolio
maturity of 90 days or less. Each Fund follows these policies to maintain a
constant net asset value of $1.00 per share, although there is no assurance that
it can do so on a continuing basis.
PORTFOLIO QUALITY AND DIVERSIFICATION. Each Fund will limit its portfolio
investments to securities that its Board determines present minimal credit risks
and which are 'Eligible Securities' at the time of acquisition by the Fund. The
term Eligible Securities includes securities rated by the 'Requisite NRSROs' in
one of the two highest short-term rating categories, securities of issuers that
have received such ratings with respect to other short-term debt securities and
comparable unrated securities. 'Requisite NRSROs' means (i) any two nationally
recognized statistical rating organizations ('NRSROs') that have issued a rating
with respect to a security or class of debt obligations of an issuer, or (ii)
one NRSRO, if only one NRSRO has issued a rating with respect to such security
or issuer at the time that the Fund acquires the security. If the Cash Reserve
Fund acquires securities that are unrated or that have been rated by a single
NRSRO, the acquisition must be approved or ratified by the Board. The Tax Exempt
Fund may purchase securities that are unrated at the time of purchase that the
Fund's investment adviser and sub-investment adviser deem to be of comparable
quality to rated securities that the Fund may purchase. The NRSROs currently
designated as such by the SEC are Standard & Poor's Ratings Group ('S&P'),
Moody's Investors Service, Inc. ('Moody's'), Fitch Investors Services, Inc.,
Duff and Phelps, Inc. and IBCA Limited and its affiliate, IBCA, Inc. A
discussion of the ratings categories of the NRSROs is contained in the
6
<PAGE>
Appendix to each Fund's Statement of Additional Information.
Cash Reserve Fund. The Fund has adopted certain diversification
requirements under Rule 2a-7 under the Investment Company Act of 1940, as
amended (the '1940 Act'), as operating policies. Under these policies the Cash
Reserve Fund may not invest more than 5% of its total assets in Eligible
Securities that have not received the highest rating from the Requisite NRSROs
and comparable unrated securities ('Second Tier Securities') and may not invest
more than 1% of its total assets in the Second Tier Securities of any one
issuer. In addition, the Cash Reserve Fund may invest up to 5% of the
then-current value of the Fund's total assets in the securities of a single
issuer, provided that the Fund may invest more than 5% in an issuer for a period
of up to three business days, provided that (i) the securities either are rated
by the Requisite NRSROs in the highest short-term rating category or are
securities of issuers that have received such rating with respect to other
short-term debt securities or are comparable unrated securities, and (ii) the
Fund does not make more than one such investment at any one time. However, if
Rule 2a-7 is amended to permit it, the Fund may invest, with respect to 25% of
its assets, more than 5% of its assets in any one issuer.
PORTFOLIO INVESTMENTS
Set forth below are descriptions of investments the Funds may make. More
detailed information concerning these investments and their related risks is
contained in each Fund's Statement of Additional Information.
BANK OBLIGATIONS. The Cash Reserve Fund may purchase bank obligations, including
United States dollar-denominated instruments issued or supported by the credit
of the United States or foreign banks or savings institutions having total
assets at the time of purchase in excess of $1 billion. While the Cash Reserve
Fund will invest in obligations of foreign banks or foreign branches of United
States banks only if the Fund's investment adviser and sub-investment adviser
deem the instrument to present minimal credit risks, such investments may
nevertheless entail risks that are different from those of investments in
domestic obligations of United States banks due to differences in political,
regulatory and economic systems and conditions. Such risks include future
political and economic developments, the possible imposition of withholding
taxes on interest income, possible establishment of exchange controls or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. The Cash Reserve Fund
may also make interest-bearing savings deposits in commercial and savings banks
in amounts not in excess of 5% of its assets.
VARIABLE RATE MASTER DEMAND NOTES. Each Fund may also purchase variable rate
master demand notes, which are unsecured instruments that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate. Although the notes are not normally traded and there may be no
secondary market in the notes, the Fund may demand payment of principal and
accrued interest at any time and may resell the note at any time to a third
party. In the event an issuer of a variable rate master demand note defaulted on
its payment obligation, the Fund might be unable to dispose of the note because
of the absence of a secondary market and might, for this or other reasons,
suffer a loss to the extent of the default.
GOVERNMENT SECURITIES. Government Securities in which the Funds may invest
include Treasury Bills, Treasury Notes and Treasury Bonds; other obligations
that are supported by the full faith and credit of the United States Treasury,
such as Government National Mortgage Association pass-through certificates;
obligations that are supported by the right of the issuer to borrow
from the Treasury, such as securities of Federal Home Loan Banks; and
obligations that are
7
<PAGE>
supported only by the credit of the instrumentality, such as Federal National
Mortgage Association bonds.
REPURCHASE AGREEMENTS. Each Fund may agree to purchase money market instruments
from financial institutions such as banks and broker-dealers subject to the
seller's agreement to repurchase them at an agreed-upon date and price
('repurchase agreements'). The repurchase price generally equals the price paid
by the Fund plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the securities underlying the
repurchase agreement). Default by a seller, if the Fund is delayed or prevented
from exercising its rights to dispose of the collateral securities, could expose
the Fund to possible loss, including the risk of a possible decline in the value
of the underlying securities during the period while the Fund seeks to assert
its rights thereto. Repurchase agreements are considered to be loans by the Fund
under the 1940 Act.
WHEN-ISSUED SECURITIES. Each Fund may purchase portfolio securities on a
'when-issued' basis. When-issued securities are securities purchased for
delivery beyond the normal settlement date at a stated price and yield. A Fund
will generally not pay for such securities or start earning interest on them
until they are received. Securities purchased on a when-issued basis are
recorded as an asset and are subject to changes in value based upon changes in
the general level of interest rates. Each Fund expects that commitments to
purchase when-issued securities will not exceed 25% of the value of its total
assets absent unusual market conditions, and that a commitment by the Fund to
purchase when-issued securities will generally not exceed 45 days. The Funds do
not intend to purchase when-issued securities for speculative purposes but only
in furtherance of their investment objectives.
STAND-BY COMMITMENTS. The Tax Exempt Fund may acquire 'stand-by commitments'
with respect to Municipal Securities held in its portfolio. Under a stand-by
commitment, a dealer agrees to purchase, at the Fund's option, specified
Municipal Securities at a specified price. The principal risk of a stand-by
commitment is that the writer of a commitment may default on its obligation to
repurchase the securities acquired by it. The Fund intends to enter into
stand-by commitments only with brokers, dealers and banks that, in the opinion
of the investment adviser, present minimal credit risks. In evaluating the
creditworthiness of the issuer of a stand-by commitment, the investment adviser
and sub-investment adviser will review periodically relevant financial
information concerning the issuer's assets, liabilities and contingent claims.
The Fund will acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes.
THIRD PARTY PUTS. The Tax Exempt Fund may purchase long-term fixed rate bonds
that have been coupled with an option granted by a third party financial
institution allowing the Fund at specified intervals to tender (or 'put') the
bonds to the institution and receive the face value thereof (plus accrued
interest). The Fund receives a short-term rate of interest (which is
periodically reset), and the interest rate differential between that rate and
the fixed rate on the bond is retained by the financial institution. The
financial institution does not provide credit enhancement, and in the event that
there is a default in the payment of principal or interest, or downgrading of a
bond to below investment grade, or a loss of the bond's tax-exempt status, the
put option will terminate automatically, the risk to the Fund will be that of
holding such a long-term bond and the dollar-weighted average maturity of the
Fund's portfolio would be adversely affected. See the Fund's Statement of
Additional Information, 'Investment Policies -- Additional Information and
Policies.'
SPECIAL CONSIDERATIONS AND RISK FACTORS RELATING TO THE TAX EXEMPT FUND. In
seeking to achieve its investment objective the Tax Exempt Fund may invest all
or any part of its assets in
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Municipal Securities which are industrial development bonds. Moreover, although
the Tax Exempt Fund does not currently intend to do so on a regular basis, it
may invest more than 25% of its assets in Municipal Securities the interest on
which is paid solely from revenues of economically related projects, if such
investment is deemed necessary or appropriate by the Fund's investment adviser
and sub-investment adviser. To the extent that the Fund's assets are
concentrated in Municipal Securities payable from revenues on economically
related projects and facilities, the Fund will be subject to the peculiar risks
presented by such projects to a greater extent than it would be if the Fund's
assets were not so concentrated.
As a non-diversified mutual fund, the Tax Exempt Fund may invest a greater
proportion of its assets in the obligations of a smaller number of issuers and,
as a result, will be subject to greater credit risk with respect to its
portfolio securities. In the opinion of the Fund's adviser, any risk to the Fund
should be limited by its intention to continue to conduct its operations so as
to qualify as a 'regulated investment company' for purposes of the Internal
Revenue Code of 1986, as amended (the 'Code'), and by its policies restricting
investments to obligations with short-term maturities and high quality credit
ratings.
The Fund's ability to achieve its investment objective is dependent upon
the ability of the issuers of New York Municipal Securities to meet their
continuing obligations for the payment of principal and interest. New York State
and New York City face long-term economic problems that could seriously affect
their ability and that of other issuers of New York Municipal Securities to meet
their financial obligations.
Certain substantial issuers of New York Municipal Securities (including
issuers whose obligations may be acquired by the Fund) have experienced serious
financial difficulties in recent years. These difficulties have at times
jeopardized the credit standing and impaired the borrowing abilities of all New
York issuers and have generally contributed to higher interest costs for their
borrowings and fewer markets for their outstanding debt obligations. In recent
years, several different issues of municipal securities of New York State and
its agencies and instrumentalities and of New York City have been down-
graded by S&P and Moody's. On the other hand, strong demand for New York
Municipal Securities has more recently had the effect of permitting New York
Municipal Securities to be issued with yields relatively lower, and after
issuance, to trade in the market at prices relatively higher, than comparably
rated municipal obligations issued by other jurisdictions. A recurrence of the
financial difficulties previously experienced by certain issuers of New York
Municipal Securities could result in defaults or declines in the market values
of those issuers' existing obligations and, possibly, in the obligations of
other issuers of New York Municipal Securities. Although as of the date of this
Prospectus, no issuers of New York Municipal Securities are in default with
respect to the payment of their municipal obligations, the occurrence of any
such default could affect adversely the market values and marketability of all
New York Municipal Securities and, consequently, the net asset value of the
Fund's portfolio.
Other considerations and risk factors affecting the Fund's investments in
New York Municipal Securities are summarized in the Statement of Additional
Information of the Tax Exempt Fund. See in the Statement of Additional
Information 'Special Considerations Relating to New York Municipal Securities'.
INVESTMENT GUIDELINES
Each Fund may invest up to an aggregate of 10% of its total assets in
illiquid securities with contractual or other restrictions on resale and other
instruments which are not readily marketable. Each Fund is also authorized
to borrow and to enter into reverse repurchase agreements in
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an amount of up to 10% of its total assets for temporary or emergency
purposes, but not for leverage, and to pledge its assets to the same
extent in connection with such borrowings. Whenever borrowings exceed
5% of the value of a Fund's total assets, the Fund will not make any
additional investments (including roll-overs). A more detailed description of
these policies, together with an enumeration of additional investment
restrictions that each Fund has adopted and that cannot be changed without the
approval of the holders of a majority of the Fund's outstanding shares, is
contained in each Fund's Statement of Additional Information.
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISER. Each Fund employs Warburg, Pincus Counsellors, Inc.
('Counsellors') as investment adviser to the Fund. Counsellors is a professional
investment counselling firm which provides investment services to investment
companies, employee benefit plans, endowment funds, foundations and other
institutions and individuals. As of May 31, 1995, Counsellors had more than
$10.5 billion of assets under management and provided investment advice to
nineteen investment companies which had total assets of approximately $4.9
billion. Incorporated in 1970, Counsellors is a wholly owned subsidiary of
Warburg, Pincus Counsellors G.P. ('Counsellors G.P.'), a New York general
partnership. E.M. Warburg, Pincus & Co., Inc. ('EMW') controls Counsellors
through its ownership of a class of voting preferred stock of Counsellors G.P.
Counsellors G.P. has no business other than being a holding company of
Counsellors and its subsidiaries. Counsellors' address is 466 Lexington Avenue,
New York, New York 10017-3147.
In its Advisory Agreement with each Fund, Counsellors has agreed to be
responsible, subject to the supervision and direction of the Board, for the
Fund's investment program, including decisions concerning: (i) the specific
types of securities to be held by the Fund and the proportion of the Fund's
assets that should be allocated to such investments during particular market
cycles, (ii) the specific issuers whose securities will be purchased or sold by
the Fund, (iii) the maximum maturity (under one year) of its portfolio
investments, (iv) the appropriate average weighted maturity of its portfolio in
light of current market conditions and, with respect to the Tax Exempt Fund, (v)
the extent to which taxable securities will be purchased for and held by the Tax
Exempt Fund and (vi) the extent to which securities other than New York
Municipal Securities will be purchased for and held by the Tax Exempt Fund. In
addition, Counsellors has agreed to supervise the performance by the sub-
investment adviser of the functions described below. For the services provided
pursuant to the Advisory Agreement, Counsellors is entitled to receive a fee,
computed daily and payable monthly, at the annual rate of .25 of 1.00% of the
value of each Fund's average daily net assets. For the year ended February 28,
1995, the Cash Reserve Fund and the Tax Exempt Fund paid Counsellors a fee after
waivers at the rate of .23% and .19%, respectively, of each Fund's net assets.
SUB-INVESTMENT ADVISER AND ADMINISTRATOR. PNC Institutional Management
Corporation ('PIMC'), a wholly owned subsidiary of PNC Bank, National
Association ('PNC'), serves as each Fund's sub-investment adviser and
administrator. PIMC was organized in 1977 by PNC to perform advisory services
for investment companies and has its principal offices at 400 Bellevue Parkway,
Wilmington, Delaware 19809. As of May 31, 1995, PIMC served as investment
adviser to 52 mutual fund portfolios and as sub-investment adviser to 7 mutual
funds, having total assets exceeding $26.2 billion.
As sub-investment adviser and administrator, PIMC has agreed to implement
each Fund's investment program as determined by the Board
and Counsellors. PIMC will supervise the day-to-day operations of the Fund and
perform the
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following services: (i) providing investment research and credit analysis
concerning the Fund's investments, (ii) placing orders for all
purchases and sales of the Fund's portfolio investments and (iii) maintaining
the books and records required to support the Fund's operations. As compensation
therefor, each Fund has agreed to pay PIMC a fee computed daily and payable
monthly at an annual rate of .25 of 1.00% of the value of each Fund's average
daily net assets. For the year ended February 28, 1995, the Cash Reserve Fund
and the Tax Exempt Fund paid PIMC a fee after waivers at the rate of .13% and
.09%, respectively, of each Fund's net assets.
CO-ADMINISTRATOR. The Funds employ Counsellors Funds Service, Inc. ('Counsellors
Service'), a wholly owned subsidiary of Counsellors, 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 supplying office facilities and furnishing
certain executive and administrative services, acting as liaison between the
Funds and their various service providers, furnishing corporate secretarial
services, which include preparing materials for meetings of the Board, preparing
proxy statements and annual, semiannual and quarterly reports, assisting in
other regulatory filings as necessary and monitoring and developing compliance
procedures for the Funds. As compensation, each Fund pays to Counsellors Service
a fee calculated at an annual rate of .10% of that Fund's average daily net
assets.
Counsellors may, at its own expense, provide promotional incentives to
qualified recipients who support the sale of shares of the Funds. Qualified
recipients are securities dealers who have sold Fund shares or others, including
banks and other financial institutions, under special arrangements. In some
instances, these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Fund shares.
DISTRIBUTOR. Counsellors Securities Inc. ('Counsellors Securities') acts as
distributor of each Fund's shares. Counsellors Securities is a wholly owned
subsidiary of Counsellors. Counsellors Securities' address is 466 Lexington
Avenue, New York, New York 10017-3147. No compensation is payable by each Fund
to Counsellors Securities for its distribution services.
TRANSFER AGENT. State Street Bank and Trust Company ('State Street') acts as
shareholder servicing agent, transfer agent and dividend disbursing agent for
the Funds. It has delegated to Boston Financial Data Services, Inc., a 50% owned
subsidiary ('BFDS'), responsibility for most shareholder servicing functions.
State Street's principal business address is 225 Franklin Street, Boston,
Massachusetts 02110. BFDS's principal business address is 2 Heritage Drive,
North Quincy, Massachusetts 02171.
CUSTODIAN. PNC serves as the custodian of each Fund's assets. PNC and its
predecessors have been in the business of managing the investments of fiduciary
and other accounts in the Philadelphia area since 1847. PNC is a subsidiary of
PNC Bank Corp. and its principal business address is Broad and Chestnut Streets,
Philadelphia, Pennsylvania 19101. PNC Bank Corp. is a multi-bank holding company
with its principal offices in Pittsburgh, Pennsylvania.
DIRECTORS AND OFFICERS. The officers of each Fund manage its day-to-day
operations and are directly responsible to the Board. The Directors 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 of each Fund.
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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) 257-5614. An investor may also obtain an account
application by writing to:
Warburg Pincus Funds
P.O. Box 9030
Boston, Massachusetts 02205-9030
Completed and signed account applications should be mailed to Warburg Pincus
Funds at the above address.
RETIREMENT PLANS AND UGMA ACCOUNTS. For information about investing in the Cash
Reserve Fund through a tax-deferred retirement plan, such as an IRA or a
Simplified Employee Pension IRA ('SEP-IRA'), or about opening a Uniform Gifts to
Minors Act or Uniform Transfers to Minors Act ('UGMA') account, an investor
should telephone Warburg Pincus Funds at (800) 888-6878 or write to Warburg
Pincus Funds at the address set forth above. Investors should consult their own
tax advisers about the establishment of retirement plans.
CHANGES TO ACCOUNT. For information on how to make changes to an account, an
investor should telephone Warburg Pincus Funds at (800) 888-6878.
HOW TO PURCHASE SHARES
Shares of each Fund may be purchased either by mail or, with special
advance instructions, by wire.
BY MAIL. If the investor desires to purchase 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 Inc., at the address set forth
above. Checks payable to the investor and endorsed to the order of the Fund or
Warburg Pincus Funds will not be accepted as payment and will be returned to the
sender. If payment is received in proper form before 4:00 p.m. (Eastern time) on
a day that the Fund calculates its net asset value (a 'business day'), the
purchase will be made at the Fund's net asset value calculated at the end of
that day. If payment is received after 4:00 p.m., the purchase will be effected
at the Fund's net asset value next determined after payment has been received.
Checks or money orders that are not in proper form or that are not accompanied
or preceded by a complete account application will be returned to the sender.
Shares purchased by check or money order are entitled to receive dividends and
distributions beginning on the day after payment has been received. Checks or
money orders in payment for shares of more than one Warburg Pincus Fund should
be made payable to Warburg Pincus Funds and should be accompanied by a breakdown
of amounts to be invested in each fund. If a check used for purchase does not
clear, the Fund will cancel the purchase and the investor may be liable for
losses or fees incurred. For a description of the manner of calculating the
Fund's net asset value, see 'Net Asset Value.'
BY WIRE. Investors may also purchase shares in a Fund by wiring funds from their
banks. Telephone orders 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) 888-6878. Federal funds may be wired to Counsellors
Securities Inc. using the following wire address:
State Street Bank and Trust Co.
225 Franklin St.
Boston, MA 02101
ABA #0110 000 28
Attn: Mutual Funds/Custody Dept.
[Insert Warburg Pincus fund name(s) here]
DDA #9904-649-2
[Shareowner name]
[Shareowner account number]
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If a telephone order is received before 12:00 p.m. (Eastern time) and
payment by wire is received on the same day in proper form in accordance with
instructions set forth above, the purchase will be executed at noon, and shares
are entitled to dividends and distributions beginning on that day. Payments by
wire received in proper form before 12:00 p.m. without a prior telephone order,
and any telphone orders placed after 12:00 p.m. for which payment by wire is
received on the same day in proper form, will be executed at 4:00 p.m. and will
be entitled to dividends and distributions beginning the next business day. 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. Wires received that are not accepted will be returned to the
investor after prompt inquiry.
The minimum initial investment in each Fund is $1,000, and the minimum
subsequent investment is $100, except that subsequent minimum investments can be
as low as $50 under the Automatic Monthly Investment Plan described in the next
section. With respect to the Cash Reserve Fund, for a tax-deferred retirement
plan, such as an IRA or UGMA account, the minimum initial and subsequent
investment is $500. Each Fund reserves the right to change the initial and
subsequent investment minimum requirements at any time. In addition, the Fund
may, in its sole discretion, waive the initial and subsequent investment minimum
requirements with respect to investors who are employees of EMW or its
affiliates or persons with whom Counsellors has entered into an investment
advisory agreement. Existing investors will be given 15 days' notice by mail of
any increase in investment minimum requirements.
After an investor has made his initial investment, additional shares may be
purchased at any time by mail or by telephone in the manner outlined above. Wire
payments for initial and subsequent investments should be preceded by an order
placed with the Fund and should clearly indicate the investor's account number
and the name of the Fund in which shares are being purchased. In the interest of
economy and convenience, physical certificates representing shares in the Funds
are not normally issued.
The Funds understand that some broker-dealers (other than Counsellors
Securities), financial institutions, securities dealers and other industry
professionals may impose certain conditions on their clients which are in
addition to or different than those described in this Prospectus, and, to the
extent permitted by applicable regulatory authority, may charge their clients
direct fees. Certain features of the Funds, such as the minimum initial and
subsequent investments, may be modified in these programs, and administrative
charges may be imposed for the services rendered. Therefore, a client or
customer should contact the organization acting on his behalf concerning the
fees (if any) charged in connection with a purchase or redemption of Fund shares
and should read this Prospectus in light of the terms governing his accounts
with the organization. These organizations will be responsible for promptly
transmitting client or customer purchase and redemption orders to the Funds in
accordance with their agreements with clients or customers. Certain
organizations that have entered into agreements with a Fund or its agent may
enter confirmed purchase orders on behalf of customers, with payment to follow
no later than the Fund's pricing on the following business day. If payment is
not received by such time, the organization could be held liable for resulting
fees or losses.
AUTOMATIC MONTHLY INVESTING. Automatic monthly investing allows
shareholders to authorize a Fund to debit their bank account monthly ($50
minimum) for the purchase of Fund shares on or about either the tenth or
twentieth calendar day of each month. To establish the automatic monthly
investing option, obtain a separate application or complete the 'Automatic
Investment Program' section of the account application and include a voided,
unsigned check
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from the bank account to be debited. Only an account maintained at a domestic
financial institution which is an automated clearing house member may be used.
Shareholders using this service must satisfy the initial investment minimum for
the Fund prior to or concurrent with the start of any Automatic Investment
Program. Please refer to an account application for further information or
contact Warburg Pincus Funds at (800) 888-6878 for information or to modify
or terminate the program. Investors should allow a period of up to 30 days
in order to implement an automatic investment program. The failure to provide
complete information could result in further delays.
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).
Shares of the Funds may either be redeemed by mail, by telephone or by
check. Investors should realize that in using the telephone redemption and
exchange option, you may be giving up a measure of security that you may have if
you were to redeem or exchange your shares in writing. If an investor desires to
redeem his shares by mail, a written request for redemption should be sent to
Warburg Pincus Funds at the address indicated above under 'How to Open an
Account.' An investor should be sure that the redemption request identifies the
Fund, the number of shares to be redeemed and the investor's account number. In
order to change the bank account or address designated to receive the redemption
proceeds, the investor must send a written request (with signature guarantee of
all investors listed on the account when such a change is made in conjunction
with a redemption request) to Warburg Pincus Funds. Each mail redemption request
must be signed by the registered owner(s) (or his legal representative(s))
exactly as the shares are registered. If an investor has applied for the
telephone redemption feature on his account application, he may redeem his
shares by calling Warburg Pincus Funds at (800) 888-6878 between 9:00 a.m. and
4:00 p.m. (Eastern time) on any business day. An investor making a telephone
withdrawal should state (i) the name of the Fund, (ii) the account number of the
Fund, (iii) the name of the investor(s) appearing on the Fund's records, (iv)
the amount to be withdrawn and (v) the name of the person requesting the
redemption.
After receipt of the redemption request by mail or by telephone, the
redemption proceeds will, at the option of the investor, be paid by check and
mailed to the investor of record or be wired to the investor's bank as indicated
in the account application previously filled out by the investor. No Fund
currently imposes a service charge for effecting wire transfers but each Fund
reserves the right to do so in the future. During periods of significant
economic or market change, telephone redemptions may be difficult to implement.
If an investor is unable to contact Warburg Pincus Funds by telephone, an
investor may deliver the redemption request to Warburg Pincus Funds by mail at
the address shown above under 'How to Open an Account.' Although each Fund will
redeem shares purchased by check before the check clears, payments of the
redemption proceeds will be delayed until such check has cleared, which may take
up to 15 days from the purchase date. Investors should consider purchasing
shares using a certified or bank check or money order if they anticipate an
immediate need for a redemption.
Shares are redeemed at the net asset value per share next determined after
receipt of a redemption order by Warburg Pincus Funds and, if the shares to be
redeemed are represented by share certificates, upon receipt of all such
certificates in proper form by Warburg Pincus Funds at its principal office. All
such certificates must be endorsed by the redeeming investor or accompanied by a
signed stock power, in each instance with the signature guaranteed by a
commercial
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<PAGE>
bank or a member of a major stock exchange, unless other arrangements
satisfactory to the Fund have previously been made. Each Fund may require any
additional information reasonably necessary to evidence that a redemption has
been duly authorized. Payment for redeemed shares for which a redemption order
(and any supporting documentation required) is received prior to noon (Eastern
time) on a day that State Street is open for business is normally made on the
same business day. Payment for redeemed shares for which a redemption order is
received after noon (Eastern time) on such a business day or on a day that State
Street is closed is normally made on the next business day that State Street is
open. Each Fund reserves the right to pay redemption proceeds within seven days
after receiving the redemption order in proper form if, in the judgment of the
Fund's sub-investment adviser and administrator, an earlier payment could
adversely affect the Fund. Furthermore, each 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.
Although each Fund intends to use its best efforts to maintain its net
asset value per share at $1.00, 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 $750 ($250 in the case of an IRA or UGMA account), 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.
Redemption By Check. An individual investor who is the record owner of Fund
shares may request a supply of checks by making the appropriate election on his
account application. Checks may be made payable to the order of any person in
any amount not less than $500. When a check is presented to State Street for
payment, State Street, as agent for the investor, causes the Fund to redeem a
sufficient number of shares in the investor's account to cover the amount of the
check.
Investors are entitled to receive dividends on the shares to be redeemed
through the day the check is presented to State Street for payment. If an
investor owns insufficient shares to cover a check, the check will be returned
to the investor marked 'insufficient funds.' Cancelled checks will be returned
to the investor. The Fund reserves the right to terminate or modify the check
redemption procedure at any time, to impose a service charge or to charge for
checks. Each Fund may also charge an investor's account for returned checks and
for effecting stop orders.
TELEPHONE TRANSACTIONS. In order to request redemptions by telephone,
investors must have completed and returned to Warburg Pincus Funds an account
application containing a telephone election. Unless contrary instructions are
elected, an investor will be entitled to make exchanges by telephone. Neither 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 to confirm that instructions
communicated by telephone are genuine. Such procedures include providing written
confirmation of telephone transactions, tape recording telephone instructions
and requiring specific personal information prior to acting upon telephone
instructions.
