<PAGE>1
As filed with the U.S. Securities and Exchange Commission
on September 22, 1995
Securities Act File No. 33-12344
Investment Company Act File No. 811-5041
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 15 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT of 1940 [x]
Amendment No. 18 [x]
(Check appropriate box or boxes)
Warburg, Pincus Capital Appreciation Fund
(formerly Counsellors Capital Appreciation Fund)
.............................................................................
(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 Capital Appreciation 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 10022-4677
<PAGE>2
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[x] 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 October 31, 1994 was filed on
December 29, 1994.
<PAGE>3
WARBURG, PINCUS CAPITAL APPRECIATION FUND
FORM N-1A
CROSS REFERENCE SHEET
Heading for the
Part A Common Shares and the
Item No. Advisor Shares Prospectuses*
- -------- ----------------------------
1. Cover Page . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . The Funds' Expenses
3. Condensed Financial
Information . . . . . . . . Financial Highlights
4. General Description of
Registrant . . . . . . . . . Cover Page; Investment Objectives and
Policies; General Information
5. Management of the Fund . . . . Management of the Funds
6. Capital Stock and Other
Securities . . . . . . . . . Dividends, Distributions and Taxes;
Management of the Funds; General
Information
7. Purchase of Securities
Being Offered . . . . . . . How to Purchase Shares; Management of
the Funds
8. Redemption or Repurchase . . . How to Redeem and Exchange Shares
9. Legal Proceedings . . . . . . Not applicable
- ------------------------
* With respect to the Advisor Prospectus, all references to "the Funds"
in this cross reference sheet should be read as "the Fund."
<PAGE>4
Part B Heading in Statement of
Item No. Additional Information
- -------- -----------------------
10. Cover Page . . . . . . . . . . Cover Page
11. Table of Contents . . . . . . Table of Contents
12. General Information and
History . . . . . . . . . . . Management of the Fund; Notes to
Financial Statements; See
Prospectuses-- "General Information"
13. Investment Objectives and
Policies . . . . . . . . . . Investment Objective; Investment
Policies
14. Management of the Registrant . Management of the Fund
15. Control Persons and Principal
Holders of Securities . . . Management of the Fund;
Miscellaneous; See
Prospectuses--"General Information"
16. Investment Advisory and
Other Services . . . . . . . Management of the Fund; See
Prospectuses-- "Management of the
Funds"
17. Brokerage Allocation
and Other Practices . . . . Investment Objective; Investment
Policies
18. Capital Stock and Other
Securities . . . . . . . . . Management of the Fund; See
Prospectuses-- "Dividends,
Distribution and Taxes" and "General
Information"
19. Purchase, Redemption and Pricing
of Securities Being Offered Additional Purchase and Redemption
Information
<PAGE>5
Part B Heading in Statement of
Item No. Additional Information
- -------- -----------------------
20. Tax Status . . . . . . . . . . Additional Information Concerning
Taxes; See Prospectuses-- "Dividends,
Distributions and Taxes"
21. Underwriters . . . . . . . . . Management of the Fund; Additional
Purchase and Redemption Information;
See Prospectuses-- "Management of the
Funds" and "Shareholder Servicing"
22. Calculation of
Performance Data . . . . . . Determination of Performance
23. Financial Statements . . . . . Report of Independent Accountants;
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
<PAGE>1
PROSPECTUS
The Fund's Common Share Prospectus is incorporated by reference to
the Prospectus that forms part of Pre-Effective Amendment No. 2 to the
Registration Statement on Form N-1A of Warburg, Pincus Post-Venture Capital
Fund, Inc. (Securities Act File No. 33-61225; Investment Co. Act File No.
811-07327).
<PAGE>
[Logo]
PROSPECTUS
SEPTEMBER 29, 1995
[ ] WARBURG PINCUS CAPITAL APPRECIATION FUND
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 22, 1995
WARBURG PINCUS ADVISOR FUNDS
P.O. BOX 9030
BOSTON, MASSACHUSETTS 02205-9030
TELEPHONE NUMBER: (800) 888-6878
September 29, 1995
PROSPECTUS
Warburg Pincus Advisor Funds are a family of open-end mutual funds that are
offered to financial institutions investing on behalf of their customers and to
retirement plans that elect to make one or more Advisor Funds an investment
option for participants in the plans. One Advisor Fund is described in this
Prospectus:
WARBURG, PINCUS CAPITAL APPRECIATION FUND seeks long-term capital appreciation
by investing principally in equity securities of medium-sized domestic
companies.
The Fund currently offers two classes of shares, one of which, the Series 2
Shares (referred to as the Advisor Shares), is offered pursuant to this
Prospectus. The Series 2 (Advisor) Shares of the Fund, as well as Advisor Shares
of certain other Warburg Pincus-advised funds, are sold under the name 'Warburg
Pincus Advisor Funds.' The Advisor Shares may not be purchased by individuals
directly but institutions and retirement plans ('Institutions') may purchase
Advisor Shares for individuals. The Advisor Shares impose a 12b-1 fee of up to
.75% per annum, which is the economic equivalent of a sales charge. Common
Shares are available for purchase by individuals directly and are offered by a
separate prospectus.
NO MINIMUM INVESTMENT
There is no minimum amount of initial or subsequent purchases of shares imposed
on Institutions. See 'How to Purchase Shares.'
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in a Statement of Additional Information, has been filed with
the Securities and Exchange Commission (the 'SEC') and is available to investors
without charge by calling Warburg Pincus Advisor Funds at (800) 888-6878.
Information regarding the status of shareholder accounts may also be obtained by
calling Warburg Pincus Advisor Funds at (800) 888-6878. The Statement of
Additional Information bears the same date as this Prospectus and is
incorporated by reference in its 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 FUND'S EXPENSES
The Fund currently offers two separate classes of shares: Common Shares and
Advisor Shares. See 'General Information' and 'Shareholder Servicing.' Because
of the higher fees borne by Advisor Shares, the total return on such shares can
be expected, at any time, to be lower than the total return on Common Shares.
<TABLE>
<S> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a percentage of offering price).......................... 0
Annual Fund Operating Expenses (as a percentage of average net assets) (after fee waivers)
Management Fees...................................................................................... .69%
12b-1 Fees........................................................................................... .75%*
Other Expenses....................................................................................... .36%
--------
Total Fund Operating Expenses........................................................................ 1.80%
EXAMPLE
You would pay the following expenses
on a $1,000 investment, assuming (1) 5% annual return
and (2) redemption at the end of each time period:
1 year............................................................................................... $18
3 years.............................................................................................. $57
5 years.............................................................................................. $97
10 years............................................................................................. $212
</TABLE>
- ------------
* At least a portion of these fees should be considered by the investor to be
the economic equivalent of a sales charge.
------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as an Advisor Shareholder of the Fund. Institutions also
may charge their clients fees in connection with investments in the Fund's
Advisor Shares, which fees are not reflected in the table. Absent the voluntary
waiver of a portion of the fees payable to the Fund's investment adviser,
Management Fees would have equalled .70% and the Total Fund Operating Expenses
would have equalled 1.81%. The Example should not be considered a representation
of past or future expenses; actual Fund expenses may be greater or less than
those shown. Moreover, while the Example assumes a 5% annual return, the Fund's
actual performance will vary and may result in a return greater or less than 5%.
Long-term holders of Advisor Shares may pay more than the economic equivalent of
the maximum front-end sales charges permitted by the National Association of
Securities Dealers, Inc. (the 'NASD').
2
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR AN ADVISOR SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The information regarding the Fund for the two fiscal years ending October
31, 1994 has been derived from information audited by Coopers & Lybrand L.L.P.,
independent auditors, whose report dated December 12, 1994 appears in the Fund's
Statement of Additional Information. The information for the prior fiscal
year/period ending October 31, 1992 has been audited by Ernst & Young LLP, whose
report was unqualified. The information for the six months ended April 30, 1995
is unaudited. Further information about the performance of the Fund is contained
in the annual report, dated October 31, 1994, copies of which may be obtained
without charge by calling Warburg Pincus Advisor Funds at (800) 888-6878.
<TABLE>
<CAPTION>
FOR THE SIX FOR THE PERIOD
MONTHS APRIL 4, 1991
ENDED (INITIAL
APRIL 30, FOR THE YEAR ENDED OCTOBER 31, ISSUANCE)
1995 -------------------------------------- THROUGH
(UNAUDITED) 1994 1993 1992 OCTOBER 31, 1991
----------- ----------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period....... $14.22 $15.28 $13.28 $12.16 $12.04
----------- ----------- ---------- ----------- -------
Income from Investment Operations
Net Investment Income (Loss)............. .00 .05 .00 (.01) .05
Net Gains (Loss) from Securities (both
realized and unrealized).............. .74 .10 2.76 1.20 .13
----------- ----------- ---------- ----------- -------
Total from Investment Operations......... .74 .15 2.76 1.19 .18
----------- ----------- ---------- ----------- -------
Less Distributions
Dividends (from net investment income)... .00 (.02) .00 (.02) (.06)
Distributions (from capital gains)....... (.98) (1.19) (.76) (.05) .00
----------- ----------- ---------- ----------- -------
Total Distributions...................... (.98) (1.21) (.76) (.07) (.06)
----------- ----------- ---------- ----------- -------
Net Asset Value, End of Period............. $13.98 $14.22 $15.28 $13.28 $12.16
----------- ----------- ---------- ----------- -------
----------- ----------- ---------- ----------- -------
Total Return............................... 12.70%* 1.23% 21.64% 9.83% 2.66%*
Ratios/Supplemental Data
Net Assets, End of Period (000s)........... $8,966 $8,169 $10,437 $1,655 $443
Ratios to Average Daily Net Assets:
Operating expenses....................... 1.58%* 1.55% 1.51% 1.56% 1.63%*
Net investment income (loss)............. (.01%)* (.24%) (.25%) (.11%) .25%*
Decrease reflected in above expense
ratios due to waivers/
reimbursements........................ .00% .01% .00% .01% .01%*
Portfolio Turnover Rate.................... 153.53%* 51.87% 48.26% 55.83% 39.50%
</TABLE>
- ------------
* Annualized.
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks long-term capital appreciation. This objective is a
fundamental policy and may not be amended without first obtaining the approval
of a majority of the outstanding shares of the Fund. Any investment involves
risk and, therefore, there can be no assurance that the Fund will achieve its
investment objective. See 'Certain Investment Strategies' for descriptions of
certain types of investments the Fund may make.
The Fund is a diversified management investment company that pursues its
investment objective by investing in a broadly diversified portfolio of equity
securities of domestic companies. The Fund will ordinarily invest substantially
all of its total assets -- but no less than 80% of its total assets -- in common
stocks, warrants and securities convertible into or exchangeable for common
stocks. The Fund intends to focus on securities of medium-sized companies,
consisting of companies having stock market capitalizations of between $500
million and $4.5 billion. (Market capitalization means the total market value of
a company's outstanding common stocks.) Under normal market conditions, except
for temporary defensive purposes, the Fund will invest no less than 80% of its
assets in medium-sized companies, with the remainder invested in companies with
smaller or larger market capitalizations. The prices of securities of
medium-sized companies, which are traded on exchanges or in the over-the-counter
market, tend to fluctuate in value more than the prices of securities of
large-sized companies.
Warburg, Pincus Counsellors, Inc., the Fund's investment adviser
('Counsellors'), will attempt to identify sectors of the market and companies
within market sectors that it believes will outperform the overall market.
Counsellors also seeks to identify themes or patterns it believes to be
associated with high growth potential firms, such as significant fundamental
changes (including senior management changes) or generation of a large free cash
flow.
PORTFOLIO INVESTMENTS
INVESTMENT GRADE DEBT. The Fund may invest up to 20% of its total assets in
investment grade debt securities (other than money market instruments) and
preferred stocks that are not convertible into common stock for the purpose of
seeking capital appreciation. The interest income to be derived may be
considered as one factor in selecting debt securities for investment by
Counsellors. Because the market value of debt obligations can be expected to
vary inversely to changes in prevailing interest rates, investing in debt
obligations may provide an opportunity for capital appreciation when interest
rates are expected to decline. The success of such a strategy is dependent upon
Counsellors' ability to accurately forecast changes in interest rates. The
market value of debt obligations may also be expected to vary depending upon,
among other factors, the ability of the issuer to repay principal and interest,
any change in investment rating and general economic conditions. A security will
be deemed to be investment grade if it is rated within the four highest grades
by Moody's Investors Service, Inc. ('Moody's') or Standard & Poor's Ratings
Group ('S&P') or, if unrated, is determined to be of comparable quality by
Counsellors. Bonds rated in the fourth highest grade may have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade bonds. Subsequent to its purchase by
the Fund, an issue of securities may cease to be rated or its rating may be
reduced below the minimum required for purchase by the Fund. Neither event will
require sale of such securities. Counsellors will consider such event in its
determination of whether the Fund should continue to hold the securities.
4
<PAGE>
When Counsellors believes that a defensive posture is warranted, the Fund
may invest temporarily without limit in investment grade debt obligations and in
domestic and foreign money market obligations, including repurchase agreements
as discussed below.
MONEY MARKET OBLIGATIONS. The Fund is authorized to invest, under normal
circumstances, up to 20% of its total assets in domestic and foreign money
market obligations having a maturity of one year or less at the time of purchase
and for temporary defensive purposes may invest in these securities without
limit. These short-term instruments consist of obligations issued or guaranteed
by the United States government, its agencies or instrumentalities ('U.S.
government securities') (including repurchase agreements with respect to such
securities); bank obligations (including certificates of deposit, time deposits
and bankers' acceptances of domestic or foreign banks, domestic savings and
loans and similar institutions) that are high quality investments or, if
unrated, deemed by Counsellors to be high quality investments; and commercial
paper rated no lower than A-2 by S&P or Prime-2 by Moody's or the equivalent
from another major rating service or, if unrated, of an issuer having an
outstanding, unsecured debt issue then rated within the three highest rating
categories.
Repurchase Agreements. Among the types of money market instruments in which
the Fund may invest are repurchase agreement transactions on portfolio
securities with member banks of the Federal Reserve System and certain non-bank
dealers. Repurchase agreements are contracts under which the buyer of a security
simultaneously commits to resell the security to the seller at an agreed-upon
price and date. Under the terms of a typical repurchase agreement, the Fund
would acquire any underlying security for a relatively short period (usually not
more than one week) subject to an obligation of the seller to repurchase, and
the Fund to resell, the obligation at an agreed-upon price and time, thereby
determining the yield during the Fund's holding period. This arrangement results
in a fixed rate of return that is not subject to market fluctuations during the
Fund's holding period. The value of the underlying securities will at all times
be at least equal to the total amount of the purchase obligation, including
interest. The Fund bears a risk of loss in the event that the other party to a
repurchase agreement defaults on its obligations or becomes bankrupt and the
Fund is delayed or prevented from exercising its right to dispose of the
collateral securities, including the risk of a possible decline in the value of
the underlying securities during the period while the Fund seeks to assert this
right. Counsellors, acting under the supervision of the Fund's Board of Trustees
(the 'Board'), monitors the creditworthiness of those bank and non-bank dealers
with which the Fund enters into repurchase agreements to evaluate this risk. A
repurchase agreement is considered to be a loan under the Investment Company Act
of 1940, as amended (the '1940 Act').
Money Market Mutual Funds. Where Counsellors believes that it would be
beneficial to the Fund and appropriate considering the factors of return and
liquidity, the Fund may invest up to 5% of its assets in securities of money
market mutual funds that are unaffiliated with the Fund or Counsellors. As a
shareholder in any mutual fund, the Fund will bear its ratable share of the
mutual fund's expenses, including management fees, and will remain subject to
payment of the Fund's administration fees and other expenses with respect to
assets so invested.
U.S. GOVERNMENT SECURITIES. U.S. government securities in which the Fund may
invest include: direct obligations of the U.S. Treasury and obligations issued
by U.S. government agencies and instrumentalities, including instruments that
are supported by the full faith and credit of the United States, instruments
that are supported by the right of the issuer to borrow from the U.S. Treasury
and instruments that are supported by the credit of the instrumentality.
5
<PAGE>
CONVERTIBLE SECURITIES. Convertible securities in which the Fund may invest,
including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. The value of convertible securities fluctuates in relation to
changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock.
RISK FACTORS AND SPECIAL
CONSIDERATIONS
Investing in common stocks and securities convertible into common stocks is
subject to the inherent risk of fluctuations in the prices of such securities.
Medium-sized companies are typically subject to a greater degree of changes in
earnings and business prospects than are larger, more established companies.
Because medium-sized companies normally have fewer shares outstanding than
larger companies, it may be more difficult for the Fund to buy or sell
significant amounts of such shares without an unfavorable impact on prevailing
prices. There is typically less publicly available information concerning
medium-sized companies than for larger, more established ones. Therefore, an
investment in the Fund may involve a greater degree of risk than an investment
in other mutual funds that seek capital appreciation by investing in
better-known, larger companies. For certain additional risks relating to the
Fund's investments, see 'Portfolio Investments' beginning at page 4 and 'Certain
Investment Strategies' below.
PORTFOLIO TRANSACTIONS AND
TURNOVER RATE
The Fund will attempt to purchase securities with the intent of holding
them for investment but may purchase and sell portfolio securities whenever
Counsellors believes it to be in the best interests of the Fund. The Fund will
not consider portfolio turnover rate a limiting factor in making investment
decisions consistent with its investment objective and policies. High portfolio
turnover rates (100% or more) may result in dealer mark ups or underwriting
commissions as well as other transaction costs, including correspondingly higher
brokerage commissions. In addition, short-term gains realized from portfolio
turnover may be taxable to shareholders as ordinary income. See 'Dividends,
Distributions and Taxes -- Taxes' below and 'Investment Policies -- Portfolio
Transactions' in the Statement of Additional Information.
All orders for transactions in securities or options on behalf of the Fund
are placed by Counsellors with broker-dealers that it selects, including
Counsellors Securities Inc., the Fund's distributor ('Counsellors Securities').
The Fund may utilize Counsellors Securities in connection with a purchase or
sale of securities when Counsellors believes that the charge for the transaction
does not exceed usual and customary levels and when doing so is consistent with
guidelines adopted by the Board.
CERTAIN INVESTMENT STRATEGIES
Although there is no intention of doing so during the coming year, the Fund
is authorized to engage in the following investment strategies: (i) purchasing
securities on a when-issued basis and purchasing or selling securities for
delayed delivery and (ii) lending portfolio securities. As described below, the
Funds may invest in instruments commonly referred to as 'derivative securities,'
such as options on securities and stock indexes and futures contracts and
options on futures contracts. These strategies may be used for the purpose of
hedging against a decline in value of its portfolio holdings or to generate
income to offset expenses or increase return. SUCH TRANSACTIONS THAT ARE NOT
CONSIDERED HEDGING SHOULD BE CONSIDERED SPECULATIVE AND MAY
6
<PAGE>
SERVE TO INCREASE THE FUND'S INVESTMENT RISK. Detailed information concerning
these and other strategies and their related risks is contained below and in the
Fund's Statement of Additional Information.
FOREIGN SECURITIES. The Fund may invest up to 20% of its total assets in the
securities of foreign issuers. There are certain risks involved in investing in
securities of companies and governments of foreign nations which are in addition
to the usual risks inherent in domestic investments. These risks include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future adverse political and economic developments and the possible
imposition of currency exchange blockages or other foreign governmental laws or
restrictions, reduced availability of public information concerning issuers, the
lack of uniform accounting, auditing and financial reporting standards and other
regulatory practices and requirements that are often generally less rigorous
than those applied in the United States. Moreover, securities of many foreign
companies may be less liquid and their prices more volatile than those of
securities of comparable U.S. companies. Certain foreign countries are known to
experience long delays between the trade and settlement dates of securities
purchased or sold. In addition, with respect to certain foreign countries, there
is the possibility of expropriation, nationalization, confiscatory taxation and
limitations on the use or removal of funds or other assets of the Fund,
including the withholding of dividends. Foreign securities may be subject to
foreign government taxes that would reduce the net yield on such securities.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments positions. Investment in foreign securities will also result in higher
operating expenses due to the cost of converting foreign currency into U.S.
dollars, the payment of fixed brokerage commissions on foreign exchanges, which
generally are higher than commissions on U.S. exchanges, higher valuation and
communications costs and the expense of maintaining securities with foreign
custodians.