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<PAGE>
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)
888-6878.
EXCHANGE OF SHARES. An investor may exchange shares of a Fund for shares of
another Fund or for shares of the other mutual funds advised by Counsellors at
their respective net asset values. Exchanges may be effected by mail or by
telephone in the manner described under 'Specific Redemption Procedures' above.
If an exchange request is received by Warburg Pincus Funds prior to 4:00 p.m.
(Eastern time) the exchange will be made at each fund's net asset value
determined at the end of that business day. Exchanges may be effected without a
sales charge but must satisfy the minimum dollar amount necessary for new
purchases. Due to the costs involved in effecting exchanges, each Fund reserves
the right to refuse to offer more than three exchange requests by a shareholder
in any 30-day period. The exchange privilege may be modified or terminated at
any time upon 60 days' notice to shareholders. Currently, exchanges may be made
between the Funds and with the following other funds:
WARBURG PINCUS NEW YORK INTERMEDIATE MUNICIPAL FUND -- an
intermediate-term municipal bond fund designed for New York investors
seeking income exempt from federal, New York State and New York City
income tax;
WARBURG PINCUS TAX-FREE FUND -- a bond fund seeking maximum current income
exempt from federal income taxes, consistent with preservation of capital;
WARBURG PINCUS INTERMEDIATE MATURITY GOVERNMENT FUND -- an
intermediate-term bond fund investing in obligations issued or guaranteed
by the U.S. government, its agencies or instrumentalities;
WARBURG PINCUS FIXED INCOME FUND -- a bond fund investing in a diversified
portfolio of fixed-income securities;
WARBURG, PINCUS SHORT-TERM TAX-ADVANTAGED BOND FUND -- a bond fund seeking
maximum income after the effect of federal income taxes as a primary
objective and capital appreciation as a secondary objective;
WARBURG PINCUS GLOBAL FIXED INCOME FUND -- a bond fund investing in a
portfolio consisting of investment grade fixed-income securities of
governmental and corporate issuers denominated in various currencies,
including U.S. dollars;
WARBURG, PINCUS BALANCED FUND -- a fund seeking maximum total return
through a combination of long-term growth of capital and current income
consistent with preservation of capital through diversified investments in
equity and debt securities;
WARBURG PINCUS CAPITAL APPRECIATION FUND -- an equity fund seeking
long-term capital appreciation by investing in equity securities of
financially strong domestic companies;
WARBURG PINCUS EMERGING GROWTH FUND -- an equity fund seeking maximum
capital appreciation by investing in emerging growth companies;
WARBURG PINCUS INTERNATIONAL EQUITY FUND -- an international equity fund
seeking long-term capital appreciation;
WARBURG PINCUS GROWTH & INCOME FUND -- an equity fund seeking long-term
16
<PAGE>
growth of capital and income and a reasonable current return;
WARBURG, PINCUS EMERGING MARKETS FUND -- an equity fund seeking growth of
capital by investing primarily in securities of non-United States issuers
consisting of companies in emerging securities markets; and
WARBURG PINCUS JAPAN OTC FUND -- an equity fund seeking long-term capital
appreciation by investing in a portfolio of securities traded in the
Japanese over-the-counter market.
The exchange privilege is available to shareholders residing in any state
in which the fund 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 shares of a
Fund for shares in another Warburg Pincus Fund should review the prospectus of
the other fund prior to making an exchange. For 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) 257-5614.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. Each Fund calculates its dividends from net
investment income. Each Fund's net investment income is declared daily and paid
monthly. Net investment income earned on weekends and when the New York Stock
Exchange (the 'NYSE') is not open will be computed as of the next business day.
Distributions of long-term capital gains, if any, generally are declared and
paid annually at the end of the Fund's fiscal year in which they are earned.
Distributions of short-term capital gains, if any, are declared and paid
annually, at the end of the fiscal year in the case of the Tax Exempt Fund, and
periodically, as the Board determines, in the case of the Cash Reserve Fund.
Unless an investor instructs the Fund to pay dividends or capital gains
distributions in cash, dividends and distributions will automatically be
reinvested in additional 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 the address set forth under
'How to Open an Account' or by calling Warburg Pincus Funds at (800) 888-6878.
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 U.S. Internal Revenue Service that they are subject to
backup withholding.
TAXES. Each Fund intends to continue 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 any additional dividends and
distributions as are necessary to avoid the application of this tax. As long as
the Tax Exempt Fund qualifies as a regulated investment company and meets
certain other Code requirements (including the requirement that at least 50%
of its assets are invested in tax-exempt obligations at the close of each
quarter of its taxable year), distributions of tax-exempt interest income will
be excluded from an investor's income for federal income tax purposes.
Such exempt interest dividends paid by the Tax Exempt Fund may be excluded
by investors from their gross incomes for federal income tax purposes, although
(i) such exempt interest dividends will be a tax preference item for purposes of
the federal individual and corporate
17
<PAGE>
alternative minimum taxes to the extent they are derived from Alternative
Minimum Tax Securities and (ii) all exempt interest dividends will be a
component of the 'current earnings' adjustment item for purposes of the federal
corporate alternative minimum tax. In addition, corporate investors may incur
a greater federal environmental tax liability through the receipt of Fund
dividends and distributions. Investors who are 'substantial users' (or
'related persons' of substantial users) within the meaning of the Code of
facilities financed by Alternative Minimum Tax Securities should consult their
tax advisers as to whether the Tax Exempt Fund is a desirable investment.
Dividends paid by a Fund from its taxable net investment income (if any, in
the case of the Tax Exempt Fund) and distributions of any net short-term capital
gains (whether from tax-exempt or taxable obligations) are taxable to investors
as ordinary income, whether received in cash or reinvested in additional shares
of the Fund. Each Fund does not expect to realize long-term capital gains and,
therefore, it is unlikely that any portion of the dividends or distributions
paid by a Fund will be taxable to investors as long-term capital gains. As a
general rule, an investor's gain or loss on a sale or redemption of his Fund
shares will be a long-term capital gain or loss if he has held his shares for
one year or less. An investor in the Tax Exempt Fund who redeems his Fund shares
prior to the declaration of a dividend may lose tax-exempt status on accrued
income attributable to tax-exempt Municipal Securities. 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. Each Fund's dividends and distributions will not qualify
for the dividends-received deduction allowed to corporations.
Exempt interest dividends derived from interest on qualifying New York
Municipal Securities will also be exempt from New York State and New York City
personal (but not corporate franchise) income taxes.
The exclusion or exemption of interest income for federal income tax
purposes, or New York State or New York City personal income tax purposes, in
most cases does not result in an exemption under the tax laws of any other state
or local authority. Investors who are subject to tax in other states or
localities should consult their own tax advisers about the taxation of dividends
and distributions from the Tax Exempt Fund by such states and localities.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions will be mailed annually by Warburg Pincus Funds. These statements,
in the case of investments in the Tax Exempt Fund, will set forth or indicate
the dollar amounts of income excluded from federal income taxes and exempt from
New York State and New York City personal income taxes, and the amounts, if any,
subject to such taxes. Moreover, these statements will also designate the amount
of exempt interest dividends which are a tax preference item for purposes of the
federal individual and corporate alternative minimum taxes.
Each investor in the Cash Reserve Fund will also receive, if appropriate,
various written notices after the close of the Fund's prior taxable year with
respect to certain dividends and distributions which were received from the Fund
during the Fund's prior taxable year. Investors should consult their tax
advisers about any state and local taxes that may apply to dividends and
distributions received from the Cash Reserve Fund. In this regard, investors
should be aware that if a portion of any dividend is derived from interest on
United States government obligations, that portion may be subject to tax by
certain states, even though such interest, if received directly by an investor,
would be exempt from state income tax.
18
<PAGE>
NET ASSET VALUE
Each Fund's net asset value per share is calculated at noon and as of the
close of regular trading on the NYSE (currently 4:00 p.m., Eastern time), on
each business day, Monday through Friday, except on days when the NYSE is
closed. The NYSE is currently scheduled to be closed on New Year's Day,
Washington's Birthday, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day, and on the preceding Friday or
subsequent Monday when one of these holidays falls on a Saturday or Sunday,
respectively.
The net asset value per share of each Fund is computed by adding the value
of all the Fund's assets, deducting liabilities and dividing the result by the
number of shares outstanding. Portfolio securities are valued on the basis of
amortized cost, which involves valuing a portfolio instrument at its cost
initially and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument.
PERFORMANCE
From time to time, a Fund may advertise its yield and effective yield and,
in the case of the Tax Exempt Fund, its tax equivalent yield. The yield of the
Fund refers to the income generated by an investment in the Fund over a
seven-day period. This income is then annualized. That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
effective yield is calculated similarly but, when annualized, assumes that
income earned by an investment in the Fund is reinvested. The effective yield
will be slightly higher than the yield because of the compounding effect of this
assumed reinvestment. The tax equivalent yield shows the taxable yield an
investor in the highest applicable tax bracket would have to earn to equal the
Tax Exempt Fund's tax-free yield after the imposition of federal, New York State
and New York City personal income taxes. The Tax Exempt Fund's tax equivalent
yield is calculated by dividing the Fund's tax-exempt yield by one minus the
highest level of the combined federal, New York State and New York City tax
rates. Yield, effective yield and tax equivalent yield may be shown by means of
schedules, charts or graphs.
Investors should note that yield, effective yield and tax equivalent yield
figures are based on historical earnings and are not intended to indicate future
performance. Each Fund's Statement of Additional Information describes the
method used to determine the Fund's yield. Current yield figures may be obtained
by calling Warburg Pincus Funds at (800) 257-5614.
In reports or other communications to investors or in advertising material,
a Fund may describe general economic and market conditions affecting the Fund.
The Fund may compare its performance with (i) that of other mutual funds as
listed in the rankings prepared by Lipper Analytical Services, Inc. or similar
investment services that monitor the performance of mutual funds or (ii) in the
case of the Tax Exempt Fund, an average of the yields of similar New York
tax-exempt money market funds based on information contained in Donoghue's Money
Market Fund Report, which is published weekly by the Donoghue Organization or
(iii) in the case of the Cash Reserve Fund, the Donoghue's Money Market Fund
Average, which is an average of all major taxable money market fund yields
published weekly by the Donoghue Organization or (iv) in each case, other
appropriate indexes of investment securities. Each Fund may also include
evaluations of the Fund published by nationally recognized ranking services
and by financial publications that are nationally recognized, such as The
Wall Street Journal, Investor's Daily, Money, Inc., Institutional Investor,
Barron's, Fortune, Forbes, Morningstar, Inc. and Business Week. In addition,
each Fund may from time to time compare its expense ratio to
19
<PAGE>
that of investment companies with similar objectives and policies, based on
data generated by Lipper Analytical Services, Inc. or similar investment
services that monitor mutual funds.
GENERAL INFORMATION
Each Fund was incorporated on November 15, 1984 under the laws of the State
of Maryland. Although the Funds' names as set forth in their respective charters
are 'Counsellors Cash Reserve Fund, Inc.' and 'Counsellors New York Tax Exempt
Fund, Inc.', they do business under the name 'Warburg, Pincus Cash Reserve Fund'
and 'Warburg, Pincus New York Tax Exempt Fund', respectively. Each Fund's
charter authorizes the Board to issue three billion full and fractional shares
of capital stock, $.001 par value per share, of which one billion shares are
designated Series 2 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. The Board may similarly
classify or reclassify any class of shares into one or more series. Since no
Series 2 Shares are outstanding for either of the Funds, references to 'shares'
in this prospectus refer solely to the common shares of a Fund (the 'Common
Shares'), unless the context otherwise requires.
Investors 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 until less than a
majority of the members holding office have been elected by investors. Any
member of the Board may be removed from office upon the vote of shareholders
holding at least a majority of the Fund's outstanding shares. A meeting will be
called for the purpose of voting on the removal of a Board member at the written
request of holders of 10% or more of the outstanding shares of a Fund.
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 of
distributions). 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. John
L. Furth, a Director of the Funds, and Lionel I. Pincus may be deemed to be
controlling persons of each Fund as of May 31, 1995 because they may be deemed
to possess or share investment power over shares owned by clients of Counsellors
and certain other entities.
The 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 the
other Fund.
SHAREHOLDER SERVICING
Each Fund is authorized to offer Series 2 Shares exclusively to financial
institutions and retirement plans or companies providing certain services to
them ('Service Organizations') that enter into account servicing agreements
('Agreements') with the Fund described below. Pursuant to the terms of an
Agreement, the Service Organization agrees to perform certain distribution,
shareholder servicing, administrative and/or accounting services for its
clients and customers (or participants, in the case of retirements plans)
('Customers') who are beneficial owners of Series 2 Shares. Series 2 Shares may
not be purchased by individuals directly but financial institutions and
retirement plans may purchase
20
<PAGE>
Series 2 Shares for individuals. The governing Board has approved a Distribution
Plan (the 'Plan') pursuant to Rule 12b-1 under the 1940 Act under which the Fund
will pay each participating Service Organization a negotiated fee on an annual
basis not to exceed .75% of the value of the average daily net assets of its
Customers invested in Series 2 Shares.
Common Shares may be sold to or through institutions that will not be paid
by the Fund a distribution fee pursuant to Rule 12b-1 under the 1940 Act for
services to their clients or customers who are beneficial owners of Common
Shares. These institutions may by paid a fee by the Fund for transfer agency,
administrative or other services provided to their customers that invest in the
Fund's Common Shares. These services include maintaining account records,
processing orders to purchase, redeeming and exchanging Common Shares and
responding to certain customer inquiries. Counsellors and Counsellors Securities
may, from time to time, at their own expense, also provide compensation to these
institutions. To the extent they do so, such compensation will not represent an
additional expense to the Fund or its shareholders, since it will be paid from
the assets of Counsellors, Counsellors Service or their affiliates.
------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, EACH FUND'S
STATEMENT OF ADDITIONAL INFORMATION OR EACH FUND'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF THE FUND'S SHARES, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY A FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE
IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
21
<PAGE>
TABLE OF CONTENTS
THE FUNDS' EXPENSES ...................................................... 2
FINANCIAL HIGHLIGHTS ..................................................... 3
INVESTMENT OBJECTIVES AND POLICIES ....................................... 5
GENERAL .................................................................. 6
PORTFOLIO INVESTMENTS .................................................... 7
INVESTMENT GUIDELINES .................................................... 9
MANAGEMENT OF THE FUNDS ................................................. 10
HOW TO OPEN AN ACCOUNT .................................................. 12
HOW TO PURCHASE SHARES .................................................. 12
HOW TO REDEEM AND EXCHANGE SHARES ....................................... 14
DIVIDENDS, DISTRIBUTIONS AND TAXES ...................................... 17
NET ASSET VALUE ......................................................... 19
PERFORMANCE ............................................................. 19
GENERAL INFORMATION ..................................................... 20
SHAREHOLDER SERVICING ................................................... 20
WPCRNY-1-0695
[LOGO]
[ ] WARBURG PINCUS
CASH RESERVE FUND
[ ] WARBURG PINCUS
NEW YORK TAX EXEMPT FUND
PROSPECTUS
JUNE 29, 1995
<PAGE>1
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
<PAGE>1
SUBJECT TO COMPLETION, DATED JUNE 28, 1995
STATEMENT OF ADDITIONAL INFORMATION
June 29, 1995
------------------
WARBURG, PINCUS NEW YORK TAX EXEMPT FUND
P.O. Box 9030, Boston, Massachusetts 02205-9030
For information call: (800) 888-6878
------------------
Contents
Page
Investment Objective . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Municipal Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Investment Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Special Considerations Relating to New York
Municipal Securities . . . . . . . . . . . . . . . . . . . . . . . . . 10
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . 21
Additional Purchase and Redemption Information . . . . . . . . . . . . . 29
Exchange Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Additional Information Concerning Taxes . . . . . . . . . . . . . . . . . 31
Determination of Yield . . . . . . . . . . . . . . . . . . . . . . . . . 34
Auditors and Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Appendix -- Description of Municipal Securities Ratings . . . . . . . . . A-1
Report of Coopers & Lybrand L.L.P., Independent Auditors . . . . . . . . A-4
This Statement of Additional Information is meant to be read in
conjunction with the Prospectus of Warburg, Pincus New York Tax Exempt Fund
(the "Fund") and Warburg, Pincus Cash Reserve Fund dated June 29, 1995 and is
incorporated by reference in its entirety into that Prospectus. Because this
Statement of Additional Information is not itself a prospectus, no investment
in shares of the Fund should be made solely upon the information contained
herein. Copies of the Fund's Prospectus and information regarding the
<PAGE>2
Fund's current yield may be obtained by calling Warburg Pincus Funds at (800)
257-5614. Information regarding the status of shareholder accounts may be
obtained by calling Warburg Pincus Funds at (800) 888-6878 or by writing to
Warburg Pincus Funds, P.O. Box 9030, Boston, Massachusetts 02205-9030.
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide investors with as
high a level of current income that is excluded from gross income for federal
income tax purposes and exempt from New York State and New York City personal
income taxes as is consistent with preservation of capital and liquidity.
MUNICIPAL SECURITIES
Under normal circumstances, substantially all of the Fund's assets
will be invested in Municipal Securities. Municipal Securities include
short-term debt obligations issued by governmental entities to obtain funds
for various public purposes, including the construction of a wide range of
public facilities, the refunding of outstanding obligations, the payment of
general operating expenses and the extension of loans to public institutions
and facilities. Private activity securities that are issued by or on behalf
of public authorities to finance various privately-operated facilities are
included within the term Municipal Securities if the interest paid thereon is
exempt from federal income tax.
The two principal types of Municipal Securities consist of "general
obligation" and "revenue" issues, and the Fund's portfolio may include "moral
obligation" issues, which are normally issued by special purpose authorities.
General obligation bonds are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue
bonds are payable only from the revenues derived from a particular facility or
class of facilities or in some cases, from the proceeds of a special excise
tax or other specific revenue source such as the user of the facility being
financed. Private activity securities held by the Fund are in most cases
revenue bonds and are not payable from the unrestricted revenues of the
issuer. Consequently, the credit quality of such private activity securities
is usually directly related to the credit standing of the corporate user of
the facility involved.
There are, of course, variations in the quality of Municipal
Securities, both within a particular classification and between
classifications, and the yields on Municipal Securities depend upon a variety
of factors, including general money market conditions, the financial condition
of the issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation and the rating of the
issue. The ratings of rating agencies represent their opinions as to the
quality of Municipal Securities. It should be emphasized, however, that
ratings are general and are not absolute standards of quality, and Municipal
Securities with the same maturity, interest rate and rating may have different
yields while Municipal Securities of the same maturity and interest rate with
different ratings
<PAGE>3
may have the same yield. Subsequent to its purchase by the Fund, an issue of
Municipal Securities may cease to be rated or its rating may be reduced below
the minimum rating required for purchase by the Fund. The Fund's investment
adviser and sub-investment adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. See the Appendix
attached hereto for further information concerning ratings and their
significance.
An issuer's obligations under its Municipal Securities are subject
to the provisions of bankruptcy, insolvency and other laws affecting the
rights and remedies of creditors, such as the Federal Bankruptcy Code, and
laws, if any, which may be enacted by federal or state legislatures extending
the time for payment of principal or interest, or both, or imposing other
constraints upon enforcement of such obligations or upon the ability of
municipalities to levy taxes. There is also the possibility that as a result
of litigation or other conditions, the power or ability of any one or more
issuers to pay, when due, principal of and interest on its, or their,
Municipal Securities may be materially adversely affected.
Among other instruments, the Fund may purchase short-term Tax
Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation Notes and
other forms of short-term loans. Such notes are issued with a short-term
maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues.
INVESTMENT POLICIES
The following policies supplement the descriptions of the Fund's
investment objective and policies in the Prospectus.
Additional Information on Investment Practices
Variable Rate Master Demand Notes. Variable rate master demand
notes held by the Fund may have maturities of more than thirteen months,
provided: (i) the Fund is entitled to payment of principal and accrued
interest upon not more than seven days' notice and (ii) the rate of interest
on such notes is adjusted automatically at periodic intervals which may extend
up to thirteen months. In determining the Fund's average weighted portfolio
maturity and whether a variable rate master demand note has a remaining
maturity of thirteen months or less, each note will be deemed by the Fund to
have a maturity equal to the longer of the period remaining until its next
interest rate adjustment or the period remaining until the principal amount
owed can be recovered through demand. In determining whether an unrated
variable rate master demand note is of comparable quality at the time of
purchase to instruments rated "high quality" by any major rating service, the
Fund's investment adviser and sub-investment adviser will consider the earning
power, cash flow and other liquidity ratios of the issuer of the note and will
continuously monitor its financial condition. In addition, when necessary to
ensure that a note is of "high quality," the Fund will require that the
issuer's obligation to pay the principal of the note be backed by an
unconditional bank letter of line of credit, guarantee or commitment to lend.
<PAGE>4
When-Issued Securities. As stated in the Prospectus, the Fund may
purchase Municipal Securities on a "when-issued" basis (i.e., for delivery
beyond the normal settlement date at a stated price and yield). When the Fund
agrees to purchase when-issued securities, its custodian will set aside cash
or certain liquid, high-grade debt obligations in a segregated account equal
to the amount of the commitment. Normally, the custodian will set aside
portfolio securities to satisfy a purchase commitment, and in such a case the
Fund may be required subsequently to place additional assets in the segregated
account in order to ensure that the value of the account remains equal to the
amount of the Fund's commitment. It may be expected that the Fund's net
assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash.
Because the Fund will set aside cash and liquid assets to satisfy its purchase
commitments in the manner described, the Fund's liquidity and ability to
manage its portfolio might be affected in the event its commitments to
purchase when-issued securities ever exceeded 25% of the value of its assets.
When the 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's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
Stand-By Commitments. The Fund may acquire "stand-by commitments"
with respect to Municipal Securities held in its portfolio. Under a stand-by
commitment, a dealer agrees to purchase at the Fund's option specified
Municipal Securities at a specified price. Stand-by commitments acquired by
the Fund may also be referred to as "put" options. The Fund's right to
exercise stand-by commitments is unconditional and unqualified. A stand-by
commitment is not transferable by the Fund, although the Fund can sell the
underlying securities to a third party at any time.
The principal risk of a stand-by commitment is that the writer of a
commitment may default on its obligation to repurchase the securities acquired
with it. The Fund intends to enter into stand-by commitments only with
brokers, dealers and banks that, in the opinion of Counsellors, present
minimal credit risks. In evaluating the creditworthiness of the issuer of a
stand-by commitment, Counsellors will periodically review relevant financial
information concerning the issuer's assets, liabilities and contingent claims.
The amount payable to the Fund upon its exercise of a stand-by
commitment is normally (i) the Fund's acquisition cost of the Municipal
Securities (excluding any accrued interest which the Fund paid on their
acquisition), less any amortized market premium or plus any amortized market
or original issue discount during the period the Fund owned the securities,
plus (ii) all interest accrued on the securities since the last interest
payment date during that period. Stand-by commitments can be acquired when
the remaining maturity of the underlying Municipal Securities is not greater
than thirteen months and are exercisable by the Fund at any time before the
maturity of such obligations. Absent unusual circumstances, in determining
net asset value the Fund values the underlying Municipal Securities on an
amortized cost basis. Accordingly, the amount payable by a dealer upon
exercise of a
<PAGE>5
stand-by commitment will normally be substantially the same as the portfolio
value of the underlying Municipal Securities.
The Fund expects that stand-by commitments will generally be
available without the payment of any direct or indirect consideration.
However, if necessary or advisable, the Fund may pay for a stand-by commitment
either separately in cash or by paying a higher price for portfolio securities
which are acquired subject to the commitment (thus reducing the yield to
maturity otherwise available for the same securities). The total amount paid
in either manner for outstanding stand-by commitments held in the Fund's
portfolio will not exceed 1/2 of 1% of the value of the Fund's total assets
calculated immediately after each stand-by commitment is acquired.
The Fund would acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition of a stand-by commitment would not affect
the valuation or assumed maturity of the underlying Municipal Securities
which, as noted, would continue to be valued in accordance with the amortized
cost method. Stand-by commitments acquired by the Fund would be valued at
zero in determining net asset value. Where the Fund paid any consideration
directly or indirectly for a stand-by commitment, its cost would be reflected
as unrealized depreciation for the period during which the commitment was held
by the Fund. Stand-by commitments would not affect the average weighted
maturity of the Fund's portfolio.
The Internal Revenue Service has issued a revenue ruling to the
effect that a registered investment company will be treated for federal income
tax purposes as the owner of the Municipal Securities acquired subject to a
stand-by commitment and the interest on the Municipal Securities will be
tax-exempt to the Fund.
Third Party Puts. The Fund may purchase long-term fixed rate bonds
that have been coupled with an option granted by a third party financial
institution allowing the Fund at specified intervals to tender (or "put") the
bonds to the institution and receive the face value thereof (plus accrued
interest). These third party puts are available in several different forms,
may be represented by custodial receipts or trust certificates and may be
combined with other features such as interest rate swaps. The Fund receives a
short-term rate of interest (which is periodically reset), and the interest
rate differential between that rate and the fixed rate on the bond is retained
by the financial institution. The financial institution granting the option
does not provide credit enhancement, and in the event that there is a default
in the payment of principal or interest, or downgrading of a bond to below
investment grade, or a loss of the bond's tax-exempt status, the put option
will terminate automatically, the risk to the Fund will be that of holding
such a long-term bond and the dollar-weighted average maturity of the Fund's
portfolio would be adversely affected.
These bonds coupled with puts may present the same tax issues as are
associated with stand-by commitments. As with any stand-by commitment, the
Fund intends
<PAGE>6
to take the position that it is the owner of any municipal obligation acquired
subject to a third party put, and that tax-exempt interest earned with respect
to such municipal obligations will be tax-exempt in its hands. There is no
assurance that the Internal Revenue Service will agree with such position in
any particular case. Additionally, the federal income tax treatment of
certain other aspects of these investments, including the treatment of tender
fees and swap payments, in relation to various regulated investment company
tax provisions is unclear. However, Warburg, Pincus Counsellors, Inc.
("Counsellors"), intends to manage the Fund's portfolio in a manner designed
to minimize any adverse impact from these investments.
Taxable Investments. Because the Fund's purpose is to provide
income excluded from gross income for federal income tax purposes and exempt
from New York State and New York City taxes, the Fund generally will invest in
taxable obligations only if and when the investment adviser believes it would
be in the best interests of the Fund's investors to do so. Situations in
which the Fund may invest up to 20% of its total assets in taxable securities
include: (i) pending investment of proceeds of sales of Fund shares or the
sale of its portfolio securities or (ii) when the Fund requires highly liquid
securities in order to meet anticipated redemptions. The Fund may temporarily
invest more than 20% of its total assets in taxable securities to maintain a
"defensive" posture when the Fund's investment adviser determines that it is
advisable to do so because of adverse market conditions affecting the market
for Municipal Securities generally.
Among the taxable investments in which the Fund may invest are
repurchase agreements and time deposits maturing in not more than seven days.