RULE 144A SECURITIES. The Fund may purchase securities that are not registered
under the Securities Act of 1933, as amended (the '1933 Act'), but that can be
sold to 'qualified institutional buyers' in accordance with Rule 144A under the
1933 Act ('Rule 144A Securities'). An investment in Rule 144A Securities will be
considered illiquid and therefore subject to the Fund's limitation on the
purchase of illiquid securities, unless the Board determines on an ongoing basis
that an adequate trading market exists for the security. In addition to an
adequate trading market, the Board will also consider factors such as trading
activity, availability of reliable price information and other relevant
information in determining whether a Rule 144A Security is liquid. This
investment practice could have the effect of increasing the level of illiquidity
in the Fund to the extent that qualified institutional buyers become
uninterested for a time in purchasing Rule 144A Securities. The Board will
carefully monitor any investments by the Fund in Rule 144A Securities. The Board
may adopt guidelines and delegate to Counsellors the daily function of
determining and monitoring the liquidity of Rule 144A Securities, although the
Board will retain ultimate responsibility for any determination regarding
liquidity.
Non-publicly traded securities (including Rule 144A Securities) may be less
liquid than publicly traded securities. Although these securities may be resold
in privately negotiated transactions, the prices realized from these sales could
be less than those originally paid by the Fund. In addition, companies whose
securities are not publicly traded are not subject to the disclosure and other
investor protection requirements that would be applicable if their securities
were publicly traded. The Fund's investment in illiquid securities is subject to
the risk that should the
7
<PAGE>
Fund desire to sell any of these securities when a ready buyer is not available
at a price that is deemed to be representative of their value, the value of the
Fund's net assets could be adversely affected.
WRITING OPTIONS ON SECURITIES. The Fund may write covered call options on up to
25% of the net asset value of the stock and debt securities in its portfolio and
will realize fees (referred to as 'premiums') for granting the rights evidenced
by the options. A call option embodies the right of its purchaser to compel the
writer of the option to sell to the option holder an underlying security at a
specified price for a specified time period or at a specified time. Thus, the
purchaser of a call option written by the Fund has the right to purchase from
the Fund the underlying security owned by the Fund at the agreed-upon price for
a specified time period or at a specified time. Upon the exercise of a call
option written by a Fund, the Fund may suffer an economic loss equal to the
excess of the security's market value at the time of the option exercise over
the Fund's acquisition cost of the security, less the premium received for
writing the option.
The Fund will write only covered call options. Accordingly, whenever the
Fund writes a call option it will continue to own or have the present right to
acquire the underlying security for as long as it remains obligated as the
writer of the option.
The Fund may engage in a closing purchase transaction to realize a profit,
to prevent an underlying security from being called or to unfreeze an underlying
security (thereby permitting its sale or the writing of a new option on the
security prior to the outstanding option's expiration). To effect a closing
purchase transaction, the Fund would purchase, prior to the holder's exercise of
an option that the Fund has written, an option of the same series as that on
which the Fund desires to terminate its obligation. The obligation of the Fund
under an option that it has written would be terminated by a closing purchase
transaction, but the Fund would not be deemed to own an option as the result of
the transaction. The ability of the Fund to engage in closing transactions with
respect to options depends on the existence of a liquid secondary market. While
the Fund generally will purchase or write options only if there appears to be a
liquid secondary market for the options purchased or sold, for some options, no
such secondary market may exist or the market may cease to exist, particularly
with respect to options that trade over-the-counter ('OTC options').
Option writing for the Fund may be limited by position and exercise limits
established by securities exchanges and the NASD. Furthermore, the Fund may, at
times, have to limit its option writing in order to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
'Code').
In addition to writing covered options to generate income, the Fund may
enter into options transactions as hedges to reduce investment risk, generally
by making an investment expected to move in the opposite direction of a
portfolio position. A hedge is designed to offset a loss on a portfolio position
with a gain on the hedge position; at the same time, however, a properly
correlated hedge will result in a gain on the portfolio position being offset by
a loss on the hedge position. The Fund bears the risk that the prices of the
securities being hedged will not move in the same amount as the hedge. A Fund
will engage in hedging transactions only when deemed advisable by Counsellors.
Successful use by the Fund of options for hedging purposes will depend on
Counsellors' ability to correctly predict movements in the direction of the
security underlying the option or, in the case of stock index options (described
below), the underlying securities market, which could prove to be inaccurate.
Losses incurred in options transactions and the costs of these transactions will
affect the Fund's performance. Even if Counsellors' expectations are correct,
where options are used as a hedge there may be an imperfect correlation between
the change in the value of
8
<PAGE>
the options and of the portfolio securities hedged. Therefore, an investment in
the Fund may involve a greater risk than an investment in other mutual funds
that seek capital appreciation.
PURCHASING PUT AND CALL OPTIONS ON SECURITIES. The Fund may utilize up to 2% of
its assets to purchase U.S. exchange-traded and OTC put and call options on
stocks and debt securities.
By buying a put, the Fund limits its risk of loss from a decline in the
market value of the underlying security until the put expires. Any appreciation
in the value of and yield otherwise available from the underlying security,
however, will be partially offset by the amount of the premium paid for the put
option and any related transaction costs. Call options may be purchased by the
Fund in order to acquire the underlying securities for the Fund at a price that
avoids any additional cost that would result from a substantial increase in the
market value of a security. The Fund also may purchase call options to increase
its return to investors at a time when the option is expected to increase in
value due to anticipated appreciation of the underlying security.
Prior to their expirations, put and call options may be sold in closing
sale transactions (sales by the Fund, prior to the exercise of options that it
has purchased, of options of the same series), and profit or loss from the sale
will depend on whether the amount received is more or less than the premium paid
for the option plus the related transaction costs.
STOCK INDEX OPTIONS. In addition to purchasing and writing options on
securities, the Fund may utilize up to 10% of its total assets to purchase
exchange-listed put and call options on stock indexes, and may write put and
call options on such indexes. A stock index measures the movement of a certain
group of stocks by assigning relative values to the common stocks included in
the index. Options on stock indexes are similar to options on stock except that
(i) the expiration cycles of stock index options are monthly, while those of
stock options are currently quarterly, and (ii) the delivery requirements are
different. Instead of giving the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive a cash 'exercise settlement amount' equal to (a) the amount, if any, by
which the fixed exercise price of the option exceeds (in the case of a put) or
is less than (in the case of a call) the closing value of the underlying index
on the date of exercise multiplied by (b) a fixed 'index multiplier.' The
discussion of options on securities above, and the related risks, is applicable
to options on securities indexes.
FUTURES CONTRACTS AND OPTIONS. The Fund may enter into interest rate and stock
index futures contracts and purchase and write (sell) related options that are
traded on an exchange designated by the Commodity Futures Trading Commission
(the 'CFTC') or consistent with CFTC regulations on foreign exchanges. These
transactions may be entered into for 'bona fide hedging' as defined in CFTC
regulations and other permissible purposes including (i) protecting against
anticipated changes in the value of portfolio securities the Fund intends to
purchase and (ii) increasing return.
An interest rate futures contract is a standardized contract for the future
delivery of a specified interest rate sensitive security (such as a U.S.
Treasury Bond or U.S. Treasury Note or its equivalent) at a future date at a
price set at the time of the contract. Stock indexes are capitalization weighted
indexes which reflect the market value of the stock listed on the indexes. A
stock index futures contract is an agreement to be settled by delivery of an
amount of cash equal to a specified multiplier times the difference between the
value of the index at the beginning and at the end of the contract period. An
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume
9
<PAGE>
a position in a futures contract at a specified exercise price at any time prior
to the expiration date of the option.
Parties to a futures contract must make 'initial margin' deposits to secure
performance of the contract. There are also requirements to make 'variation
margin' deposits from time to time as the value of the futures contract
fluctuates. The Fund is not a commodity pool and, in compliance with CFTC
regulations currently in effect, may enter into any futures contracts and
related options for 'bona fide hedging' purposes and, in addition, for other
purposes, provided that aggregate initial margin and premiums required to
establish positions other than those considered by the CFTC to be 'bona fide
hedging' will not exceed 5% of the Fund's net asset value, after taking into
account unrealized profits and unrealized losses on any such contracts. The Fund
reserves the right to engage in transactions involving futures and options
thereon to the extent allowed by CFTC regulations in effect from time to time
and in accordance with the Fund's policies. Certain provisions of the Code may
limit the extent to which the Fund may enter into futures contracts or engage in
options transactions.
There are several risks in connection with the use of futures contracts.
Successful use of futures contracts is subject to the ability of Counsellors to
predict correctly movements in the direction of the interest rate or stock index
underlying the particular futures contract or related option. These predictions
and, thus, the use of futures contracts involve skills and techniques that are
different from those involved in the management of portfolio securities. In
addition, there can be no assurance that there will be a correlation between
movements in the interest rate or index underlying the futures contract and
movements in the price of the portfolio securities which are the subject of a
hedge. A decision concerning whether, when and how to utilize futures involves
the exercise of skill and judgment, and even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or trends in
interest rates or stock indexes. Losses incurred in futures transactions and the
costs of these transactions will affect the Fund's performance.
A further risk involves the lack of a liquid secondary market for a futures
contract and the resulting inability to close out a futures contract. Futures
and options contracts may only be closed out by entering into offsetting
transactions on the exchange where the position was entered into (or a linked
exchange), and as a result of daily price fluctuation limits there can be no
assurance that an offsetting transaction could be entered into at an
advantageous price at any particular time. Consequently, the Fund may realize a
loss on a futures contract or option that is not offset by an increase in the
value of the Fund's securities that are being hedged or the Fund may not be able
to close a futures or options position without incurring a loss in the event of
adverse price movements.
ASSET COVERAGE FOR OPTIONS, FUTURES AND OPTIONS ON FUTURES. The Fund will comply
with guidelines established by the SEC designed to eliminate any potential for
leverage with respect to currency forward contracts; options written by the Fund
on currencies, securities and indexes; currency, interest rate and index futures
contracts and options on these futures contracts. The use of these strategies
may require that the Fund maintain cash or certain liquid high-grade debt
securities or other assets that are acceptable as collateral to the appropriate
regulatory authority in a segregated account with its custodian or a designated
sub-custodian to the extent the Fund's obligations with respect to these
strategies are not otherwise 'covered' through ownership of the underlying
security, financial instrument or currency or by other portfolio positions or by
other means consistent with applicable regulatory policies. Segregated assets
cannot be sold or transferred unless equivalent assets are substituted in their
place or it is no longer necessary to
10
<PAGE>
segregate them. As a result, there is a possibility that segregation of a large
percentage of the Fund's assets could impede portfolio management or the Fund's
ability to meet redemption requests or other current obligations.
INVESTMENT GUIDELINES
The Fund may invest up to 10% of its total assets in securities with
contractual or other restrictions on resale and other instruments that are not
readily marketable, including (i) securities issued as part of a privately
negotiated transaction between an issuer and one or more purchasers; (ii)
repurchase agreements with maturities greater than seven days; and (iii) time
deposits maturing in more than seven calendar days. In addition, up to 5% of the
Fund's total assets may be invested in the securities of issuers which have been
in continuous operation for less than three years and up to an additional 5% of
its total assets may be invested in warrants. The Fund may borrow from banks for
temporary or emergency purposes, such as meeting anticipated redemption
requests, provided that borrowings by the Fund may not exceed 10% of its total
assets and may pledge up to 10% of its assets in connection with borrowings.
Whenever borrowings exceed 5% of the value of the Fund's total assets, the Fund
will not make any investments (including roll-overs). Except for the limitations
on borrowing, the investment guidelines set forth in this paragraph may be
changed at any time without shareholder consent by vote of the Board, subject to
the limitations contained in the 1940 Act. A complete list of investment
restrictions that the Fund has adopted identifying additional restrictions that
cannot be changed without the approval of the majority of the Fund's outstanding
shares is contained in the Statement of Additional Information.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER. The Fund employs Counsellors as investment adviser to the
Fund. Counsellors, subject to the control of the Fund's officers and the Board,
manages the investment and reinvestment of the assets of the Fund in accordance
with the Fund's investment objective and stated investment policies. Counsellors
makes investment decisions for the Fund and places orders to purchase or sell
securities on behalf of the Fund. Counsellors also employs a support staff of
management personnel to provide services to the Fund and furnishes the Fund with
office space, furnishings and equipment.
For the services provided by Counsellors, the Fund pays Counsellors a fee
calculated at an annual rate of .70% of the Fund's average daily net assets. The
advisory agreement between the Fund and Counsellors provides that Counsellors
will reimburse the Fund to the extent certain expenses that are described in the
Statement of Additional Information exceed applicable state expense limitations.
Counsellors and the Fund's co-administrators may voluntarily waive a portion of
their fees from time to time and temporarily limit the expenses to be borne by
the Fund.
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 August 31,
1995, Counsellors managed approximately $11.4 billion of assets, including
approximately $5.8 billion of assets of twenty investment companies or
portfolios. 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.
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.
PORTFOLIO MANAGERS. George U. Wyper and Susan L. Black have been co-portfolio
managers of the Fund since December 1994. Mr. Wyper is a managing director of
EMW, which he joined in
11
<PAGE>
August 1994, before which time he was chief investment officer of White River
Corporation and president of Hanover Advisers, Inc. (1993-August 1994), chief
investment officer of Fund American Enterprises, Inc. (1990-1993) and the
director of fixed income investments at Fireman's Fund Insurance Company
(1987-1990). Ms. Black is a managing director of EMW and has been with
Counsellors since 1985, before which time she was a partner at Century Capital
Associates.
CO-ADMINISTRATORS. The Fund employs 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 Fund including responding to shareholder inquiries and
providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Fund and its various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the governing Board, preparing proxy
statements and annual, semiannual and quarterly reports, assisting in other
regulatory filings as necessary and monitoring and developing compliance
procedures for the Fund. As compensation, the Fund pays Counsellors Service a
fee calculated at an annual rate of .10% of its 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.
The Fund employs PFPC Inc. ('PFPC'), an indirect, wholly owned subsidiary
of PNC Bank Corp., as a co-administrator. As a co-administrator, PFPC calculates
the Fund's net asset value, provides all accounting services for the Fund and
assists in related aspects of the Fund's operations. As compensation, the Fund
pays to PFPC a fee calculated at an annual rate of .10% of the Fund's average
daily net assets, subject to a minimum annual fee and exclusive of out-of-pocket
expenses. PFPC has its principal offices at 400 Bellevue Parkway, Wilmington,
Delaware 19809.
CUSTODIAN. PNC Bank, National Association ('PNC') serves as custodian of the
assets of the Fund. PNC is a subsidiary of PNC Bank Corp. and its principal
business address is Broad and Chestnut Streets, Philadelphia, Pennsylvania
19101.
TRANSFER AGENT. State Street Bank and Trust Company ('State Street') acts as
shareholder servicing agent, transfer agent and dividend disbursing agent for
the Fund. It has delegated to Boston Financial Data Services, Inc., a 50% owned
subsidiary ('BFDS'), responsibility for most shareholder servicing functions.
State Street's principal business address is 225 Franklin Street, Boston,
Massachusetts 02110. BFDS's principal business address is 2 Heritage Drive,
North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves as distributor of the shares of the
Fund. Counsellors Securities is a wholly owned subsidiary of Coun-
sellors and is located at 466 Lexington Avenue, New York, New York 10017-3147.
No compensation is payable by the Fund to Counsellors Securities for
distribution services.
TRUSTEES AND OFFICERS. The officers of the Fund manage its day-to-day operations
and are directly responsible to the Board. The Board sets broad policies for the
Fund and chooses its officers. A list of the Trustees and officers of the Fund
and a brief statement of their present positions and principal occupations
during the past five years is set forth in the Statement of Additional
Information.
12
<PAGE>
HOW TO PURCHASE SHARES
Warburg Pincus Advisor Fund shares are only available for investment by
Institutions on behalf of their customers and through retirement plans that
elect to make one or more Advisor Funds an option for participants in the plans.
Individuals, including participants in retirement plans, cannot invest directly
in Advisor Shares of the Fund, but may do so only through a participating
Institution. The Fund reserves the right to make Advisor Shares available to
other investors in the future. References in this Prospectus to shareholders or
investors are generally to Institutions as the record holders of the Advisor
Shares.
Each Institution separately determines the rules applicable to its
customers investing in the Fund, including minimum initial and subsequent
investment requirements and the procedures to be followed to effect purchases,
redemptions and exchanges of Advisor Shares. There is no minimum amount of
initial or subsequent purchases of Advisor Shares imposed on Institutions,
although the Fund reserves the right to impose minimums in the future.
Orders for the purchase of Advisor Shares are placed with an Institution by
its customers. The Institution is responsible for the prompt transmission of the
order to the Fund or its agent.
Institutions may purchase Advisor Shares by telephoning the Fund and
sending payment by wire. After telephoning (800) 888-6878 for instructions, an
Institution should then wire federal funds to Counsellors Securities Inc. using
the following wire address:
State Street Bank and Trust Co.
225 Franklin St.
Boston, MA 02101
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
Warburg Pincus Advisor Capital Appreciation
Fund
DDA# 9904-649-2
[Shareowner name]
[Shareowner account number]
Orders by wire will not be accepted until a completed account application
has been received in proper form, and an account number has been established. If
a telephone order is received by the close of regular trading on the New York
Stock Exchange (the 'NYSE') (currently 4:00 p.m., Eastern time) and payment by
wire is received on the same day in proper form in accordance with instructions
set forth above, the shares will be priced according to the net asset value of
the Fund on that day and are entitled to dividends and distributions beginning
on that day. If payment by wire is received in proper form by the close of the
NYSE without a prior telephone order, the purchase will be priced according to
the net asset value of the Fund on that day and is entitled to dividends and
distributions beginning on that day. However, if a wire in proper form that is
not preceded by a telephone order is received after the close of regular trading
on the NYSE, the payment will be held uninvested until the order is effected at
the close of business on the next business day. Payment for orders that are not
accepted will be returned after prompt inquiry. Certain organizations that have
entered into agreements with the Fund or its agent may enter confirmed purchase
orders on behalf of customers, with payment to follow no later than 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.
After an investor has made his initial investment, additional shares may be
purchased at any time by mail or by wire in the manner outlined above. Wire
payments for initial and subsequent investments should be preceded by an order
placed with the Fund or its agent and should clearly indicate the investor's
account number. In the interest of economy and convenience, physical
certificates representing shares in the Fund are not normally issued.
The Fund understands that some broker-dealers (other than Counsellors
Securities), financial institutions, securities dealers and other
13
<PAGE>
industry professionals may impose certain conditions on their clients that
invest in the Fund, 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 Fund,
such as the initial and subsequent investment minimums, 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 account with the organization.
HOW TO REDEEM AND EXCHANGE
SHARES
REDEMPTION OF SHARES. An investor may redeem (sell) shares on any day that the
Fund's net asset value is calculated (see 'Net Asset Value' below). Requests for
the redemption (or exchange) of Advisor Shares are placed with an Institution by
its customers, which is then responsible for the prompt transmission of the
request to the Fund or its agent.
Institutions may redeem Advisor Shares by calling Warburg Pincus Advisor
Funds at (800) 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 the redemption proceeds will be
wired to the investor's bank as indicated in the account application previously
filled out by the investor. The Fund does not currently impose a service charge
for effecting wire transfers but reserves the right to do so in the future.
During periods of significant economic or market change, telephone redemptions
may be difficult to implement. If an investor is unable to contact Warburg
Pincus Advisor Funds by telephone, an investor may deliver the redemption
request to Warburg Pincus Advisor Funds by mail at Warburg Pincus Advisor Funds,
P.O. Box 9030, Boston, Massachusetts 02205-9030.
If a redemption order is received prior to the close of regular trading on
the NYSE, the redemption order will be effected at the net asset value per share
as determined on that day. If a redemption order is received after the close of
regular trading on the NYSE, the redemption order will be effected at the net
asset value as next determined. Redemption proceeds will normally be wired to an
investor on the next business day following the date a redemption order is
effected. If, however, in the judgment of Counsellors, immediate payment would
adversely affect the Fund, the Fund reserves the right to pay the redemption
proceeds within seven days after the redemption order is effected. Furthermore,
the Fund may suspend the right of redemption or postpone the date of payment
upon redemption (as well as suspend or postpone the recordation of an exchange
of shares) for such periods as are permitted under the 1940 Act.
The proceeds paid upon redemption may be more or less than the amount
invested depending upon a share's net asset value at the time of redemption. If
an investor redeems all the shares in his account, all dividends and
distributions declared up to and including the date of redemption are paid along
with the proceeds of the redemption.
EXCHANGE OF SHARES. An Institution may exchange Advisor Shares of the Fund for
Advisor Shares of the other Warburg Pincus Advisor Funds at their respective net
asset values. Exchanges may be effected in the manner described under
'Redemption of Shares' above. If an exchange request is received by Warburg
Pincus Advisor Funds prior to 4:00 p.m. (Eastern
14
<PAGE>
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.
The exchange privilege may be modified or terminated at any time upon 60 days'
notice to shareholders.
The exchange privilege is available to shareholders residing in any state
in which the Advisor Shares being acquired may legally be sold. When an investor
effects an exchange of shares, the exchange is treated for federal income tax
purposes as a redemption. Therefore, the investor may realize a taxable gain or
loss in connection with the exchange. Investors wishing to exchange Advisor
Shares of the Fund for Advisor Shares in another Warburg Pincus Advisor Fund
should review the prospectus of the other fund prior to making an exchange. For
further information regarding the exchange privilege or to obtain a current
prospectus for another Warburg Pincus Advisor Fund, an investor should contact
Warburg Pincus Advisor Funds at (800) 888-6878.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. The Fund calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Fund's portfolio securities for the applicable period less
applicable expenses. The Fund declares dividends from its net investment income
semiannually and pays them in the calendar year in which they are declared. Net
investment income earned on weekends and when the NYSE is not open will be
computed as of the next business day. Distributions of net realized long-term
and short-term capital gains are declared annually and, as a general rule, will
be distributed or paid in November or December of each calendar year. Unless an
investor instructs the Fund to pay dividends or distributions in cash, dividends
and distributions will automatically be reinvested in additional Advisor Shares
of the Fund at net asset value. The election to receive dividends in cash may be
made on the account application or, subsequently, by writing to Warburg Pincus
Advisor Funds at the address set forth under 'How to Redeem and Exchange Shares'
or by calling Warburg Pincus Advisor Funds at (800) 888-6878.
The Fund may be required to withhold for U.S. federal income taxes 31% of
all distributions payable to shareholders who fail to provide the Fund with
their correct taxpayer identification number or to make required certifications,
or who have been notified by the U.S. Internal Revenue Service that they are
subject to backup withholding.
TAXES. The Fund intends to continue to qualify each year as a 'regulated
investment company' within the meaning of the Code. The Fund, if it qualifies as
a regulated investment company, will be subject to a 4% non-deductible excise
tax measured with respect to certain undistributed amounts of ordinary income
and capital gain. The Fund expects to pay such additional dividends and to make
such additional distributions as are necessary to avoid the application of this
tax.
Dividends paid from net investment income and distributions of net realized
short-term capital gains are taxable to investors as ordinary income, and
distributions derived from net realized long-term capital gains will be taxable
to investors as long-term capital gains, in each case regardless of how long
investors have held Advisor Shares or whether received in cash or reinvested in
Advisor Shares. As a general rule, an investor's gain or loss on a sale or
redemption of its Fund shares will be a long-term capital gain or loss if it has
held its shares for more than one year and will be a short-term capital gain or
loss if it has held its shares for one year or less. However, any loss realized
upon the sale or redemption of shares within six months from the date of their
purchase will be treated as a long-term capital loss to the extent of any
amounts treated as distributions of long-term capital gain during such six-month
period with respect to
15
<PAGE>
such shares. Investors may be proportionately liable for taxes on income and
gains of the Fund, but investors not subject to tax on their income will not be
required to pay tax on amounts distributed to them. The Fund's investment
activities will not result in unrelated business taxable income to a tax-exempt
investor. The Fund's dividends, to the extent not derived from dividends
attributable to certain types of stock issued by U.S. domestic corporations,
will not qualify for the dividends received deduction for corporations.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. Each investor will also receive, if
applicable, various written notices after the close of the Fund's prior taxable
year with respect to certain dividends and distributions which were received
from the Fund during the Fund's prior taxable year. Investors should consult
their own tax advisers with specific reference to their own tax situations,
including their state and local tax liabilities. Individuals investing in the
Fund through Institutions should consult those Institutions or their own tax
advisers regarding the tax consequences of investing in the Fund.
NET ASSET VALUE
The Fund's net asset value per share is calculated as of the close of
regular trading on the NYSE (currently 4:00 p.m., Eastern time) on each business
day, Monday through Friday, except on days when the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, Washington's Birthday, Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively. The net asset value
per share of the Fund generally changes each day.
The net asset value per Advisor Share of the Fund is computed by adding the
Advisor Shares' pro rata share of the value of the Fund's assets, deducting the
Advisor Shares' pro rata share of the Fund's liabilities and the liabilities
specifically allocated to Advisor Shares and then dividing the result by the
total number of outstanding Advisor Shares. Generally, the Fund's investments
are valued at market value or, in the absence of a quoted market value with
respect to any portfolio securities, at fair value as determined by or under the
direction of the Board.
Portfolio securities that are primarily traded on foreign exchanges are
generally valued at the closing values of such securities on their respective
exchanges preceding the calculation of the Fund's net asset value, except that
when an occurrence subsequent to the time a value was so established is likely
to have changed such value, then the fair market value of those securities will
be determined by consideration of other factors by or under the direction of the
Board.
Securities listed on a U.S. securities exchange (including securities
traded through the NASDAQ National Market System) or foreign securities exchange
will be valued on the basis of the closing value on the date on which the
valuation is made. Other U.S. over-the-counter securities, foreign
over-the-counter securities and securities listed or traded on certain foreign
stock exchanges whose operations are similar to the U.S. over-the-counter market
are valued on the basis of the bid price at the close of business on each day.
Option or futures contracts will be valued at the last sale price at 4:00 p.m.
(Eastern time) on the date on which the valuation is made, as quoted on the
primary exchange or board of trade on which the option or futures contract is
traded, or in absence of sales, at the mean between the last bid and asked
prices. Unless the Board determines that using this valuation method would not
reflect the investments' value, short-term investments that mature in 60 days or
less 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
16
<PAGE>
any discount or premium, regardless of the impact of fluctuating interest rates
on the market value of the instrument. Any assets and liabilities initially
expressed in non-U.S. dollar currencies are translated into U.S. dollars at the
prevailing rate as quoted by an independent pricing service on the date of
valuation. Further information regarding valuation policies is contained in the
Statement of Additional Information.
PERFORMANCE
The Fund quotes the performance of Advisor Shares separately from Common
Shares. The net asset value of the Advisor Shares is listed in The Wall Street
Journal each business day under the heading Warburg Pincus Advisor Funds. From
time to time, the Fund may advertise average annual total return of Advisor
Shares over various periods of time. These total return figures show the average
percentage change in value of an investment in the Advisor Shares from the
beginning of the measuring period to the end of the measuring period. The
figures reflect changes in the price of the Advisor Shares assuming that any
income dividends and/or capital gain distributions made by the Fund during the
period were reinvested in Advisor Shares. Total return will be shown for recent
one-, five- and ten-year periods, and may be shown for other periods as well
(such as on a year-by-year, quarterly or current year-to-date basis).
When considering average total return figures for periods longer than one
year, it is important to note that the annual total return for one year in the
period might have been greater or less than the average for the entire period.
When considering total return figures for periods shorter than one year,
investors should bear in mind that the Fund seeks long-term appreciation and
that such return may not be representative of the Fund's return over a longer
market cycle. The Fund may also advertise aggregate total return figures of
Advisor Shares for various periods, representing the cumulative change in value
of an investment in the Advisor Shares for the specific period (again reflecting
changes in share prices and assuming reinvestment of dividends and
distributions). Aggregate and average total returns may be shown by means of
schedules, charts or graphs and may indicate various components of total return
(i.e., change in value of initial investment, income dividends and capital gain
distributions).
Investors should note that total return figures are based on historical
earnings and are not intended to indicate future performance. The Statement of
Additional Information describes the method used to determine the total return.
Current total return figures may be obtained by calling Warburg Pincus Advisor
Funds at (800) 888-6878.
In reports or other communications to investors or in advertising material,
the Fund may describe general economic and market conditions affecting the Fund.
The Fund may compare its performance with (i) that of other mutual funds as
listed in the rankings prepared by Lipper Analytical Services, Inc. or similar
investment services that monitor the performance of mutual funds or as set forth
in the publications listed below; (ii) the Russell Midcap Index, the S&P Midcap
400 Index and the S&P 500 Index, each of which is an unmanaged index of common
stocks; or (iii) other appropriate indexes of investment securities or with data
developed by Counsellors derived from such indexes. The 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, Business Week, Morningstar, Inc. and Financial Times.
17
<PAGE>
In reports or other communications to investors or in advertising, the Fund
may also describe the general biography or work experience of the portfolio
managers of the Fund and may include quotations attributable to the portfolio
managers describing approaches taken in managing the Fund's investments,
research methodology underlying stock selection or the Fund's investment
objective. The Fund may also discuss the continuum of risk and return relating
to different investments and the potential impact of foreign stocks on a
portfolio otherwise composed of domestic securities. In addition, the Fund may
from time to time compare the expense ratio of Advisor Shares to that of
investment companies with similar objectives and policies, based on data
generated by Lipper Analytical Services, Inc. or similar investment services
that monitor mutual funds.
GENERAL INFORMATION
ORGANIZATION. The Fund was organized on January 20, 1987 under the laws of The
Commonwealth of Massachusetts and is a business entity commonly known as
'Massachusetts business trust.' On February 26, 1992, the Fund amended the
Agreement and Declaration of Trust to change the name of the Fund from
'Counsellors Capital Appreciation Fund' to 'Warburg, Pincus Capital Appreciation
Fund.' The Fund's Agreement and Declaration of Trust authorizes the Board of
Trustees to issue an unlimited number of full and fractional shares of
beneficial interest, $.001 par value per share, of which one billion shares are
classified as Series 2 Shares (the Advisor Shares). Under the Fund's charter
documents, the Board has the power to classify or reclassify any unissued shares
of the Fund into one or more additional classes by setting or changing in any
one or more respects their relative rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption. The Board may similarly classify or reclassify any class of its
shares into one or more series and, without shareholder approval, may increase
the number of authorized shares of the Fund.
MULTI-CLASS STRUCTURE. The Fund offers a separate class of shares, the Common
Shares, directly to individuals pursuant to a separate prospectus. Shares of
each class represent equal pro rata interests in the Fund and accrue dividends
and calculate net asset value and performance quotations in the same manner, as
described elsewhere in this Prospectus, except that Advisor Shares bear fees
payable by the Fund to service organizations for services they provide to the
beneficial owners of such shares and enjoy certain exclusive voting rights on
matters relating to these fees. Because of the higher fees borne by the Advisor
Shares, the total return on such shares can be expected to be lower than the
total return on Common Shares. Investors may obtain information concerning the
Common Shares by calling Counsellors Securities at (800) 888-6878.
VOTING RIGHTS. Investors in the Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of the
Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the Board unless
and until such time as less than a majority of the members holding office have
been elected by investors. Any 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, at a meeting called for that purpose. A meeting will be
called for the purpose of voting on the removal of a Board member at the written
request of holders of 10% of the outstanding shares of the Fund. John L. Furth,
a Director of the Fund, and Lionel I. Pincus, Chairman of the Board and Chief
Executive Officer of EMW, may be deemed to be controlling persons of the Fund
18
<PAGE>
as of August 31, 1995 because they may be deemed to possess or share investment
power over shares owned by clients of Counsellors and certain other entities.
SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement of
its account, as well as a statement of its account after any transaction that
affects its share balance or share registration (other than the reinvestment of
dividends or distributions). The Fund will also send to its investors a
semiannual report and an audited annual report, each of which includes a list of
the investment securities held by the Fund and a statement of the performance of
the Fund. Each Institution that is the record owner of Advisor Shares on behalf
of its customers will send a statement to those customers periodically showing
their indirect interest in Advisor Shares, as well as providing other
information about the Fund. See 'Shareholder Servicing.'
SHAREHOLDER SERVICING
The Fund is authorized to offer Advisor Shares exclusively to Institutions
whose clients or customers (or participants in the case of retirement plans)
('Customers') are beneficial owners of Advisor Shares. Either those Institutions
or companies providing certain services to Customers (together, 'Service
Organizations') will enter into account servicing agreements ('Agreements') with
the Fund pursuant to a Distribution Plan as described below. Pursuant to the
terms of an Agreement, the Service Organization agrees to provide certain
distribution, shareholder servicing, administrative and/or accounting services
for Customers. Distribution services would be marketing or other services in
connection with the promotion and sale of Advisor Shares. Shareholder services
that may be provided include responding to Customer inquiries, providing
information on Customer investments and providing other shareholder liaison
services. Administrative and accounting services related to the sale of Advisor
Shares may include (i) aggregating and processing purchase and redemption
requests from Customers and placing net purchase and redemption orders with the
Fund's transfer agent, (ii) processing dividend payments from the Fund on behalf
of Customers and (iii) providing sub-accounting related to the sale of Advisor
Shares beneficially owned by Customers or the information to the Fund necessary
for sub-accounting. The Board has approved a Distribution Plan (the 'Plan')
pursuant to Rule 12b-1 under the 1940 Act under which the Fund will pay each
participating Service Organization a negotiated fee on an annual basis not to
exceed .75% (up to a .25% annual service fee and a .50% annual distribution fee)
of the value of the average daily net assets of its Customers invested in
Advisor Shares. The Board evaluates the appropriateness of the Plan on a
continuing basis and in doing so considers all relevant factors.
Counsellors and Counsellors Securities may, from time to time, at their own
expense, provide compensation to these institutions. To the extent they do so,
such compensation does 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, THE FUND'S
STATEMENT OF ADDITIONAL INFORMATION OR THE FUND'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE FUND, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
ADVISOR SHARES IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY
NOT LAWFULLY BE MADE.
19
<PAGE>
TABLE OF CONTENTS
THE FUND'S EXPENSES ...................................................... 2
FINANCIAL HIGHLIGHTS ..................................................... 3
INVESTMENT OBJECTIVE AND POLICIES ........................................ 4
PORTFOLIO INVESTMENTS .................................................... 4
RISK FACTORS AND SPECIAL
CONSIDERATIONS ........................................................ 6
PORTFOLIO TRANSACTIONS AND TURNOVER
RATE .................................................................. 6
CERTAIN INVESTMENT STRATEGIES ............................................ 6
INVESTMENT GUIDELINES ................................................... 11
MANAGEMENT OF THE FUND .................................................. 11
HOW TO PURCHASE SHARES .................................................. 13
HOW TO REDEEM AND EXCHANGE
SHARES ............................................................... 14
DIVIDENDS, DISTRIBUTIONS AND TAXES ...................................... 15
NET ASSET VALUE ......................................................... 16
PERFORMANCE ............................................................. 17
GENERAL INFORMATION ..................................................... 18
SHAREHOLDER SERVICING ................................................... 19
ADCAP-1-0995
[LOGO]
[ ] WARBURG PINCUS
CAPITAL APPRECIATION FUND
PROSPECTUS
SEPTEMBER 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 September 22, 1995
STATEMENT OF ADDITIONAL INFORMATION
September 29, 1995
WARBURG PINCUS CAPITAL APPRECIATION FUND
P.O. Box 9030, Boston, Massachusetts 02205-9030
For information, call (800) 888-6878
Contents
Page
Investment Objective . . . . . . . . . . . . . . . . 2
Investment Policies . . . . . . . . . . . . . . . . . 2
Management of the Fund . . . . . . . . . . . . . . . 20
Additional Purchase and Redemption Information . . . 28
Exchange Privilege . . . . . . . . . . . . . . . . . 29
Additional Information Concerning Taxes . . . . . . . 30
Determination of Performance . . . . . . . . . . . . 33
Auditors and Counsel . . . . . . . . . . . . . . . . 34
Miscellaneous . . . . . . . . . . . . . . . . . . . . 34
Financial Statements . . . . . . . . . . . . . . . . 35
Appendix -- Description of Ratings . . . . . . . . . A-1
Report of Coopers & Lybrand L.L.P.,
Independent Auditors . . . . . . . . . . . . . . . A-3
This Statement of Additional Information is meant to be read in
conjunction with the combined Prospectus for the Common Shares of Warburg
Pincus Capital Appreciation Fund (the "Fund"), Warburg Pincus Emerging Growth
Fund, Warburg Pincus Post-Venture Capital Fund, Warburg Pincus International
Equity Fund and Warburg Pincus Japan OTC Fund, and with the Prospectus for the
Advisor Shares of the Fund, each dated September 29, 1995, and is incorporated
by reference in its entirety into those Prospectuses. Because this Statement
of Additional Information is not itself a prospectus, no investment in shares
of the Fund should be made solely upon the information contained herein.
Copies of the Fund's Prospectuses and information regarding the Fund's current
performance may be obtained by calling the Fund at (800) 257-5614. Informa-
tion regarding the status of shareholder accounts may be obtained by calling
the Fund at (800) 888-6878 or by writing to the Fund, P.O. Box 9030, Boston,
Massachusetts 02205-9030.
<PAGE>2
INVESTMENT OBJECTIVE
The investment objective of the Fund is long-term capital
appreciation; the production of current income is incidental to this
objective.
INVESTMENT POLICIES
The following policies supplement the descriptions of the Fund's
investment objectives and policies in the Prospectuses.
Additional Information on Investment Practices
U.S. Government Securities. The Fund may invest in debt obligations
of varying maturities issued or guaranteed by the United States government,
its agencies or instrumentalities ("U.S. government securities"). Direct
obligations of the U.S. Treasury include a variety of securities that differ
in their interest rates, maturities and dates of issuance. U.S. government
securities also include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Loan Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association ("GNMA"), General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home
Loan Mortgage Corporation ("FHLMC"), Federal Intermediate Credit Banks,
Federal Land Banks, Federal National Mortgage Association ("FNMA"), Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board
and Student Loan Marketing Association. The Fund may also invest in
instruments that are supported by the right of the issuer to borrow from the
U.S. Treasury and instruments that are supported by the credit of the
instrumentality. Because the U.S. government is not obligated by law to
provide support to an instrumentality it sponsors, the Fund will invest in
obligations issued by such an instrumentality only if Warburg, Pincus
Counsellors, Inc., the Fund's investment adviser ("Counsellors"), determines
that the credit risk with respect to the instrumentality does not make its
securities unsuitable for investment by the Fund.
Securities of Other Investment Companies. The Fund may invest in
securities of other investment companies to the extent permitted under the
Investment Company Act of 1940, as amended (the "1940 Act"). Presently, under
the 1940 Act, the Fund may hold securities of another investment company in
amounts which (i) do not exceed 3% of the total outstanding voting stock of
such company, (ii) do not exceed 5% of the value of the Fund's total assets
and (iii) when added to all other investment company securities held by the
Fund, do not exceed 10% of the value of the Fund's total assets.
Lending of Portfolio Securities. The Fund may lend portfolio
securities to brokers, dealers and other financial organizations that meet
capital and other credit requirements or other criteria established by the
Fund's Board of Trustees (the "Board"). These loans, if and when made, may
not exceed 20% of the Fund's total assets taken at
<PAGE>3
value. The Fund will not lend portfolio securities to E.M. Warburg, Pincus &
Co., Inc. ("EMW") or its affiliates unless it has applied for and received
specific authority to do so from the Securities and Exchange Commission (the
"SEC"). Loans of portfolio securities will be collateralized by cash, letters
of credit or U.S. government securities, which are maintained at all times in
an amount equal to at least 100% of the current market value of the loaned
securities. Any gain or loss in the market price of the securities loaned
that might occur during the term of the loan would be for the account of the
Fund. From time to time, the Fund may return a part of the interest earned
from the investment of collateral received for securities loaned to the
borrower and/or a third party that is unaffiliated with the Fund and that is
acting as a "finder."