The Fund may agree to purchase money market instruments from financial
institutions such as banks and broker-dealers subject to the seller's
agreement to repurchase them at an agreed-upon date and price ("repurchase
agreements"). The seller under a repurchase agreement will be required to
maintain the value of the securities subject to the agreement at not less than
the repurchase price (including accrued interest). Securities subject to
repurchase agreements will be held by the Fund's custodian or in the Federal
Reserve/Treasury book-entry system or another authorized securities
depository.
Reverse Repurchase Agreements. The Fund may borrow funds for
temporary purposes and not for leverage by agreeing to sell portfolio
securities to financial institutions such as banks and broker-dealers and to
repurchase them at a mutually agreed-upon date and price. At the time the
Fund enters into such an arrangement (a "reverse repurchase agreement"), it
will place in a segregated custodial account cash, United States government
securities or other high-grade debt obligations having a value equal to the
repurchase price (including accrued interest) and will subsequently monitor
the account to ensure that such equivalent value is maintained. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by the Fund may decline below the repurchase price of those securities.
Reverse repurchase agreements are considered to be borrowings by the Fund
under the Investment Company Act of 1940, as amended (the "1940 Act").
<PAGE>7
Other Investment Policies and Practices of the Fund
Non-Diversified Status. The Fund is classified as non-diversified
within the meaning of the 1940 Act, which means that it is not limited by such
Act in the proportion of its assets that it may invest in securities of a
single issuer. The 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 "Additional Information
Concerning Taxes." To qualify, the Fund will comply with certain
requirements, including limiting its investments so that at the close of each
quarter of the taxable year (a) not more than 25% of the market value of its
total assets will be invested in the securities of a single issuer, and (b)
with respect to 50% of the market value of its total assets, not more than 5%
of the market value of its total assets will be invested in the securities of
a single issuer and the Fund will not own more than 10% of the outstanding
voting securities of a single issuer.
Other Investment Limitations
The investment limitations numbered 1 through 9 may not be changed
without the affirmative vote of the holders of a majority of the Fund's
outstanding shares. Such majority is defined as the lesser of (i) 67% or more
of the shares present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or
(ii) more than 50% of the outstanding shares. Investment limitations 10 and
11 may be changed by a vote of the Fund's Board of Directors (the "Board") at
any time.
The Fund may not:
1. Invest less than 80% of its assets in securities the interest
on which is exempt from federal income tax, except during temporary defensive
periods or under unusual market conditions, as determined by the Fund's
investment adviser.
2. Borrow money, issue senior securities or enter into reverse
repurchase agreements except for temporary or emergency purposes, and not for
leveraging, and then in amounts not in excess of 10% of the value of the
Fund's assets at the time of such borrowing; or mortgage, pledge or
hypothecate any assets except in connection with any such borrowing and in
amounts not in excess of the lesser of the dollar amounts borrowed or 10% of
the value of the Fund's assets at the time of such borrowing. The Fund does
not currently intend to enter into reverse repurchase agreements in amounts in
excess of 5% of its assets at the time the agreement is entered into.
Whenever borrowings exceed 5% of the value of the Fund's total assets, the
Fund will not make any additional investments.
3. Purchase any securities which would cause more than 25% of the
value of the Fund's total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the
same industry; provided that there shall be no limit on the purchase of (i)
obligations issued by the United States, any state, territory or possession of
the United States, the District of Columbia or any of their authorities,
agencies,
<PAGE>8
instrumentalities or political sub-divisions, (ii) certificates of deposit
issued by United States branches of United States banks or (iii) Municipal
Securities the interest on which is paid solely from revenues of economically
related projects. For purposes of this restriction, private activity
securities ultimately payable by companies within the same industry are
treated as if they were issued by issuers in the same industry.
4. Make loans except that the Fund may purchase or hold debt
obligations and enter into repurchase agreements in accordance with its
investment objective, policies and limitations.
5. Underwrite any issue of securities except to the extent that
the purchase of debt obligations directly from the issuer thereof in
accordance with the Fund's investment objective, policies and limitations may
be deemed to be underwriting.
6. Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, or invest in oil, gas or
mineral exploration or development programs, except that the Fund may invest
in debt obligations secured by real estate, mortgages or interests therein.
7. Purchase securities on margin, make short sales of securities
or maintain short positions.
8. Write or sell puts, calls, straddles, spreads or combinations
thereof, except that the Fund may acquire stand-by commitments.
9. Purchase securities of other investment companies except in
connection with a merger, consolidation, acquisition or reorganization.
10. Invest more than 10% of the value of the Fund's total assets in
securities which may be illiquid because of legal or contractual restrictions
on resale or securities for which there are not readily available market
quotations. For purposes of this limitation, repurchase agreements with
maturities greater than seven days and variable rate master demand notes
providing for settlement upon more than seven days notice by the Fund and time
deposits maturing in more than seven calendar days shall be considered
illiquid securities.
11. Invest in oil, gas or mineral leases.
The Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of Fund shares in certain states.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, the Fund will revoke the
commitment by terminating the sale of Fund shares in the state involved.
<PAGE>9
Portfolio Valuation
The Fund's portfolio securities are valued on the basis of amortized
cost. Under this method, the Fund values a portfolio security at cost on the
date of purchase and thereafter assumes a constant value of the security for
purposes of determining net asset value, which normally does not change in
response to fluctuating interest rates. Although the amortized cost method
seems to provide certainty in portfolio valuation, it may result in periods
during which values, as determined by amortized cost, are higher or lower than
the amount the Fund would receive if it sold the securities. In connection
with amortized cost valuation, the Board has established procedures that are
intended to stabilize the Fund's net asset value per share for purposes of
sales and redemptions at $1.00. These procedures include review by the Board,
at such intervals as it deems appropriate, to determine the extent, if any, to
which the Fund's net asset value per share calculated by using available
market quotations deviates from $1.00 per share. In the event such deviation
exceeds 1/2 of 1%, the Board will promptly consider what action, if any,
should be initiated. If the Board believes that the amount of any deviations
from the Fund's $1.00 amortized cost price per share may result in material
dilution or other unfair results to investors or existing shareholders, it
will take such steps as it considers appropriate to eliminate or reduce to the
extent reasonably practicable any such dilution or unfair results. These
steps may include selling portfolio instruments prior to maturity; shortening
the Fund's average portfolio maturity; withholding or reducing dividends;
redeeming shares in kind; reducing the number of the Fund's outstanding shares
without monetary consideration; or utilizing a net asset value per share
determined by using available market quotations.
Portfolio Transactions
Counsellors is responsible for establishing, reviewing, and, where
necessary, modifying the Fund's investment program to achieve its investment
objective. PNC Institutional Management Corporation ("PIMC") generally will
select specific portfolio investments and effect transactions for the Fund.
Purchases and sales of portfolio securities are usually principal transactions
without brokerage commissions effected directly with the issuer or with
dealers who specialize in money market instruments. PIMC seeks to obtain the
best net price and the most favorable execution of orders. To the extent that
the execution and price offered by more than one dealer are comparable, PIMC
may, in its discretion, effect transactions in portfolio securities with
dealers who provide the Fund with research advice or other services.
Investment decisions for the Fund concerning specific portfolio
securities are made independently from those for other clients advised by
PIMC. Such other investment clients may invest in the same securities as the
Fund. When purchases or sales of the same security are made at substantially
the same time on behalf of such other clients, transactions are averaged as to
price, and available investments allocated as to amount, in a manner which
PIMC believes to be equitable to each client, including the Fund. In some
instances, this investment procedure may adversely affect the price paid or
received by the Fund or the
<PAGE>10
size of the position obtained or sold for the Fund. To the extent permitted
by law, PIMC may aggregate the securities to be sold or purchased for the Fund
with those to be sold or purchased for such other investment clients in order
to obtain best execution.
In no instance will portfolio securities be purchased from or sold
to Counsellors, PIMC, PNC Bank, National Association ("PNC") or Counsellors
Securities Inc. ("Counsellors Securities") or any affiliated person of such
companies, except pursuant to an exemption received from the Securities and
Exchange Commission (the "SEC").
The Fund may participate, if and when practicable, in bidding for
the purchase of Municipal Securities directly from an issuer for the Fund's
portfolio in order to take advantage of the lower purchase price available to
members of such a group. The Fund will engage in this practice, however, only
when Counsellors and PIMC, in their sole discretion, believe such practice to
be otherwise in the Fund's interest.
The Fund does not intend to seek profits through short-term trading.
The Fund's annual portfolio turnover will be relatively high but the Fund's
portfolio turnover is not expected to have a material effect on its net
income. The Fund's portfolio turnover is expected to be zero for regulatory
reporting purposes.
SPECIAL CONSIDERATIONS RELATING TO NEW YORK
MUNICIPAL SECURITIES
Some of the significant financial considerations relating to the
Fund's investment in New York Municipal Securities are summarized below. This
summary information is not intended to be a complete description and is
principally derived from official statements relating to issues of New York
Municipal Securities that were available prior to the date of this Statement
of Additional Information. The accuracy and completeness of the information
contained in those official statements have not been independently verified.
State Economy
New York is the third most populous state in the nation and has a
relatively high level of personal wealth. The State's economy is diverse with
a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State has a declining
proportion of its workforce engaged in manufacturing, and an increasing
proportion engaged in service industries. New York City (the "City"), which
is the most populous city in the State and nation and is the center of the
nation's largest metropolitan area, accounts for a large portion of the
State's population and personal income.
The State has historically been one of the wealthiest states in the
nation. For decades, however, the State has grown more slowly than the nation
as a whole, gradually eroding its relative economic position. The recession
has been more severe in the State,
<PAGE>11
owing to a significant retrenchment in the financial services industry,
cutbacks in defense spending, and an overbuilt real estate market. There can
be no assurance that the State economy did not experience worse-than-predicted
results in the 1994-95 fiscal year, with corresponding material and adverse
effects on the State's projections of receipts and disbursements.
The unemployment rate in the State dipped below the national rate in
the second half of 1981 and remained lower until 1991. It stood at 7.7% in
1993. The total employment growth rate in the State has been below the
national average since 1984 and is expected to slow to less than 0.5% in 1995.
State per capita personal income remains above the national average. State
per capita income for 1993 was $24,623, which is 18.3% above the 1993 national
average of $20,817. During the past ten years, total personal income in the
State rose slightly faster than the national average only in 1986 through
1989.
State Budget
The State Constitution requires the Governor to submit to the
Legislature a balanced Executive Budget which contains a complete plan of
expenditures for the ensuing fiscal year and all moneys and revenues estimated
to be available therefor, accompanied by bills containing all proposed appro-
priations or reappropriations and any new or modified revenue measures to be
enacted in connection with the Executive Budget. The entire plan constitutes
the proposed State financial plan for that fiscal year. The Governor is
required to submit to the Legislature quarterly budget updates which include a
revised cash-basis state financial plan, and an explanation of any changes
from the previous state financial plan.
The State's budget for the 1994-95 fiscal year was enacted by the
Legislature on June 7, 1994, more than two months after the start of the
fiscal year. Prior to adoption of the budget, the Legislature enacted
appropriations for disbursements considered to be necessary for State
operations and other purposes, including all necessary appropriations for debt
service. The State financial plan for the 1994-95 fiscal year was formulated
on June 16, 1994 and was based upon the State s budget as enacted by the
Legislature and signed into law by the Governor (the 1994-95 State Financial
Plan ). This delay in the enactment of the State's 1994-95 fiscal year budget
may have reduced the effectiveness of several of the actions contained in the
budget.
On February 1, 1995, the third quarterly update to the 1994-95 State
Financial Plan was issued.
The 1994-95 State Financial Plan was based on a number of
assumptions and projections. Because it was not possible to predict
accurately the occurrence of all factors that may have affected the 1994-95
State Financial Plan, actual results may have differed and have differed
materially in recent years, from projections made at the outset of a fiscal
year. There can be no assurance that the State will not face substantial
potential budget gaps in future years resulting from a significant disparity
between tax revenues projected from a
<PAGE>12
lower recurring receipts base and the spending required to maintain State
programs at current levels. To address any potential budgetary imbalance, the
State may need to take significant actions to align recurring receipts and
disbursements in future fiscal years.
On February 1, 1995, the Governor presented his 1995-96 Executive
Budget (the "Executive Budget") to the Legislature, as required by the State
Constitution. After extensive negotiations between the Governor and the
Legislature, a budget was adopted by the Legislature on June 7, 1995. This
budget package included sharp reductions in state spending together with
personal and business tax cuts. There is no assurance that the tax and
spending cuts contained in the budget will be upheld in the face of potential
legal challenges. The comptroller has indicated his intention to challenge
the proposed use of certain pension reserves in the budget. The impact of
this budget program on the State economy cannot be predicted at this time.
Recent Financial Results
The General Fund is the general operating fund of the State and is
used to account for all financial transactions, except those required to be
accounted for in another fund. It is the State's largest fund and receives
almost all State taxes and other resources not dedicated to particular
purposes. In the State's 1994-95 fiscal year, the General Fund was expected
to account for approximately 52% of total governmental-fund receipts and 51%
of total governmental-fund disbursements.
The General Fund is projected to be balanced on a cash basis for the
1994-95 fiscal year. Total receipts were projected to be $34.321 billion, an
increase of $2.092 billion over total receipts in the prior fiscal year.
Total General Fund disbursements were projected to be $34.248 billion, an
increase of $2.351 billion over the total amount disbursed and transferred in
the prior fiscal year.
The State's financial position on a GAAP (generally accepted
accounting principles) basis as of March 31, 1993 included an 1991-92
accumulated deficit in its combined governmental funds of $681 million.
Liabilities totalled $12.864 billion and assets of $12.183 billion were
available to liquidate these liabilities.
The State's financial operations have improved during recent fiscal
years. During the period 1989-90 through 1991-92, the State incurred General
Fund operating deficits that were closed with receipts from the issuance of
tax and revenue anticipation notes. The national recession and then the
lingering economic slowdown in the New York and regional economy, resulted in
repeated shortfall in receipts and three budget deficits. For its 1992-93 and
1993-94 fiscal years, however, the State recorded balanced budgets on a cash
basis, with substantial fund balances in each year.
<PAGE>13
Debt Limits and Outstanding Debt
There are a number of methods by which the State of New York may
incur debt. Under the State Constitution, the State may not, with limited
exceptions for emergencies, undertake long-term general obligation borrowing
(i.e., borrowing for more than one year) unless the borrowing is authorized in
a specific amount for a single work or purpose by the Legislature and approved
by the voters. There is no limitation on the amount of long-term general
obligation debt that may be so authorized and subsequently incurred by the
State. The total amount of long-term State general obligation debt authorized
but not issued as of December 31, 1993 was approximately $2.273 billion.
The State may undertake short-term borrowings without voter approval
(i) in anticipation of the receipt of taxes and revenues, by issuing tax and
revenue anticipation notes, and (ii) in anticipation of the receipt of
proceeds from the sale of duly authorized but unissued general obligation
bonds, by issuing bond anticipation notes. The State may also, pursuant to
specific constitutional authorization, directly guarantee certain obligations
of the State of New York's authorities and public benefit corporations
("Authorities"). Payments of debt service on New York State general
obligation and New York State-guaranteed bonds and notes are legally
enforceable obligations of the State of New York.
The State employs additional long-term financing mechanisms,
lease-purchase and contractual-obligation financings, which involve
obligations of public authorities or municipalities that are State-supported
but are not general obligations of the State. Under these financing
arrangements, certain public authorities and municipalities have issued
obligations to finance the construction and rehabilitation of facilities or
the acquisition of equipment, and expect to meet their debt service
requirements through the receipt of rental or other contractual payments made
by the State. Although these financing arrangements involve a contractual
agreement by the State to make payments to a public authority, municipality or
other entity, the State s obligation to make such payments is generally
expressly made subject to appropriation by the Legislature and the actual
availability of money to the State for making the payments. The State has
also entered into a contractual-obligation financing arrangement with the
Local Government Assistance Corporation ("LGAC") in an effort to restructure
the way the State makes certain local aid payments.
In 1990, as part of a State fiscal reform program, legislation was
enacted creating LGAC, a public benefit corporation empowered to issue
long-term obligations to fund certain payments to local governments
traditionally funded through New York State's annual seasonal borrowing. The
legislation empowered LGAC to issue its bonds and notes in an amount not in
excess of $4.7 billion (exclusive of certain refunding bonds) plus certain
other amounts. Over a period of years, the issuance of these long-term
obligations, which are to be amortized over no more than 30 years, was
expected to eliminate the need for continued short-term seasonal borrowing.
The legislation also dedicated revenues equal to one-quarter of the four cent
State sales and use tax to pay debt service on these bonds. The
<PAGE>14
legislation also imposed a cap on the annual seasonal borrowing of the State
at $4.7 billion, less net proceeds of bonds issued by LGAC and bonds issued to
provide for capitalized interest, except in cases where the Governor and the
legislative leaders have certified the need for additional borrowing and
provided a schedule for reducing it to the cap. If borrowing above the cap is
thus permitted in any fiscal year, it is required by law to be reduced to the
cap by the fourth fiscal year after the limit was first exceeded. As of
December 1994, LGAC had issued bonds to provide net proceeds of $3.856 billion
and had been authorized to issue its bonds to provide net proceeds of up to an
additional $315 million during the State's 1994-95 fiscal year. The impact of
this borrowing, together with the availability of certain cash reserves, is
that, for the first time in nearly 35 years, the 1994-95 State Financial Plan
included no short-term seasonal borrowing.
In April 1993, legislation was enacted proposing significant
constitutional changes to the long-term financing practices of the State and
the Authorities.
The Legislature passed a proposed constitutional amendment that
would permit the State, within a formula-based cap, to issue revenue bonds,
which would be debt of the State secured solely by a pledge of certain State
tax receipts (including those allocated to State funds dedicated for
transportation purposes), and not by the full faith and credit of the State.
In addition, the proposed amendment would require that State debt be incurred
only for capital projects included in a multi-year capital financing plan and
would prohibit, after its effective date, lease-purchase and contractual-
obligation financing mechanisms for State facilities. Public hearings were
held on the proposed constitutional amendment during 1993. Following these
hearings, in February 1994, the Governor and the State Comptroller recommended
a revised constitutional amendment which would further tighten the ban on
lease-purchase and contractual-obligation financing, incorporate existing
lease-purchase and contractual-obligation debt under the proposed revenue bond
cap while simultaneously reducing the size of the cap. After considering
these recommendations, the Legislature passed a revised constitutional
amendment which tightened the ban, and provided for a phase-in to a lower cap.
Before the approved constitutional amendment or any revised amendment enacted
in 1994 can be presented to the voters for their consideration, it must be
passed by a separately elected legislature. The amendment must therefore be
passed by the newly elected Legislature in 1995 prior to presentation to the
voters at the earliest in November 1995. The amendment could not become
effective before January 1, 1996.
On January 13, 1992, Standard & Poor's Corporation ("Standard &
Poor's") reduced its ratings on the State's general obligation bonds from A to
A- and, in addition, reduced its ratings on the State's moral obligation,
lease purchase, guaranteed and contractual obligation debt. Standard & Poor's
also continued its negative rating outlook assessment on State general
obligation debt. On April 26, 1993, Standard & Poor's revised the rating
outlook assessment to stable. On February 14, 1994, Standard & Poor's raised
its outlook to positive and, on February 28, 1994, confirmed its A- rating.
On January 6, 1992, Moody's Investors Service, Inc. ("Moody's") reduced its
ratings on outstanding limited-liability State
<PAGE>15
lease purchase and contractual obligations from A to Baa1. On February 28,
1994, Moody's reconfirmed its A rating on the State's general obligation long-
term indebtedness.
The State anticipated that its capital programs will be financed, in
part, by State and public authorities borrowings in 1994-95. The State
expected to issue $374 million in general obligation bonds (including $140
million for purposes of redeeming outstanding bond anticipation notes) and
$140 million in general obligation commercial paper. The Legislature had also
authorized the issuance of up to $69 million in certificates of participation
during the State s 1994-95 fiscal year for equipment purchases. These
projections were subject to change.
Principal and interest payments on general obligation bonds and
interest payments on bond anticipation notes and on tax and revenue
anticipation notes were $782.5 million for the 1993-94 fiscal year, and were
estimated to be $786.3 million for the 1994-95 fiscal year. These figures do
not include interest payable on State General Obligation Refunding Bonds
issued in July 1992 ( Refunding Bonds ) to the extent that such interest was
paid from an escrow fund established with the proceeds of such Refunding
Bonds. Principal and interest payments on fixed rate and variable rate bonds
issued by LGAC were $239.4 million for the 1993-94 fiscal year, and were
estimated to be $289.9 million for 1994-95. State lease-purchase rental and
contractual obligation payments for 1993-94, including State installment
payments relating to certificates of participation, were $1.258 billion and
were estimated to be $1.495 billion in 1994-95.
New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
Litigation
Certain litigation pending against New York State or its officers or
employees could have a substantial or long-term adverse effect on New York
State finances. Among the more significant of these cases are those that
involve (i) the validity of agreements and treaties by which various Indian
tribes transferred title to New York State of certain land in central and
upstate New York; (ii) certain aspects of New York State's Medicaid policies,
including its rates, regulations and procedures; (iii) contamination in the
Love Canal area of Niagara Falls; (iv) action against New York State and New
York City officials alleging inadequate shelter allowances to maintain proper
housing; (v) challenges to the practice of reimbursing certain Office of
Mental Health patient care expenses from the client's Social Security
benefits; (vi) alleged responsibility of New York State officials to assist in
remedying racial segregation in the City of Yonkers; (vii) action in which the
State is a third party defendant, for injunctive or other appropriate relief,
concerning liability for the maintenance of stone groins constructed along
certain areas of Long Island's shoreline; (viii) challenges by commercial
insurers, employee welfare benefit plans, and health maintenance
<PAGE>16
organizations to Section 2807-c of the Public Health Law, which imposes 13%,
11% and 9% surcharges on inpatient hospital bills and a bad debt and charity
care allowance on all hospital bills and hospital bills paid by such entities;
(ix) challenge by a long distance carrier to the constitutionality of Tax Law
186-a(2-a) which restricted certain deduction of local access service fees,
(x) challenges to certain aspects of petroleum business taxes, and (xi) action
alleging damages resulting from the failure by the State's Department of
Environmental Conservation to timely provide certain data.
A number of cases have also been instituted against the State
challenging the constitutionality of various public authority financing
programs.
In a proceeding commenced on August 6, 1991 (Schulz, et al. v. State
of New York, et al., Supreme Court, Albany County), petitioners challenge the
constitutionality of two bonding programs of the New York State Thruway
Authority authorized by Chapters 166 and 410 of the Laws of 1991. In
addition, petitioners challenge the fiscal year 1991-92 judiciary budget as
having been enacted in violation of Sections 1 and 2 of Article VII of the
State Constitution. The defendants' motion to dismiss the action on
procedural grounds was denied by order of the Supreme Court dated January 2,
1992. By order dated November 5, 1992, the Appellate Division, Third
Department, reversed the order of the Supreme Court and granted defendants'
motion to dismiss on grounds of standing and mootness. By order dated
September 16, 1993, on motion to reconsider, the Appellate Division, Third
Department, ruled that plaintiffs have standing to challenge the bonding
program authorized by Chapter 166 of the laws of 1991. The proceeding is
presently pending in Supreme Court, Albany County.
In Schulz, et al. v. State of New York, et al., commenced May 24,
1993, Supreme Court, Albany County, petitioners challenge, among other things,
the constitutionality of, and seek to enjoin, certain highway, bridge and mass
transportation bonding programs of the New York State Thruway Authority and
the Metropolitan Transportation Authority authorized by Chapter 56 of the Laws
of 1993. Petitioners contend that the application of State tax receipts held
in dedicated transportation funds to pay debt service on bonds of the Thruway
Authority and of the Metropolitan Transportation Authority violates Sections 8
and 11 of Article VII and Section 5 of Article X of the State Constitution and
due process provisions of the State and Federal Constitutions. By order dated
July 27, 1993, the Supreme Court granted defendants' motions for summary
judgment, dismissed the complaint, and vacated the temporary restraining order
previously issued. By decision dated October 21, 1993, the Appellate
Division, Third Department, affirmed the judgment of the Supreme Court. On
June 30, 1994, the Court of Appeals unanimously affirmed the rulings of the
trail court and the Appellate Division in favor of the State.
Several actions challenging the constitutionality of legislation
enacted during the 1990 legislative session which changed actuarial funding
methods for determining state and local contributions to state employee
retirement systems have been decided against the State. As a result, the
State's Comptroller has developed a plan to restore the State's
<PAGE>17
retirement systems to prior funding levels. Such funding is expected to
exceed prior levels by $30 million in fiscal 1994-95, $63 million in fiscal
1995-96, $116 million in fiscal 1996-97, $193 million in fiscal 1997-98,
peaking at $241 million in fiscal 1998-99. Beginning in fiscal 2001-02, State
contributions required under the Comptroller's plan are projected to be less
than that required under the prior funding method. As a result of the United
States Supreme Court decision in the case of State of Delaware v. State of New
York, on January 21, 1994, the State entered into a settlement agreement with
various parties. Pursuant to all agreements executed in connection with the
action, the State is required to make aggregate payments of $351.4 million, of
which $90.3 million have been made. Annual payments to the various parties
will continue through the State's 2002-03 fiscal year in amounts which will
not exceed $48.4 million in any fiscal year subsequent to the State's 1994-95
fiscal year.
The legal proceedings noted above involve State finances, State
programs and miscellaneous tort, real property and contract claims in which
the State is a defendant and the monetary damages sought are substantial.
These proceedings could affect adversely the financial condition of the State.
Adverse developments in these proceedings or the initiation of new proceedings
could affect the ability of the State to maintain a balanced State Financial
Plan. An adverse decision in any of these proceedings could exceed the amount
of the State Financial Plan reserve for the payment of judgments and,
therefore, could affect the ability of the State to maintain a balanced State
Financial Plan. In its audited financial statements for the fiscal year ended
March 31, 1994, the State reported its estimated liability for awarded and
anticipated unfavorable judgments to be $675 million.
Although other litigation is pending against New York State, except
as described above, no current litigation involves New York State's authority,
as a matter of law, to contract indebtedness, issue its obligations, or pay
such indebtedness when it matures, or affects New York State's power or
ability, as a matter of law, to impose or collect significant amounts of taxes
and revenues.
Authorities
The fiscal stability of New York State is related, in part, to the
fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue- producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds
and notes within the amounts of, and as otherwise restricted by, their
legislative authorization. The State s access to the public credit markets
could be impaired, and the market price of its outstanding debt may be
materially and adversely affected, if any of the Authorities were to default
on their respective obligations, particularly with respect to debt that are
State-supported or State-related. As of September 30, 1993, date of the
latest data available, there were 18 Authorities that had outstanding debt of
$100 million or more. The aggregate outstanding debt, including refunding
bonds, of these 18 Authorities was $63.5 billion. As of March 31, 1994,
aggregate public authority debt outstanding as State-supported debt was $21.1
billion and as State-related debt was $29.4 billion.
<PAGE>18
Authorities are generally supported by revenues generated by the
projects financed or operated, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however,
New York State has provided financial assistance through appropriations, in
some cases of a recurring nature, to certain of the 18 Authorities for
operating and other expenses and, in fulfillment of its commitments on moral
obligation indebtedness or otherwise, for debt service. This operating
assistance is expected to continue to be required in future years. In
addition, certain statutory arrangements provide for State local assistance
payments otherwise payable to localities to be made under certain
circumstances to certain Authorities. The State has no obligation to provide
additional assistance to localities whose local assistance payments have been
paid to Authorities under these arrangements. However, in the event that such
local assistance payments are so diverted, the affected localities could seek
additional State funds.