By lending its securities, the Fund can increase its income by
continuing to receive interest and any dividends on the loaned securities as
well as by either investing the collateral received for securities loaned in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. government securities are used as collateral. Although the
generation of income is not the primary investment objective of the Fund,
income received could be used to pay the Fund's expenses and would increase an
investor's total return. The Fund will adhere to the following conditions
whenever its portfolio securities are loaned: (i) the Fund must receive at
least 100% cash collateral or equivalent securities of the type discussed in
the preceding paragraph from the borrower; (ii) the borrower must increase
such collateral whenever the market value of the securities rises above the
level of such collateral; (iii) the Fund must be able to terminate the loan at
any time; (iv) the Fund must receive reasonable interest on the loan, as well
as any dividends, interest or other distributions on the loaned securities and
any increase in market value; (v) the Fund may pay only reasonable custodian
fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower, provided, however, that if a material
event adversely affecting the investment occurs, the Board must terminate the
loan and regain the right to vote the securities. Loan agreements involve
certain risks in the event of default or insolvency of the other party
including possible delays or restrictions upon the Fund's ability to recover
the loaned securities or dispose of the collateral for the loan.
Foreign Investments. The Fund may not invest more than 20% of its
total assets in the securities of foreign issuers. Investors should recognize
that investing in foreign companies involves certain risks, including those
discussed below, which are not typically associated with investing in U.S.
issuers. Since the Fund may invest in securities denominated in currencies
other than the U.S. dollar, and since the Fund may temporarily hold funds in
bank deposits or other money market investments denominated in foreign
currencies, the Fund may be affected favorably or unfavorably by exchange
control regulations or changes in the exchange rate between such currencies
and the dollar. A change in the value of a foreign currency relative to the
U.S. dollar will result in a corresponding change in the dollar value of the
Fund assets denominated in that foreign currency. Changes in foreign currency
exchange rates may also affect the value of dividends and interest earned,
gains and losses realized on the sale of securities and net investment income
and gains, if any, to be distributed to shareholders by the Fund. The rate of
exchange between the U.S. dollar and other currencies is determined by the
forces of supply
<PAGE>4
and demand in the foreign exchange markets. Changes in the exchange rate may
result over time from the interaction of many factors directly or indirectly
affecting economic and political conditions in the United States and a
particular foreign country, including economic and political developments in
other countries. Of particular importance are rates of inflation, interest
rate levels, the balance of payments and the extent of government surpluses or
deficits in the United States and the particular foreign country, all of which
are in turn sensitive to the monetary, fiscal and trade policies pursued by
the governments of the United States and foreign countries important to
international trade and finance. Governmental intervention may also play a
significant role. National governments rarely voluntarily allow their
currencies to float freely in response to economic forces. Sovereign
governments use a variety of techniques, such as intervention by a country's
central bank or imposition of regulatory controls or taxes, to affect the
exchange rates of their currencies.
Many of the foreign securities held by the Fund will not be
registered with, nor the issuers thereof be subject to reporting requirements
of, the SEC. Accordingly, there may be less publicly available information
about the securities and about the foreign company or government issuing them
than is available about a domestic company or government entity. Foreign
companies are generally not subject to uniform financial reporting standards,
practices and requirements comparable to those applicable to U.S. companies.
In addition, with respect to some foreign countries, there is the possibility
of expropriation or confiscatory taxation, limitations on the removal of funds
or other assets of the Fund, political or social instability, or domestic
developments which could affect U.S. investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency, and
balance of payments positions. The Fund may invest in securities of foreign
governments (or agencies or instrumentalities thereof), and many, if not all,
of the foregoing considerations apply to such investments as well.
Securities of some foreign companies are less liquid and their
prices are more volatile than securities of comparable U.S. companies.
Certain foreign countries are known to experience long delays between the
trade and settlement dates of securities purchased or sold. Due to the
increased exposure of the Fund to market and foreign exchange fluctuations
brought about by such delays, and due to the corresponding negative impact on
Fund liquidity, the Fund will avoid investing in countries which are known to
experience settlement delays which may expose the Fund to unreasonable risk of
loss.
Futures Activities. The Fund may enter into interest rate and stock
index futures contracts and purchase and write (sell) related options traded
on exchanges designated by the Commodity Futures Trading Commission (the
"CFTC") or consistent with CFTC regulations on foreign exchanges. These
transactions may be entered into for "bona fide hedging" purposes as defined
in CFTC regulations and other permissible purposes including hedging against
changes in the value of portfolio securities due to anticipated changes in
interest rates and/or market conditions and increasing return. The ability of
the Fund to
<PAGE>5
trade in futures contracts may be limited by the requirements of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable to a regulated
investment company.
The Fund will not enter into futures contracts and related options
for which the aggregate initial margin and premiums required to establish
positions other than those considered to be "bona fide hedging" by the CFTC
exceed 5% of the Fund's net asset value after taking into account unrealized
profits and unrealized losses on any such contracts it has entered into.
There is no overall limit on the percentage of Fund assets that may be at risk
with respect to futures activities.
Futures Contracts. An interest rate futures contract provides for
the future sale by one party and the purchase by the other party of a certain
amount of a specific financial instrument (debt security) at a specified
price, date, time and place. Stock indexes are capitalization weighted
indexes which reflect the market value of the firms listed on the indexes. A
stock index futures contract is an agreement to be settled by delivery of an
amount of cash equal to a specified multiplier times the difference between
the value of the index at the beginning and at the end of the contract period.
In entering into these contracts, the Fund will incur brokerage costs and be
required to make and maintain certain "margin" deposits on a mark-to-market
basis, as described below.
One of the purposes of entering into a futures contract may be to
protect the Fund from fluctuations in value of its portfolio securities
without its necessarily buying or selling the securities. Since the value of
portfolio securities will far exceed the value of the futures contracts sold
by the Fund, an increase in the value of the futures contracts could only
mitigate, but not totally offset, the decline in the value of the Fund's
assets. No consideration is paid or received by the Fund upon entering into a
futures contract. Instead, the Fund will be required to deposit in a
segregated account with its custodian an amount of cash or cash equivalents,
such as U.S. government securities or other liquid high-grade debt
obligations, equal to approximately 1% to 10% of the contract amount (this
amount is subject to change by the exchange on which the contract is traded,
and brokers may charge a higher amount). This amount is known as "initial
margin" and is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied. The
broker will have access to amounts in the margin account if the Fund fails to
meet its contractual obligations. Subsequent payments, known as "variation
margin," to and from the broker, will be made daily as the financial
instrument or stock index underlying the futures contract fluctuates, making
the long and short positions in the futures contract more or less valuable, a
process known as "marking-to-market." At any time prior to the expiration of
a futures contract, the Fund may elect to close the position by taking an
opposite position, which will operate to terminate the Fund's existing
position in the contract.
Positions in futures contracts and options on futures contracts may
be closed out only on the exchange on which they were entered into (or through
a linked exchange). No secondary market for such contracts exists. Although
the Fund intends to enter into futures contracts only if there is an active
market for such contracts, there is no assurance
<PAGE>6
that an active market will exist for the contracts at any particular time.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that futures contract prices could move to
the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting the Fund to substantial losses. In such event, and in the event of
adverse price movements, the Fund would be required to make daily cash
payments of variation margin. In such circumstances, an increase in the value
of the portion of the Fund's securities being hedged, if any, may partially or
completely offset losses on the futures contract. However, as described
above, there is no guarantee that the price of the securities being hedged
will, in fact, correlate with the price movements in a futures contract and
thus provide an offset to losses on the futures contract.
If the Fund has hedged against the possibility of an event adversely
affecting the value of securities held in its portfolio and that event does
not occur, the Fund will lose part or all of the benefit of the increased
value of securities which it has hedged because it will have offsetting losses
in its futures positions. Losses incurred in futures transactions and the
costs of these transactions will affect the Fund's performance. In addition,
in such situations, if the Fund had insufficient cash, it might have to sell
securities to meet daily variation margin requirements at a time when it would
be disadvantageous to do so. These sales of securities could, but will not
necessarily, be at increased prices which reflect the change in interest rates
or stock indexes, as the case may be.
Options on Futures Contracts. The Fund may purchase and write put
and call options on interest rate and stock index futures contracts and may
enter into closing transactions with respect to such options to terminate
existing positions. There is no guarantee that such closing transactions can
be effected.
An option on an interest rate or stock index futures contract, as
contrasted with the direct investment in such a contract, gives the purchaser
the right, in return for the premium paid, to assume a position in an interest
rate or stock index futures contract at a specified exercise price at any time
prior to the expiration date of the option. Upon exercise of an option, the
delivery of the futures position by the writer of the option to the holder of
the option will be accompanied by delivery of the accumulated balance in the
writer's futures margin account, which represents the amount by which the
market price of the futures contract exceeds, in the case of a call, or is
less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on
futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the point of
sale, there are no daily cash payments by the purchaser to reflect changes in
the value of the underlying contract; however, the value of the option does
change daily and that change would be reflected in the net asset value of the
Fund.
<PAGE>7
There are several risks relating to options on futures contracts.
The ability to establish and close out positions on such options will be
subject to the existence of a liquid market. In addition, the purchase of put
or call options will be based upon predictions as to anticipated trends in
interest rates and securities markets by Counsellors. This requires different
skills and techniques than predicting changes in the price of individual
securities, and there can be no assurance that the use of these portfolio
strategies will be successful. Even if Counsellors' expectations are correct,
where options on futures are used for hedging purposes, there may be an
imperfect correlation between the change in the value of the options and of
the portfolio securities hedged.
When-Issued Securities and Delayed-Delivery Transactions. The Fund
may utilize up to 20% of its total assets to purchase securities on a
"when-issued" basis or purchase or sell securities for delayed delivery (i.e.,
payment or delivery occur beyond the normal settlement date at a stated price
and yield). When-issued transactions normally settle within 30-45 days. The
Fund will enter into a when-issued transaction for the purpose of acquiring
portfolio securities and not for the purpose of leverage, but may sell the
securities before the settlement date if Counsellors deems it advantageous to
do so. The payment obligation and the interest rate that will be received on
when-issued securities are fixed at the time the buyer enters into the com-
mitment. Due to fluctuations in the value of securities purchased or sold on
a when-issued or delayed-delivery basis, the yields obtained on such
securities may be higher or lower than the yields available in the market on
the dates when the investments are actually delivered to the buyers.
When the Fund agrees to purchase when-issued or delayed-delivery
securities, its custodian will set aside cash, U.S. government securities or
other liquid high-grade debt obligations or other assets that are acceptable
as collateral to the appropriate regulatory authority equal to the amount of
the commitment in a segregated account. Normally, the custodian will set
aside portfolio securities to satisfy a purchase commitment, and in such a
case the Fund may be required subsequently to place additional assets in the
segregated account in order to ensure that the value of the account remains
equal to the amount of the Fund's commitment. It may be expected that the
Fund's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets
aside cash. When the Fund engages in when-issued or delayed-delivery
transactions, it relies on the other party to consummate the trade. Failure
of the seller to do so may result in the Fund's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
Options on Securities. In order to hedge against adverse market
shifts, the Fund may utilize up to 2% of its total assets to purchase put and
call options on stock and debt securities that are traded on U.S. exchanges,
as well as over-the-counter ("OTC") options, to the extent permitted by the
policies of state securities authorities in states where shares of the Fund
are qualified for offer and sale. In addition, the Fund may write covered
call options on up to 25% of the stock and debt securities in its portfolio.
<PAGE>8
The Fund realizes fees (referred to as "premiums") for granting the
rights evidenced by the call options it has written. A put option embodies
the right of its purchaser to compel the writer of the option to purchase from
the option holder an underlying security at a specified price for a specified
period or at a specified time. In contrast, a call option embodies the right
of its purchaser to compel the writer of the option to sell to the option
holder an underlying security at a specified price for a specified period or
at a specified time.
The principal reason for writing covered call options on a security
is to attempt to realize, through the receipt of premiums, a greater return
than would be realized on the securities alone. In return for a premium, the
Fund as the writer of a covered call option forfeits the right to any
appreciation in the value of the underlying security above the strike price
for the life of the option (or until a closing purchase transaction can be
effected). Nevertheless, the Fund as the call writer retains the risk of a
decline in the price of the underlying security. The size of the premiums
that the Fund may receive may be adversely affected as new or existing
institutions, including other investment companies, engage in or increase
their option-writing activities.
Options written by the Fund will normally have expiration dates
between one and nine months from the date written. The exercise price of the
options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. The Fund may write (i) in-the-money call
options when Counsellors expects that the price of the underlying security
will remain flat or decline moderately during the option period,
(ii) at-the-money call options when Counsellors expects that the price of the
underlying security will remain flat or advance moderately during the option
period and (iii) out-of-the-money call options when Counsellors expects that
the premiums received from writing the call option plus the appreciation in
market price of the underlying security up to the exercise price will be
greater than the appreciation in the price of the underlying security alone.
In any of the preceding situations, if the market price of the underlying
security declines and the security is sold at this lower price, the amount of
any realized loss will be offset wholly or in part by the premium received.
To secure its obligation to deliver the underlying security when it writes a
call option, the Fund will be required to deposit in escrow the underlying
security or other assets in accordance with the rules of the Options Clearing
Corporation (the "Clearing Corporation") and of the securities exchange on
which the option is written.
In the case of options written by the Fund that are deemed covered
by virtue of the Fund's holding convertible or exchangeable preferred stock or
debt securities, the time required to convert or exchange and obtain physical
delivery of the underlying common stock with respect to which the Fund has
written options may exceed the time within which the Fund must make delivery
in accordance with an exercise notice. In these instances, the Fund may
purchase or temporarily borrow the underlying securities for purposes of
physical delivery. By so doing, the Fund will not bear any market risk, since
the Fund will have the absolute right to receive from the issuer of the
underlying security an equal number of shares
<PAGE>9
to replace the borrowed stock, but the Fund may incur additional transaction
costs or interest expenses in connection with any such purchase or borrowing.
Additional risks exist with respect to certain of the securities for
which the Fund may write covered call options. If the Fund writes covered
call options on mortgage-backed securities, the mortgage-backed securities
that it holds as cover may, because of scheduled amortization or unscheduled
prepayments, cease to be sufficient cover. If this occurs, the Fund will
compensate for the decline in the value of the cover by purchasing an
appropriate additional amount of mortgage-backed securities.
Securities exchanges generally have established limitations
governing the maximum number of calls and puts of each class which may be held
or written, or exercised within certain time periods by an investor or group
of investors acting in concert (regardless of whether the options are written
on the same or different securities exchanges or are held, written or
exercised in one or more accounts or through one or more brokers). It is
possible that the Fund and other clients of Counsellors and certain of its
affiliates may be considered to be such a group. A securities exchange may
order the liquidation of positions found to be in violation of these limits
and it may impose certain other sanctions. These limits may restrict the
number of options the Fund will be able to purchase on a particular security.
Prior to their expirations, put and call options may be sold in
closing sale transactions (sales by the Fund, prior to the exercise of options
that it has purchased, of options of the same series) in which the Fund may
realize a profit or loss from the sale. An option position may be closed out
only where there exists a secondary market for an option of the same series on
a recognized securities exchange or in the over-the-counter market. In cases
where the Fund has written an option, it will realize a profit if the cost of
the closing purchase transaction is less than the premium received upon
writing the original option and will incur a loss if the cost of the closing
purchase transaction exceeds the premium received upon writing the original
option. Similarly, when the Fund has purchased an option and engages in a
closing sale transaction, whether the Fund realizes a profit or loss will
depend upon whether the amount received in the closing sale transaction is
more or less than the premium the Fund initially paid for the original option
plus the related transaction costs. So long as the obligation of the Fund as
the writer of an option continues, the Fund may be assigned an exercise notice
by the broker-dealer through which the option was sold, requiring the Fund to
deliver the underlying security against payment of the exercise price. This
obligation terminates when the option expires or the Fund effects a closing
purchase transaction. The Fund can no longer effect a closing purchase
transaction with respect to an option once it has been assigned an exercise
notice.
Although the Fund will generally purchase or write only those
options for which Counsellors believes there is an active secondary market so
as to facilitate closing transactions, there is no assurance that sufficient
trading interest will exist to create a liquid secondary market on a
securities exchange for any particular option or at any particular time, and
for some options no such secondary market may exist. A liquid secondary
market in an option may cease to exist for a variety of reasons. In the past,
for example, higher than
<PAGE>10
anticipated trading activity or order flow or other unforeseen events have at
times rendered certain of the facilities of the Clearing Corporation and
various securities exchanges inadequate and resulted in the institution of
special procedures, such as trading rotations, restrictions on certain types
of orders or trading halts or suspensions in one or more options. There can
be no assurance that similar events, or events that may otherwise interfere
with the timely execution of customers' orders, will not recur. In such
event, it might not be possible to effect closing transactions in particular
options. Moreover, the Fund's ability to terminate options positions
established in the over-the-counter market may be more limited than for
exchange-traded options and may also involve the risk that securities dealers
participating in over-the-counter transactions would fail to meet their
obligations to the Fund. The Fund, however, intends to purchase over-the-
counter options only from dealers whose debt securities, as determined by
Counsellors, are considered to be investment grade. If, as a covered call
option writer, the Fund is unable to effect a closing purchase transaction in
a secondary market, it will not be able to sell the underlying security until
the option expires or it delivers the underlying security upon exercise. In
either case, the Fund would continue to be at market risk on the security and
could face higher transaction costs, including brokerage commissions.
Options as a Hedge. In addition to writing covered options for
other purposes, the Fund may enter into options transactions as hedges to
reduce investment risk, generally by making an investment expected to move in
the opposite direction of a portfolio position. A hedge is designed to offset
a loss on a portfolio position with a gain on the hedged position; at the same
time, however, a properly correlated hedge will result in a gain on the
portfolio position being offset by a loss on the hedged position. The Fund
bears the risk that the prices of the securities being hedged will not move in
the same amount as the hedge. The Fund will engage in hedging transactions
only when deemed advisable by Counsellors. Successful use by the Fund of
options will be subject to Counsellors' ability to predict correctly movements
in the direction of the stock underlying the option used as a hedge. Losses
incurred in hedging transactions and the costs of these transactions will
affect the Fund's performance.
OTC Options. The Fund may purchase OTC or dealer options or sell
covered OTC options. Unlike exchange-listed options where an intermediary or
clearing corporation, such as the Clearing Corporation, assures that all
transactions in such options are properly executed, the responsibility for
performing all transactions with respect to OTC options rests solely with the
writer and the holder of those options. A listed call option writer, for
example, is obligated to deliver the underlying stock to the clearing
organization if the option is exercised, and the clearing corporation is then
obligated to pay the writer the exercise price of the option. If the Fund
were to purchase a dealer option, however, it would rely on the dealer from
whom it purchased the option to perform if the option were exercised. If the
dealer fails to honor the exercise of the option by the Fund, the Fund would
lose the premium it paid for the option and the expected benefit of the
transaction.
Listed options generally have a continuous liquid market while
dealer options have none. Consequently, the Fund will generally be able to
realize the value of a dealer
<PAGE>11
option it has purchased only by exercising it or reselling it to the dealer
who issued it. Similarly, when the Fund writes a dealer option, it generally
will be able to close out the option prior to its expiration only by entering
into a closing purchase transaction with the dealer to which the Fund
originally wrote the option. Although the Fund will seek to enter into dealer
options only with dealers who will agree to and that are expected to be
capable of entering into closing transactions with the Fund, there can be no
assurance that the Fund will be able to liquidate a dealer option at a
favorable price at any time prior to expiration. The inability to enter into
a closing transaction may result in material losses to the Fund. Until the
Fund, as a covered dealer call option writer, is able to effect a closing
purchase transaction, it will not be able to liquidate securities (or other
assets) used to cover the written option until the option expires or is
exercised. This requirement may impair the Fund's ability to sell portfolio
securities or currencies at a time when such sale might be advantageous. In
the event of insolvency of the other party, the Fund may be unable to
liquidate a dealer option.
Stock Index Options. The Fund may utilize up to 10% of its total
assets to purchase exchange-listed put and call options on stock indexes and
may write options on such indexes to hedge against the effects of market-wide
price movements. A stock index measures the movement of a certain group of
stocks by assigning relative values to the common stocks included in the
index, fluctuating with changes in the market values of the stocks included in
the index. Some stock index options are based on a broad market index such as
the New York Stock Exchange ("NYSE") Composite index, or a narrower market
index such as the Standard & Poor's 100. Indexes may also be based on a
particular industry or market segment.
Options on stock indexes are similar to options on stock except that
(i) the expiration cycles of stock index options are monthly, while those of
stock options are currently quarterly, and (ii) the delivery requirements are
different. Instead of giving the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive a cash "exercise settlement amount" equal to (a) the amount, if any,
by which the fixed exercise price of the option exceeds (in the case of a put)
or is less than (in the case of a call) the closing value of the underlying
index on the date of exercise, multiplied by (b) a fixed "index multiplier."
Receipt of this cash amount will depend upon the closing level of the stock
index upon which the option is based being greater than, in the case of a
call, or less than, in the case of a put, the exercise price of the index and
the exercise price of the option expressed in dollars times a specified
multiple. The writer of the option is obligated, in return for the premium
received, to make delivery of this amount. The writer may offset its position
in stock index options prior to expiration by entering into a closing
transaction on an exchange or it may let the option expire unexercised. The
aggregate value of the securities underlying the calls or puts on stock
indexes written by the Fund, determined as of the date the options are sold,
when added to the securities underlying the calls on securities written by the
Fund, may not exceed 25% of the Fund's net assets.
Stock Index Options as a Hedge. The effectiveness of purchasing or
writing stock index options as a hedging technique will depend upon the extent
to which price
<PAGE>12
movements in the portion of a securities portfolio being hedged correlate with
price movements of the stock index selected. Because the value of an index
option depends upon movements in the level of the index rather than the price
of a particular stock, whether the Fund will realize a gain or loss from the
purchase or writing of options on an index depends upon movements in the level
of stock prices in the stock market generally or, in the case of certain
indexes, in an industry or market segment, rather than movements in the price
of a particular stock. Accordingly, successful use by the Fund of options on
stock indexes will be subject to Counsellors' ability to predict correctly
movements in the direction of the stock market generally or of a particular
industry. This requires different skills and techniques than predicting
changes in the price of individual stocks, and there can be no assurance that
the use of any of these portfolio strategies will be successful.
Asset Coverage for Forward Contracts, Options, Futures and Options
on Futures. As described in the Prospectuses, the Fund will comply with
guidelines established by the SEC with respect to coverage of options written
by the Fund on securities and indexes and interest rate and index futures
contracts and options on these futures contracts. These guidelines may, in
certain instances, require segregation by the Fund of cash or liquid high-
grade debt securities or other securities that are acceptable as collateral to
the appropriate regulatory authority.
For example, a call option written by the Fund on securities may
require the Fund to hold the securities subject to the call (or securities
convertible into the securities without additional consideration) or to
segregate assets (as described above) sufficient to purchase and deliver the
securities if the call is exercised. A call option written by the Fund on an
index may require the Fund to own portfolio securities that correlate with the
index or to segregate assets (as described above) equal to the excess of the
index value over the exercise price on a current basis. The Fund could
purchase a put option if the strike price of that option is the same or higher
than the strike price of a put option sold by the Fund. If the Fund holds a
futures contract, the Fund could purchase a put option on the same futures
contract with a strike price as high or higher than the price of the contract
held. The Fund may enter into fully or partially offsetting transactions so
that its net position, coupled with any segregated assets (equal to any
remaining obligation), equals its net obligation. Asset coverage may be
achieved by other means when consistent with applicable regulatory policies.
American, European and Continental Depositary Receipts. The assets
of the Fund may be invested in the securities of foreign issuers in the form
of American Depositary Receipts ("ADRs") and European Depositary Receipts
("EDRs"). These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs are
receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. EDRs,
which are sometimes referred to as Continental Depositary Receipts ("CDRs"),
are receipts issued in Europe typically by non-U.S. banks and trust companies
that evidence ownership of either foreign or domestic securities. Generally,
ADRs in registered form are designed for use in
<PAGE>13
U.S. securities markets and EDRs and CDRs in bearer form are designed for use
in European securities markets.
Convertible Securities. Convertible securities in which the Fund
may invest, including both convertible debt and convertible preferred stock,
may be converted at either a stated price or stated rate into underlying
shares of common stock. Because of this feature, convertible securities
enable an investor to benefit from increases in the market price of the
underlying common stock. Convertible securities provide higher yields than
the underlying equity securities, but generally offer lower yields than non-
convertible securities of similar quality. Like bonds, the value of
convertible securities fluctuates in relation to changes in interest rates
and, in addition, also fluctuates in relation to the underlying common stock.
Warrants. The Fund may invest up to 5% of net assets in warrants
(valued at the lower of cost or market) (other than warrants acquired by the
Fund as part of a unit or attached to securities at the time of purchase),
provided that not more than 2% of net assets may be invested in warrants not
listed on a recognized U.S. or foreign stock exchange, to the extent permitted
by applicable state securities laws. Because a warrant does not carry with it
the right to dividends or voting rights with respect to the securities which
it entitles a holder to purchase, and because it does not represent any rights
in the assets of the issuer, warrants may be considered more speculative than
certain other types of investments. Also, the value of a warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to its expiration date.
Non-Publicly Traded and Illiquid Securities. The Fund may not
invest more than 10% of its total assets in securities that are illiquid by
virtue of the absence of a readily available market, repurchase agreements
which have a maturity of longer than seven days and time deposits maturing in
more than seven calendar days. Securities that have legal or contractual
restrictions on resale but have a readily available market are not considered
illiquid for purposes of this limitation. Repurchase agreements subject to
demand are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities subject
to contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
amount of these restricted or other illiquid securities because of the
potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional
<PAGE>14
expense and delay. Adverse market conditions could impede such a public
offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal restrictions on
resale to the general public or to certain institutions may not be indicative
of the liquidity of such investments.
Rule 144A adopted by the SEC allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to
the general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the Securities Act for resales of certain
securities to qualified institutional buyers. Counsellors anticipates that
the market for certain restricted securities such as institutional commercial
paper will expand further as a result of this regulation and use of automated
systems for the trading, clearance and settlement of unregistered securities
of domestic and foreign issuers, such as the PORTAL System sponsored by the
National Association of Securities Dealers, Inc.
Counsellors will monitor the liquidity of restricted securities in
the Fund under the supervision of the Board. In reaching liquidity decisions,
Counsellors may consider, inter alia, the following factors: (i) the
unregistered nature of the security; (ii) the frequency of trades and quotes
for the security; (iii) the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; (iv) dealer
undertakings to make a market in the security and (v) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer).
Borrowing. The Fund may borrow up to 10% of its total assets for
temporary or emergency purposes, including to meet portfolio redemption
requests so as to permit the orderly disposition of portfolio securities or to
facilitate settlement transactions on portfolio securities. Investments
(including roll-overs) will not be made when borrowings exceed 5% of the
Fund's total assets. Although the principal of such borrowings will be fixed,
the Fund's assets may change in value during the time the borrowing is
outstanding. The Fund expects that some of its borrowings may be made on a
secured basis. In such situations, either the custodian will segregate the
pledged assets for the benefit of the lender or arrangements will be made with
a suitable subcustodian, which may include the lender.
Other Investment Limitations
The investment limitations numbered 1 through 11 may not be changed
without the affirmative vote of the holders of a majority of the Fund's
outstanding shares. Such majority is defined as the lesser of (i) 67% or more
of the shares present at the meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or
<PAGE>15
represented by proxy, or (ii) more than 50% of the outstanding shares.
Investment limitations 12 through 16 may be changed by a vote of the Board at
any time.
The Fund may not:
1. Purchase the securities of any issuer if as a result more than
5% of the value of the Fund's total assets would be invested in the securities
of such issuer, except that this 5% limitation does not apply to U.S.
government securities and except that up to 25% of the value of the Fund's
total assets may be invested without regard to this 5% limitation.
2. Borrow money or issue senior securities except that the Fund may
(a) borrow from banks 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 total assets at the time of such borrowing and (b) enter into futures
contracts; or mortgage, pledge or hypothecate any assets except in connection
with any bank borrowing and in amounts not in excess of the lesser of the
dollar amounts borrowed or 10% of the value of the Fund's total assets at the
time of such borrowing. Whenever borrowings described in (a) exceed 5% of the
value of the Fund's total assets, the Fund will not make any additional
investments (including roll-overs). For purposes of this restriction, (a) the
deposit of assets in escrow in connection with the purchase of securities on a
when-issued or delayed-delivery basis and (b) collateral arrangements with
respect to initial or variation margin for futures contracts will not be
deemed to be pledges of the Fund's assets.
3. Purchase any securities which would cause 25% or more of the
value of the Fund's total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the
same industry; provided that there shall be no limit on the purchase of U.S.
government securities.
4. Make loans, except that the Fund may purchase or hold publicly
distributed fixed-income securities, lend portfolio securities and enter into
repurchase agreements.
5. Underwrite any issue of securities except to the extent that the
investment in restricted securities and the purchase of fixed-income
securities 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 (a) fixed-income securities secured by real estate, mortgages or interests
therein, (b) securities of companies that invest in or sponsor oil, gas or
mineral exploration or development programs and (c) futures contracts and
related options.
7. Make short sales of securities or maintain a short position.
<PAGE>16
8. Purchase, write or sell puts, calls, straddles, spreads or
combinations thereof, except that the Fund may (a) purchase put and call
options on securities, (b) write covered call options on securities, (c)
purchase and write put and call options on stock indices and (d) enter into
options on futures contracts.
9. Purchase securities of other investment companies except in
connection with a merger, consolidation, acquisition, reorganization or offer
of exchange or as otherwise permitted under the 1940 Act.
10. Purchase more than 10% of the voting securities of any one
issuer, more than 10% of the securities of any class of any one issuer or more
than 10% of the outstanding debt securities of any one issuer; provided that
this limitation shall not apply to investments in U.S. government securities.
11. Purchase securities on margin, except that the Fund may obtain
any short-term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with futures contracts or related
options will not be deemed to be a purchase of securities on margin.
12. 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 no readily available market
quotations. For purposes of this limitation, (a) repurchase agreements with
maturities greater than seven days and (b) time deposits maturing in more than
seven calendar days shall be considered illiquid securities.
13. Purchase any security if as a result the Fund would then have
more than 5% of its total assets invested in securities of companies
(including predecessors) that have been in continuous operation for fewer than
three years.
14. Purchase or retain securities of any company if, to the
knowledge of the Fund, any of the Fund's officers or Trustees or any officer
or director of Counsellors individually owns more than 1/2 of 1% of the
outstanding securities of such company and together they own beneficially more
than 5% of the securities.
15. Invest in warrants (other than warrants acquired by the Fund as
part of a unit or attached to securities at the time of purchase) if, as a
result, the investments (valued at the lower of cost or market) would exceed
5% of the value of the Fund's net assets of which not more than 2% of the
Fund's net assets may be invested in warrants not listed on a recognized U.S.
or foreign stock exchange to the extent permitted by applicable state
securities laws.
16. Invest in oil, gas or mineral leases.
<PAGE>17
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
interest of the Fund and its shareholders, the Fund will revoke the commitment
by terminating the sale of Fund shares in the state involved. If a percentage
restriction is adhered to at the time of an investment, a later increase or
decrease in the percentage of assets resulting from a change in the values of
portfolio securities or in the amount of the Fund's assets will not constitute
a violation of such restriction.
Portfolio Valuation
The Prospectuses discuss the time at which the net asset value of
the Fund is determined for purposes of sales and redemptions. The following
is a description of the procedures used by the Fund in valuing its assets.
Securities listed on a U.S. securities exchange (including
securities traded through the NASDAQ National Market System) or on a foreign
securities exchange will be valued on the basis of the closing value on the
date on which the valuation is made or, in the absence of sales, at the mean
between the closing bid and asked prices. Other U.S. over-the-counter
securities, foreign over-the-counter securities and securities listed or
traded on certain foreign stock exchanges whose operations are similar to the
U.S. over-the-counter market will be valued on the basis of the bid price at
the close of business on each day, or, if market quotations for those
securities are not readily available, at fair value, as determined in good
faith pursuant to consistently applied procedures established by the Board. A
security which is listed or traded on more than one exchange is valued at the
quotation on the exchange determined to be the primary market for such
security. In determining the market value of portfolio investments, the Fund
may employ outside organizations (a "Pricing Service") which may use a matrix
or formula method that takes into consideration market indexes, matrices,
yield curves and other specific adjustments. The procedures of Pricing
Services are reviewed periodically by the officers of the Fund under the
general supervision and responsibility of the Board, which may replace any
such Pricing Service at any time. Short-term obligations with maturities of
60 days or less are valued at amortized cost, which constitutes fair value as
determined by the Board. The amortized cost method of valuation may also be
used with respect to debt obligations with 60 days or less remaining to
maturity. All other securities and other assets of the Fund will be valued at
their fair value as determined in good faith pursuant to consistently applied
procedures established by the Board. In addition, the Board or its delegates
may value a security at fair value if it determines that such security's value
determined by the methodology set forth above does not reflect its fair value.
Trading in securities in certain foreign countries is completed at
various times prior to the close of business on each business day in New York
(i.e., a day on which the New York Stock Exchange (the "NYSE") is open for
trading). In addition, securities trading in a particular country or
countries may not take place on all business days in New York. Furthermore,
trading takes place in various foreign markets on days which are not business
<PAGE>18
days in New York and days on which the Fund's net asset value is not
calculated. Calculation of the Fund's net asset value may not take place
contemporaneously with the determination of the prices of certain foreign
portfolio securities used in such calculation. All assets and liabilities
initially expressed in foreign currency values will be converted into U.S.
dollar values at the prevailing rate as quoted by a Pricing Service. If such
quotations are not available, the rate of exchange will be determined in good
faith pursuant to consistently applied procedures established by the Board.
Events affecting the values of portfolio securities that occur between the
time their prices are determined and the close of regular trading on the NYSE
will not be reflected in the Fund's calculation of net asset value unless the
Board or its delegates deems that the particular event would materially affect
net asset value, in which case an adjustment may be made.
Portfolio Transactions
Counsellors is responsible for establishing, reviewing and, where
necessary, modifying the Fund's investment program to achieve its investment
objective. Purchases and sales of newly issued portfolio securities are
usually principal transactions without brokerage commissions effected directly
with the issuer or with an underwriter acting as principal. Other purchases
and sales may be effected on a securities exchange or over-the-counter,
depending on where it appears that the best price or execution will be
obtained. The purchase price paid by the Fund to underwriters of newly issued
securities usually includes a concession paid by the issuer to the
underwriter, and purchases of securities from dealers, acting as either
principals or agents in the after market, are normally executed at a price
between the bid and asked price, which includes a dealer's mark-up or
mark-down. Transactions on U.S. stock exchanges and some foreign stock
exchanges involve the payment of negotiated brokerage commissions. On
exchanges on which commissions are negotiated, the cost of transactions may
vary among different brokers. On most foreign exchanges, commissions are
generally fixed. There is generally no stated commission in the case of
securities traded in domestic or foreign over-the-counter markets, but the
price of securities traded in over-the-counter markets includes an undisclosed
commission or mark-up. U.S. government securities are generally purchased
from underwriters or dealers, although certain newly issued U.S. government
securities may be purchased directly from the U.S. Treasury or from the
issuing agency or instrumentality.
Counsellors will select specific portfolio investments and effect
transactions for the Fund. Counsellors seeks to obtain the best net price and
the most favorable execution of orders. In evaluating prices and executions,
Counsellors will consider the factors it deems relevant, which may include the
breadth of the market in the security, the price of the security, the
financial condition and execution capability of a broker or dealer and the
reasonableness of the commission, if any, for the specific transaction and on
a continuing basis. In addition, to the extent that the execution and price
offered by more than one broker or dealer are comparable, Counsellors may, in
its discretion, effect transactions in portfolio securities with dealers who
provide brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934, as amended) to the Fund and/or
other accounts over which Counsellors exercises investment discretion.
Research and
<PAGE>19
other services received may be useful to Counsellors in serving both the Fund
and its other clients and, conversely, research or other services obtained by
the placement of business of other clients may be useful to Counsellors in
carrying out its obligations to the Fund. The fee to Counsellors under its
advisory agreement with the Fund is not reduced by reason of its receiving any
brokerage and research services.
Investment decisions for the Fund concerning specific portfolio
securities are made independently from those for other clients advised by
Counsellors. 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 Counsellors believes to be equitable to each client, including
the Fund. In some instances, this investment procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained or
sold for the Fund. To the extent permitted by law, Counsellors may aggregate
the securities to be sold or purchased for the Fund with those to be sold or
purchased for such other investment clients in order to obtain best execution.
Any portfolio transaction for the Fund may be executed through
Counsellors Securities Inc., the Fund's distributor ("Counsellors
Securities"), if, in Counsellors' judgment, the use of Counsellors Securities
is likely to result in price and execution at least as favorable as those of
other qualified brokers, and if, in the transaction, Counsellors Securities
charges the Fund a commission rate consistent with those charged by Counsel-
lors Securities to comparable unaffiliated customers in similar transactions.
All transactions with affiliated brokers will comply with Rule 17e-1 under the
1940 Act.
During the fiscal years ending October 31, 1992, October 31, 1993
and October 31, 1994, the Fund paid an aggregate of approximately $248,862,
$210,697 and $243,640, respectively, in commissions to broker-dealers for
execution of portfolio transactions. No portfolio transactions have been
executed through Counsellors Securities since the commencement of the Fund's
operations.
In no instance will portfolio securities be purchased from or sold
to Counsellors or Counsellors Securities or any affiliated person of such
companies. In addition, the Fund will not give preference to any institutions
with whom the Fund enters into distribution or shareholder servicing
agreements ("Agreements") concerning the provision of distribution services or
support services to customers ("Customers") who beneficially own the Fund's
Common Stock, $.001 per share, designated Common Stock-Series 1 (the "Series 1
Shares") or Common Stock-Series 2 (the "Advisor Shares"). See the
Prospectuses, "Shareholder Servicing."
The Fund's transactions in foreign securities may be effected on
foreign securities exchanges. In transactions for securities not actively
traded on a foreign securities exchange, the Fund will deal directly with the
dealers who make a market in the securities involved, except in those
circumstances where better prices and execution are available
<PAGE>20
elsewhere. Such dealers usually are acting as principal for their own
account. On occasion, securities may be purchased directly from the issuer.
Such portfolio securities are generally traded on a net basis and do not
normally involve brokerage commissions. Securities firms may receive
brokerage commissions on certain portfolio transactions, including options,
futures and options on futures transactions and the purchase and sale of
underlying securities upon exercise of options.
The Fund may participate, if and when practicable, in bidding for
the purchase of securities for the Fund's portfolio directly from an issuer in
order to take advantage of the lower purchase price available to members of
such a group. The Fund will engage in this practice, however, only when
Counsellors, in its sole discretion, believes such practice to be otherwise in
the Fund's interest.
Portfolio Turnover
The Fund does not intend to seek profits through short-term trading,
but the rate of turnover will not be a limiting factor when the Fund deems it
desirable to sell or purchase securities. The Fund's portfolio turnover rate
is calculated by dividing the lesser of purchases or sales of its portfolio
securities for the year by the monthly average value of the portfolio
securities. Securities with remaining maturities of one year or less at the
date of acquisition are excluded from the calculation.
Certain practices that may be employed by the Fund could result in
high portfolio turnover. For example, options on securities may be sold in
anticipation of a decline in the price of the underlying security (market
decline) or purchased in anticipation of a rise in the price of the underlying
security (market rise) and later sold.
MANAGEMENT OF THE FUND
Officers and Board of Trustees
The names (and ages) of the Fund's Trustees and officers, their
addresses, present positions and principal occupations during the past five
years and other affiliations are set forth below.
Richard N. Cooper (61) . . . Trustee
Room 7E47OHB National Intelligence Counsel;
Central Intelligence Agency Professor at Harvard University;
930 Dolly Madison Blvd. Director or Trustee of CNA Financial
McClain, Virginia 22107 Corporation, Circuit City Stores, Inc.
(retail electronics and appliances) and
Phoenix Home Life Insurance Co.
<PAGE>21
Donald J. Donahue (71) . . . Trustee
99 Indian Field Road Chairman of Magma Copper Company
Greenwich, Connecticut 06830 since January 1987; Director or Trustee of GEV
Corporation and Signet Star Reinsurance
Company; Chairman and Director of NAC Holdings
from September 1990-June 1993.