New York City and Other Localities
The fiscal health of the State of New York may also be impacted by
the fiscal health of its localities, particularly the City of New York, which
has required and continues to require significant financial assistance from
New York State. The City's independently audited operating results for each
of its 1981 through 1993 fiscal years, which end on June 30, show a General
Fund surplus reported in accordance with GAAP. In addition, the City's
financial statements for the 1993 fiscal year received an unqualified opinion
from the City's independent auditors, the eleventh consecutive year the City
has received such an opinion.
In 1975, New York City suffered a fiscal crisis that impaired the
borrowing ability of both the City and New York State. In that year the City
lost access to public credit markets. The City was not able to sell
short-term notes to the public again until 1979.
In 1975, Standard & Poor's suspended its A rating of City bonds.
This suspension remained in effect until March 1981, at which time the City
received an investment grade rating of BBB from Standard & Poor's. On July 2,
1985, Standard & Poor's revised its rating of City bonds upward to BBB+ and on
November 19, 1987, to A-. On July 2, 1993, Standard & Poor's reconfirmed its A-
rating of City bonds, continued its negative rating outlook assessment and
stated that maintenance of such rating depended upon the City's making further
progress towards reducing budget gaps in the outlying years. Moody's ratings
of City bonds were revised in November 1981 from B (in effect since 1977) to
Ba1, in November 1983 to Baa, in December 1985 to Baa1, in May 1988 to A and
again in February 1991 to Baa1. On January 17, 1995, Standard and Poor's
placed the City's general obligation bonds on its CreditWatch list citing
concern over the City's refunding plans.
New York City is heavily dependent on New York State and federal
assistance to cover insufficiencies in its revenues. There can be no
assurance that in the future federal and State assistance will enable the City
to make up its budget deficits. To help alleviate the City's financial
difficulties, the Legislature created the Municipal Assistance Corporation
<PAGE>19
("MAC") in 1975. MAC is authorized to issue bonds and notes payable from
certain stock transfer tax revenues, from the City's portion of the State
sales tax derived in the City and from State per capita aid otherwise payable
by the State to the City. Failure by the State to continue the imposition of
such taxes, the reduction of the rate of such taxes to rates less than those
in effect on July 2, 1975, failure by the State to pay such aid revenues and
the reduction of such aid revenues below a specified level are included among
the events of default in the resolutions authorizing MAC's long-term debt.
The occurrence of an event of default may result in the acceleration of the
maturity of all or a portion of MAC's debt. As of December 31, 1993, MAC had
outstanding an aggregate of approximately $5.204 billion of its bonds. MAC
bonds and notes constitute general obligations of MAC and do not constitute an
enforceable obligation or debt of either the State or the City. Under its
enabling legislation, MAC's authority to issue bonds and notes (other than
refunding bonds and notes) expired on December 31, 1984. Legislation has been
passed by the legislature which would, under certain conditions, permit MAC to
issue up to $1.465 billion of additional bonds, which are not subject to a
moral obligation provision.
Since 1975, the City's financial condition has been subject to
oversight and review by the New York State Financial Control Board (the
"Control Board") and since 1978 the City's financial statements have been
audited by independent accounting firms. To be eligible for guarantees and
assistance, the City is required during a "control period" to submit annually
for Control Board approval, and when a control period is not in effect for
Control Board review, a financial plan for the next four fiscal years covering
the City and certain agencies showing balanced budgets determined in
accordance with GAAP. New York State also established the Office of the State
Deputy Comptroller for New York City ("OSDC") to assist the Control Board in
exercising its powers and responsibilities. On June 30, 1986, the City
satisfied the statutory requirements for termination of the control period.
This means that the Control Board's powers of approval are suspended, but the
Board continues to have oversight responsibilities.
The staffs of OSDC and the Control Board issued periodic reports on
the City's financial plans, as modified, analyzing forecasts of revenues and
expenditures, cash flow, and debt service requirements, as well as compliance
with the financial plan, as modified, by the City and its Covered
Organizations (i.e., those which receive or may receive monies from the City
directly, indirectly or contingently). OSDC staff reports issued during the
mid-1980 s noted that the City s budgets benefited from a rapid rise in the
City s economy, which boosted the City s collection of property, business and
income taxes. These resources were used to increase the City s workforce and
the scope of discretionary and mandated City services. Subsequent OSDC staff
reports examined the 1987 stock market crash and the 1989-92 recession, which
affected the City's region more severely than the nation, and attributed an
erosion of City revenues and increasing strain on City expenditures to that
recession. According to a recent OSDC staff report, the City s economy is now
slowly recovering, but the scope of that recovery is uncertain and unlikely,
in the foreseeable future, to match the expansion of the mid-1980 s. Also,
staff reports of OSDC and the Control Board have indicated that the City s
recent balanced budgets have been
<PAGE>20
accomplished, in part, through the use of non-recurring resources, tax
increases and additional State assistance; that the City has not yet brought
its long-term expenditures in line with recurring revenues; and that the City
is therefore likely to continue to face future projected budget gaps requiring
the City to increase revenues and/or reduce expenditures. According to the
most recent staff reports of OSDC and the Control Board, during the four-year
period covered by the current financial plan, the City is relying on obtaining
substantial resources from initiatives needing approval and cooperation of its
municipal labor unions, Covered Organizations and City Council, as well as the
state and federal governments, among others.
On February 14, 1995, the Mayor released the preliminary budget for
the City's 1996 fiscal year, which addressed a projected $2.7 billion budget
gap. Most of the gap-closing initiatives may be implemented only with the
cooperation of the City's municipal unions, or the State or Federal
governments.
New York City officials estimated that the final State budget,
enacted by the Legislature on June 7, 1995, would result in a $670 million
shortfall from the $1.1 billion in additional state aid the Mayor had sought
in order to close the City's projected deficit. The City may have to take
drastic actions to balance its budget in the wake of such shortfall.
Although the City has balanced its budget since 1981, estimates of
the City's revenues and expenditures, which are based on numerous assumptions,
are subject to various uncertainties. If expected federal or State aid is not
forthcoming, if unforeseen developments in the economy significantly reduce
revenues derived from economically sensitive taxes or necessitate increased
expenditures for public assistance, if the City should negotiate wage
increases for its employees greater than the amounts provided for in the
City's financial plan or if other uncertainties materialize that reduce
expected revenues or increase projected expenditures, then, to avoid operating
deficits, the City may be required to implement additional actions, including
increases in taxes and reductions in essential City services. The City might
also seek additional assistance from New York State.
The City requires certain amounts of financing for seasonal and
capital spending purposes. The City has issued $1.75 billion of notes for
seasonal financing purposes during fiscal year 1994. The City's capital
financing program projected long-term financing requirements of approximately
$17 billion for the City's fiscal years 1995 through 1998. The major capital
requirements include expenditures for the City's water supply and sewage
disposal systems, roads, bridges, mass transit, schools, hospitals and
housing. In addition to financing for new purposes, the City and the New York
City Municipal Water Finance Authority have issued refunding bonds totalling
$1.8 billion in fiscal year 1994.
Certain localities, in addition to the City, could have financial
problems leading to requests for additional New York State assistance. The
potential impact on the State of such requests by localities was not included
in the projections of the State's receipts and disbursements in the State's
1994-95 fiscal year.
<PAGE>21
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the creation of the Financial Control Board for the City of
Yonkers (the "Yonkers Board") by New York State in 1984. The Yonkers Board is
charged with oversight of the fiscal affairs of Yonkers. Future actions taken
by the Governor or the Legislature to assist Yonkers could result in
allocation of New York State resources in amounts that cannot yet be
determined.
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1992, the total indebtedness of all
localities in New York State was approximately $35.2 billion, of which $19.5
billion was debt of New York City (excluding $5.9 billion in MAC debt); a
small portion (approximately $71.6 million) of the $35.2 billion of
indebtedness represented borrowing to finance budgetary deficits and was
issued pursuant to enabling New York State legislation. State law requires
the Comptroller to review and make recommendations concerning the budgets of
those local government units other than New York City authorized by State law
to issue debt to finance deficits during the period that such deficit
financing is outstanding. Seventeen localities had outstanding indebtedness
for deficit financing at the close of their fiscal year ending in 1992.
From time to time, federal expenditure reductions could reduce, or
in some cases eliminate, federal funding of some local programs and
accordingly might impose substantial increased expenditure requirements on
affected localities. If New York State, New York City or any of the
Authorities were to suffer serious financial difficulties jeopardizing their
respective access to the public credit markets, the marketability of notes and
bonds issued by localities within New York State could be adversely affected.
Localities also face anticipated and potential problems resulting from certain
pending litigation, judicial decisions and long-range economic trends. The
longer- range problems of declining urban population, increasing expenditures
and other economic trends could adversely affect localities and require
increasing New York State assistance in the future.
MANAGEMENT OF THE FUND
Officers and Board of Directors
The names (and ages) of the Fund's Directors and officers, their
addresses, present positions and principal occupations during the past five
years and other affiliations are set forth below.
<PAGE>22
Richard N. Cooper(60)* ** . . . Director
Harvard University Professor at Harvard University;
1737 Cambridge Street Director or Trustee of CNA
Cambridge, Massachusetts 02138 Financial Corporation (insurance),
Circuit City Stores, Inc. (retail
electronics and appliances) and
Phoenix Home Life Insurance Company.
Donald J. Donahue (70) . . . Director
99 Indian Field Road Chairman of Magma Copper Company
Greenwich, Connecticut 06830 since January 1987; Director or Trustee of
Northeast Utilities, GEV Corporation and
Signet Star Reinsurance Company; Chairman
and Director of NAC Holdings from September
1990-June 1993.
Jack W. Fritz (68) . . . . . Director
2425 North Fish Creek Road Private investor; Consultant and
P.O. Box 483 Director of Fritz Broadcasting, Inc.
Wilson, Wyoming 83014 and Fritz Communications (developers
and operators of radio stations);
Director of Advo, Inc. (direct mail
advertising).
John L. Furth (64)* . . . . . Director
466 Lexington Avenue Vice Chairman and Director of E.M.
New York, New York 10017-3147 Warburg, Pincus & Co., Inc. ("EMW");
Associated with EMW since 1970; Chief
Executive Officer of 13 other
investment companies advised by
Counsellors.
Thomas A. Melfe (63) . . . . Director
30 Rockefeller Plaza Partner in the law firm of Donovan
- --------------------------
* Indicates a Director who is an "interested person" of the Fund as defined
in the 1940 Act.
** Mr. Cooper has consulting arrangements with Counsellors and an affiliate
of Counsellors. Although these relationships do not appear to require
designation of Mr. Cooper as an interested person, the Fund is currently
making such a designation in order avoid the possibility that Mr.
Cooper's independence would be questioned.
<PAGE>23
New York, New York 10112 Leisure Newton & Irvine; Director of
Municipal Fund for New York Investors, Inc.
Alexander B. Trowbridge (65) Director
1155 Connecticut Avenue, N.W. President of Trowbridge Partners, Inc.
Suite 700 (business consulting) from January 1990 -
Washington, D.C. 20036 January 1994; President of the
National Association of Manufacturers
from 1980-1990; Director or Trustee of
New England Mutual Life Insurance Co.,
ICOS Corporation (biopharmaceuticals),
P.H.H. Corporation (fleet auto
management, housing and plant
relocation service), WMX Technologies
Inc. (solid and hazardous waste
collection and disposal), The Rouse
Company (real estate development),
SunResorts International Ltd. (hotel
real estate management), Harris Corp.
(electronics and communications
equipment), The Gillette Co. (personal
care products) and Sun Company Inc.
(petroleum refining and marketing).
Dale C. Christensen (48) . . President
466 Lexington Avenue Co-Portfolio Manager of other
New York 10017-3147 Warburg Pincus Funds; Managing
Director of EMW; Associated with EMW
since 1989; Vice President at
Citibank, N.A. from 1985-1989; Vice
President of Counsellors Securities;
President of 6 other investment
companies advised by Counsellors.
Arnold M. Reichman(47) . . . Executive Vice President
466 Lexington Avenue Managing Director and Assistant Secretary
New York, New York 10017-3147 of EMW; Associated with EMW since
1984; Senior Vice President, Secretary
and Chief Operating Officer of
Counsellors Securities; President or
Executive Vice President of 14 other
investment companies advised by
Counsellors.
<PAGE>24
Eugene L. Podsiadlo (38) . . Senior Vice President
466 Lexington Avenue Managing Director of EMW;
New York, New York 10017-3147 Associated with EMW since 1991; Vice
President of Citibank, N.A. from 1987-
1991; Senior Vice President of
Counsellors Securities and 14 other
investment companies advised by
Counsellors.
Eugene P. Grace (43) . . . . Vice President and Secretary
466 Lexington Avenue Associated with EMW since April 1994;
New York, New York 10017-3147 Attorney-at-law from September 1989-April
1994; life insurance agent, New York Life
Insurance Company from 1993-1994; General
Counsel and Secretary, Home Unity Savings
Bank from 1991-1992; Vice President and
Chief Compliance Officer of Counsellors
Securities; Vice President and Secretary of
14 other investment companies advised by
Counsellors.
Stephen Distler (41) . . . . Vice President and Chief
466 Lexington Avenue Financial Officer
New York, New York 10017-3147 Managing Director, Controller and Assistant
Secretary of EMW; Associated with EMW since
1984; Treasurer of Counsellors Securities;
Vice President, Treasurer and Chief
Accounting Officer or Treasurer and
Chief Financial Officer of 14 other
investment companies advised by
Counsellors.
Howard Conroy (41) . . . . . Vice President, Treasurer and Chief
466 Lexington Avenue Accounting Officer
New York, New York 10017-3147 Associated with EMW since 1992; Associated
with Martin Geller, C.P.A. from 1990-1992;
Vice President, Finance with
Gabelli/Rosenthal & Partners, L.P. until
1990; Vice President, Treasurer and Chief
Accounting Officer of 13 other investment
companies advised by Counsellors.
<PAGE>25
Karen Amato (31) . . . . . . Assistant Secretary
466 Lexington Avenue Associated with EMW since 1987;
New York, New York 10017-3147 Assistant Secretary of 14 other
investment companies advised by
Counsellors.
No employee of Counsellors, PIMC, PNC or PFPC Inc. ("PFPC") or any
of their affiliates receives any compensation from the Fund for acting as an
officer or Director of the Fund. Each Director who is not a director, officer
or employee of Counsellors, PFPC or any of their affiliates receives an annual
fee of $2,000, and $500 for each meeting of the Board attended by him for his
services as Director and is reimbursed for expenses incurred in connection
with his attendance at Board meetings.
Directors' Compensation
<TABLE>
<CAPTION>
Total Total Annual Compensation from
Compensation from all Investment Companies
Name of Director* Fund Managed by Counsellors
----------------- ----------------- ------------------------------
<S> <C> <C>
John L. Furth None** None**
Richard N. Cooper $4,000 $39,500
Donald J. Donahue $4,000 $39,500
Jack W. Fritz $4,000 $39,500
Thomas A. Melfe $4,000 $39,500
Alexander B. Trowbridge $4,000 $39,500
</TABLE>
____________________
* Each Director also serves as a Director or Trustee of 14 other investment
companies advised by Counsellors.
** Mr. Furth is considered to be an interested person of the Fund and
Counsellors, as defined under Section 2(a)(19) of the 1940 Act, and
receives no compensation from the Fund or any other investment company
managed by Counsellors.
As of May 31, 1995, Directors and officers of the Fund as a group
owned of record 95,202 shares of the Fund's outstanding common stock. As of
the same date, Mr. Furth may be deemed to have beneficially owned 48.73% of
Fund shares outstanding, including shares owned by clients for which
Counsellors has investment discretion. Mr. Furth disclaims ownership of these
shares and does not intend to exercise voting rights with respect to these
shares.
<PAGE>26
Investment Adviser, Sub-Investment Adviser and Administrator
and Co-Administrator
Counsellors serves as investment adviser to the Fund, PIMC serves as
sub-investment adviser and administrator to the Fund and Counsellors Funds
Service, Inc. ("Counsellors Service") serves as co-administrator to the Fund
pursuant to written agreements (the "Advisory Agreement," the "Sub-Advisory
Agreement" and the "Co-Administration Agreement," respectively, and
collectively, the "Agreements"). The services provided by and the fees
payable by the Fund to Counsellors, PIMC and Counsellors Service under the
respective Agreements are described in the Prospectus. Prior to June 29,
1994, Counsellors Service served as administrative services agent to the Fund
pursuant to a written agreement (the "Administrative Services Agreement").
Counsellors and PIMC have agreed that if, in any fiscal year, the
expenses borne by the Fund exceed the applicable expense limitations imposed
by the securities regulations of any state in which shares of the Fund are
registered or qualified for sale to the public, they will each reimburse the
Fund for one-half of any excess to the extent required by such regulations.
Unless otherwise required by law, such reimbursement would be accrued and paid
on a monthly basis. At present, no state expense limitation is applicable to
the Fund.
During the fiscal years ended February 28, 1993, February 28, 1994
and February 28, 1995, the Fund incurred $161,096, $194,823 and $221,553,
respectively, in fees to each of Counsellors and PIMC for services under the
Advisory Agreement and Sub-Advisory Agreement, respectively. For the same
periods, Counsellors and PIMC voluntarily waived fees aggregating $177,788,
$148,167 and $199,026, respectively, of which Counsellors voluntarily waived
$71,115, $108,970 and $55,231 and PIMC voluntarily waived $106,673, $39,197
and $143,795. Under the Administrative Services Agreement or the Co-
Administration Agreement, as the case may be, $33,058, $149,092 and $88,871,
respectively, was payable to Counsellors Service during the fiscal years ended
February 28, 1993, February 28, 1994 and February 28, 1995, respectively, of
which $44,311 was waived by them in 1995.
Banking Laws
Banking laws and regulations presently (i) prohibit a bank holding
company registered under the Federal Bank Holding Company Act of 1956 (the
"Holding Company Act") or any bank or non-bank affiliate thereof from
sponsoring, organizing, controlling, or distributing the shares of a
registered, open-end investment company continuously engaged in the issuance
of its shares, but (ii) do not prohibit such a holding company or affiliate
from acting as investment adviser, transfer agent or custodian to such an
investment company. PNC and PIMC are subject to such banking laws and
regulations.
<PAGE>27
PIMC, PNC and the Fund have been advised by Messrs. Ballard, Spahr,
Andrews & Ingersoll that PIMC and PNC may perform the services for the Fund
contemplated by their respective agreements with the Fund and the Prospectus
without violation of applicable banking laws or regulations. Such counsel
have pointed out, however, that future changes in legal requirements relating
to the permissible activities of banks and their affiliates, as well as future
interpretations of present requirements, could prevent one or more of them
from continuing to perform services for the Fund. If PIMC or PNC were
prohibited from providing services to the Fund, the Board would select another
qualified firm. Any new sub-investment advisory agreement would be subject to
shareholder approval.
Custodian and Transfer Agent
PNC is custodian of the Fund's assets pursuant to a custodian
agreement (the "Custodian Agreement"). Under the Custodian Agreement, PNC (i)
maintains a separate account or accounts in the name of the Fund, (ii) holds
and transfers portfolio securities on account of the Fund, (iii) makes
receipts and disbursements of money on behalf of the Fund, (iv) collects and
receives all income and other payments and distributions on account of the
Fund's portfolio securities and (v) makes periodic reports to the Board
concerning the Fund's operations. PNC is authorized to select one or more
banks or trust companies to serve as sub-custodian on behalf of the Fund,
provided that PNC remains responsible for the performance of all its duties
under the Custodian Agreement and holds the Fund harmless from the acts and
omissions of any sub-custodian. PNC is an indirect wholly owned subsidiary of
PNC Bank Corp., and its principal business address is Broad and Chestnut
Streets, Philadelphia, Pennsylvania 19101.
State Street Bank and Trust Company ("State Street") has agreed to
serve as the Fund's shareholder servicing, transfer and dividend disbursing
agent pursuant to a Transfer Agency and Service Agreement, under which State
Street (i) issues and redeems shares of the Fund, (ii) addresses and mails all
communications by the Fund to record owners of the Fund shares, including
reports to shareholders, dividend and distribution notices and proxy material
for its meetings of shareholders, (iii) maintains shareholder accounts and, if
requested, sub-accounts, and (iv) makes periodic reports to the Board
concerning the transfer agent's operations with respect to the Fund. State
Street has delegated to Boston Financial Data Services, Inc., a 50% owned
subsidiary ("BFDS"), responsibility for most shareholder servicing functions.
The principal business address of State Street is 225 Franklin Street, Boston,
Massachusetts 02110. BFDS's principal business address is 2 Heritage Drive,
Boston, Massachusetts 02171.
Distribution and Shareholder Servicing
The Fund may in the future enter into agreements ("Agreements") with
institutions ("Institutions") to perform certain distribution, shareholder
servicing, administrative and accounting services would be provided to the
holders ("Customers") who
<PAGE>28
are beneficial owners of the Fund's Series 2 class of shares (the "Series 2
Shares"). See the Prospectus, "Shareholder Servicing." The Fund's agreements
with Institutions with respect to Series 2 Shares will be governed by a
Distribution Plan. The Distribution Plan would require the Board, at least
quarterly, to receive and review written reports of amounts expended under the
Distribution Plan and the purposes for which such expenditures were made.
An Institution with which the Fund has entered into an Agreement
with respect to either its Common Shares or Series 2 Shares may charge a
Customer one or more of the following types of fees, as agreed upon by the
Institution and the Customer, with respect to the cash management or other
services provided by the Service Organization: (i) account fees (a fixed
amount per month or per year); (ii) transaction fees (a fixed amount per
transaction processed); (iii) compensation balance requirements (a minimum
dollar amount a Customer must maintain in order to obtain the services
offered); or (iv) account maintenance fees (a periodic charge based upon the
percentage of assets in the account or of the dividend paid on those assets).
Services provided by an Institution to Customers are in addition to, and not
duplicative of, the services to be provided under the Fund's co-administration
and distribution and shareholder servicing arrangements. A Customer of an
Institution should read the Prospectus and Statement of Additional Information
in conjunction with the Agreement and other literature describing the services
and related fees that would be provided by the an Institution to its Customers
prior to any purchase of Fund shares. Prospectuses are available from the
Fund's distributor upon request. No preference will be shown in the selection
of Fund portfolio investments for the instruments of Institutions.
The Distribution Plan and 12b-1 Plan will continue in effect for so
long as their continuance is specifically approved at least annually by the
Board, including a majority of the Directors who are not interested persons of
the Fund and who have no direct or indirect financial interest in the
operation of the Service Plans ("Independent Directors"). Any material
amendment of the Distribution Plan or the 12b-1 Plan would require the
approval of the Board in the manner described above. The Distribution Plan
may be amended to increase materially the amount to be spent under the Plan
without shareholder approval of the relevant class of shares. The
Distribution Plan or the 12b-1 Plan may be terminated at any time, without
penalty, by vote of a majority of the Independent Directors or by a vote of a
majority of the outstanding voting securities of the relevant class of shares
of the Fund.
Until June 9, 1995, the Fund was under an agreement (the "Selected
Dealer Agreement") with Janney Montgomery Scott Inc. ("Janney Montgomery")
whereby Janney Montgomery agreed to provide distribution, administrative and
shareholder services for their Customers who owned Series 2 Shares. Under the
Selected Dealer Agreement, Counsellors Securities, out of moneys received from
the Fund, paid Janney Montgomery a fee, accrued daily and paid quarterly,
calculated at the annual rate of .10% of the Fund's average daily net assets
with respect to distribution and administrative services and .25% of the
Fund's average daily net assets with respect to shareholder services. During
the fiscal years ended
<PAGE>29
February 29, 1993, February 29, 1994 and February 29, 1995, Janney Montgomery
received $28,729, $36,410 and $41,225, respectively. The amounts retained were
used primarily to defray a portion of the costs incurred in rendering services
to Janney Montgomery's customers under the Selected Dealer Agreement,
principally compensation to its sales representatives.
Organization of the Fund
The Fund is incorporated in Maryland. See the Prospectus, "General
Information." All shareholders of the Fund, upon liquidation, will
participate ratably in the Fund's net assets. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Directors can elect all Directors. Shares are
transferable but have no preemptive, conversion or subscription rights.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Information on how to purchase and redeem Fund shares and how such
shares are priced is included in the Prospectus.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
New York Stock Exchange (the "NYSE") is closed, other than customary weekend
and holiday closings, or during which trading on the NYSE is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or fair valuation of portfolio securities
is not reasonably practicable, or for such other periods as the SEC may
permit. (The Fund may also suspend or postpone the recordation of an exchange
of its shares upon the occurrence of any of the foregoing conditions.)
If the Board determines that conditions exist which make payment of
redemption proceeds wholly in cash unwise or undesirable, the Fund may make
payment wholly or partly in securities or other property. If a redemption is
paid wholly or partly in securities or other property, a shareholder would
incur transaction costs in disposing of the redemption proceeds. The Fund
intends to comply with Rule 18f-1 promulgated under the 1940 Act with respect
to redemptions in kind. In certain instances, the Fund may redeem shares pro
rata from each shareholder of record without payment of monetary
consideration. See Statement of Additional Information -- "Investment
Objective and Policies - Portfolio Valuation" for an example of when such
redemption or form of payment might be appropriate.
Automatic Cash Withdrawal Plan. An automatic cash withdrawal plan
(the "Plan") is available to shareholders who wish to receive specific amounts
of cash periodically. Withdrawals may be made under the Plan by redeeming as
many shares of the Fund as may be necessary to cover the stipulated withdrawal
payment. To the extent that
<PAGE>30
withdrawals exceed dividends, distributions and appreciation of a
shareholder's investment in the Fund, there will be a reduction in the value
of the shareholder's investment and continued withdrawal payments may reduce
the shareholder's investment and ultimately exhaust it. Withdrawal payments
should not be considered as income from investment in the Fund. All dividends
and distributions on shares in the Plan are automatically reinvested at net
asset value in additional shares of the Fund.
EXCHANGE PRIVILEGE
An exchange privilege with certain other funds advised by
Counsellors is available to investors in the Fund. The funds into which
exchanges can be made currently are Warburg Pincus Cash Reserve Fund, Warburg,
Pincus Tax-Free Fund, Warburg Pincus New York Intermediate Municipal Fund,
Warburg Pincus Intermediate Maturity Government Fund, Warburg Pincus Fixed
Income Fund, Warburg, Pincus Short-Term Tax-Advantaged Bond Fund, Warburg
Pincus Global Fixed Income Fund, Warburg Pincus Balanced Fund, Warburg Pincus
Growth & Income Fund, Warburg Pincus Capital Appreciation Fund, Warburg Pincus
Emerging Growth Fund, Warburg Pincus International Equity Fund, Warburg Pincus
Emerging Markets Fund and Warburg Pincus Japan OTC Fund. Shareholders of the
Fund may exchange all or part of their shares for shares of these funds or
other mutual funds organized by Counsellors in the future on the basis of
their relative net asset values per share at the time of exchange.