Jack W. Fritz (68) . . . . . Trustee
2425 North Fish Creek Road Private investor; Consultant and
P.O. Box 483 Director of Fritz Broadcasting, Inc. and
Wilson, Wyoming 83014 Fritz Communications (developers and operators
of radio stations); Director of Advo, Inc.
(direct mail advertising).
John L. Furth* (64) . . . . . Chairman of the Board
466 Lexington Avenue Vice Chairman and Director of EMW;
New York, New York 10017-3147 Associated with EMW since 1970; Chairman of
the Board of 15 other investment companies
advised by Counsellors; President of one other
investment company advised by Counsellors.
Thomas A. Melfe (63) . . . . Trustee
30 Rockefeller Plaza Partner in the law firm of
New York, New York 10112 Donovan Leisure Newton & Irvine; Director of
Municipal Fund for New York Investors, Inc.
Alexander B. Trowbridge (66) Trustee
1155 Connecticut Avenue, N.W. President of Trowbridge Partners, Inc.
Suite 700 (business consulting) from January 1990-
Washington, DC 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 and real estate management), Harris
Corp. (electronics and communications
equipment), The Gillette Co. (personal care
products) and Sun Company Inc. (petroleum
refining and marketing).
- ------------------------
* Indicates a Trustee who is an "interested person" of the Fund as defined
in the 1940 Act.
<PAGE>22
George U. Wyper (39) . . . . Co-President and Co-Portfolio
466 Lexington Avenue Manager of the Fund
New York, NY 10017-3147 Managing Director of Counsellors; Associated
with Counsellors since 1994; Chief Investment
Officer of White River Corporation from 1993-
1994; President and Chief Executive Officer of
Hanover Advisors from 1993-1994; Chief
Investment Officer of Fund American
Enterprises from 1990-1993; Director of Fixed
Income Investments of Fireman's Fund Insurance
Company from 1987-1990.
Susan L. Black (55) . . . . . Co-President and Co-Portfolio Manager
466 Lexington Avenue of the Fund
New York, New York 10017-3147 Managing Director of EMW; Associated with EMW
since 1985.
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 15 other
investment companies advised by Counsellors.
Eugene L. Podsiadlo (38) . . Senior Vice President
466 Lexington Avenue Managing Director of EMW; Associated with
New York, New York 10017-3147 EMW since 1991; Vice President of Citibank,
N.A. from 1987-1991; Senior Vice President of
Counsellors Securities and 15 other investment
companies advised by Counsellors.
Eugene P. Grace (44) . . . . 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 15 other
investment companies advised by Counsellors.
<PAGE>23
Stephen Distler (42) . . . . Vice President and
466 Lexington Avenue Chief Financial Officer
New York, New York 10017-3147 Assistant Secretary of EMW; Associated with
EMW since 1984; Treasurer of Counsellors
Securities; Vice President, Treasurer and
Chief Accounting Officer or Vice President and
Chief Financial Officer of 15 other investment
companies advised by Counsellors.
Howard Conroy (41) . . . . . Vice President, Treasurer
466 Lexington Avenue and Chief 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 14
other investment companies advised by
Counsellors.
Karen Amato (31) . . . . . . Assistant Secretary
466 Lexington Avenue Associated with EMW since 1987;
New York, New York 10017-3147 Assistant Secretary of 15 other investment
companies advised by Counsellors.
No employee of Counsellors or PFPC Inc., the Fund's co-administrator
("PFPC"), or any of their affiliates receives any compensation from the Fund
for acting as an officer or trustee of the Fund. Each Trustee who is not a
director, trustee, officer or employee of Counsellors, PFPC or any of their
affiliates receives an annual fee of $1,000, and $250 for each meeting of the
Board attended by him for his services as Trustee and is reimbursed for
expenses incurred in connection with his attendance at Board meetings.
<PAGE>24
Trustees' Compensation
(for the fiscal year ended October 31, 1994)
<TABLE>
<CAPTION>
Total Total Compensation from
Compensation from all Investment Companies
Name of Trustee Fund Managed by Counsellors*
--------------- ----------------- ------------------------
<S> <C> <C>
John L. Furth None** None**
Richard N. Cooper $2,000 $36,500
Donald J. Donahue $2,000 $36,500
Jack W. Fritz $2,000 $36,500
Thomas A. Melfe $2,000 $36,500
Alexander B. Trowbridge $2,000 $36,500
</TABLE>
- ------------------------
* Each Trustee serves as a Director or Trustee of 15 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,
accordingly, receives no compensation from the Fund or any other
investment company managed by Counsellors.
Mr. George U. Wyper is co-president and co-portfolio manager of the
Fund. From 1987 until 1990 Mr. Wyper was the director of fixed income
investments at Fireman's Fund Insurance Company, and from 1990 until 1993 he
was chief investment officer of Fund American Enterprises, Inc. Mr. Wyper was
chief investment officer of White River Corporation and president of Hanover
Advisers, Inc. from 1993 until he joined Counsellors in August 1994 as a
managing director of EMW. Mr. Wyper earned a B.S. degree in economics from
the Wharton School of Business of the University of Pennsylvania and a Masters
of Management from Yale University.
Ms. Susan L. Black is co-president and co-portfolio manager of the Fund
and is currently a managing director of EMW as well as the director of
research and a senior portfolio manager of the Institutional Growth Equity
product. From 1961 until 1973, Ms. Black was employed by Argus Research,
first as a securities analyst, then as Director of Research. From 1973 until
1977 and from 1978 until 1979 Ms. Black was a Vice President of Research at
Drexel Burnham Lambert. From 1977 until 1978 Ms. Black was a Vice President
of Research at Donaldson, Lufkin & Jenrette. From 1979 until 1985 Ms. Black
was a partner at Century Capital Associates. Ms. Black joined EMW in 1985.
Ms. Black received a B.A. degree from Mount Holyoke College.
As of August 31, 1995, Trustees and officers of the Fund as a group
owned of record 21,495 of the Fund's outstanding Common Shares. As of the
same date, Mr. Furth may be deemed to have beneficially owned 80.56% of the
Fund's outstanding Common Shares, including shares owned by clients for which
Counsellors has investment discretion.
<PAGE>25
Mr. Furth disclaims ownership of these shares and does not intend to exercise
voting rights with respect to these shares. No Trustee or officer owned of
record any Advisor Shares.
Investment Adviser and Co-Administrators
Counsellors serves as investment adviser to the Fund, Counsellors Funds
Service, Inc. ("Counsellors Service") serves as a co-administrator to the Fund
and PFPC serves as a co-administrator to the Fund pursuant to separate written
agreements (the "Advisory Agreement," the "Counsellors Service Co-
Administration Agreement" and the "PFPC Co-Administration Agreement,"
respectively). The services provided by, and the fees payable by the Fund to,
Counsellors under the Advisory Agreement, Counsellors Service under the
Counsellors Service Co-Administration Agreement and PFPC under the PFPC
Co-Administration Agreement are described in the Prospectuses. Each class of
shares of the Fund bears its proportionate share of fees payable to
Counsellors, Counsellors Service and PFPC in the proportion that its assets
bear to the aggregate assets of the Fund at the time of calculation. Prior to
March 1, 1994, PFPC served as administrator to the fund and Counsellors
Service served as administrative services agent to the Fund pursuant to
separate written agreements.
Counsellors agrees 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, it will reimburse the Fund to the extent
required by such regulations. Unless otherwise required by law, such
reimbursement would be accrued and paid on a monthly basis. At the date of
this Statement of Additional Information, the most restrictive annual expense
limitation applicable to the Fund is 2.5% of the first $30 million of the
average net assets of the Fund, 2% of the next $70 million of the average net
assets of the Fund and 1.5% of the remaining average net assets of the Fund.
The advisory fee payable by the Fund is calculated at an annual rate
based on a percentage of the Fund's average daily net assets. See the
Prospectuses, "Management of the Fund." During the fiscal year ending October
31, 1992, Counsellors voluntarily waived $5,692 of the $831,104 in investment
advisory fees earned under the Advisory Agreement. During the fiscal year
ending October 31, 1993, Counsellors received $1,004,938, the full amount due
it under the Advisory Agreement. During the fiscal year ending October 31,
1994, Counsellors voluntarily waived $11,179 of the $1,172,857 in investment
advisory fees earned under the Advisory Agreement. During the fiscal years
ending October 31, 1992, October 31, 1993 and October 31, 1994, PFPC earned
$118,933, $143,562 and $167,551, respectively, in administration or, in the
case of the most recent fiscal year, co-administration fees. During the
fiscal years ending October 31, 1992, October 31, 1993 and October 31, 1994,
Counsellors Service earned $64,001, $77,440 and $133,255, respectively, in
administrative services fees or, in the case of the most recent fiscal year,
co-administration fees.
<PAGE>26
Organization of the Fund
The Fund has been organized as an unincorporated business trust under
the laws of the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust dated January 20, 1987, as amended from time to time (the
"Trust Agreement"). On February 26, 1992 the Fund amended the Trust Agreement
to change the name of the Fund from "Counsellors Capital Appreciation Fund" to
"Warburg, Pincus Capital Appreciation Fund." The Trust Agreement authorizes
the Board to issue three billion full and fractional shares of common stock,
$.001 par value per share. Common Stock ("Common Shares"), Common Stock-
Series 1 and Advisor Shares have been authorized by the Trust Agreement,
although only Common Shares and Advisor Shares have been issued by the Fund.
When matters are submitted for shareholder vote, each shareholder will have
one vote for each share owned and proportionate, fractional votes for
fractional shares held. Shareholders generally vote in the aggregate, except
with respect to (i) matters affecting only the shares of a particular class,
in which case only the shares of the affected class would be entitled to vote,
or (ii) when the 1940 Act requires that shares of the classes be voted
separately. There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a
majority of the Trustees holding office have been elected by shareholders.
The Trustees will call a meeting for any purpose when requested to do so in
writing by shareholders of record of not less than 10% of the Fund's
outstanding shares.
Massachusetts law provides that shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Trust Agreement disclaims shareholder liability for acts or
obligations of the Fund and requires that notice of such disclaimer be given
in each agreement, obligation or instrument entered into or executed by the
Fund or a Trustee. The Trust Agreement provides for indemnification from the
Fund's property for all losses and expenses of any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund would be unable to meet its obligations, a
possibility that Counsellors believes is remote and immaterial. Upon payment
of any liability incurred by the Fund, the shareholder paying the liability
will be entitled to reimbursement from the general assets of the Fund. The
Trustees intend to conduct the operations of the Fund in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Fund.
All shareholders of the Fund in each class, upon liquidation, will
participate ratably in the Fund's net assets. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Trustees can elect all Trustees. Shares are transferable
but have no preemptive, conversion or subscription rights.
Custodian and Transfer Agent
PNC Bank, National Association ("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)
<PAGE>27
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 custodial arrangements. 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") serves as the
shareholder servicing, transfer and dividend disbursing agent of the Fund
pursuant to a Transfer Agency and Service Agreement, under which State Street
(i) issues and redeems shares of the Fund, (ii) addresses and mails all
communications by the Fund to record owners of Fund shares, including reports
to shareholders, dividend and distribution notices and proxy material for its
meetings of shareholders, (iii) maintains shareholder accounts and, if
requested, sub-accounts and (iv) makes periodic reports to the Board
concerning the transfer agent's operations with respect to the Fund. The
principal business address of State Street is 225 Franklin Street, Boston,
Massachusetts 02110. State Street has delegated to Boston Financial Data
Services, Inc., a 50% owned subsidiary ("BFDS"), responsibility for most
shareholder servicing functions. BFDS's principal business address is 2
Heritage Drive, Boston, Massachusetts 02171.
Distribution and Shareholder Servicing
The Fund has entered into a distribution agreement with an institution
(the "Service Organization") pursuant to which support services are provided
to the holders of Advisor Shares in consideration of the Fund's payment, out
of the assets attributable to the Advisor Shares, of .50%, on an annualized
basis (a .25% annual service fee and a .25% annual distribution fee), of the
average daily net assets of the Advisor Shares held of record. See the
Advisor Shares Prospectus, "Shareholder Servicing." The Fund's Advisor Shares
paid the Service Organization $53,002 in such fees for the year ending October
31, 1994. The Fund may, in the future, enter into additional Agreements with
institutions ("Institutions") to perform certain distribution, shareholder
servicing, administrative and accounting services for their Customers who are
beneficial owners of Advisor Shares. See the Prospectuses, "Shareholder
Servicing." The Fund's Agreements with Institutions with respect to Advisor
Shares will be governed by a distribution plan (the "Distribution Plan"). The
Distribution Plan requires the Board, at least quarterly, to receive and
review written reports of amounts expended under the Distribution Plan and the
purposes for which such expenditures were made.
An Institution with which the Fund has entered into an Agreement with
respect to its Advisor Shares may charge a Customer one or more of the
following types of fees, as agreed upon by the Institution and the Customer,
with respect to the cash management or other services provided by the
Institution: (i) account fees (a fixed amount per month or per
<PAGE>28
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 arrangements. A
Customer of an Institution should read the relevant 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 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 will continue in effect for so long as its
continuance is specifically approved at least annually by the Board, including
a majority of the Trustees who are not interested persons of the Fund and who
have no direct or indirect financial interest in the operation of the
Distribution Plan ("Independent Trustees"). Any material amendment of the
Distribution Plan would require the approval of the Board in the manner
described above. The Distribution Plan may not be amended to increase
materially the amount to be spent under it without shareholder approval of the
Advisor Shares. The Distribution Plan may be terminated at any time, without
penalty, by vote of a majority of the Independent Trustees or by a vote of a
majority of the outstanding voting securities of the Advisor Shares of the
Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of the Fund's shares is equal to the per share net
asset value of the relevant class of shares of the Fund. Information on how
to purchase and redeem Fund shares and how such shares are priced is included
in the Prospectuses under "Net Asset Value."
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed, other than customary weekend and holiday closings, or during
which trading on the NYSE is restricted, or during which (as determined by the
SEC) an emergency exists as a result of which disposal or fair valuation of
portfolio securities is not reasonably practicable, or for such other periods
as the SEC may permit. (The Fund may also suspend or postpone the recordation
of an exchange of its shares upon the occurrence of any of the foregoing
conditions.)
If the Board determines that conditions exist which make payment of
redemption proceeds wholly in cash unwise or undesirable, the Fund may make
payment wholly or partly in securities or other 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
<PAGE>29
proceeds. The Fund intends to comply with Rule 18f-1 promulgated under the
1940 Act with respect to redemptions in kind.
Automatic Cash Withdrawal Plan. An automatic cash withdrawal plan (the
"Plan") is available to shareholders who wish to receive specific amounts of
cash periodically. Withdrawals may be made under the Plan by redeeming as
many shares of the Fund as may be necessary to cover the stipulated withdrawal
payment. To the extent that withdrawals exceed dividends, distributions and
appreciation of a shareholder's investment in the Fund, there will be a
reduction in the value of the shareholder's investment and continued
withdrawal payments may reduce the shareholder's investment and ultimately
exhaust it. Withdrawal payments should not be considered as income from
investment in the Fund. 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 by holders of Common Shares currently are the Common Shares of Warburg
Pincus Cash Reserve Fund, Warburg Pincus New York Tax Exempt 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 Emerging Growth Fund, Warburg Pincus Post-Venture Capital Fund, Warburg
Pincus International Equity Fund, Warburg Pincus Emerging Markets Fund and
Warburg Pincus Japan OTC Fund. Common Shareholders of the Fund may exchange
all or part of their shares for Common Shares of these 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. Exchanges of Advisor Shares
may currently be made with Advisor Shares of Warburg Pincus Balanced Fund,
Warburg Pincus Emerging Growth Fund, Warburg Pincus International Equity Fund,
Fund and Warburg Pincus Growth & Income Fund at their relative net asset
values at time of the exchange.
The exchange privilege enables shareholders to acquire shares in a fund
with a different investment objective when they believe that a shift between
funds is an appropriate investment decision. This privilege is available to
shareholders residing in any state in which the Common Shares or Advisor
Shares being acquired, as relevant, may legally be sold. Prior to any
exchange, the investor should obtain and review a copy of the current
prospectus of the relevant class of each fund into which an exchange is being
considered. Shareholders may obtain a prospectus of the relevant class of the
fund into which they are contemplating an exchange from Counsellors
Securities.
Upon receipt of proper instructions and all necessary supporting
documents, shares submitted for exchange are redeemed at the then-current net
asset value of the relevant class
<PAGE>30
and the proceeds are invested on the same day, at a price as described above,
in shares of the relevant class of the fund being acquired. 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.
ADDITIONAL INFORMATION CONCERNING TAXES
The discussion set out below of tax considerations generally affecting
the Fund and its shareholders is intended to be only a summary and is not
intended as a substitute for careful tax planning by prospective shareholders.
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Fund.
The Fund has qualified and intends to continue to qualify each year as
a "regulated investment company" under Subchapter M of the Code. If it
qualifies as a regulated investment company, the Fund will pay no federal
income taxes on its taxable net investment income (that is, taxable income
other than net realized capital gains) and its net realized capital gains that
are distributed to shareholders. To qualify under Subchapter M, the Fund
must, among other things: (i) distribute to its shareholders at least 90% of
its taxable net investment income (for this purpose consisting of taxable net
investment income and net realized short-term capital gains); (ii) derive at
least 90% of its gross income from dividends, interest, payments with respect
to loans of securities, gains from the sale or other disposition of
securities, or other income (including, but not limited to, gains from
options, futures, and forward contracts) derived with respect to the Fund's
business of investing in securities; (iii) derive less than 30% of its annual
gross income from the sale or other disposition of securities, options,
futures or forward contracts held for less than three months; and
(iv) diversify its holdings so that, at the end of each fiscal quarter of the
Fund (a) at least 50% of the market value of the Fund's assets is represented
by cash, U.S. government securities and other securities, with those other
securities limited, with respect to any one issuer, to an amount no greater in
value than 5% of the Fund's total assets and to not more than 10% of the
outstanding voting securities of the issuer, and (b) not more than 25% of the
market value of the Fund's assets is invested in the securities of any one
issuer (other than U.S. government securities or securities of other regulated
investment companies) or of two or more issuers that the Fund controls and
that are determined to be in the same or similar trades or businesses or
related trades or businesses. In meeting these requirements, the Fund may be
restricted in the selling of securities held by the Fund for less than three
months and in the utilization of certain of the investment techniques
described above and in the Fund's Prospectuses. As a regulated investment
company, the Fund will be subject to a 4% non-deductible excise tax measured
with respect to certain undistributed amounts of ordinary income and capital
gain required to be but not distributed under a prescribed formula. The
formula requires payment to shareholders during a calendar year of
distributions representing at least 98% of the Fund's taxable ordinary income
for the calendar year and at least 98% of the excess of its capital gains over
capital losses realized during the one-year period ending October 31 during
such year, together with any undistributed, untaxed amounts of ordinary
<PAGE>31
income and capital gains from the previous calendar year. The Fund expects to
pay the dividends and make the distributions necessary to avoid the
application of this excise tax.
The Fund's transactions, if any, in foreign currencies, forward
contracts, options and futures contracts (including options and forward
contracts on foreign currencies) will be subject to special provisions of the
Code that, among other things, may affect the character of gains and losses
recognized by the Fund (i.e., may affect whether gains or losses are ordinary
or capital), accelerate recognition of income to the Fund, defer Fund losses
and cause the Fund to be subject to hyperinflationary currency rules. These
rules could therefore affect the character, amount and timing of distributions
to shareholders. These provisions also (i) will require the Fund to
mark-to-market certain types of its positions (i.e., treat them as if they
were closed out) and (ii) may cause the Fund to recognize income without
receiving cash with which to pay dividends or make distributions in amounts
necessary to satisfy the distribution requirements for avoiding income and
excise taxes. The Fund will monitor its transactions, will make the
appropriate tax elections and will make the appropriate entries in its books
and records when it acquires any foreign currency, forward contract, option,
futures contract or hedged investment so that (a) neither the Fund nor its
shareholders will be treated as receiving a materially greater amount of
capital gains or distributions than actually realized or received, (b) the
Fund will be able to use substantially all of its losses for the fiscal years
in which the losses actually occur and (c) the Fund will continue to qualify
as a regulated investment company.
A shareholder of the Fund receiving dividends or distributions in
additional shares should be treated for federal income tax purposes as
receiving a distribution in an amount equal to the amount of money that a
shareholder receiving cash dividends or distributions receives, and should
have a cost basis in the shares received equal to that amount.
Investors considering buying shares just prior to a dividend or capital
gain distribution should be aware that, although the price of shares purchased
at that time may reflect the amount of the forthcoming distribution, those who
purchase just prior to a distribution will receive a distribution that will
nevertheless be taxable to them. Upon the sale or exchange of shares, a
shareholder will realize a taxable gain or loss depending upon the amount
realized and the basis in the shares. Such gain or loss will be treated as
capital gain or loss if the shares are capital assets in the shareholder's
hands, and, as described above, will be long-term or short-term depending upon
the shareholder's holding period for the shares. Any loss realized on a sale
or exchange will be disallowed to the extent the shares disposed of are
replaced, including replacement through the reinvestment of dividends and
capital gains distributions in the Fund, within a period of 61 days beginning
30 days before and ending 30 days after the disposition of the shares. In
such a case, the basis of the shares acquired will be increased to reflect the
disallowed loss.
Each shareholder will receive an annual statement as to the federal
income tax status of his dividends and distributions from the Fund for the
prior calendar year. Furthermore, shareholders will also receive, if
appropriate, various written notices after the close of the Fund's taxable
year regarding the federal income tax status of certain dividends
<PAGE>32
and distributions that were paid (or that are treated as having been paid) by
the Fund to its shareholders during the preceding year.
If a shareholder fails to furnish a correct taxpayer identification
number, fails to report fully dividend or interest income, or fails to certify
that he has provided a correct taxpayer identification number and that he is
not subject to "backup withholding," the shareholder may be subject to a 31%
"backup withholding" tax with respect to (i) taxable dividends and dis-
tributions and (ii) the proceeds of any sales or repurchases of shares of the
Fund. An individual's taxpayer identification number is his social security
number. Corporate shareholders and other shareholders specified in the Code
are or may be exempt from backup withholding. The backup withholding tax is
not an additional tax and may be credited against a taxpayer's federal income
tax liability. Dividends and distributions also may be subject to state and
local taxes depending on each shareholder's particular situation.
Investment in Passive Foreign Investment Companies
If the Fund purchases shares in certain foreign entities classified
under the Code as "passive foreign investment companies" ("PFICs"), the Fund
may be subject to federal income tax on a portion of an "excess distribution"
or gain from the disposition of the shares, even though the income may have to
be distributed as a taxable dividend by the Fund to its shareholders. In
addition, gain on the disposition of shares in a PFIC generally is treated as
ordinary income even though the shares are capital assets in the hands of the
Fund. Certain interest charges may be imposed on either the Fund or its
shareholders with respect to any taxes arising from excess distributions or
gains on the disposition of shares in a PFIC.
The Fund may be eligible to elect to include in its gross income its
share of earnings of a PFIC on a current basis. Generally, the election would
eliminate the interest charge and the ordinary income treatment on the
disposition of stock, but such an election may have the effect of accelerating
the recognition of income and gains by the Fund compared to a fund that did
not make the election. In addition, information required to make such an
election may not be available to the Fund.
On April 1, 1992 proposed regulations of the Internal Revenue Service
(the "IRS") were published providing a mark-to-market election for regulated
investment companies. The IRS subsequently issued a notice indicating that
final regulations will provide that regulated investment companies may elect
the mark-to-market election for tax years ending after March 31, 1992 and
before April 1, 1993. Whether and to what extent the notice will apply to
taxable years of the Fund is unclear. If the Fund is not able to make the
foregoing election, it may be able to avoid the interest charge (but not the
ordinary income treatment) on disposition of the stock by electing, under
proposed regulations, each year to mark-to-market the stock (that is, treat it
as if it were sold for fair market value). Such an election could result in
acceleration of income to the Fund.
<PAGE>33
DETERMINATION OF PERFORMANCE
From time to time, the Fund may quote the total return of its Common
Shares and/or Advisor Shares in advertisements or in reports and other
communications to shareholders. With respect to the Fund's Common Shares, the
Fund's average annual total return for the six-month period ended April 30,
1995 was 13.26%, the average annual total return for the one-year period
ending October 31, 1994 was 1.65%, the average annual total return for the
five-year period commencing October 31, 1989 and ending October 31, 1994 was
9.27% (8.06% without waivers) and the average annual total return for the
period commencing August 12, 1987 (commencement of operations) and ending
October 31, 1994 was 9.15% (8.14% without waivers). These figures are
calculated by finding the average annual compounded rates of return for the
one-, five- and ten- (or such shorter period as the relevant class of shares
has been offered) year periods that would equate the initial amount invested
to the ending redeemable value according to the following formula: P (1 + T)n
= ERV. For purposes of this formula, "P" is a hypothetical investment of
$1,000; "T" is average annual total return; "n" is number of years; and "ERV"
is the ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five- or ten-year periods (or fractional portion
thereof). Total return or "T" is computed by finding the average annual
change in the value of an initial $1,000 investment over the period and
assumes that all dividends and distributions are reinvested during the period.
The Advisor Shares average annual total return for the six-month period ended
April 30, 1995 was 12.70%, the average annual total return for the one-year
period ending October 31, 1994 was 1.23% and the average annual total return
for the period commencing April 4, 1991 (initial issuance) and ending October
31, 1994 was 9.26% (7.57% without waivers).
The Fund may advertise, from time to time, comparisons of the
performance of its Common Shares and/or Advisor Shares with that of one or
more other mutual funds with similar investment objectives. The Fund may
advertise average annual calendar-year-to-date and calendar quarter returns,
which are calculated according to the formula set forth in the preceding
paragraph, except that the relevant measuring period would be the number of
months that have elapsed in the current calendar year or most recent three
months, as the case may be. With respect to the Fund's Common Shares, the
Fund's actual total return for the calendar year and for the three-month
period ended on December 31, 1994 was -2.86% and -3.28%, respectively. With
respect to the Advisor Shares, the Fund's actual total return for the calendar
year and for the three-month period ending on December 31, 1994 was -3.36% and
- -3.36%, respectively. Investors should note that this performance may not be
representative of the Fund's total return in longer market cycles.
The performance of a class of Fund shares will vary from time to time
depending upon market conditions, the composition of the Fund's portfolio and
operating expenses allocable to it. As described above, total return is based
on historical earnings and is not intended to indicate future performance.
Consequently, any given performance quotation should not be considered as
representative of performance for any specified period in the future.
Performance information may be useful as a basis for comparison with other
investment alternatives. However, the Fund's performance will fluctuate,
unlike certain bank
<PAGE>34
deposits or other investments which pay a fixed yield for a stated period of
time. Any fees charged by Institutions or other institutional investors
directly to their customers in connection with investments in Fund shares are
not reflected in the Fund's total return, and such fees, if charged, will
reduce the actual return received by customers on their investments.
From time to time, the Fund may advertise evaluations of a class of
Fund shares published by nationally recognized financial publications, such as
Morningstar, Inc. or Lipper Analytical Services, Inc. Morningstar, Inc. rates
funds in broad categories based on risk/reward analyses over various time
periods.
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 for the fiscal
years ended October 31, 1993 and October 31, 1994 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.
The financial statements for the periods beginning with commencement of
the Fund through October 31, 1992 have been audited by Ernst & Young LLP
("Ernst & Young"), independent auditors, as set forth in their report and have
been included in reliance on such report and upon the authority of such firm
as experts in accounting and auditing. Ernst & Young's address is 787 7th
Avenue, New York, New York 10019.
Willkie Farr & Gallagher serves as counsel for the Fund as well as
counsel to Counsellors, Counsellors Service and Counsellors Securities.
MISCELLANEOUS
As of August 31, 1995, the name, address and percentage of ownership of
each person (other than Mr. Furth, see "Management of the Fund") that owns of
record 5% or more of the Fund's outstanding shares were as follows:
<PAGE>35
Common Shares
Northern Trust Company, FBO Mattel Corp., P.O. Box 2956, Chicago, IL
60690 -- 8.88%. Mr. Lionel I. Pincus, Chairman of the Board and Chief
Executive Officer of EMW, may be deemed to have beneficially owned 80.89% of
the Common 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.
Advisor Shares
Connecticut General Life Ins. Co. on behalf of its separate accounts
55E 55F 55G c/o Melissa Spencer, M110, Cigna Corp., P.O. Box 2975, Hartford,
CT 06104-2975 -- 100%.
FINANCIAL STATEMENTS
The Fund's financial statements for the fiscal year ending October 31,
1994 (audited) and for the period ended April 30, 1995 (unaudited) follow the
Report of Independent Auditors.
<PAGE>A-1
APPENDIX
DESCRIPTION OF RATINGS
Commercial Paper Ratings
Commercial paper rated A-1 by Standard and Poor's Ratings Group ("S&P")
indicates that the degree of safety regarding timely payment is strong. Those
issues determined to possess extremely strong safety characteristics are
denoted with a plus sign designation. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety
is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Services, Inc. ("Moody's"). Issuers rated Prime-1 (or
related supporting institutions) are considered to have a superior capacity
for repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics of issuers rated Prime-1 but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
Corporate Bond Ratings
The following summarizes the ratings used by S&P for corporate bonds:
AAA - This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay interest and repay
principal.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB - This is the lowest investment grade. Debt rated BBB is regarded
as having an adequate capacity to pay interest and repay principal. Although
it normally exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this category than
for bonds in higher-rated categories.
To provide more detailed indications of credit quality, the ratings
from "AA" to "BBB" may be modified by the addition of a plus or minus sign to
show relative standing within this major rating category.
<PAGE>A-2
The following summarizes the ratings used by Moody's for corporate
bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred
to as "gilt edged." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations.
Factors giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime
in the future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Moody's applies numerical modifiers (1, 2 and 3) with respect to the
bonds rated "Aa" through "Baa". 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.
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Boards of Directors, Trustees and Shareholders of
Warburg Pincus Equity Funds:
We have audited the accompanying statements of net assets of the following
Warburg Pincus Funds (consisting of Warburg Pincus Capital Appreciation Fund
('Capital Appreciation Fund'), Warburg Pincus Emerging Growth Fund ('Emerging
Growth Fund') and Warburg Pincus International Equity Fund ('International
Equity Fund') and the accompanying statement of assets and liabilities including
the schedule of investments of Warburg Pincus Japan OTC Fund (with the Capital
Appreciation Fund, Emerging Growth Fund and International Equity Fund, the
'Warburg Pincus Equity Funds') as of October 31, 1994, and the related
statements of operations for the year (or period) then ended, and the statements
of changes in net assets and the financial highlights for each of the two years
(or period) in the period then ended. 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. The financial highlights of the Warburg Pincus Equity Funds
for each of the three years in the period ended October 31, 1992, except for the
Warburg Pincus Japan OTC Fund, which commenced operations on September 30, 1994,
were audited by other auditors, whose report dated December 15, 1992, expressed
an unqualified opinion.
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
October 31, 1994 by correspondence with the custodians and brokers. 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
each of the Warburg Pincus Equity Funds as of October 31, 1994, and the results
of their operations for the year (or period) then ended, and the changes in
their net assets and their financial highlights for the two years (or period) in
the period then ended, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 12, 1994
40
- ------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------
WARBURG PINCUS CAPITAL APPRECIATION FUND
STATEMENT OF NET ASSETS
October 31, 1994
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
--------- ---------
<S> <C> <C>
COMMON STOCK (97.4%)
BASIC INDUSTRIES
Chemicals (2.0%)
Great Lakes Chemical Corp. 25,600 $1,504,000
Hercules, Inc. 15,800 1,844,650
---------
3,348,650
---------
Conglomerates (2.0%)
Thermo Electron Corp. + 75,000 3,421,875
---------
Metals & Mining (2.6%)
Allegheny Ludlum Corp. 161,000 3,199,875
Freeport McMoran, Inc. 64,000 1,176,000
---------
4,375,875
---------
Real Estate (0.9%)
Host Marriott Corp. + 144,000 1,530,000
---------
CAPITAL GOODS
Capital Equipment (2.4%)
Allied Signal, Inc. 65,200 2,257,550
Stewart & Stevenson Services, Inc. 46,000 1,771,000
---------
4,028,550
---------
Computers (2.1%)
Informix Corp. + 55,500 1,526,250
Microsoft Corp. + 30,400 1,915,200
---------
3,441,450
---------
Distribution (3.2%)
Alco Standard Corp. 40,700 2,319,900
Premier Industrial Corp. 116,400 2,997,300
---------
5,317,200
---------
Electronics (7.9%)
Intel Corp. 42,300 2,627,888
Linear Technology Corp. 36,500 1,752,000
Molex, Inc. 107,475 4,782,638
Motorola, Inc. 38,800 2,284,350
Xilinx, Inc. + 30,400 1,767,000
---------
13,213,876
----------
Office Equipment & Supplies (3.2%)
Indigo + 40,000 670,000
Xerox Corp. 45,800 4,694,500
---------
5,364,500
---------
</TABLE>
See Accompanying Notes to Financial Statements.
9
- ------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------
WARBURG PINCUS CAPITAL APPRECIATION FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1994
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
--------- ---------
<S> <C> <C>
COMMON STOCK (CONT'D)
CONSUMER
Business Services (6.0%)
Block (H & R), Inc. 51,600 $2,289,750
First Data Corp. 42,500 2,130,313
Manpower, Inc. 81,000 2,359,125
Olsten Corp. Class B 89,600 3,214,400
---------
9,993,588
---------
Consumer Durables (5.4%)
Automotive Industries Holdings, Inc. Class A + 55,000 1,333,750
Shaw Industries, Inc. 85,200 1,246,050
Singer Co. 126,500 3,968,938
Sony Corp. ADR 40,600 2,451,225
---------
8,999,963
---------
Consumer Non-Durables (2.6%)
Duracell International, Inc. 37,700 1,625,813
Scott Paper Co. 41,600 2,750,800
---------
4,376,613
---------
Food, Beverage & Tobacco (1.0%)
Tyson Foods, Inc. Class A 74,700 1,736,775
---------
Healthcare (4.3%)
Columbia/HCA Healthcare Corp. 2,000 83,250
Health Care & Retirement Corp. + 84,400 2,268,250
PacifiCare Health Systems, Inc. Class B + 40,400 2,949,200
United Healthcare Corp. 35,600 1,877,900
---------
7,178,600
---------
Leisure & Entertainment (3.8%)
Acclaim Entertainment, Inc. + 70,000 1,216,250
Circus Circus Enterprises, Inc. + 59,300 1,319,425
Disney (Walt) Co. 96,100 3,783,938
---------
6,319,613
---------
Retail (4.1%)
Federated Department Stores, Inc. + 59,700 1,238,775
Tandy Corp. 70,900 3,137,325
Toys R US, Inc. + 64,200 2,471,700
---------
6,874,800
---------
ENERGY AND RELATED
Energy (8.9%)
Apache Corp. 54,500 1,532,813
Associated Natural Gas Corp. 110,000 4,193,750
Louisiana Land & Exploration Co. 35,500 1,610,813
Noble Affiliates, Inc. 125,500 3,765,000
Nuevo Energy Co. + 115,300 2,579,838
Western Gas Resources, Inc. 67,500 1,316,250
---------
14,998,464
----------
</TABLE>
See Accompanying Notes to Financial Statements.
10
- ------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------
WARBURG PINCUS CAPITAL APPRECIATION FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1994
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
--------- ---------
<S> <C> <C>
COMMON STOCK (CONT'D)
Oil Services (1.5%)
Noble Drilling Corp. + 337,600 $2,489,800
----------
FINANCE
Banks & Savings & Loans (2.7%)
First Fidelity Bancorp 41,800 1,881,000
Grupo Financiero Bancomer SA de CV ADR + 34,300 784,643
Norwest Corp. 75,200 1,842,400
---------
4,508,043
---------
Financial Services (7.6%)
Federal Home Loan Mortgage Corp. 55,700 3,035,650
Fund American Enterprises Holdings, Inc. + 27,134 1,916,339
Mid Ocean Ltd. + 58,800 1,411,200
Reinsurance Group of America, Inc. 35,600 792,100
TIG Holdings, Inc. 92,200 1,774,850
Travelers, Inc. 51,866 1,802,343
USF&G Corp. 150,000 2,043,750
---------
12,776,232
----------
MEDIA
Communications & Media (8.1%)
Bell CableMedia, PLC ADR + 17,200 404,200
Comcast Corp. Class A 26,600 442,225
Comcast Corp. Class A Special 129,550 2,121,381
Infinity Broadcasting Corp. Class A + 67,500 2,050,313
News Corp. Ltd. ADR 32,500 1,588,437
Tele-Communications, Inc. Class A + 176,832 4,000,824
Turner Broadcasting System, Inc. Class B 75,900 1,347,225
Viacom, Inc. Class B 41,800 1,648,550
---------
13,603,155
----------
Publishing (3.1%)
Harcourt General, Inc. 138,600 5,128,200
---------
Telecommunications & Equipment (11.4%)
AirTouch Communications Inc. + 131,400 3,925,575
DSC Communications Corp. + 53,300 1,638,975
Intermedia Communications of Florida, Inc. + 140,000 1,522,500
LIN Broadcasting Corp. + 10,500 1,449,000
Paging Network, Inc. + 115,950 3,913,313
Telefonos de Mexico SA de CV ADR Class L 20,000 1,102,500
Telephone & Data Systems, Inc. 77,200 3,821,400
Vodafone Group PLC ADR 50,700 1,761,824
---------
19,135,087
----------
</TABLE>
See Accompanying Notes to Financial Statements.
11
- ------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------
WARBURG PINCUS CAPITAL APPRECIATION FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1994
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
--------- ---------
<S> <C> <C>
COMMON STOCK (CONT'D)
MISCELLANEOUS
Transportation (0.6%)
American Freightways Corp. + 50,000 $1,062,500
----------
TOTAL COMMON STOCK (Cost $133,253,428) 163,196,409
-----------
Par
---------
SHORT-TERM INVESTMENTS (2.4%)
Repurchase agreement with PNC Securities Corp. dated 10/31/94 at 4.30%
to be repurchased at $3,967,474 on 11/01/94. (Collateralized by
$4,055,000 U.S.
Treasury Bill dated 09/15/94 at 4.99%, due 03/16/95, with a market
value of
$3,971,873.) (Cost $3,967,000) $3,967,000 3,967,000
-----------
TOTAL INVESTMENTS AT VALUE (99.8%)(Cost $137,220,428*) 167,163,409
OTHER ASSETS IN EXCESS OF LIABILITIES (0.2%) 351,084
-----------
NET ASSETS (100.0%) (applicable to 11,150,080 Common Shares and 574,503
Series 2 Shares) $167,514,493
------------
------------
NET ASSET VALUE, offering and redemption price per Common Share
($159,345,984[div]11,150,080) $14.29
NET ASSET VALUE, offering and redemption price per Series 2 Share ------
($8,168,509[div]574,503) ------
$14.22
------
------
</TABLE>
+ Non-income producing security.
* Also cost for Federal income tax purposes.
See Accompanying Notes to Financial Statements.