The exchange privilege enables shareholders in certain funds advised
by Counsellors to acquire shares in a fund with a different investment
objective when they believe that a shift between funds is an appropriate
investment decision. This privilege is available to shareholders residing in
any state in which the fund shares being acquired may legally be sold. Prior
to any exchange, the investor should obtain and review a copy of the current
prospectus of each fund into which an exchange is being considered.
Shareholders may obtain a prospectus of the fund into which they are
contemplating an exchange from Counsellors Securities.
Upon receipt of proper instructions and all necessary supporting
documents, shares submitted for exchange are redeemed at the then-current net
asset value and the proceeds are invested on the same day, at a price as
described above, in shares of the fund being acquired. Counsellors reserves
the right to reject more than three exchange requests by a shareholder in any
30-day period. The exchange privilege may be modified or terminated at any
time upon 60 days' notice to shareholders.
<PAGE>31
ADDITIONAL INFORMATION CONCERNING TAXES
The discussion set out below of tax considerations generally
affecting the Fund and its shareholders is intended to be only a summary and
is not intended as a substitute for careful tax planning by prospective
shareholders. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the
Fund.
As described above and in the Fund's Prospectus, the Fund is
designed to provide investors with current income which is excluded from gross
income for federal income tax purposes and exempt from New York State and New
York City personal income taxes. The Fund is not intended to constitute a
balanced investment program and is not designed for investors seeking capital
gains or maximum tax-exempt income irrespective of fluctuations in principal.
Investment in the Fund would not be suitable for tax-exempt institutions,
individual retirement plans, employee benefit plans and individual retirement
accounts since such investors would not gain any additional tax benefit from
the receipt of tax-exempt income.
The Fund has qualified and intends to continue to qualify as a
"regulated investment company" under Subchapter M of the Code. If it
qualifies as a regulated investment company, the Fund will pay no federal
income taxes on its taxable net investment income (that is, taxable income
other than net realized capital gains) and its net realized capital gains that
are distributed to shareholders. To qualify under Subchapter M, the Fund
must, among other things: (i) distribute to its shareholders at least 90% of
its taxable net investment income (for this purpose consisting of taxable net
investment income and net realized short-term capital gains); (ii) derive at
least 90% of its gross income from dividends, interest, payments with respect
to loans of securities, gains from the sale or other disposition of
securities, or other income (including, but not limited to, gains from
options, futures, and forward contracts) derived with respect to the Fund's
business of investing in securities; (iii) derive less than 30% of its annual
gross income from the sale or other disposition of securities, options,
futures or forward contracts held for less than three months; and
(iv) diversify its holdings so that, at the end of each fiscal quarter of the
Fund (a) at least 50% of the market value of the Fund's assets is represented
by cash, U.S. government securities and other securities, with those other
securities limited, with respect to any one issuer, to an amount no greater in
value than 5% of the Fund's total assets and to not more than 10% of the
outstanding voting securities of the issuer, and (b) not more than 25% of the
market value of the Fund's assets is invested in the securities of any one
issuer (other than U.S. government securities or securities of other regulated
investment companies) or of two or more issuers that the Fund controls and
that are determined to be in the same or similar trades or businesses or
related trades or businesses. In meeting these requirements, the Fund may be
restricted in the selling of securities held by the Fund for less than three
months and in the utilization of certain of the investment techniques
described above and in the Prospectus. As a regulated investment company, the
Fund will be subject to a 4% non-deductible excise tax measured with respect
to certain undistributed amounts of ordinary
<PAGE>32
income and capital gain required to be but not distributed under a prescribed
formula. The formula requires payment to shareholders during a calendar year
of distributions representing at least 98% of the Fund's taxable ordinary
income for the calendar year and at least 98% of the excess of its capital
gains over capital losses realized during the one-year period ending October
31 during such year, together with any undistributed, untaxed amounts of
ordinary income and capital gains from the previous calendar year. The Fund
expects to pay the dividends and make the distributions necessary to avoid the
application of this excise tax.
Although the Fund expects 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, that portion of the Fund's income which is treated as
earned in any such state or locality could be subject to state and local tax.
Any taxes paid by the Fund would reduce the amount of income and gains
available for distribution to shareholders.
Because the Fund will distribute exempt interest dividends, interest
on indebtedness incurred by a shareholder to purchase or carry Fund shares is
not deductible for federal income tax purposes and New York State and New York
City personal income tax purposes. In addition, the Code may require a
shareholder, if he or she receives exempt interest dividends, to treat as
taxable income a portion of certain otherwise non-taxable social security and
railroad retirement benefit payments. Furthermore, that portion of any
dividend paid by the Fund which represents income derived from private
activity securities held by the Fund may not retain its tax-exempt status in
the hands of a shareholder who is a "substantial user" of a facility financed
by such bonds, or a "related person" thereof. Moreover, as noted in the
Fund's prospectus, (i) some of the Fund's dividends may be a tax preference
item, or a component of an adjustment item, for purposes of the federal
individual and corporate alternative minimum taxes and (ii) the receipt of
Fund dividends and distributions may affect a corporate shareholder's federal
"environmental" tax liability. In addition, the receipt of Fund dividends and
distributions may affect a foreign corporate shareholder's federal "branch
profits" tax liability and a Subchapter S corporation shareholder's federal
"excess net passive income" tax liability. Shareholders should consult their
own tax advisers as to whether they (i) may be "substantial users" with
respect to a facility or "related" to such users within the meaning of the
Code and (ii) are subject to a federal alternative minimum tax, the federal
environmental tax, the federal "branch profits" tax, or the federal "excess
net passive income" tax.
While the Fund does not expect to realize net long-term capital
gains, any such realized gains will be distributed as described in the
Prospectus. Such distributions ("capital gain dividends") will be taxable to
shareholders as long-term capital gains, regardless of how long a shareholder
has held Fund shares, and will be designated as capital gain dividends in a
written notice mailed by the Fund to shareholders after the close of the
Fund's taxable year. Gain or loss, if any, recognized on the sale or other
disposition of shares of the Fund will be taxed as capital gain or loss if the
shares are capital assets in the shareholder's hands.
<PAGE>33
Generally, a shareholder's gain or loss will be a long-term gain or loss if
the shares have been held for more than one year. If a shareholder sells or
otherwise disposes of a share of the Fund before holding it for more than six
months, any loss on the sale or other disposition of such share shall be
treated as a long-term capital loss to the extent of any capital gain
dividends received by the shareholder with respect to such share.
A shareholder of the Fund receiving dividends or distributions in
additional shares should be treated for federal income tax purposes as
receiving a distribution in an amount equal to the amount of money that a
shareholder receiving cash dividends or distributions receives, and should
have a cost basis in the shares received equal to that amount. Any loss
realized on a sale or exchange of a shareholder's shares will be disallowed to
the extent the shares disposed of are replaced, including replacement through
the reinvesting of dividends and capital gains distributions in the Fund,
within a period of 61 days beginning 30 days before and ending 30 days after
the disposition of the shares. In such a case, the basis of the shares
acquired will be increased to reflect the disallowed loss.
Distributions by the Fund result in a reduction in the net asset
value of the Fund's shares. Should a distribution reduce the net asset value
below a shareholder's cost basis, such distribution would nevertheless be
taxable to the shareholder to the extent it is derived from other than tax-
exempt interest as ordinary income or capital gain, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares
just prior to a distribution. The price of shares purchased at that time
includes the amount of the forthcoming distribution. Those purchasing just
prior to a distribution will then receive a partial return of capital upon the
distribution which, to the extent it is derived from other than tax-exempt
interest, will nevertheless be taxable to them.
Each shareholder will receive an annual statement as to the federal
and New York State and New York City personal income tax status of his
dividends and distributions from the Fund for the prior calendar year.
Furthermore, shareholders will also receive, if appropriate, various written
notices after the close of the Fund's taxable year regarding the federal
income tax status of certain dividends and distributions that were paid (or
that are treated as having been paid) by the Fund to its shareholders during
the preceding year. Shareholders should consult their tax advisers as to any
other state and local taxes that may apply to the Fund's dividends and
distributions. The dollar amount of dividends excluded from federal income
taxation and exempt from New York State and New York City personal income
taxation and the dollar amounts subject to federal income and New York State
and New York City personal income taxation, if any, will vary for each
shareholder depending upon the size and duration of each shareholder's
investment in the Fund. In the event that the Fund derives taxable net
investment income, it intends to designate as taxable dividends the same
percentage of each day's dividend as its actual taxable net investment income
bears to its total net investment income earned on that day. Therefore, the
percentage of each day's dividend designated as taxable, if any, may vary from
day to day.
<PAGE>34
If a shareholder fails to furnish a correct taxpayer identification
number, fails to report fully dividend or interest income, or fails to certify
that he has provided a correct taxpayer identification number and that he is
not subject to withholding, then the shareholder may be subject to a 31%
"backup withholding" tax with respect to (a) taxable dividends and
distributions and (b) the proceeds of any redemptions of Fund shares. An
individual's taxpayer identification number is his social security number.
Corporate shareholders and other shareholders specified in the Code are or may
be exempt from backup withholding. The backup withholding tax is not an
additional tax and may be credited against a taxpayer's federal income tax
liability.
DETERMINATION OF YIELD
From time to time, the Fund may quote its yield, effective yield and
tax equivalent yield in advertisements or in reports and other communications
to shareholders. The Fund's yield, effective yield and tax equivalent yield
on its Common Stock, par value $.001 per share (the "Shares"), for the
seven-day period ended on February 28, 1995 was 3.29%, 3.34% and 5.86% (based
on a 46.72% tax bracket), respectively. In the absence of waivers these
yields would have been 3.23%, 3.28% and 5.76%, respectively. The Fund's
seven-day yield is calculated by (i) determining the net change in the value
of a hypothetical pre-existing account in the Fund having a balance of one
share at the beginning of a seven calendar day period for which yield is to be
quoted, (ii) dividing the net change by the value of the account at the
beginning of the period to obtain the base period return and (iii) annualizing
the results (i.e., multiplying the base period return by 365/7). The net
change in the value of the account reflects the value of additional shares
purchased with dividends declared on the original share and any such
additional shares, but does not include realized gains and losses or
unrealized appreciation and depreciation. The Fund's seven-day compound
effective annualized yield is calculated by adding 1 to the base period return
(calculated as described above), raising the sum to a power equal to 365/7 and
subtracting 1. The Fund's tax equivalent yield is calculated by dividing that
portion of the base period return which is exempt from federal, New York State
and New York City personal income taxes by 1 minus the highest marginal
federal, New York State and New York City individual income tax rates and
adding the quotient to that portion, if any, of the yield which is not exempt
from those taxes.
The Fund's yield will vary from time to time depending upon market
conditions, the composition of the Fund's portfolio and its operating
expenses. Yield information may be useful in reviewing the Fund's performance
and for providing a basis for comparison with other investment alternatives.
However, the Fund's yield will fluctuate, unlike certain bank deposits or
other investments which pay a fixed yield for a stated period of time. In
comparing the Fund's yield with that of other money market funds, investors
should give consideration to the quality and maturity of the portfolio
securities of the respective funds.
<PAGE>35
AUDITORS AND COUNSEL
Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), with principal
offices at 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves
as independent auditors for the Fund. The financial statements that appear in
this Statement of Additional Information have been audited by Coopers &
Lybrand, whose report thereon appears elsewhere herein, and have been included
herein in reliance upon the report of such firm of independent auditors given
upon their authority as experts in accounting and auditing.
Willkie Farr & Gallagher serves as counsel for the Fund as well as
counsel to Counsellors, Counsellors Service and Counsellors Securities.
MISCELLANEOUS
As of May 31, 1995, the name, address and percentage of ownership of
other persons (other than Mr. Furth, see "Management of the Fund") that
control the Fund (within the meaning of the rules and regulations under the
1940 Act) or own of record 5% or more of the Fund's outstanding shares were as
follows: Fiduciary Trust Company International, P.O. Box 3199, New York, NY
10008-3199 -- 47.74%; Neuberger & Berman, 11 Broadway, New York, NY 10004-1303
- -- 26.75% and Chemical Bank, 270 Park Avenue, New York, NY 10017-2014
-- 5.59%. To the knowledge of the Fund, these entities are not the beneficial
owners of a majority of the shares held by them of record. Mr. Lionel I.
Pincus may be deemed to have beneficially owned 48.60% of Fund shares
outstanding, including shares owned by clients for which Counsellors has
investment discretion and by companies that EMW may be deemed to control. Mr.
Pincus disclaims ownership of these shares and does not intend to exercise
voting rights with respect to these shares.
FINANCIAL STATEMENTS
The Fund's financial statements for the fiscal year ended February
28, 1995 follow the Report of Independent Auditors.
<PAGE>A-1
APPENDIX
DESCRIPTION OF MUNICIPAL SECURITIES RATINGS
The following summarizes the highest two ratings used by Standard &
Poor's Ratings Group ("S&P") for Municipal Securities:
AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest and
repay principal.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small degree.
To provide more detailed indications of credit quality, the "AA"
rating may be modified by the addition of a plus or minus sign to show
relative standing within this major rating category.
The following summarizes the highest two ratings used by Moody's
Investors Service, Inc. ("Moody's") for bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds that are rated As are judged to be of high quality by all
standards. Together with the Aaa group 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.
Moody's applies numerical modifiers (1,2 and 3) with respect to the
bonds rated Aa. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the
lower end of its generic rating category.
The following summarizes the two highest ratings used by S&P for
short-term notes:
SP-1 - Loans bearing this designation evidence a very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics will be given a (+) designation.
<PAGE>A-2
SP-2 - Loans bearing this designation evidence a satisfactory
capacity to pay principal and interest.
The following summarizes the two highest ratings used by Moody's for
short-term notes and variable rate demand obligations:
MIG-1/VMIG-1 - Obligations bearing these designations are of the
best quality, enjoying strong protection from established cash flows of funds
for their servicing or from established and broad-based access to the market
for refinancing, or both.
MIG-2/VMIG-2 - Obligations bearing these designations are of high
quality with margins of protection ample although not so large as in the
preceding group.
Commercial paper rated A-1 by S&P indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign
designation. Capacity for timely payment on commercial paper rated A-2 is
satisfactory, but the relative degree of safety is not as high as for issues
designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned
by Moody's Investors Services, Inc. Issuers rated Prime-1 (or related
supporting institutions) are considered to have a superior capacity for
repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics of issuers rated Prime-1 but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
Short term obligations, including commercial paper, rated A1 + by
IBCA are obligations supported by the highest capacity for timely repayment.
Obligations rated A1 have a very strong capacity for timely repayment.
Obligations rated A2 have a strong capacity for timely repayment, although
such capacity may be susceptible to adverse changes in business, economic or
financial conditions.
Fitch Investors Services, Inc. employs the rating F-1+ to indicate
issues regarded as having the strongest degree of assurance for timely
payment. The rating F-1 reflects an assurance of timely payment only slightly
less in degree than issues rated F-1+, while the rating F-2 indicates a
satisfactory degree of assurance for timely payment, although the margin of
safety is not as great as indicated by the F-1+ and F-1 categories.
Duff & Phelps, Inc. employs the designation of Duff 1 with respect
to top grade commercial paper and bank money instruments. Duff 1+ indicates
the highest certainty of timely payment: short-term liquidity is clearly
outstanding and safety is just
<PAGE>A-3
below risk-free U.S. Treasury short-term obligations. Duff 1- indicates high
certainty of timely payment. Duff 2 indicates good certainty of timely
payment: liquidity factors and company fundamentals are sound.
<PAGE>
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WARBURG PINCUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
WARBURG PINCUS MONEY MARKET FUNDS:
We have audited the accompanying statements of net assets of Warburg Pincus Cash
Reserve Fund and Warburg Pincus New York Tax Exempt Fund as of February 28,
1995, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods presented. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 28, 1995. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Warburg Pincus Cash Reserve Fund and Warburg Pincus New York Tax Exempt Fund as
of February 28, 1995, and the results of their operations for the year then
ended, the changes in their net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 31, 1995
25
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<PAGE>
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WARBURG PINCUS NEW YORK TAX EXEMPT FUND
STATEMENT OF NET ASSETS
February 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS=
PAR SECURITY DESCRIPTION (MOODY'S/S&P) MATURITY RATE VALUE
------------ ------------------------------------------ ------------- --------- ----- -----------
<S> <C> <C> <C> <C> <C>
NEW YORK (98.4%)
$ 2,000,000 Albany County New York BANS (NR/NR) 02/21/96 6.000% $ 2,023,141
2,000,000 Broome County New York 1994 BANS (MIG1/NR) 04/20/95 3.750 2,001,192
2,000,000 Chautauqua County New York Industrial
Development Agency (The Red Wing Co.
Project) Series 1985 VRDN + (AA2/NR) 03/07/95 4.250 2,000,000
700,000 Erie County New York Water Authority
Series B (AMBAC Insurance) VRDN + (VMIG1/A-1+) 03/07/95 3.750 700,000
900,000 Metropolitan Transportation Authority
Commuter Facility Series 1991 (Morgan
Guaranty LOC) VRDN + (VMIG1/A-1) 03/07/95 3.900 900,000
1,000,000 Monroe County Industrial Development
Agency Electronic Navigational Industries
Facility Series 1984 MB (AA1/AA+) 07/01/95 3.600 1,000,000
2,000,000 New York City General Obligation RANS
Series B Floating Libor Notes VRDN + (MIG1/SP-1) 03/07/95 4.183 2,000,000
3,000,000 New York City General Obligation A-4
(Chemical Bank LOC) VRDN + (VMIG/A-1) 03/07/95 3.600 3,000,000
2,000,000 New York City General Obligation RANS
Fiscal 1995 Series B VRDN + (MIG1/SP-1) 03/07/95 4.063 2,000,000
1,500,000 New York City General Obligation Subseries
B-9 (Chemical Bank LOC) (VMIG/A-1) 03/16/95 3.700 1,500,000
2,500,000 New York City Housing Development
Authority (York Ave.) (Chemical Bank LOC)
VRDN + (NR/A-1) 03/07/95 4.100 2,500,000
2,395,000 New York City Housing Development
Corporation (Parkgate Tower) (Citibank
LOC) VRDN + (VMIG1/A-1) 03/07/95 3.750 2,395,000
1,000,000 New York City Housing Development
Corporation (Upper Fifth Avenue Project)
Series 1989A (Bankers Trust LOC) VRDN + (VMIG1/A-1) 03/07/95 3.750 1,000,000
7,000,000 New York City Industrial Development
Agency (La Guardia Project) Series 1985
(Banque Indosuez LOC) VRDN + (NR/A-1) 03/07/95 3.800 7,000,000
</TABLE>
See Accompanying Notes to Financial Statements.
10
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<PAGE>
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WARBURG PINCUS NEW YORK TAX EXEMPT FUND
STATEMENT OF NET ASSETS (CONT'D)
February 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS=
PAR SECURITY DESCRIPTION (MOODY'S/S&P) MATURITY RATE VALUE
------------ ------------------------------------------ ------------- --------- ----- -----------
NEW YORK (CONT'D)
<S> <C> <C> <C> <C> <C>
$ 1,000,000 New York City Industrial Development
Agency Columbia Grammar and Preparatory
School Civic Facility Revenue Bond Series
1994 (Chemical Bank LOC) VRDN + (NR/A-1) 03/07/95 3.850% $ 1,000,000
2,400,000 New York City Industrial Development
Agency Field Hotel Association (John
Fitzgerald Kennedy Project) Series 1985
(Banque Indosuez LOC) VRDN + (VMIG1/A-1) 03/07/95 3.800 2,400,000
500,000 New York City Industrial Development
Revenue Bond Nippon Cargo Airlines Company
(Industrial Bank of Japan LOC) VRDN + (NR/A-1+) 03/07/95 4.400 500,000
2,000,000 New York City Municipal Water Finance
Authority (Credit Suisse LOC) TECP (P-1/A-1+) 03/15/95 4.100 2,000,000
1,000,000 New York City RANS (MIG1/SP-1) 06/30/95 4.750 1,002,568
2,400,000 New York City Trust for Cultural Resources
Museum of Broadcasting Series 1989
(Sumitomo Bank LOC) VRDN + (VMIG1/A-1) 03/07/95 3.900 2,400,000
1,447,000 New York City Trust for Cultural Resources
New York City (Carnegie Hall) (Dai-Ichi
Kangyo LOC) VRDN + (VMIG1/A-1) 03/07/95 4.100 1,447,000
1,000,000 New York City Trust for Cultural Resources
New York City Adjustable Tender Revenue
Bond (American Museum of Natural History)
Series 1991B (MBIA Insurance) VRDN + (VMIG1/A-1+) 03/07/95 3.700 1,000,000
1,220,000 New York State Dormitory Authority
Highland Community Development Revenue
Bond Series 1994A (Marine Midland Bank &
Hong Kong Shanghai Bank LOC) VRDN + (VMIG1/A-1) 03/07/95 3.800 1,220,000
500,000 New York State Dormitory Authority
Memorial Sloan Kettering Cancer Center
Series D (Fuji Bank LOC) TECP (P-1/A-1) 03/13/95 4.100 500,000
</TABLE>
See Accompanying Notes to Financial Statements.
11
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<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS NEW YORK TAX EXEMPT FUND
STATEMENT OF NET ASSETS (CONT'D)
February 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS=
PAR SECURITY DESCRIPTION (MOODY'S/S&P) MATURITY RATE VALUE
------------ ------------------------------------------ ------------- --------- ----- -----------
NEW YORK (CONT'D)
<S> <C> <C> <C> <C> <C>
$ 1,000,000 New York State Dormitory Authority State
University Education Facilities 1990 Issue
A (Escrowed in U.S. Government) MB (Aaa/AAA) 05/01/95 6.300% $ 1,004,886
900,000 New York State Energy Research &
Development Authority Pollution Control
Revenue Refunding Bond (Central Hudson Gas
and Electric) Series 1985A (Bankers Trust
LOC) VRDN + (P-1/NR) 03/07/95 3.550 900,000
4,900,000 New York State Energy Research &
Development Authority Pollution Control
Revenue Refunding Bonds (Rochester Gas &
Electric) Series 1984 (Bank of New York
LOC) VRDN + (P-1/NR) 03/01/95 3.500 4,900,000
1,000,000 New York State Energy Research and
Development Authority (New York State
Electric & Gas) Series 1985A (Morgan
Guaranty LOC) MB (P-1/A-1+) 03/15/95 3.250 1,000,000
1,500,000 New York State Energy Research and
Development Authority Pollution Control
Revenue Bond (Long Island Lighting
Company) (Deutsche Bank LOC) MB (VMIG1/A-1+) 03/01/95 3.000 1,500,000
800,000 New York State Housing Finance Agency
Housing Revenue Bond (Mt. Sinai School of
Medicine) Series 1984A (LOC Golden State
Sanwa Bank) VRDN + (VMIG1/NR) 03/07/95 4.000 800,000
100,000 New York State Housing Finance Agency
Housing Revenue Bond (Normandie Court)
Series 1991A (Societe Generale LOC) VRDN + (VMIG1/A-1+) 03/07/95 3.900 100,000
1,200,000 New York State Housing Finance Agency
Multi-Family Housing RB (Pleasant Creek
Assoc.) 1988 Series A (AMBAC Insured
Program) VRDN + (VMIG1/A-1+) 03/07/95 3.900 1,200,000
</TABLE>
See Accompanying Notes to Financial Statements.
12
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<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS NEW YORK TAX EXEMPT FUND
STATEMENT OF NET ASSETS (CONT'D)
February 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS=
PAR SECURITY DESCRIPTION (MOODY'S/S&P) MATURITY RATE VALUE
------------ ------------------------------------------ ------------- --------- ----- -----------
NEW YORK (CONT'D)
<S> <C> <C> <C> <C> <C>
$ 250,000 New York State Job Development Authority
State Guaranteed Variable Rate Special
Purpose Bond Series 1984C (Sumitomo Bank
LOC) VRDN + (VMIG1/A-1+) 03/01/95 3.800% $ 250,000
120,000 New York State Job Development Authority
State Guaranteed Variable Rate Special
Purpose Bond Series 1984F (Sumitomo Bank
LOC) VRDN + (VMIG1/A-1+) 03/01/95 3.800 120,000
705,000 New York State Job Development Authority
State Guaranteed Variable Rate Special
Purpose Bond Series 1984G (Sumitomo Bank
LOC) VRDN + (VMIG1/A-1+) 03/01/95 3.800 705,000
895,000 New York State Job Development Authority
State Guaranteed Variable Rate Special
Purpose Bond Series 1984H (Sumitomo Bank
LOC) VRDN + (VMIG1/A-1+) 03/01/95 3.800 895,000
1,900,000 New York State Medical Care Facilities
Finance Agency, Lenox Hill Hospital
Project 1990 Series A (Chemical Bank LOC)
VRDN + (VMIG1/NR) 03/07/95 3.800 1,900,000
600,000 New York State Power Authority Adjustable
Tender Notes MB (VMIG1/A-1) 03/01/95 3.800 600,000
2,000,000 New York State Power Authority MB (VMIG1/A-1) 03/01/95 3.800 2,000,000
1,000,000 North Hempstead New York Solid Waste
Management Authority Series A 1993 VRDN + (VMIG1/NR) 03/07/95 3.750 1,000,000
2,000,000 Port Authority New York and New Jersey
Series B TECP (P-1/A-1+) 03/07/95 3.700 2,000,000
1,900,000 State of New York G.O. BANS Series Q TECP
(Westdeutsche Landesbank Gironzentrale
LOC) (P-1/A-1) 03/07/95 4.100 1,900,000
2,500,000 State of New York General Obligation BANS
Series O (P-1/A-1) 03/16/95 3.850 2,500,000
</TABLE>
See Accompanying Notes to Financial Statements.
13
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS NEW YORK TAX EXEMPT FUND
STATEMENT OF NET ASSETS (CONT'D)
February 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS=
PAR SECURITY DESCRIPTION (MOODY'S/S&P) MATURITY RATE VALUE
------------ ------------------------------------------ ------------- --------- ----- -----------
NEW YORK (CONT'D)
<S> <C> <C> <C> <C> <C>
$ 7,900,000 Suffolk County Industrial Development
Authority (Nissequogue Cogen) Series 1993
(Toronto Dominion Bank LOC) VRDN + (VMIG1/A-1+) 03/07/95 3.850% $ 7,900,000
1,500,000 Suffolk County Water Authority BANS 1994
VRDN + (VMIG1/NR) 03/07/95 3.900 1,500,000
2,000,000 Suffolk County, New York TANS 1995 (Ra
Series I) (Westdeutsche Landesbank
Gironzentrale LOC) (MIG1/SP-1+) 08/15/95 5.250 2,005,209
1,000,000 Town of Babylon Industrial Development
Agency (J. D'Addario & Company, Inc.
Project) Series 1994 (LOC National
Westminster) VRDN + (MIG1/NR) 03/01/95 4.000 1,000,000
2,000,000 Town of Hempstead New York BANS (MIG1/NR) 08/17/95 4.500 2,004,630
100,000 Town of Montgomery Industrial Development
Agency Authority (Service Merchandise Co.,
Inc.) (LOC Industrial Bank of Japan) VRDN
+ (NR/A-1) 03/15/95 4.000 100,000
3,000,000 Town of Williamsville Central School
District Erie County BANS (MIG1/NR) 05/04/95 4.000 3,003,307
-----------
TOTAL NEW YORK (Cost $86,276,933) 86,276,933
-----------
PUERTO RICO (1.1%)
1,000,000 Puerto Rico Industrial Medical Higher
Education and Environmental Pollution
Control Facility Financing Authority Key
Pharmaceuticals Schering Plough Inc.
Project Series 1983A MB (Cost $1,000,000) (NR/AAA) 12/01/95 4.350 1,000,000
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
14
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS NEW YORK TAX EXEMPT FUND
STATEMENT OF NET ASSETS (CONT'D)
February 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
-----------
<S> <C>
TOTAL INVESTMENTS AT VALUE (99.5%) (Cost $87,276,933*) $87,276,933
OTHER ASSETS IN EXCESS OF LIABILITIES (0.5%) 442,431
-----------
NET ASSETS (100.0%) (applicable to 77,124,037 common
shares and 10,609,091 Series 2 shares) $87,719,364
-----------
-----------
NET ASSET VALUE, offering and redemption price per common
share ($77,110,751[div]77,124,037) $1.00
-----
-----
NET ASSET VALUE, offering and redemption price per Series 2
share ($10,608,613[div]10,609,091) $1.00
-----
-----
</TABLE>
INVESTMENT ABBREVIATIONS
<TABLE>
<S> <C>
BANS = Bond Anticipation Notes
MB = Municipal Bonds
RANS = Revenue Anticipation Notes
TANS = Tax Anticipation Notes
TECP = Tax Exempt Commercial Paper
VRDN = Variable Rate Demand Notes
</TABLE>
= Credit ratings given by Moody's Investors Services, Inc. and Standard &
Poor's Ratings Group are unaudited.
+ The interest rate shown is the rate as of February 28, 1995 and the maturity
date shown is the longer of the next interest readjustment date or the date
the principal amount owed can be recovered through demand.
* Also represents cost for Federal income tax purposes.
See Accompanying Notes to Financial Statements.
15
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS NEW YORK TAX EXEMPT FUND
MATURITY SCHEDULE OF PORTFOLIO
February 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATURITY SCHEDULE
(DAYS) PAR AMOUNT PERCENTAGE OF PORTFOLIO
- ------------------ ----------- -----------------------------
(CUMULATIVE)
<S> <C> <C> <C>
1-7 $64,632,000 74.1% 74.1%
8-14 500,000 0.6 74.7
15-30 7,100,000 8.1 82.8
31-60 2,000,000 2.3 85.1
61-90 4,000,000 4.6 89.7
91-120 0 0.0 89.7
121-150 2,000,000 2.3 92.0
Over 150 7,000,000 8.0 100.0
Average Weighted Maturity -- 32 Days
</TABLE>
See Accompanying Notes to Financial Statements.
16
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS MONEY MARKET FUNDS
STATEMENTS OF OPERATIONS
For the Year Ended February 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus
Cash Reserve New York Tax
Fund Exempt Fund
-------------- --------------
<S> <C> <C>
INTEREST INCOME $ 15,767,758 $2,667,309
-------------- --------------
EXPENSES:
Investment advisory 795,255 221,553
Sub-investment advisory and administration 795,255 221,553
Administrative services 316,605 88,871
Audit 27,030 25,000
Custodian 79,904 21,869
Directors' 20,000 20,000
Distribution 0 41,225
Insurance 22,196 6,310
Legal 26,469 22,386
Printing 25,251 25,134
Registration 83,158 14,513
Transfer agent 120,268 38,284
Miscellaneous 36,161 25,281
-------------- --------------
2,347,552 771,979
Less: fees waived (597,991) (243,337)
-------------- --------------
Total expenses 1,749,561 528,642
-------------- --------------
Net investment income 14,018,197 2,138,667
-------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS:
Net realized gain (loss) from security transactions 9,641 (189)
Net decrease in unrealized market discount 0 (6)
-------------- --------------
Net realized and unrealized gain (loss) from investments 9,641 (195)
-------------- --------------
Net increase in net assets from operations $ 14,027,838 $2,138,472
-------------- --------------
-------------- --------------
</TABLE>
See Accompanying Notes to Financial Statements.
17
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS MONEY MARKET FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus
Cash Reserve New York Tax
Fund Exempt Fund
---------------------------------- ------------------------------
For the Year Ended February 28, For the Year Ended February 28,
1995 1994 1995 1994*
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 14,018,197 $ 8,008,712 $ 2,138,667 $ 1,325,773
Net realized gain (loss) from
security transactions 9,641 15,446 (189) 165
Net decrease in unrealized market
discount 0 0 (6) (25)
--------------- --------------- ------------- -------------
Net increase in net
assets resulting from
operations 14,027,838 8,024,158 2,138,472 1,325,913
--------------- --------------- ------------- -------------
FROM DISTRIBUTIONS:
Dividends from net investment
income:
Common shares (14,018,197) (8,008,712) (1,892,371) (1,180,991)
Series 2 shares 0 0 (246,296) (144,782)
--------------- --------------- ------------- -------------
Net decrease from
distributions (14,018,197) (8,008,712) (2,138,667) (1,325,773)
--------------- --------------- ------------- -------------
FROM CAPITAL SHARE TRANSACTIONS
(AT $1 PER SHARE):
Proceeds from sale of shares 1,886,500,990 1,649,948,337 246,396,767 339,019,743
Reinvested dividends 8,456,201 4,917,132 1,066,251 523,769
Net asset value of shares redeemed (1,769,313,517) (1,665,046,571) (237,850,988) (348,596,659)
--------------- --------------- ------------- -------------
Net increase (decrease)
in net assets from
capital share
transactions 125,643,674 (10,181,102) 9,612,030 (9,053,147)
--------------- --------------- ------------- -------------
Net increase (decrease)
in net assets 125,653,315 (10,165,656) 9,611,835 (9,053,007)
NET ASSETS:
Beginning of year 277,557,467 287,723,123 78,107,529 87,160,536
--------------- --------------- ------------- -------------
End of year $ 403,210,782 $ 277,557,467 $ 87,719,364 $ 78,107,529
--------------- --------------- ------------- -------------
--------------- --------------- ------------- -------------
</TABLE>
* Reclassification made for comparative purposes.
See Accompanying Notes to Financial Statements.
18
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS NEW YORK TAX EXEMPT FUND
FINANCIAL HIGHLIGHTS
(For a Share of the Fund Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Shares
------------------------------------------------------------
For the Year Ended February 28 or 29,
------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net Investment Income .0246 .0175 .0224 .0329 .0486
Less Distributions:
Dividends from net investment
income (.0246) (.0175) (.0224) (.0329) (.0486)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total Return 2.48% 1.77% 2.26% 3.34% 4.97%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $ 77,111 $ 65,984 $ 76,995 $ 65,438 $ 85,783
Ratios to average daily net assets:
Operating expenses .55% .54% .50% .50% .50%
Net investment income 2.46% 1.75% 2.23% 3.27% 4.84%
Decrease reflected in above
operating
expense ratios due to
waivers/reimbursements .27% .19% .28% .23% .21%
<CAPTION>
Series 2 Shares
----------------------------------------------------------------------
April 30, 1990
(Initial Issuance)
For the Year Ended February 28 or 29, Through
----------------------------------------------- February 28,
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------
Income from Investment
Operations:
Net Investment Income .0211 .0140 .0189 .0295 .0391
Less Distributions:
Dividends from net investment
income (.0211) (.0140) (.0189) (.0295) (.0391)
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Total Return 2.13% 1.41% 1.90% 2.99% 4.78%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $ 10,608 $ 12,123 $ 10,165 $ 9,307 $ 15,151
Ratios to average daily net assets:
Operating expenses .90% .89% .85% .85% .65%*
Net investment income 2.11% 1.40% 1.87% 2.95% 4.63%*
Decrease reflected in above
operating
expense ratios due to
waivers/reimbursements .27% .19% .28% .23% .42%*
</TABLE>
* Annualized
See Accompanying Notes to Financial Statements.
TAX STATUS OF 1995 DIVIDENDS (Unaudited)
Dividends paid by the Fund for the fiscal year will qualify as exempt interest
dividends.
20
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS MONEY MARKET FUNDS
NOTES TO FINANCIAL STATEMENTS
February 28, 1995
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Warburg Pincus Money Market Funds are comprised of the Warburg Pincus
Cash Reserve Fund (the 'Cash Reserve Fund') and the Warburg Pincus New York Tax
Exempt Fund (the 'New York Tax Exempt Fund') which are registered under the
Investment Company Act of 1940, as amended (the '1940 Act'), as diversified and
non-diversified, open-end management investment companies, respectively.
Investment objectives for each Fund are as follows: the Cash Reserve Fund
is designed to provide investors with high current income consistent with
liquidity and stability of principal; the New York Tax Exempt Fund is designed
to provide investors with as high a level of current income that is exempt from
Federal, New York State, and New York City personal income taxes as is
consistent with preservation of capital and liquidity.
Issuers of New York tax-exempt securities (including issuers whose
obligations may be acquired by the New York Tax Exempt Fund) have experienced
serious financial difficulties in recent years. These difficulties have at times
jeopardized the credit standing and impaired the borrowing abilities of all New
York issuers and have generally contributed to higher interest costs for their
borrowings and fewer markets for their outstanding debt obligations. During the
recent past, several different issuers of Municipal Securities of New York State
and its agencies and instrumentalities and of New York City have been downgraded
by Standard & Poor's Ratings Group and Moody's Investors Service, Inc. A
recurrence of the financial difficulties experienced by certain issuers of New
York tax-exempt securities could result in defaults or declines in the market
values of their existing obligations and, possibly, in the obligations of other
issuers of New York tax-exempt securities.
The net asset value of each Fund is determined as of noon and the close of
regular trading on the New York Stock Exchange on each day, except on days when
the Exchange is closed. Each Fund's investments are valued under the amortized
cost method which approximates current market value. Under this method,
investments are valued at cost when purchased and thereafter a constant
proportionate amortization of any discount or premium is recorded until maturity
of the investment.
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis. The cost of investments sold is determined by use
of the specific identification method for both financial reporting and income
tax purposes.
Dividends from net investment income are declared daily and paid monthly.
Distributions of net capital gains, if any, are declared and paid annually,
although the Cash Reserve Fund may declare and pay short-term capital gains, if
any, periodically as the Board of Directors determines. To the extent that a net
realized capital gain can be reduced by a capital loss carryover, such gain will
not be distributed.
Each Fund intends to continue to comply with the special provisions of the
Internal Revenue Code available to investment companies and therefore no Federal
income tax provision is required.
Each Fund may enter into repurchase agreement transactions. Under the terms
of a typical repurchase agreement, each Fund acquires an underlying security
subject to an obligation of the seller to repurchase the security. The value of
the underlying security will be maintained at an amount at least equal to the
total amount of the repurchase obligation, including interest. The collateral is
in the Fund's possession.
21
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS MONEY MARKET FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
February 28, 1995
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISER AND SUB-ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR
Warburg, Pincus Counsellors, Inc. ('Counsellors'), a wholly-owned
subsidiary of Warburg, Pincus Counsellors G.P. ('Counsellors G.P.'), serves as
each Fund's investment adviser. For its investment advisory services,
Counsellors currently receives a fee calculated at an annual rate of .25% of
each Fund's average daily net assets. For the year ended February 28, 1995,
investment advisory fees and waivers were as follows:
<TABLE>
<CAPTION>
GROSS NET
FUND ADVISORY FEE WAIVER ADVISORY FEE
- -------------------------------------------- --------------------- --------- ---------------------
<S> <C> <C> <C>
Cash Reserve $ 795,255 $ (73,215) $ 722,040
New York Tax Exempt 221,553 (55,231) 166,322
</TABLE>
PNC Institutional Management Corporation ('PIMC'), a wholly-owned
subsidiary of PNC Bank, N.A., serves as each Fund's sub-investment adviser and
administrator. For its sub-investment advisory and administrative services, PIMC
currently receives a fee calculated at an annual rate of .25% of each Fund's
average daily net assets. For the year ended February 28, 1995, sub-investment
advisory and administration fees and waivers were as follows:
<TABLE>
<CAPTION>
GROSS SUB-ADVISORY NET SUB-ADVISORY
AND AND
FUND ADMINISTRATION FEE WAIVER ADMINISTRATION FEE
- -------------------------------------------------- ------------------ --------- ------------------
<S> <C> <C> <C>
Cash Reserve $795,255 $(365,725) $429,530
New York Tax Exempt 221,553 (143,795) 77,758
</TABLE>
Counsellors Funds Service, Inc. ('CFSI'), a wholly-owned subsidiary of
Counsellors, serves as each Fund's co-administrator. For its administrative
services, CFSI currently receives a fee calculated at an annual rate of .10% of
each Fund's average daily net assets. For the year ended February 28, 1995,
administrative services fees earned and waived by CFSI were as follows:
<TABLE>
<CAPTION>
GROSS NET
FUND ADMINISTRATION FEE WAIVER ADMINISTRATION FEE
- -------------------------------------------------- ------------------ --------- ------------------
<S> <C> <C> <C>
Cash Reserve $316,605 $(159,051) $157,554
New York Tax Exempt 88,871 (44,311) 44,560
</TABLE>
Counsellors Securities Inc. ('CSI'), also a wholly-owned subsidiary of
Counsellors, serves as each Fund's distributor. No compensation is payable by
the Funds to CSI for distribution services.
3. CAPITAL SHARE TRANSACTIONS
Each Fund is authorized to issue three billion full and fractional shares
of capital stock, $.001 par value per share, of which one billion shares of New
York Tax Exempt Fund are designated as Series 2 Shares. Series 2 Shares are
identical to Common Shares in all respects except that Series 2 Shares are
22
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS MONEY MARKET FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
February 28, 1995
- --------------------------------------------------------------------------------
sold to institutions ('Service Organizations') that perform certain
distribution, shareholder servicing, accounting and/or administrative services
for their customers who are beneficial owners of Series 2 Shares. Series 2
Shares bear the fees paid pursuant to a distribution plan adopted by each Fund
in an amount not to exceed .75 of 1.00% (on an annualized basis) of the average
daily net asset value of the shares held by the institutions for the benefit of
their customers and enjoy certain exclusive voting rights on matters relating to
those fees.
With respect to Series 2 Shares, Service Organizations earned the following
distribution fees for the year ended February 28, 1995:
<TABLE>
<CAPTION>
FUND DISTRIBUTION FEE
- ------------------------------------------------------------------- ----------------
<S> <C>
New York Tax Exempt $ 41,225
</TABLE>
Transactions in shares of each Fund were as follows:
<TABLE>
<CAPTION>
NEW YORK TAX NEW YORK TAX
CASH RESERVE FUND EXEMPT FUND EXEMPT FUND
-------------------------------- ---------------------------- --------------------------
Common Shares Common Shares Series 2 Shares
For the Year Ended For the Year Ended For the Year Ended
February 28, February 28, February 28,
1995 1994 1995 1994 1995 1994
-------------- -------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 1,886,500,990 1,649,948,337 204,764,009 287,518,833 41,632,750 51,500,910
Shares issued to shareholders on
reinvestment of dividends 8,456,201 4,917,132 822,241 379,886 244,010 143,883
Shares redeemed (1,769,313,517) (1,665,046,571) (194,459,365) (298,909,931) (43,391,623) (49,686,728)
-------------- -------------- ------------ ------------ ----------- -----------
Net increase (decrease) in shares 125,643,674 (10,181,102) 11,126,885 (11,011,212) (1,514,863) 1,958,065
-------------- -------------- ------------ ------------ ----------- -----------
-------------- -------------- ------------ ------------ ----------- -----------
</TABLE>
4. NET ASSETS
Net Assets at February 28, 1995, consisted of the following:
<TABLE>
<CAPTION>
CASH RESERVE FUND NEW YORK TAX EXEMPT FUND
----------------- -----------------------------------------------
Common Shares Common Shares Series 2 Shares Total
----------------- ------------- --------------- -----------
<S> <C> <C> <C> <C>
Capital contributed, net $ 403,210,711 $77,124,029 $10,609,106 $87,733,135
Accumulated net realized gain (loss)
from security transactions 71 (13,278) (493) (13,771)
----------------- ------------- --------------- -----------
Net assets $ 403,210,782 $77,110,751 $10,608,613 $87,719,364
----------------- ------------- --------------- -----------
----------------- ------------- --------------- -----------
</TABLE>
23
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS MONEY MARKET FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
February 28, 1995
- --------------------------------------------------------------------------------
5. CAPITAL LOSS CARRYOVER
At February 28, 1995, the New York Tax Exempt Fund has a capital loss
carryover of $13,771 to offset possible future capital gains of the Fund. These
carryovers expire as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ----- ------
<S> <C>
1997 $5,467
1998 4,026
2000 4,089
2002 189
</TABLE>
24
- --------------------------------------------------------------------------------
<PAGE>C-1
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(1) Financial Statements included in Part A:
(a) Financial Highlights.
(2) Financial Statements included in Part B:
(a) Report of Coopers & Lybrand L.L.P., Independent
Auditors.
(b) Statement of Net Assets as of February 28, 1995.
(c) Maturity Schedule of Portfolio as of February 28,
1995.
(d) Statement of Operations for the year ended February
28, 1995.
(e) Statement of Changes in Net Assets for the years ended
February 28, 1995 and February 28, 1994.
(f) Notes to Financial Statements.
(b) Exhibits:
Exhibit No. Description of Exhibit
- ----------- ----------------------
1(a) Articles of Incorporation.
1(b) Articles of Amendment.
1(c) Articles Supplementary.
2(b) Amended and Restated By-Laws.
3 Not applicable.
4(a) Form of certificate for common stock.*
4(b) Form of certificate for common stock--Series 1 and Series 2.*
5(a) Form of Investment Advisory Agreement.
5(b) Form of Sub-Investment Advisory and Administration Agreement.
- --------------------------
* Incorporated by reference; material provisions of this exhibit
substantially similar to those of this exhibit in Post-Effective
Amendment No. 12 to the Registration Statement on Form N-1A of
Counsellors Cash Reserve Fund, Inc. filed on June 28, 1995
(Securities Act File No. 2-94840).
<PAGE>C-2
Exhibit No. Description of Exhibit
- ----------- ----------------------
5(c) Form of Co-Administration Agreement.*
6 Form of Distribution Agreement.
7 Not applicable.
8 Form of Custodian Agreement.*
9 Form of Transfer Agency Agreement.*
10(a) Opinion of Willkie Farr & Gallagher.**
10(b) Consent of Willkie Farr & Gallagher.
11 Consent of Coopers & Lybrand L.L.P.
12 Not applicable.
13 Form of Purchase Agreement.*
14 Form of Retirement Plans***
15(a) Form of Shareholder Services Plan.*
15(b) Form of Distribution Plan.*
16 Computation of Performance Quotations.
17 Financial Data Schedule.
- --------------------------
* Incorporated by reference; material provisions of this exhibit
substantially similar to those of this exhibit in Post-Effective
Amendment No. 12 to the Registration Statement on Form N-1A of
Counsellors Cash Reserve Fund, Inc. filed on June 28, 1995
(Securities Act File No. 2-94840).
** Incorporated by reference to Registrant's Rule 24f-2 Notice filed on
April 27, 1995.
*** Incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement on Form N-1A for Warburg, Pincus Capital
Appreciation Fund filed on May 16, 1988 (Securities Act File
No. 33-12344).
<PAGE>C-3
Item 25. Persons Controlled by or Under Common Control
with Registrant
Warburg, Pincus Counsellors, Inc. ("Counsellors"), Registrant's
investment adviser, may be deemed a controlling person of Registrant because
it possesses or shares investment or voting power with respect to more than
25% of the outstanding securities of Registrant. E.M. Warburg, Pincus & Co.,
Inc. controls Counsellors through its ownership of a class of voting preferred
stock of Counsellors. John L. Furth, director of the Fund, and Lionel I.
Pincus may be deemed to be controlling persons of the Fund because they may be
deemed to possess or share investment power over shares owned by clients of
Counsellors and certain other entities.
Item 26. Number of Holders of Securities
As of May 31, 1995:
Number of Record
Title of Class Holders
Common Stock 413
Item 27. Indemnification
Registrant, officers and directors or trustees of Counsellors, of
Counsellors Securities Inc. ("Counsellors Securities") and of Registrant are
covered by insurance policies indemnifying them for liability incurred in
connection with the operation of Registrant. Discussion of this coverage is
incorporated by reference to Item 27 of Part C of the Registration Statement
of Warburg, Pincus Trust (Securities Act File No. 33-58125), filed on March
17, 1995.
Item 28(a). Business and Other Connections of
Investment Adviser
Warburg, Pincus Counsellors, Inc. ("Counsellors"), the investment
counselling subsidiary of Warburg, Pincus Counsellors G.P., acts as investment
adviser to Registrant. Counsellors renders investment advice to a wide
variety of individual and institutional clients. The list required by this
Item 28 of officers and directors of Counsellors, together with information as
to their other business, profession, vocation or employment of a substantial
nature during the past two years, is incorporated by reference to Schedules A
and D of Form ADV filed by Counsellors (SEC File No. 801-28-496).
<PAGE>C-4
(b) Business and Other Connections of Sub-Investment
Adviser and Administrator
PNC Institutional Management Corporation ("PIMC"), a wholly owned
subsidiary of PNC Bank, National Association ("PNC"), performs sub-investment
advisory services for Registrant and advisory services for certain other
investment companies. PNC and its predecessors have been in the business of
managing the investments of fiduciary and other accounts in the Philadelphia
area since 1847. In addition to its trust business, PNC provides commercial
banking services. The list required by this Item 28 of officers and directors
of PIMC, together with information as to their other business, profession,
vocation or employment of a substantial nature during the past two years, is
incorporated by reference to Schedules A and D of Form ADV filed by PIMC (SEC
File No. 801-13-304).
Item 29. Principal Underwriter
(a) Counsellors Securities acts as distributor for Registrant.
Counsellors Securities also currently acts as distributor for Warburg, Pincus
Balanced Fund; Warburg, Pincus Capital Appreciation Fund; Warburg, Pincus Cash
Reserve Fund; Warburg, Pincus Emerging Growth Fund; Warburg, Pincus Emerging
Markets Fund; Warburg, Pincus Fixed Income Fund; Warburg, Pincus Global Fixed
Income Fund; Warburg, Pincus Growth & Income Fund; Warburg, Pincus
Institutional Fund, Inc; Warburg, Pincus Intermediate Maturity Government
Fund; Warburg, Pincus International Equity Fund; Warburg, Pincus Japan OTC
Fund; Warburg, Pincus New York Intermediate Municipal Fund; Warburg, Pincus
Short-Term Tax-Advantaged Bond Fund and Warburg, Pincus Tax-Free Fund.
(b) For information relating to each director and officer of
Counsellors Securities, reference is made to Form BD (SEC File No. 15-654)
filed by Counsellors Securities under the Securities Exchange Act of 1934, as
amended.
(c) None.
Item 30. Location of Accounts and Records
(1) Warburg, Pincus New York Tax Exempt Fund
466 Lexington Avenue
New York, New York 10017-3147
(Fund's articles of incorporation, by-laws and minute books)
<PAGE>C-5
(2) PNC Institutional Management Corporation
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as sub-investment adviser
and administrator)
(3) Counsellors Funds Service, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as co-administrator)
(4) PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as transfer and dividend
disbursing agent)
(5) PNC Bank, National Association
Broad and Chestnut Streets
Philadelphia, Pennsylvania 19103
(records relating to its functions as custodian)
(6) Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as distributor)
(7) Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as investment adviser)
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE>C-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant
certifies that it meets all of the requirements for effectiveness of this
Amendment to the Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York, on the 28th day of June, 1995.
COUNSELLORS NEW YORK TAX EXEMPT FUND, INC.
By:/s/Dale C. Christensen
Dale C. Christensen
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed below by the following persons in the capacities and on the
date indicated:
Signature Title Date
- --------- ----- ----
/s/Dale C. Christensen President June 28, 1995
Dale C. Christensen
/s/Stephen Distler Vice President and June 28, 1995
Stephen Distler Chief Financial Officer
/s/Howard Conroy Vice President, June 28, 1995
Howard Conroy Treasurer and Chief
Accounting Officer
/s/Richard N. Cooper Director June 28, 1995
Richard N. Cooper
/s/Donald J. Donahue Director June 28, 1995
Donald J. Donahue
/s/John L. Furth Director June 28, 1995
John L. Furth
/s/Jack W. Fritz Director June 28, 1995
Jack W. Fritz
<PAGE>C-7
/s/Thomas A. Melfe Director June 28, 1995
Thomas A. Melfe
/s/Alexander B. Trowbridge Director June 28, 1995
Alexander B. Trowbridge
<PAGE>1
INDEX TO EXHIBITS
Exhibit
No. Description
- ------- -----------
1(a) Articles of Incorporation.
1(b) Articles of Amendment.
1(c) Articles Supplementary.
2(b) Amended and Restated By-Laws.
3 Not applicable.
4(a) Form of certificate for common stock.*
4(b) Form of certificate for common stock--Series 1 and Series 2.*
5(a) Form of Investment Advisory Agreement.
5(b) Form of Sub-Investment Advisory and Administration Agreement.
5(c) Form of Co-Administration Agreement.*
6 Form of Distribution Agreement.
7 Not applicable.
8 Form of Custodian Agreement.*
9 Form of Transfer Agency Agreement.*
10(a) Opinion of Willkie Farr & Gallagher.**
10(b) Consent of Willkie Farr & Gallagher.
11 Consent of Coopers & Lybrand L.L.P.
12 Not applicable.
- --------------------------
* Incorporated by reference; material provisions of this exhibit
substantially similar to those of this exhibit in Post-Effective
Amendment No. 12 to the Registration Statement on Form N-1A of
Counsellors Cash Reserve Fund, Inc. filed on June 28, 1995
(Securities Act File No. 2-94840).
** Incorporated by reference to Registrant's Rule 24f-2 Notice filed on
April 27, 1995.
<PAGE>2
Exhibit
No. Description
- ------- -----------
13 Form of Purchase Agreement.*
14 Form of Retirement Plans***
15(a) Form of Shareholder Services Plan.*
15(b) Form of Distribution Plan.*
16 Computation of Performance Quotations.
17 Financial Data Schedule.
- --------------------------
* Incorporated by reference; material provisions of this exhibit
substantially similar to those of this exhibit in Post-Effective
Amendment No. 12 to the Registration Statement on Form N-1A of
Counsellors Cash Reserve Fund, Inc. filed on June 28, 1995
(Securities Act File No. 2-94840).
*** Incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement on Form N-1A for Warburg, Pincus Capital
Appreciation Fund filed on May 16, 1988 (Securities Act File
No. 33-12344).
<PAGE>1
ARTICLES OF INCORPORATION
OF
COUNSELLORS TAX EXEMPT FUND, INC.
ARTICLE I
THE UNDERSIGNED, Victoria D. Salhus, whose post office address is c/o
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New York,
New York 10022, being at least eighteen years of age, does hereby act as an
incorporator, under and by virtue of the Maryland General Corporation Law
authorizing the formation of corporations.
ARTICLE II
NAME
The name of the Corporation is COUNSELLORS TAX EXEMPT FUND, INC.
ARTICLE III
PURPOSES AND POWERS
The Corporation is formed for the following purposes:
(1) To conduct and carry on the business of an investment company.
(2) To hold, invest and reinvest its assets in securities and other
investments or to hold part or all of its assets in cash.
(3) To issue and sell shares of its capital stock in such amounts and on
such terms and conditions and for such purposes and for such amount or kind of
consideration as may now or hereafter be permitted by law.
(4) 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 these
Articles of Incorporation.
(5) 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.
<PAGE>2
The Corporation shall be authorized to exercise and enjoy all of the
powers, rights and privileges granted to, or 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 of the resident agent of the
Corporation in the State of Maryland is The Corporation Trust Company
Incorporated, a Maryland Corporation. The post office address of the resident
agent is 32 South Street, Baltimore, Maryland 21202.
ARTICLE V
CAPITAL STOCK
(1) 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.
(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 these Articles of Incorporation 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 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 these
Articles of Incorporation 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.
<PAGE>3
(5) The Board of Directors shall have authority by resolution to
classify and reclassify any authorized but unissued shares of capital stock
from time to 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. Subject to the provisions of Sections 6, 7
and 8 of this Article V and applicable law, the power of the Board of
Directors to classify or reclassify any of the shares of capital stock shall
include, without limitation, authority to classify or reclassify the stock
into a class or not more than ten (10) classes of capital stock and to divide
and classify shares of any class into one or more series of the class, by
determining, fixing or altering one or more of the following:
(i) The distinctive designation of a class or series; provided
that, unless otherwise prohibited by the terms of the class or series, the
number of shares of any class or series may be decreased by the Board of
Directors in connection with any classification or reclassification of
unissued shares and the number of shares of the class or series may be
increased by the Board of Directors in connection with the classification or
reclassification, and any shares of any class or series that have been
redeemed, purchased or acquired in any other manner by the Corporation shall
remain part of the authorized capital stock and be subject to classification
and reclassification as provided herein.
(ii) Whether or not and, if so, the rates, amounts and times at
which, and the conditions under which, dividends shall be payable on shares of
the class or series.
(iii) Whether or not shares of such class or series shall have
voting rights, in addition to any voting rights provided by law and, if so,
the terms of such voting rights.
(iv) The rights of the holders of shares of the class or series
upon the liquidation, dissolution or winding up of the affairs of, or upon any
distribution of the assets of, the Corporation.
(v) Any other rights, restrictions, including
restrictions on transferability, and qualifications of shares of the class or
series, not inconsistent with law and these Articles of Incorporation.
(6) All consideration received by the Corporation for the issue or sale
of stock of any class, together with all income, earnings, profits and
proceeds thereof, including any proceeds
<PAGE>4
derived from the sale, exchange or liquidation thereof, and any funds or
payments derived from any reinvestment of the proceeds in whatever form the
same may be, shall irrevocably belong to the class of shares of stock with
respect to which the assets, payments or funds were received by the
Corporation for all purposes, subject only to the rights of creditors, and
shall be so handled upon the books of account of the Corporation. Such
assets, income, earnings, profits and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation thereof, and any assets derived
from any reinvestment of the proceeds in whatever form, are herein referred to
as "assets belonging to" such class.
(7) In the event of the liquidation or dissolution of the Corporation,
shareholders of each class shall be entitled to receive, as a class, out of
the assets of the Corporation available for distribution to shareholders, but
other than general assets not belonging to any particular class of stock, the
assets belonging to the class; and the assets so distributable to the
stockholders of any class shall be distributed among the stockholders in
proportion to the number of shares of the class held by them and recorded on
the books of the Corporation. In the event that there are any general assets
not belonging to any particular class of stock and available for distribution,
the distribution shall be made to the holders of stock of all classes in
proportion to the asset value of the respective classes determined as
hereinafter provided.
(8) The assets belonging to any class of stock shall be charged with the
liabilities of the class, and shall also be charged with the class's share of
the general liabilities of the Corporation, in proportion to the total net
asset value of the respective classes before taking into account general
liabilities, determined as hereinafter provided. The determination of the
Board of Directors shall be conclusive (i) as to the amount of such
liabilities, including the amount of accrued expenses and reserves; (ii) as to
any allocation of the same to a given class; and (iii) whether the same, or
general assets of the Corporation, are allocable to one or more classes. The
liabilities so allocated to a class are herein referred to as "liabilities
belonging to" the class.
(9) Notwithstanding any provision of law requiring any action to be
taken or authorized by the affirmative vote of the holders of a designated
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
<PAGE>5
cast thereon, except as otherwise provided in these Articles of Incorporation.
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 the Board of Directors of the Corporation in accordance with the
provisions of this Article VI, 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
1954, 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 is less than
$1,000 (one thousand dollars); provided, however, that a shareholder shall be
notified that the value of his account is less than $1,000 (one thousand
dollars) and shall be allowed 60 (sixty) days to make additional purchases of
shares before the redemption is processed by the Corporation. The redemption
price of shares of capital stock of the Corporation shall be net asset value
as determined by the Board of Directors of the Corporation from time to time
in accordance with the provisions of applicable law, less a redemption fee or
other charge, if any, as may be fixed by resolution of the Board of Directors
of 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 redemption of
which is being sought, the value of which shall be determined as provided
herein. The
<PAGE>6
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
two, which number may be changed pursuant to the By-Laws of the Corporation.
The name of the directors who shall act until the first annual meeting of
shareholders or until their successors are duly chosen and qualified are:
Charles A. Steinberg
Arnold Reichman
(2) In furtherance, and not in limitation, of the powers conferred by
the laws of the State of Maryland, 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 Investment Company Act of 1940, as amended.
(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 by 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 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.
<PAGE>7
(v) Notwithstanding anything in these Articles of Incorporation 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 for purposes of sales, redemptions,
repurchases of shares or otherwise.
(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 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; to establish payment dates for dividends or any other
distributions on any basis, including dates occurring less frequently than the
effectiveness of declarations thereof; and to provide for the payment of
declared dividends on a date earlier or later than the specified payment date
in the case of stockholders of the Corporation redeeming their entire
ownership of shares of any class of the Corporation.
(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 laws of the State of Maryland,
these Articles of Incorporation and the By-Laws of the Corporation.
(3) Any determination made in good faith, and in accordance with
accepted accounting 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
<PAGE>8
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, redemption 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
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 these Articles of Incorporation of the Corporation shall be effective to
(i) require a waiver of compliance with any provision of the Securities Act of
1933, as amended, or the Investment Company Act of 1940, as amended, 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
AMENDMENTS
The Corporation reserves the right from time to time to make any
amendment to its Articles of Incorporation, now or hereafter authorized by
law, including any amendment that alters the contract rights, as expressly set
forth in its Articles of Incorporation, of any outstanding stock.
IN WITNESS WHEREOF, I have adopted and signed these Articles of
Incorporation and do hereby acknowledge that the adoption and signing are my
act.
Dated the 31st day of October, 1984.
Victoria D. Salhus
Incorporator
<PAGE>1
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
COUNSELLORS TAX EXEMPT FUND, INC.
CHARLES A. STEINBERG and ARNOLD REICHMAN, being President and
Secretary and Treasurer, respectively, of COUNSELLORS TAX EXEMPT FUND, INC.
(the "Corporation"), a corporation organized and existing under and by virtue
of the Maryland Corporation Law, DO HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation by the
unanimous written consent of its members filed with the minutes of the board,
adopted a resolution proposing and declaring advisable the following amendment
to the Articles of Incorporation of the Corporation:
RESOLVED, that the Articles of Incorporation of this Corporation be
amended by replacing Article II thereof with the following:
"The name of the Corporation is COUNSELLORS NEW YORK TAX
EXEMPT FUND, INC."
SECOND: That no stock entitled to vote on these Articles of
Amendment was outstanding or subscribed for at the time of the approval.
IN WITNESS WHEREOF, the undersigned have executed these Articles of
Amendment and do hereby acknowledge that it is the act and deed of each of
them and, under penalty of perjury, to the best of the knowledge, information
and belief of each of them, the matters and facts contained herein are true in
all material respects.
DATE: November 30, 1984 /s/ Charles A. Steinberg
Charles A. Steinberg
President
ATTEST:
/s/ Arnold Reichman
Arnold Reichman
Secretary and Treasurer
<PAGE>1
ARTICLES SUPPLEMENTARY
OF
COUNSELLORS NEW YORK TAX EXEMPT FUND, INC.
COUNSELLORS NEW YORK TAX EXEMPT FUND, INC. (the "Fund"), a Maryland
corporation with its principal corporate offices in the State of Maryland in
Baltimore City, Maryland, DOES HEREBY CERTIFY:
1. Pursuant to Article V of the Fund's Articles of Incorporation,
(1) one billion shares of the Fund's authorized but unissued common stock, par
value $.001 per share ("Common Stock"), have been divided into and classified
as a series of Common Stock, designated Common Stock - Series 1 ("Series 1
Shares"), and (2) one billion shares of authorized but unissued Common Stock
have been divided into and classified as a series of Common Stock, designated
Common Stock - Series 2 ("Series 2 Shares"; Series 1 Shares and Series 2
Shares are collectively referred to as "Series Shares").
2. Each Series 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, irrespective of series, except that:
(a) Series Shares will share equally with Common Stock other
than Series Shares ("Existing Shares") in the income, earnings and
profits derived from investment and reinvestment of the assets
belonging to the Fund and will be charged equally with Existing
Shares with the liabilities and expenses of the Fund, except that:
(1) Series 1 Shares will bear the expense of payments made pursuant
to any shareholder services plan adopted by the Fund, to
institutions under any agreements entered into between the Fund and
institutions providing for services by the institutions to their
customers who beneficially own Series 1 Shares; (2) Series 2 Shares
will bear the expense of payments made pursuant to any distribution
plan adopted by the Fund, to institutions under any agreements
entered into between the Fund and institutions providing for
services to the customers of the institutions who beneficially own
Series 2 Shares; (3) Series 1 Shares will not bear the expense of
payments to institutions which hold of record Series 2 Shares; and
(4) Series 2 Shares will not bear the expense of payments to
institutions which hold of record Series 1 Shares;
<PAGE>2
(b) On any matter submitted to a vote of shareholders of the
Fund that pertains to (i) the agreements or expenses described in
clause (a)(1) above (or to any plan adopted by the Fund relating to
said agreements or expenses), only Series 1 Shares will be entitled
to vote, and (ii) the agreements or expenses described in clause
(a)(2) above (or to any plan adopted by the Fund relating to said
agreements or expenses), only Series 2 Shares will be entitled to
vote, except that: (1) if said matter affects Existing Shares,
Existing Shares will also be entitled to vote, and in such case
Series Shares will be voted in the aggregate together with such
Existing Shares and not by series except where otherwise required by
law; and (2) if that said matter does not affect Series Shares, said
Shares will not be entitled to vote (except where otherwise required
by law) even though the matter is submitted to a vote of the holders
of Existing Shares; and
(c) The Board of Directors of the Fund in its sole discretion
may determine whether a matter affects a particular class or series
of Fund shares.
3. Series 1 Shares and Series 2 Shares have been classified by the
Fund's Board of Directors under the authority contained in the Fund's Articles
of Incorporation.
IN WITNESS WHEREOF, the undersigned have executed these Articles
Supplementary on behalf of Counsellors New York Tax Exempt Fund, Inc. and
acknowledge that it is the act and deed of the Fund and state, under penalty
of perjury, to the best of the knowledge, information and belief of each of
them, the matters contained herein with respect to the approval thereof are
true in all material respects.
Dated: December 6, 1985 COUNSELLORS NEW YORK TAX
EXEMPT FUND, INC.
By: /s/ Stuart M. Goode
Stuart M. Goode
President
ATTEST:
/s/ Arnold M. Reichman
Arnold M. Reichman
Secretary
<PAGE>1
AMENDED AND RESTATED
BY-LAWS
OF
COUNSELLORS NEW YORK TAX EXEMPT FUND, INC.
A Maryland Corporation
ARTICLE I
STOCKHOLDERS
SECTION 1. Annual Meetings. No annual meeting of the stockholders
of 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 is
1940, as amended 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, and 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 Articles of Incorporation 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 Articles of Incorporation, 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 25 (twenty-five) percent
(at least ten (10) percent for the purpose of removing a director) 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
<PAGE>2
12 (twelve) months. A written request shall state the purpose or purposes of
the proposed meeting.
SECTION 3. Notice of Meetings. Written or printed notice of the
purpose or purposes and of the time and place of every meeting of the
stockholders shall be given by the Secretary of the Corporation to each
stockholder of record entitled to vote at the meeting, by placing the notice
in the mail at least 10 (ten) days, but not more than 90 (ninety) days, prior
to the date designated for the meeting addressed to each stockholder at his
address appearing on the books of the Corporation or supplied by the
stockholder to the Corporation for the purpose of notice. The notice of any
meeting of stockholders may be accompanied by a form of proxy approved by the
Board of Directors in favor of the actions or 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 Articles of Incorporation, the presence in person or by
proxy of stockholders of the Corporation entitled to cast at least a majority
of the votes to be cast shall constitute a quorum at each meeting of the
stockholders and all questions shall be decided by majority vote of the shares
so represented in person or by proxy at the meeting and entitled to vote. 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 the laws of
the State of Maryland, the Investment Company Act of 1940, as amended, or
other applicable statute, the Corporation's Articles of Incorporation 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 the
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
<PAGE>3
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 to a
date more than 120 (one hundred twenty) days after the original record date.
SECTION 6. Organization. At every meeting of the stockholders, the
Chairman of the Board, or in his absence or inability to act, the President,
or in his absence or inability to act, a Vice President, or in the absence or
inability to act of the Chairman of the Board, the President and all the Vice
Presidents, a chairman chosen by the stockholders, shall act as Chairman of
the meeting. The Secretary, or in his absence or inability to act, a person
appointed by the chairman of the meeting, shall act as secretary of the
meeting and keep the minutes of the meeting.
SECTION 7. Order of Business. The order of business at all
meetings of the stockholders shall be as determined by the chairman of the
meeting.
SECTION 8. Voting. Except as otherwise provided by statute or the
Corporation's Articles of Incorporation, 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 or persons to act for him by a proxy signed by the
stockholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided
in the proxy. Every proxy shall be revocable at the pleasure of the
stockholder executing it, except in those cases in which the proxy states that
it is irrevocable and in which an irrevocable proxy is permitted by law.
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
<PAGE>4
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 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 Articles of Incorporation,
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: (i) a unanimous written consent
that sets forth the action and is signed by each stockholder entitled to vote
on the matter and (ii) a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote at the
meeting.
<PAGE>5
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 (A) (i) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, (ii) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (iii) subject to the provisions of Section 12 of this Article I,
otherwise properly brought before the meeting by a Stockholder and (B) 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 days prior to the date
of the meeting; provided, however, that if less than 70 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 10th day following the day on which notice
of the date of the Annual or Special Meeting was given or such public
disclosure was made.
(c) Any such notice by a Stockholder shall set forth as to each
matter the Stockholder proposes to bring before the Annual or Special Meeting
(i) a brief description of the business desired to be brought before the
Annual or Special Meeting and the reasons for conducting such business at the
Annual or Special Meeting, (ii) the name and address, as they appear on the
Corporation's books, of the Stockholder proposing such business, (iii) the
class and number of shares of the capital stock of the Corporation which are
beneficially owned by the Stockholder, and (iv) any material interest of the
Stockholder in such business.
(d) Notwithstanding anything in the By-Laws to the contrary, no
business shall be conducted at any Annual or Special Meeting except in
accordance with the procedures set forth in this Section 12. The Chairman of
the Annual or Special Meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the
meeting and in accordance with the provisions of this Section 12, and if he
should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be considered or transacted.
<PAGE>6
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, or any successor rule thereto.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. General Powers. Except as otherwise provided in the
Corporation's Articles of Incorporation, the business and affairs of the
Corporation shall be managed under the direction of the 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 Articles of Incorporation 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 Directors then in office; 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 6 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 5
of this Article II at the time of the decrease. A director need not be a
stockholder
<PAGE>7
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 he shall have resigned or have been removed as provided in
these By-laws, or as otherwise provided by statute or the Corporation's
Articles of Incorporation.
SECTION 3.1 Director Nominations.
(a) Only persons who are nominated in accordance with the
procedures set forth in this Section 3.1 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 3.1.
(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 days prior to the
meeting; provided, however, that if less than 70 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 10th 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 Securities
Exchange Act of 1934 or any successor regulation thereto (including without
limitation such persons' written consent to being named in the proxy statement
as a nominee and to serving as
<PAGE>8
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 3.1, 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 3.1. 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 4. 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 shall not be
necessary to make it effective unless the resignation states otherwise.
SECTION 5. 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 6. Vacancies. Subject to the provisions of the Investment
Company Act of 1940, as amended, 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
<PAGE>9
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 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 resignation or
removal.
SECTION 7. 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 8. 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 9. 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 10. 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 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.
SECTION 11. 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 12. Quorum and Voting. One-third (but not fewer than 1
(one)) of the members of the entire Board of Directors shall be present in
person at any meeting of the Board
<PAGE>10
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 Articles of Incorporation, these By-Laws, the Investment Company
Act of 1940, as amended, 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 13. 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, 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 14. 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.
SECTION 15. Written Consent of Directors in Lieu of a Meeting.
Subject to the provisions of the Investment Company Act of 1940, as amended,
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
<PAGE>11
Board or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of the proceedings of the Board
or committee.
SECTION 16. Telephone Conference. Members of the Board of
Directors or any committee of the Board may participate in any Board of
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 17. 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 year at its first meeting held after the annual meeting of
stockholders, each to hold office until the meeting of the Board following the
next annual meeting of the stockholders and until his successor shall have
been duly elected and shall have qualified, or until his death, or until he
shall have resigned or have been removed, 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.
<PAGE>12
SECTION 2. Resignations. Any officer of the Corporation may resign
at any time by giving written notice of his resignation to the Board of
Directors, the Chairman of the Board, the President or the Secretary. Any
resignation shall take effect at the time specified therein or, if the time
when it shall become effective is not specified therein, immediately upon its
receipt. Acceptance of a resignation shall not be necessary to make it
effective unless the resignation states otherwise.
SECTION 3. Removal of Officer, Agent or Employee. Any officer,
agent or employee of the Corporation may be removed by the Board of Directors
with or without cause at any time, and the Board may delegate the power of
removal as to agents and employees not elected or appointed by the Board of
Directors. Removal shall be without prejudice to the person's contract
rights, if any, but the appointment of any person as an officer, agent or
employee of the Corporation shall not of itself create contract rights.
SECTION 4. Vacancies. A vacancy in any office whether arising from
death, resignation, removal or any other cause, may be filled for the
unexpired portion of the term of the office that shall be vacant, in the
manner prescribed in these By-Laws for the regular election or appointment to
the office.
SECTION 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer with respect to other officers under his control.
SECTION 6. Bonds or Other Security. If required by the Board, any
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in an amount and with any
surety or sureties as the Board may require.
SECTION 7. President. The President shall be the chief executive
officer of the Corporation. In the absence or inability of the Chairman of
the Board (or if there is none) to act, 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.
<PAGE>13
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 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.
<PAGE>14
SECTION 11. Delegation of Duties. In case of the absence of any
officer of the Corporation, or for any other reason that the Board of
Directors may deem sufficient, the Board may confer for the time being the
powers or duties, or any of them, of such officer upon any other officer or
upon any director.
ARTICLE IV
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 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
<PAGE>15
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 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, to
indemnify the Corporation against any claim that may be made against it on
account of the alleged theft, loss or destruction 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 laws of the State of Maryland.
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
<PAGE>16
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
SECTION 1. Indemnification of Directors and Officers. Any person
who was or is a party or is threatened to be made a party in any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person is a
current or former director or officer of the Corporation, or is or was serving
while a director or officer of the Corporation at the request of the
Corporation as a director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust,
enterprise or employee benefit plan, shall be indemnified by the Corporation
against judgments, penalties, fines, excise taxes, settlements and reasonable
expenses (including attorneys' fees) actually incurred by such person in
connection with such action, suit or proceeding to the full extent permissible
under the Maryland General Corporation Law, the Securities Act of 1933 and the
Investment Company Act of 1940, as such statutes are now or hereafter in
force, except that such indemnity shall not protect any such person against
any liability to the Corporation or any stockholder thereof to which such
person would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct
of his office ("disabling conduct").
SECTION 2. Advances. Any current or former director or officer of
the Corporation claiming indemnification within the scope of this Article V
shall be entitled to advances from the Corporation for payment of the
reasonable expenses incurred by him in connection with proceedings to which he
is a party in the manner and to the full extent permissible under the Maryland
General Corporation Law, the Securities Act of 1933 and the
<PAGE>17
Investment Company Act of 1940, 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: (1)
the person seeking indemnification shall provide a security in form and amount
acceptable to the Corporation for his undertaking; (2) the Corporation is
insured against losses arising by reason of the advance; or (3) a majority of
a quorum of directors of the Corporation who are neither "interested persons"
as defined in Section 2(a)(19) of the Investment Company Act of 1940, as
amended, nor parties to the proceeding ("disinterested non-party directors"),
or independent legal counsel, in a written opinion, shall determine, based on
a review of facts readily available to the Corporation at the time the advance
is proposed to be made, that there is reason to believe that the person
seeking indemnification will ultimately be found to be entitled to
indemnification.
SECTION 3. Procedure. At the request of any current or former
director or officer, or any employee or agent whom the Corporation proposes to
indemnify, the Board of Directors shall determine, or cause to be determined,
in a manner consistent with the Maryland General Corporation Law, the
Securities Act of 1933 and the Investment Company Act of 1940, 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: (1) 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 (2) 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
(a) the vote of a majority of a quorum of disinterested non-party directors or
(b) 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 Investment Company Act of 1940, the Securities
Act of 1933 and the Maryland General Corporation Law, as such statutes are now
or hereafter in force, and to such further extent,
<PAGE>18
consistent with the foregoing, as may be provided by action of the Board of
Directors or by contract.
SECTION 5. Other Rights. The indemnification provided by this
Article V shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may
be entitled under any insurance or other agreement, vote of stockholders or
disinterested directors or otherwise, both as to action by a director or
officer of the Corporation in his official capacity and as to action by such
person in another capacity while holding such office or position, and shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
SECTION 6. Insurance. The Corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or who, while a
director, officer, employee or agent of the Corporation, is or was serving at
the request of the Corporation as a director, officer, partner, trustee,
employee, agent or fiduciary of another corporation, partnership, joint
venture, trust, enterprise or employee benefit plan, against any liability
asserted against and incurred by him in any such capacity, or arising out of
his status as such, provided that no insurance may be obtained by the
Corporation for liabilities against which it would not have the power to
indemnify him under this Article V or applicable law.
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
<PAGE>19
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.
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 Investment Company Act
of 1940, as amended.
As adopted, February 7, 1990
<PAGE>1
INVESTMENT ADVISORY AGREEMENT
April 17, 1985
Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017
Dear Sirs:
Counsellors New York Tax Exempt Fund, Inc. (the "Fund"), a
corporation organized under the laws of the State of Maryland, herewith
confirms its agreement with Warburg, Pincus Counsellors, Inc. ("Counsellors"),
a Delaware corporation registered as an adviser under the Investment Advisers
Act of 1940, as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and reinvesting
in investments of the kind and in accordance with the limitations specified in
its articles of incorporation, as amended, and in its Prospectus and Statement
of Additional Information as from time to time in effect, and in such manner
and to such extent as may from time to time be approved by the Board of
Directors of the Fund. Copies of the Fund's Prospectus, Statement of
Additional Information and articles of incorporation, as amended, have been or
will be submitted to Counsellors. The Fund desires to employ and hereby
appoints Counsellors to act as its investment adviser. Counsellors accepts
the appointment and agrees to furnish the services set forth below for the
compensation set forth below.
2. Services as Investment Adviser
Subject to the supervision and direction of the Board of Directors
of the Fund, Counsellors will (a) act in strict conformity with the Fund's
articles of incorporation and by-laws, the Investment Company Act of 1940 and
the Investment Advisers Act of 1940, as the same may from time to time be
amended, (b) manage the Fund's portfolio in accordance with the Fund's
investment objective and policies as stated in its Prospectus and Statement of
Additional Information as from time to time in effect, (c) make general
investment decisions for the Fund including decisions concerning (i) the
specific types of securities to be held by the Fund and the proportion of the
Fund's assets that should be allocated to such investments during particular
market cycles, (ii) the specific issuers whose securities will be purchased or
sold by the Fund, (iii) the
<PAGE>2
extent to which taxable securities will be purchased for and held by the Fund,
(iv) the extent to which securities other than New York Municipal Securities
will be purchased for and held by the Fund, (v) the appropriate maturity of
its portfolio investments and (vi) the appropriate average weighted maturity
of its portfolio in light of current market conditions, (d) provide officers
and certain directors for the Fund and (e) supervise the performance of
services to be rendered by the Fund's sub-investment adviser and
administrator. In providing those services, Counsellors will supervise the
Fund's investments generally and conduct a continual program of evaluation of
the Fund's assets.
3. Information Provided to the Fund; Books and Records
(a) Counsellors will keep the Fund informed of developments
materially affecting the Fund's portfolio, and will, on its own initiative,
furnish the Fund from time to time with whatever information Counsellors
believes is appropriate for this purpose.
(b) In compliance with the requirements of Rule 31a-3 under the
Investment Company Act of 1940, Counsellors hereby agrees that all records
which it maintains for the Fund are the property of the Fund and further
agrees to surrender promptly to the Fund any of such records upon the Fund's
request.
4. Standard of Care
Counsellors shall exercise its best judgment in rendering the
services listed in paragraph 2 above. Counsellors shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, provided that
nothing herein shall be deemed to protect or purport to protect Counsellors
against any liability to the Fund or to its shareholders to which Counsellors
would otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence on its part in the performance of its duties or by reason of
Counsellors' reckless disregard of its obligations and duties under this
Agreement.
5. Compensation
In consideration of the services rendered pursuant to this
Agreement, the Fund will pay Counsellors on the first business day of each
month a fee for the previous month, calculated daily, at the annual rate of
.25 of 1.00% of the Fund's average daily net assets. The fee for the period
from the
<PAGE>3
date the Fund's initial registration statement is declared effective by the
Securities and Exchange Commission to the end of the month during which the
initial registration statement is declared effective shall be prorated
according to the proportion that such period bears to the full monthly period.
Upon any termination of this Agreement before the end of a month, the fee for
such part of that month shall be prorated according to the proportion that
such period bears to the full monthly period and shall be payable upon the
date of termination of this Agreement. For the purpose of determining fees
payable to Counsellors, the value of the Fund's net assets shall be computed
at the times and in the manner specified in the Fund's Prospectus or Statement
of Additional Information as from time to time in effect.
6. Expenses
Counsellors will bear all expenses in connection with the
performance of its services under this Agreement. The Fund will bear certain
other expenses to be incurred in its operation, including: taxes, interest,
brokerage fees and commissions, if any; fees of directors of the Fund who are
not officers, directors or employees of Counsellors, Counsellors Securities
Inc., Provident Institutional Management Corporation or Provident Financial
Processing Corporation; Securities and Exchange Commission fees and state Blue
Sky qualification fees; charges of custodians and transfer and dividend
disbursing agents; certain insurance premiums; outside auditing and legal
expenses; costs of maintenance of corporate existence; costs attributable to
investor services, including, without limitation, telephone and personnel
expenses; costs of preparing and printing prospectuses and statements of
additional information for regulatory purposes and for distribution to
existing shareholders; costs of shareholders' reports and meetings of the
shareholders, officers or Board of Directors of the Fund; and any
extraordinary expenses.
7. Reimbursement to the Fund
If in any fiscal year the aggregate expenses of the Fund (including
fees pursuant to this Agreement and the Fund's sub-investment advisory and
administration agreement, but excluding interest, taxes, brokerage and, if
permitted by state securities commissions, extraordinary expenses) exceed the
expense limitation of any state having jurisdiction over the Fund, Counsellors
will reimburse the Fund for 50% of such excess expense. Counsellors' expense
reimbursement obligation will be limited to the amount of its fees received
pursuant to this Agreement, however, Counsellors shall reimburse the Fund for
50% of such excess expenses regardless of the amount of fees paid to it during
such fiscal year to the extent that the securities
<PAGE>4
regulations of any state in which Fund shares are registered and qualified for
sale so require. Such expense reimbursement, if any, will be estimated,
reconciled and paid on a monthly basis.
8. Services to Other Companies or Accounts
The Fund understands that Counsellors now acts, will continue to act
and may act in the future as investment adviser to fiduciary and other managed
accounts and may act in the future as investment adviser to one or more other
investment companies, and the Fund has no objection to Counsellors' so acting,
provided that whenever the Fund and one or more other accounts or investment
companies advised by Counsellors have available funds for investment,
investments suitable and appropriate for each will be allocated in a manner
believed to be equitable to each entity. The Fund recognizes that in some
cases this procedure may adversely affect the size of the position obtainable
for the Fund. In addition, the Fund understands that the persons employed by
Counsellors to assist in the performance of Counsellors' duties hereunder will
not devote their full time to such service and nothing contained herein shall
be deemed to limit or restrict the right of Counsellors or any affiliate of
Counsellors to engage in and devote time and attention to other businesses or
to render services of whatever kind or nature.
9. Term of Agreement
This Agreement shall continue until April 17, 1987 and thereafter
shall continue automatically for successive annual periods ending on April
17th of each year, provided such continuance is specifically approved at least
annually by (a) the Board of Directors of the Fund or (b) a vote of a
"majority" (as defined in the Investment Company Act of 1940) of the Fund's
outstanding voting securities, provided that in either event the continuance
is also approved by a majority of the Board of Directors who are not
"interested persons" (as defined in said Act) of any party to this Agreement,
by vote cast in person at a meeting called for the purpose of voting on such
approval. This Agreement is terminable, without penalty, on 60 days' written
notice, by the Board of Directors of the Fund or by vote of holders of a
majority of the Fund's shares, or upon 90 days' written notice, by
Counsellors. This Agreement will also terminate automatically in the event of
its assignment (as defined in said Act).
10. Amendment of this Agreement
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the
<PAGE>5
change, waiver, discharge or termination is sought, and no material amendment
of this Agreement shall be effective until approved by vote of the holders of
a majority of the outstanding voting securities of the Fund.
11. Miscellaneous
The Fund recognizes that directors, officers and employees of
Counsellors may from time to time serve as directors, trustees, officers and
employees of corporations and business trusts (including other investment
companies) and that such other corporations and trusts may include the name
"Counsellors" as part of their name, and that Counsellors or its affiliates
may enter into investment advisory or other agreements with such other
corporations and trusts. If Counsellors ceases to act as the investment
adviser, of the Fund's shares, the Fund agrees that, at Counsellors' request,
the Fund's license to use the word "Counsellors" will terminate and that the
Fund will take all necessary action to change the name of the Fund to a name
not including the word "Counsellors."
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be invalidated or
rendered unforceable thereby. This Agreement shall inure to the benefit of
the parties hereto and their respective successors and shall be governed by
New York law.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance hereof by signing and returning the enclosed copy
hereof.
Very truly yours,
COUNSELLORS NEW YORK TAX EXEMPT
FUND, INC.
By:________________________________
President
Accepted:
WARBURG, PINCUS COUNSELLORS, INC.
By:/s/ John L. Furth
Authorized Officer
<PAGE>1
SUB-INVESTMENT ADVISORY
AND
ADMINISTRATION AGREEMENT
April 17, 1985
Provident Institutional Management Corporation
Suite 200
Bedford Building
3531 Silverside Road
Wilmington, Delaware 19810
Dear Sirs:
Counsellors New York Tax Exempt Fund, Inc. (the "Fund"), a
corporation organized under the laws of the State of Maryland, herewith
confirms its agreement with Provident Institutional Management Corporation
("PIMC"), a Delaware corporation registered as an investment adviser under the
Investment Advisers Act of 1940 and wholly-owned by Provident National Bank,
as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and reinvesting
in investments of the kind and in accordance with the limitations specified in
its articles of incorporation, as amended, and in its Prospectus and Statement
of Additional Information as from time to time in effect, and in such manner
and to such extent as may from time to time be approved by the Board of
Directors of the Fund. Copies of the Fund's Prospectus, Statement of
Additional Information and articles of incorporation, as amended, have been or
will be submitted to PIMC. The Fund employs Warburg, Pincus Counsellors, Inc.
("Counsellors") as its investment adviser and desires to employ and hereby
appoints PIMC to act as its sub-investment adviser and administrator. PIMC
accepts this appointment and agrees to furnish the services set forth below
for the compensation set forth below.
<PAGE>2
2. Services as Sub-Investment Adviser
Subject to the supervision and direction of Counsellors and the
Board of Directors of the Fund, PIMC will provide investment advisory
assistance and portfolio management advice with respect to the Fund's
portfolio in accordance with (a) the Fund's articles of incorporation and by-
laws, (b) the Investment Company Act of 1940 and the Investment Advisers Act
of 1940, as the same may from time to time be amended, (c) all applicable
Rules and Regulations of the Securities and Exchange Commission, (d)
regulations of the Board of Governors of the Federal Reserve System pertaining
to investment advisory activities of bank holding companies to the same extent
as if such regulations were by their terms applicable to the activities of
PIMC, and (e) the Fund's investment objective and policies as stated in its
Prospectus and Statement of Additional Information as from time to time in
effect. In connection therewith, PIMC will supervise the day-to-day
operations of the Fund and perform the following services: (a) provide
investment research and credit analysis concerning the Fund's investments, (b)
conduct a continual program of evaluation of the Fund's assets, (c) place
orders for all purchases and sales of the Fund's portfolio investments and (d)
maintain the books and records required to support the Fund's operations. In
addition, PIMC will keep the Fund informed of developments materially
affecting the Fund's portfolio and shall, on its own initiative, furnish to
the Fund from time to time whatever information PIMC believes appropriate for
this purpose. PIMC will not invest its assets or the assets of any accounts
with respect to which it or Provident National Bank exercises sole investment
discretion in the Fund, make loans for the purpose of purchasing or carrying
Fund shares or make loans to the Fund.
3. Brokerage
In executing portfolio transactions for the Fund and selecting
brokers or dealers, PIMC will use its best efforts to seek the best overall
terms available. In assessing the best overall terms available for any
portfolio transaction, PIMC will consider all factors it deems relevant
including, but not limited to, breadth of the market in the security, the
price of the security, the financial condition and execution capability of the
broker or dealer and the reasonableness of any commission for the specific
transaction and on a continuing basis. In selecting brokers or dealers to
execute a particular transaction and in evaluating the best overall terms
available, PIMC may consider the brokerage and research services (as those
terms are defined in Section 28(e) of the Securities Exchange Act of 1934)
provided
<PAGE>3
to the Fund and/or other accounts over which Counsellors, PIMC or an affiliate
of either of them exercises investment discretion.
4. Services as Administrator
Subject to the supervision and direction of the Board of Directors
of the Fund and Counsellors, PIMC will (a) assist in supervising all aspects
of the Fund's operations except those performed by the Fund's investment
adviser under its investment advisory agreement; (b) supply the Fund with
office facilities (which may be in PIMC's own offices), statistical and
research data, data processing services, clerical, accounting and bookkeeping
services, including, but not limited to, the calculation of the net asset
value of shares of the Fund, internal auditing and legal services in
connection with the performance of its duties under this Agreement, internal
executive and administrative services, and stationery and office supplies; and
(c) accumulate information for and coordinate the preparation of reports to
shareholders of the Fund, tax returns and reports to and filings with the
Securities and Exchange Commission.
5. Books and Records
In compliance with the requirements of Rule 31a-3 under the
Investment Company Act of 1940, PIMC hereby agrees that all records which it
maintains for the Fund are the property of the Fund and further agrees to
surrender promptly to the Fund any of such records upon the Fund's request.
6. Compensation
In consideration of services rendered pursuant to this Agreement,
the Fund will pay PIMC on the first business day of each month a fee for the
previous month, calculated daily, at an annual rate of .25 of 1.00% of the
Fund's average daily net assets. The fee for the period from the date the
Fund's initial registration statement is declared effective by the Securities
and Exchange Commission to the end of the month during which the initial
registration statement is declared effective shall be prorated according to
the proportion that such period bears to the full monthly period. Upon any
termination of this Agreement before the end of any month, the fee for such
part of a month shall be prorated according to the proportion which such
period bears to the full monthly period and shall be payable upon the date of
termination of this Agreement. For the purpose of determining fees payable to
PIMC, the value of the Fund's net assets shall be computed at the times and in
the manner specified
<PAGE>4
in the Fund's Prospectus and Statement of Additional Information as from time
to time in effect.
7. Expenses
PIMC will bear all expenses in connection with the performance of
its services under this Agreement. The Fund will bear certain other expenses
to be incurred in its operation, including: taxes, interest, brokerage fees
and commissions, if any; fees of directors of the Fund who are not officers,
directors or employees of Counsellors, Counsellors Securities Inc., PIMC or
Provident Financial Processing Corporation; Securities and Exchange Commission
fees and state Blue Sky qualification fees; charges of custodians and transfer
and dividend disbursing agents; certain insurance premiums; outside auditing
and legal expenses; costs of maintenance of corporate existence; costs
attributable to investor services, including, without limitation, telephone
and personnel expenses; costs of preparing and printing prospectuses and
statements of additional information for regulatory purposes and for
distribution to existing shareholders; costs of shareholders' reports and
meetings and meetings of the officers or Board of Directors of the Fund; and
any extraordinary expenses.
8. Reimbursement to the Fund
If in any fiscal year the aggregate expenses of the Fund (including
fees pursuant to this Agreement and the Fund's investment advisory agreement,
but excluding interest, taxes, brokerage and, if permitted by state securities
commissions, extraordinary expenses) exceed the expense limitations of any
state having jurisdiction over the Fund, PIMC will reimburse the Fund for 50%
of such excess expense. The expense reimbursement obligation of PIMC will be
limited to the amount of its fees pursuant to this Agreement; provided,
however, that PIMC shall reimburse the Fund for 50% of such excess expenses
regardless of the amount of fees paid to it during such fiscal year to the
extent that the securities regulations of any state in which Fund shares are
registered and qualified for sale so require. Such expense reimbursement, if
any, will be estimated, reconciled and paid on a monthly basis.
9. Standard of Care
PIMC shall exercise its best judgment in rendering the services
listed in paragraphs 2, 3 and 4 above. PIMC shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, except for a loss
resulting from a breach
<PAGE>5
of fiduciary duty with respect to the receipt of compensation for services;
provided that nothing herein shall be deemed to protect or purport to protect
PIMC against liability to the Fund or to its shareholders to which PIMC would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or by reason of PIMC's
reckless disregard of its obligations and duties under this Agreement.
10. Term of Agreement
This Agreement shall continue until April 17, 1987 and thereafter
shall continue automatically for successive annual periods ending on April
17th of each year, provided such continuance is specifically approved at least
annually by (a) the Board of Directors of the Fund or (b) a vote of a
"majority" (as defined in the Investment Company Act of 1940) of the Fund's
outstanding voting securities, provided that in either event the continuance
is also approved by a majority of the Board of Directors who are not
"interested persons" (as defined in said Act) of any party to this Agreement,
by vote cast in person at a meeting called for the purpose of voting such
approval. This Agreement is terminable, without penalty, on 60 days' written
notice, by the Board of Directors of the Fund or by vote of holders of a
majority of the Fund's shares, or upon 90 days' written notice, by PIMC. This
Agreement will also terminate automatically in the event of its assignment (as
defined in said Act).
11. Service to Other Companies or Accounts
The Fund understands that PIMC now acts, will continue to act and
may act in the future as investment adviser to fiduciary and other managed
accounts and as investment adviser, sub-investment adviser and/or
administrator to one or more other investment companies, and the Fund has no
objection to PIMC's so acting, provided that whenever the Fund and one or more
other accounts or investment companies advised by PIMC have available funds
for investment, investments suitable and appropriate for each will be
allocated in a manner believed to be equitable to each entity. The Fund
recognizes that in some cases this procedure may adversely affect the size of
the position obtainable for the Fund. In addition, the Fund understands that
the persons employed by PIMC to assist in the performance of PIMC's duties
hereunder will not devote their full time to such service and nothing
contained herein shall be deemed to limit or restrict the right of PIMC or any
affiliate of PIMC to engage in and devote time and attention to other
businesses or to render services of whatever kind or nature.
<PAGE>6
12. Amendment of this Agreement
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, and no amendment of this Agreement shall be effective until approved
by vote of the holders of a majority of the outstanding voting securities of
the Fund.
13. Proprietary and Confidential Information
PIMC agrees on behalf of itself and its employees to treat
confidentially and as proprietary information of the Fund all records and
other information relative to the Fund and prior, present or potential
shareholders, and not to use such records and information for any purpose
other than performance of its responsibilities and duties hereunder, except
after prior notification to and approval in writing by the Fund, which
approval shall not be unreasonably withheld and may not be withheld where PIMC
may be exposed to civil or criminal contempt proceedings for failure to
comply, when requested to divulge such information by duly constituted
authorities or when so requested by the Fund.
14. Miscellaneous
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be invalidated or
rendered unenforceable thereby. This Agreement shall inure to the benefit of
the parties hereto and their respective successors and shall be governed by
New York law.
<PAGE>7
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance hereof by signing and returning to us the enclosed
copy hereof.
Very truly yours,
COUNSELLORS NEW YORK TAX EXEMPT
FUND, INC.
By:________________________________
President
Accepted:
PROVIDENT INSTITUTIONAL MANAGEMENT
CORPORATION
By:_______________________________
Authorized Officer
<PAGE>1
DISTRIBUTION AGREEMENT
April 14, 1993
Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
Gentlemen:
This is to confirm that, in consideration of the agreements
hereinafter contained, the undersigned, Counsellors New York Tax Exempt Fund,
Inc., an open-end, management investment company incorporated under the laws
of the State of Maryland (the "Fund"), has agreed that Counsellors Securities
Inc. (the "Service Organization") shall provide certain distribution services
in connection with the offer and sale of shares of the Fund, as well as
certain shareholder servicing, administrative and accounting services to
certain of its customers ("Customers"), who from time to time may beneficially
own shares of the Fund's common stock, par value $.001 per share, designated
Common Stock - Series 2 ("Shares").
Section 1. (a) The Service Organization agrees to provide personal
service and/or the maintenance of shareholder accounts to Customers who may
from time to time own Shares. Such services shall include: (i) responding to
Customer inquiries, (ii) providing information on their investments and (iii)
providing other shareholder liaison services.
(b) The Service Organization also agrees to provide distribution and
marketing services in connection with the promotion and sale of the Shares.
(c) The Service Organization further agrees to provide the following
administrative and accounting services to Customers who may from time to time
own Shares: (i) aggregating and processing purchase and redemption requests
for Shares from Customers and placing net purchase and redemption orders with
the Fund's transfer agent; (ii) providing Customers with a service that
invests the assets of their accounts in Shares; (iii) processing dividend
payments from the Fund on behalf of Customers; (iv) providing information
periodically to Customers showing their positions in Shares; (v) arranging for
bank wires; (vi) providing sub-accounting with respect to Shares beneficially
owned by Customers or the information to the Fund necessary for
sub-accounting; (vii) if required by law, forwarding shareholder
communications from the Fund (such as proxies, shareholder reports, annual and
semiannual financial statements and dividend, distribution and tax notices) to
Customers; and (viii) providing such other similar services as we may
reasonably request to the extent permitted under applicable statutes, rules
and
<PAGE>2
regulations. The Service Organization will provide to Customers a schedule
showing compensation payable under this Agreement and any other fees that it
may charge to them relating to their assets that are invested in Shares.
Section 2. Orders received from the Service Organization for shares
of the Fund will be accepted only at the public offering price applicable to
each order, as set forth in the Prospectus and Statement of the Fund. The
procedure relating to the handling of orders shall be in accordance with oral
or written instructions that the Fund shall forward to the Service
Organization from time to time. Payment for Shares of the Fund must be
received as provided in the Fund's Prospectus. All orders are subject to
acceptance or rejection by the Fund in its sole discretion and orders shall be
effective only upon receipt in proper form. The minimum initial and
subsequent purchase requirements of the Fund are as set forth in the
Prospectus and Statement of the Fund.
Section 3. The Service Organization agrees to purchase Shares only
in transactions contemplating the simultaneous resale of such Shares to
investors. The Service Organization also agrees not to offer or sell any
Shares except under circumstances that will result in compliance with the
applicable federal and state securities laws and that in connection with sales
and offers to sell Shares it will furnish or cause to be furnished to each
person to whom any such sale or offer is made, at or prior to the time of
offering or sale, a copy of the Prospectus of the Fund and, if requested, the
Statement (as then amended or supplemented) of the Fund and will not furnish
to any person any information relating to the Fund that is inconsistent in any
respect with the information contained in the Prospectus and Statement (as
then amended or supplemented) or cause any written materials to be used in
connection with sales of Shares or any advertisement to be published in any
newspaper, broadcast by television, radio or other means or posted in any
public place without the prior written consent of the Fund. The Service
Organization also agrees to send confirmations of orders to its customers as
required by Rule 10b-10 of the Securities Exchange Act of 1934 and agrees to
pay any costs in connection therewith. The Service Organization also agrees
to use all reasonable efforts to ensure that taxpayer identification numbers
provided on behalf of investors are correct.
<PAGE>3
Section 4. The Service Organization shall not withhold placing
orders for the Shares received from its customers so as to profit itself as a
result of such withholding; e.g., by a change in the net asset value from
that used in determining the offering price to its customers.
Section 5. The Fund reserves the right in its discretion and
without notice to the Service Organization to suspend sales or withdraw the
offering of Shares or, upon notice to the Service Organization, to amend this
Agreement. The Service Organization agrees that any order to purchase Shares
placed by it after notice of any amendment to this Agreement has been sent to
it shall constitute the Service Organization's agreement to such amendment.
Section 6. The Service Organization will provide such office space
and equipment, telephone facilities and personnel (which may be any part of
the space, equipment and facilities currently used in its business, or any
personnel employed by it) as may be reasonably necessary or beneficial in
order to provide the aforementioned services to Customers.
Section 7. Neither the Service Organization nor any of its
officers, employees or agents are authorized to make any representations
concerning the Fund or the Shares except those contained in the Fund's then
current prospectus for such Shares, copies of which will be supplied by the
Fund to the Service Organization, or in such supplemental literature or
advertising as may be authorized by the Fund in writing.
Section 8. For all purposes of this Agreement, the Service
Organization will be deemed to be an independent contractor, and will have no
authority to act as agent for the Fund in any matter or in any respect. By
its written acceptance of this Agreement, the Service Organization agrees to
and does release, indemnify and hold harmless from and against any and all
direct or indirect liabilities or losses resulting from requests, directions,
actions or inactions of or by the Service Organization or its officers,
employees or agents regarding its responsibilities hereunder or the purchase,
redemption, transfer or registration of Shares by or on behalf of Customers.
The Service Organization and its employees will, upon request, be available
during normal business hours to consult with the Fund or its designees
concerning the performance of their responsibilities under this Agreement.
<PAGE>4
Section 9. (a) In consideration of the shareholder services
provided by the Service Organization pursuant to Section 1(a) of this
Agreement, the Fund will pay to the Service Organization, and the Service
Organization will accept as full payment therefor, a fee at the annual rate of
.25% of the average daily net assets of the Shares held of record by the
Service Organization from time to time on behalf of Customers (the "Customers'
Shares"), which fee will be computed daily and paid quarterly.
(b) In consideration of the distribution, administrative and
accounting services and facilities provided by the Service Organization
pursuant to Sections 1(b) and 1(c) of this Agreement, the Fund will pay to the
Service Organization, and the Service Organization will accept as full payment
therefor, a fee at the annual rate of .10% of the average daily net assets of
the Customers' Shares, which fee will be computed daily and paid quarterly.
(c) For purposes of determining the fees payable under this Section
9, the average daily net assets of the Customers' Shares will be computed in
the manner specified in the Fund's registration statement (as the same is in
effect from time to time) in connection with the computation of the net asset
value of Shares for purposes of purchases and redemptions. The fee rate
stated above may be prospectively increased or decreased by the Fund, in its
sole discretion, at any time upon notice to the Service Organization.
Further, the Fund may, in its discretion and without notice, suspend or
withdraw the sale of the Shares, including the sale of such Shares to the
Service Organization for the account of any Customer or Customers.
Section 10. Any person authorized to direct the disposition of
monies paid or payable by the Fund pursuant to this Agreement will provide to
the Fund's Board of Directors, and the Fund will review, at least quarterly, a
written report of the amounts so expended and the purposes for which such
expenditures were made. In addition, the Service Organization will furnish
the Fund or its designees with such information as it or they may reasonably
request (including, without limitation, periodic certifications confirming the
provision to Customers of the services described herein), and will otherwise
cooperate with the Fund and its designees (including, without limitation, any
auditors designated by the Fund), in connection with the preparation of
reports to its Board of Directors concerning this Agreement and the monies
paid or payable by the Fund pursuant hereto, as well as any other reports or
filings that may be required by law.
<PAGE>5
Section 11. The Fund may enter into other similar Distribution
Agreements or into Shareholder Servicing Agreements with any other person or
persons without the consent of the Service Organization.
Section 12. Upon application to the Fund, the Fund will inform the
Service Organization as to the states and jurisdictions in which the Shares
have been qualified for sale under, or are exempt from the requirements of,
the respective securities laws of such states and jurisdictions, but the Fund
assumes no responsibility or obligation as to the Service Organization's right
to sell Shares in any state or jurisdiction. The Service Organization agrees
to indemnify the Fund for any claim, liability, expense or loss in any way
arising out of a sale of Shares in any state or jurisdiction in which such
Shares are not so qualified or exempt.
Section 13. By its written acceptance of this Agreement, the
Service Organization represents, warrants and agrees that: (a) the Service
Organization will provide to Customers a schedule of fees showing the
compensation payable to the Service Organization hereunder, along with any
other fees charged by it to Customers relating to their assets that are
invested in Shares; (b) the Service Organization is fully authorized by
applicable law and regulation and by any agreement it may have with any
customer or client for whom it may act pursuant to this Agreement to perform
the services and receive the compensation therefor described in this
Agreement; and (c) the compensation payable to the Service Organization
hereunder, together with any other compensation it receives from Customers for
services contemplated by this Agreement, will not be excessive or unreasonable
under the laws and instruments governing its relationships with Customers.
Section 14. This Agreement will become effective on the date a
fully executed copy of this Agreement is received by the Fund or its designee.
Unless sooner terminated, this Agreement will continue until one year from the
date hereof, and thereafter will continue automatically for successive annual
periods provided such continuance is specifically approved at least annually
by the Fund in the manner described in Section 12 hereof. This Agreement is
terminable with or without cause, without penalty, at any time by the Fund
(which termination may be by vote of a majority of (a) the Disinterested
Directors as defined in Section 17 hereof or (b) the outstanding Series 2
Shares of the Fund) or by the Service Organization upon 30 days' notice to the
other party hereto.
<PAGE>6
Section 15. All notices and other communications to either the
Service Organization or the Fund, respectively, will be duly given if mailed,
telegraphed, telexed or transmitted by similar telecommunications device to
the Service Organization at the address shown above and to the Fund at 466
Lexington Avenue, New York, New York 10017.
Section 16. This Agreement will be construed in accordance with the
laws of the State of New York and is non-assignable by the parties hereto.
Section 17. This Agreement has been approved by vote of a majority
of (i) the Fund's Board of Directors and (ii) those Directors who are not
"interested persons" (as defined in the Investment Company Act of 1940) of the
Fund and have no direct or indirect financial interest in the operation of the
Distribution Plan adopted by the Fund regarding the provision of distribution
and support services to the beneficial owners of the Shares or in any
agreements related thereto ("Disinterested Directors"), cast in person at a
meeting for the purpose of voting on such approval.
* * *
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below
indicated, whereupon it shall become a binding agreement between us.
<PAGE>7
Very truly yours,
COUNSELLORS NEW YORK TAX EXEMPT
FUND, INC.
By:
President
Accepted:
COUNSELLORS SECURITIES INC.
By:
Authorized Officer
<PAGE>1
CONSENT OF COUNSEL
Counsellors New York Tax Exempt Fund, Inc.
We hereby consent to being named in the Statement of Additional
Information included in Post-Effective Amendment No. 11 (the "Amendment") to
the Registration Statement on Form N-1A (Securities Act File No. 2-94841,
Investment Company Act File No. 811-4170) of Counsellors New York Tax Exempt
Fund, Inc. (the "Fund") under the caption "Auditors and Counsel"
and to the Fund's filing a copy of this Consent as an exhibit to the
Amendment.
Willkie Farr & Gallagher
New York, New York
June 28, 1995
<PAGE>1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Post-Effective Amendment
No. 11 to the registration statement under the Securities Act of 1933
of Counsellors New York Tax Exempt Fund, Inc. on Form N-1A (No. 2-94841) of
our report dated March 31, 1995 on our audit of the financial statements and
financial highlights of Warburg, Pincus New York Tax Exempt Fund. We also
consent to the reference to our Firm under the headings "Financial Highlights"
in the Prospectus and "Auditors and Counsel" in the Statement of Additional
Information.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
June 26, 1995
<PAGE>
Warburg Pincus New York Tax-Exempt Fund
Common Shares
As of 02/28/95
Current Yield:
With Waiver .000631769 x (365/7) = 3.29%
Without Waiver .000618598 x (365/7) = 3.23%
Effective Yield:
With Waiver ((1 + .000631769)/7)[*GRAPHIC OMITTED-SEE FOOTNOTE] - 1 = 3.34%
Without Waiver ((1 + .000618598)/7)[*GRAPHIC OMITTED-SEE FOOTNOTE] - 1 = 3.28%
Tax Equivalent Yield:
.0329
With Waiver ------------------- = 5.86%
(1 - .396)(1 - .0712)
.0323
Without Waiver ------------------- = 5.76%
(1 - .396)(1 - .0712)
- ------------------------------
* - This mathematical expression is being raised to the power of 365.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000759434
<NAME> WARBURG, PINCUS NEW YORK TAX EXEMPT
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1995
<PERIOD-END> FEB-28-1995
<INVESTMENTS-AT-COST> 87276933
<INVESTMENTS-AT-VALUE> 87276933
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<DISTRIBUTIONS-OF-INCOME> 2138667
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<SHARES-REINVESTED> 1066257
<NET-CHANGE-IN-ASSETS> 9611835
<ACCUMULATED-NII-PRIOR> 0
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<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .025
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<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> .55
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