12
- -----------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
STATEMENTS OF OPERATIONS
For the Year or Period Ended October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus Warburg Pincus Warburg Pincus
Capital Appreciation Emerging Growth International Equity Japan OTC
Fund Fund Fund Fund*
-------------------- --------------- -------------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 1,956,407 $ 739,797 $ 15,187,073 $ 0
Interest 239,527 876,658 2,739,415 15,656
Foreign taxes withheld (1,168) (24,340) (1,836,587) 0
-------------------- --------------- -------------------- --------------
Total investment income 2,194,766 1,592,115 16,089,901 15,656
-------------------- --------------- -------------------- --------------
EXPENSES:
Investment advisory 1,172,857 2,234,376 9,879,319 13,176
Administrative services 300,806 451,159 1,722,729 8,138
Audit 24,264 27,121 65,628 15,000
Custodian/Sub-custodian 50,291 90,040 1,017,575 1,054
Directors/Trustees 10,000 10,000 11,000 1,250
Distribution 0 0 0 2,635
Insurance 15,532 15,918 32,972 0
Legal 25,034 31,983 47,493 0
Organizational 0 0 4,756 3,011
Printing 29,531 42,588 94,447 1,000
Registration 28,348 77,436 580,302 14,597
Shareholder servicing 53,002 226,626 593,276 0
Transfer agent 79,364 131,476 675,657 3,000
Miscellaneous 32,670 32,446 53,814 0
-------------------- --------------- -------------------- --------------
1,821,699 3,371,169 14,778,968 62,861
Less: fees waived and expenses
reimbursed (11,179) (100,408) 0 (52,320)
-------------------- --------------- -------------------- --------------
Total expenses 1,810,520 3,270,761 14,778,968 10,541
-------------------- --------------- -------------------- --------------
Net investment income (loss) 384,246 (1,678,646) 1,310,933 5,115
-------------------- --------------- -------------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENTS AND FOREIGN CURRENCY RELATED
ITEMS:
Net realized gain (loss) from security
transactions 11,173,174 (5,721,525) 48,091,665 0
Net realized loss from foreign currency
related items 0 0 (2,772,944) (294,437)
Net increase (decrease) in unrealized
appreciation from investments and
foreign currency related items (9,106,613) 10,930,919 82,484,415 (35,099)
-------------------- --------------- -------------------- --------------
Net realized and unrealized gain
(loss) from investments and
foreign currency related
items 2,066,561 5,209,394 127,803,136 (329,536)
-------------------- --------------- -------------------- --------------
Net increase (decrease) in net
assets from operations $ 2,450,807 $ 3,530,748 $129,114,069 $ (324,421)
-------------------- --------------- -------------------- --------------
-------------------- --------------- -------------------- --------------
</TABLE>
* For the period September 30, 1994 (Commencement of Operations) through
October 31, 1994.
See Accompanying Notes to Financial Statements.
27
- --------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus
Capital Appreciation Emerging Growth
Fund Fund
------------------------ ------------------------
For the Year Ended For the Year Ended
October 31, October 31,
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 384,246 $ 401,157 ($1,678,646) $(902,442)
Net realized gain (loss) from
security transactions 11,173,174 13,675,715 (5,721,525) 12,312,484
Net realized loss from foreign
currency related items 0 0 0 0
Net change in unrealized
appreciation (depreciation) from
investments and foreign currency
related items (9,106,613) 14,209,067 10,930,919 26,564,947
----------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from
operations 2,450,807 28,285,939 3,530,748 37,974,989
----------- ----------- ----------- -----------
FROM DISTRIBUTIONS:
Dividends from net investment
income:
Common shares (419,337) (459,634) 0 0
Series 2 shares (27,724) (95) 0 0
Distributions in excess of net
investment income:
Common shares 0 0 0 0
Series 2 shares 0 0 0 0
Distributions from capital gains:
Common shares (12,899,141) (6,877,271) (10,576,150) (2,054,285)
Series 2 shares (852,608) (102,444) (1,639,316) (132,545)
----------- ----------- ----------- -----------
NET DECREASE FROM DISTRIBUTIONS (14,198,810) (7,439,444) (12,215,466) (2,186,830)
----------- ----------- ----------- -----------
From Capital Share Transactions:
Proceeds from sale of shares 45,617,531 46,439,011 180,813,270 89,478,924
Reinvested dividends 13,809,167 7,199,391 12,758,387 2,166,694
Net asset value of shares redeemed (49,851,500) (24,352,588) (71,767,717) (40,840,041)
----------- ----------- ----------- -----------
Net increase in net assets from
capital share transactions 9,575,198 29,285,814 121,803,940 50,805,577
----------- ----------- ----------- -----------
Net increase (decrease) in net
assets (2,172,805) 50,132,309 113,119,222 86,593,736
NET ASSETS:
Beginning of period 169,687,298 119,554,989 191,553,536 104,959,800
----------- ----------- ----------- ------------
End of period $167,514,493 $169,687,298 $304,672,758 $191,553,536
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
</TABLE>
28
- ------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus
Japan OTC
Fund
Warburg Pincus ---------------
International Equity For the Period
Fund September 30, 1994
------------------------ (Commencement of
For the Year Ended October 31, Operations) through
1994 1993 October 31, 1994
----------- ----------- ----------------
<S> <C> <C> <C>
$1,310,933 $ 638,986 $ 5,115
48,091,665 1,176,172 0
(2,772,944) (48,647) (294,437)
82,484,415 63,734,670 (35,099)
----------- ----------- -------------
129,114,069 65,501,181 (324,421)
----------- ----------- -------------
(1,764,380) (242,119) 0
(218,961) (9,224) 0
(223,659) 0 0
0 0 0
(1,047,367) (995,091) 0
(129,979) (16,719) 0
----------- ----------- -------------
(3,384,346) (1,263,153) 0
----------- ----------- -------------
1,430,739,923 283,608,350 20,287,158
2,950,772 1,184,585 0
(249,050,078) (29,360,993) (185,101)
------------- ----------- -------------
1,184,640,617 255,431,942 20,102,057
------------- ----------- -------------
1,310,370,340 319,669,970 19,777,636
422,905,163 103,235,193 101,000
----------- ------------ -------------
$1,733,275,503 $422,905,163 $19,878,636
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
See Accompanying Notes to Financial Statements.
29
- ------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS
(For a Share of the Fund Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Shares Series 2 Shares
------------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Year Ended
For the Year Ended October 31, October 31,
------------------------------------------- -------------------------
1994 1993 1992 1991 1990 1994 1993 1992
------ ------ ------ ------ ------ ------ ------ -------
NET ASSET VALUE, BEGINNING OF PERIOD $15.32 $13.30 $12.16 $9.78 $11.48 $15.28 $13.28 $12.16
------ ------ ------ ------ ------ ------ ------ -------
Income from Investment Operations:
Net Investment Income (Loss) .04 .05 .04 .15 .20 .05 .00 (.01)
Net Gain (Loss) on Securities (both
realized and unrealized) .17 2.78 1.21 2.41 (1.28) .10 2.76 1.20
------ ------ ------ ------ ------ ------ ------ -------
Total from Investment Operations .21 2.83 1.25 2.56 (1.08) .15 2.76 1.19
------ ------ ------ ------ ------ ------ ------ -------
Less Distributions:
Dividends from net investment income (.05) (.05) (.06) (.18) (.21) (.02) .00 (.02)
Distributions from capital gains (1.19) (.76) (.05) .00 (.41) (1.19) (.76) (.05)
------- ------- ------ ------ ------ ------- ------- --------
Total Distributions (1.24) (.81) (.11) (.18) (.62) (1.21) (.76) (.07)
------- ------- ------- ------ ------ ------- ------- --------
NET ASSET VALUE, END OF PERIOD $14.29 $15.32 $13.30 $12.16 $9.78 $14.22 $15.28 $13.28
------- ------- ------- ------- ------ ------- ------- --------
------- ------- ------- ------- ------ ------- ------- --------
Total Return 1.65% 22.19% 10.40% 26.39% (10.11%) 1.23% 21.64% 9.83%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $159,346 $159,251 $117,900 $115,191 $76,537 $8,169 $10,437 $1,655
Ratios to average daily net assets:
Operating expenses 1.05% 1.01% 1.06% 1.08% 1.04% 1.55% 1.51% 1.56%
Net investment income (loss) .26% .30% .41% 1.27% 2.07% (.24%) (.25%) (.11%)
Decrease reflected in above expense
ratios due to waivers/reimbursements .01% .00% .01% .00% .01% .01% .00% .01%
Portfolio Turnover Rate 51.87% 48.26% 55.83% 39.50% 37.10% 51.87% 48.26% 55.83%
<CAPTION>
Series 2 Shares
----------------
<S> <C>
April 4, 1991
(Initial
Issuance)
through
October 31, 1991
----------------
NET ASSET VALUE, BEGINNING OF PERIOD $12.04
------
Income from Investment Operations:
Net Investment Income (Loss) .05
Net Gain (Loss) on Securities (both
realized and unrealized) .13
------
Total from Investment Operations .18
------
Less Distributions:
Dividends from net investment income (.06)
Distributions from capital gains .00
------
Total Distributions (.06)
------
NET ASSET VALUE, END OF PERIOD $12.16
------
------
Total Return 2.66%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $443
Ratios to average daily net assets:
Operating expenses 1.63%*
Net investment income (loss) .25%*
Decrease reflected in above expense
ratios due to waivers/reimbursements .01%*
Portfolio Turnover Rate 39.50%
</TABLE>
* Annualized
See Accompanying Notes to Financial Statements.
TAX STATUS OF 1994 DIVIDENDS (Unaudited)
Dividends paid by the Fund taxable as ordinary income were as follows: Common
Shares -- $.28 per share; Series 2 Shares -- $.25 per share; ordinary income
dividends qualifying for the dividends received deduction available to corporate
shareholders: Common Shares -- 56.76%; Series 2 Shares -- 64.71%.
Long-term capital gain dividends in the amount of $.96 per share were paid on
both Common and Series 2 Shares.
Because the Fund's fiscal year is not the calendar year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1995.
30
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS
October 31, 1994
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Warburg Pincus Equity Funds are comprised of Warburg Pincus Capital
Appreciation Fund (the 'Capital Appreciation Fund') and Warburg Pincus
International Equity Fund (the 'International Equity Fund') which are registered
under the Investment Company Act of 1940, as amended (the '1940 Act'), as
diversified, open-end management investment companies, and Warburg Pincus
Emerging Growth Fund (the 'Emerging Growth Fund') and Warburg Pincus Japan OTC
Fund (the 'Japan OTC Fund,' together with the Capital Appreciation Fund, the
International Equity Fund and the Emerging Growth Fund, the 'Funds') which are
registered under the 1940 Act as non-diversified, open-end management investment
companies.
Investment objectives for each Fund are as follows: the Capital
Appreciation Fund, the International Equity Fund and the Japan OTC Fund seek
long-term capital appreciation; the Emerging Growth Fund seeks maximum capital
appreciation.
The net asset value of each Fund is determined daily as of the close of
regular trading on the New York Stock Exchange. Each Fund's investments are
valued at market value, which is currently determined using the last reported
sales price. If no sales are reported, investments are valued at the last
reported bid price. In the absence of a quoted market value, investments are
valued at fair value as determined by or under the direction of the Fund's
governing Board. Short-term investments that mature in 60 days or less are
valued on the basis of amortized cost, which approximates market value.
The books and records of the Funds are maintained in U.S. dollars.
Transactions denominated in foreign currencies are recorded at the current
prevailing exchange rates. All assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the current exchange rate
at the end of the period. Translation gains or losses resulting from changes in
the exchange rate during the reporting period and realized gains and losses on
the settlement of foreign currency transactions are reported in the results of
operations for the current period. The Funds do not isolate that portion of
gains and losses on investments in equity securities which are due to changes in
the foreign exchange rate from that which is due to changes in market prices of
equity securities.
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
Income, expenses (excluding class-specific expenses) and realized/unrealized
gains/losses are allocated proportionately to each class of shares based upon
the relative net asset value of outstanding shares. 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 and paid semiannually for
all Funds. Distributions of net realized capital gains, if any, are declared and
paid annually. However, 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.
Costs incurred by the Japan OTC Fund in connection with its organization
have been deferred and are being amortized over a period of five years from the
date the Japan OTC Fund commenced its operations.
34
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1994
- --------------------------------------------------------------------------------
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 value of the
underlying security will be maintained at an amount at least equal to the total
amount of the purchase obligation, including interest. The collateral is in the
Fund's possession.
As of November 1, 1993, or inception, in the case of the Japan OTC Fund,
each Fund implemented AICPA Statement of Position 93-2 -- Determination,
Disclosure and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. Adoption of this
standard results in the reclassification to paid-in capital of permanent
differences between tax and financial reporting of net investment income and net
realized gain (loss). The change has had no material effect on paid-in capital
or other components of the net assets of any of the Funds at November 1, 1993 or
inception, as the case may be. Distributions to shareholders and net asset
values were not affected by this change.
2. INVESTMENT 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 receives the following fees based on each Fund's average daily net
assets:
<TABLE>
<CAPTION>
FUND ANNUAL RATE
- --------------------------------- ----------------------------------
<S> <C>
Capital Appreciation .70% of average daily net assets
Emerging Growth .90% of average daily net assets
International Equity 1.00% of average daily net assets
Japan OTC 1.25% of average daily net assets
</TABLE>
For the period or year ended October 31, 1994, investment advisory fees,
waivers and reimbursements were as follows:
<TABLE>
<CAPTION>
GROSS NET EXPENSE
FUND ADVISORY FEE WAIVER ADVISORY FEE REIMBURSEMENTS
- ------------------------------------------- ------------ --------- -------------- --------------
<S> <C> <C> <C> <C>
Capital Appreciation $1,172,857 $ (11,179) $1,161,678 0
Emerging Growth 2,234,376 (100,408) 2,133,968 0
International Equity 9,879,319 0 9,879,319 0
Japan OTC 13,176 (13,176) 0 $(39,144)
</TABLE>
SPARX Investment & Research, USA, Inc. ('SPARX USA') serves as
sub-investment adviser for the Japan OTC Fund. From its investment advisory fee,
Counsellors pays SPARX USA a fee at an annual rate of .625% of the average daily
net assets of the Japan OTC Fund. No compensation is payable by the Japan OTC
Fund to SPARX USA for its sub-investment advisory services.
35
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1994
- --------------------------------------------------------------------------------
Counsellors Funds Service, Inc. ('CFSI'), a wholly owned subsidiary of
Counsellors, and PFPC Inc. ('PFPC'), an indirect, wholly owned subsidiary of PNC
Bank Corp. ('PNC'), serve as each Fund's co-administrators. 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 period or year
ended October 31, 1994, administrative services fees earned by CFSI were as
follows:
<TABLE>
<CAPTION>
FUND CO-ADMINISTRATION FEE
- ------------------------------------------- ------------------------------
<S> <C>
Capital Appreciation $133,255
Emerging Growth 202,895
International Equity 871,165
Japan OTC 1,054
</TABLE>
Counsellors Securities Inc. ('CSI'), also a wholly owned subsidiary of
Counsellors, serves as each Fund's distributor. No compensation is payable by
the Capital Appreciation Fund, the Emerging Growth Fund or the International
Equity Fund to CSI for distribution services. For distribution services with
respect to the Common Shares of the Japan OTC Fund, CSI receives a fee at the
annual rate of .25% of the Japan OTC Fund's average daily net assets
attributable to the Common Shares; no compensation is payable to CSI with
respect to the Fund's Series 2 Shares. For the period ended October 31, 1994,
CSI earned $2,635 in distribution fees.
3. INVESTMENTS IN SECURITIES
For the period or year ended October 31, 1994, purchases and sales of
investment securities (excluding short-term investments) were as follows:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
- ----------------------------------------------------------- -------------- ------------
<S> <C> <C>
Capital Appreciation $ 89,218,905 $ 82,854,233
Emerging Growth 245,154,617 138,723,249
International Equity 1,224,880,044 155,267,110
Japan OTC 13,713,446 0
</TABLE>
At October 31, 1994, the net unrealized appreciation from investments for
those securities having an excess of value over cost and net unrealized
depreciation from investments for those securities having an excess of cost over
value (based on cost for Federal income tax purposes) was as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
- ----------------------------------- ------------ ------------- --------------
<S> <C> <C> <C>
Capital Appreciation $ 34,034,231 $ (4,091,250) $ 29,942,981
Emerging Growth 59,051,417 (8,336,497) 50,714,920
International Equity 198,971,180 (57,952,506) 141,018,674
Japan OTC 254,382 (299,413) (45,031)
</TABLE>
36
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1994
- --------------------------------------------------------------------------------
4. FORWARD FOREIGN CURRENCY CONTRACTS
The International Equity Fund and the Japan OTC Fund may enter into forward
currency contracts for the purchase or sale of a specific foreign currency at a
fixed price on a future date. Risks may arise upon entering into these contracts
from the potential inability of counterparties to meet the terms of their
contracts and from unanticipated movements in the value of a foreign currency
relative to the U.S. dollar. Each Fund will enter into forward contracts
primarily for hedging purposes. The forward currency contracts are adjusted by
the daily exchange rate of the underlying currency and any gains or losses are
recorded for financial statement purposes as unrealized until the contract
settlement date.
At October 31, 1994, the Japan OTC Fund had the following open forward
foreign currency contract and had recorded an unrealized gain of $11,591:
<TABLE>
<CAPTION>
SETTLEMENT CURRENCY CURRENCY
DATE BOUGHT SOLD
- --------- ----------------------- --------------------------
<S> <C> <C>
11/30/94 14,000,000 U.S. Dollars 1,351,700,000 Japanese Yen
</TABLE>
5. SERIES 2 SHARES
The Emerging Growth Fund, the International Equity Fund and the Japan OTC
Fund are each authorized 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. The Capital Appreciation Fund is authorized to issue
an unlimited number of full and fractional shares of beneficial interest, $.001
par value per share, of which one billion shares are classified as Series 2
Shares. Series 2 Shares are identical to Common Shares in all respects except
that Series 2 Shares are 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
shareholder servicing fees for the year ended October 31, 1994:
<TABLE>
<CAPTION>
FUND SHAREHOLDER SERVICING FEES
- ----------------------------------------------- --------------------------
<S> <C>
Capital Appreciation $ 53,002
Emerging Growth 226,626
International Equity 593,276
</TABLE>
37
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1994
- --------------------------------------------------------------------------------
Transactions in shares of each Fund were as follows:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND EMERGING GROWTH FUND
Common Shares Series 2 Shares Common Shares Series 2 Shares
------------------------ ----------------------- ------------------------- ------------------------
For the Year Ended October 31, For the Year Ended October 31,
------------------------------------------------- ---------------------------------------------------
1994 1993 1994 1993 1994 1993 1994 1993
----------- ----------- ----------- ---------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 2,958,494 2,705,720 290,193 588,424 6,133,751 3,295,313 2,233,737 871,054
Shares issued to
shareholders on
reinvestment of
dividends 920,210 535,112 61,526 7,739 506,720 101,352 80,473 6,644
Shares redeemed (3,126,497) (1,710,437) (460,020) (38,003) (2,859,413) (1,870,167) (517,898) (67,545)
----------- ----------- ----------- ---------- ------------ ----------- ----------- -----------
Net increase
(decrease) in
shares
outstanding 752,207 1,530,395 (108,301) 558,160 3,781,058 1,526,498 1,796,312 810,153
----------- ----------- ----------- ---------- ------------ ----------- ----------- -----------
----------- ----------- ----------- ---------- ------------ ----------- ----------- -----------
Proceeds from sale
of shares $41,570,590 $38,018,578 $ 4,046,941 $8,420,433 $132,922,995 $71,149,417 $47,890,275 $18,329,507
Reinvested
dividends 12,945,690 7,096,852 863,477 102,539 11,015,146 2,034,149 1,743,241 132,545
Net asset value of
shares redeemed (43,449,501) (23,821,721) (6,401,999) (530,867) (61,126,667) (39,393,274) (10,641,050) (1,446,767)
----------- ----------- ----------- ---------- ------------ ----------- ----------- -----------
Net increase
(decrease) from
capital share
transactions $11,066,779 $21,293,709 $(1,491,581) $7,992,105 $ 82,811,474 $33,790,292 $38,992,466 $17,015,285
----------- ----------- ----------- ---------- ------------ ----------- ----------- -----------
----------- ----------- ----------- ---------- ------------ ----------- ----------- -----------
</TABLE>
6. NET ASSETS
Net Assets at October 31, 1994, consisted of the following:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND EMERGING GROWTH FUND
Common Shares Series 2 Shares Total Common Shares Series 2 Shares Total
------------- --------------- ------------ ------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Capital contributed, net $118,516,377 $ 8,060,714 $126,577,091 $199,119,705 $60,627,302 $259,747,007
Accumulated net investment
income (loss) 0 0 0 0 0 0
Accumulated net realized
gain (loss) from security
transactions 10,795,522 198,899 10,994,421 (3,706,511 ) (2,122,042) (5,828,553)
Net unrealized appreciation
(depreciation) from
investments and foreign
currency related items 30,034,085 (91,104) 29,942,981 45,250,539 5,503,765 50,754,304
------------- --------------- ------------ ------------- --------------- ------------
Net assets $159,345,984 $ 8,168,509 $167,514,493 $240,663,733 $64,009,025 $304,672,758
------------- --------------- ------------ ------------- --------------- ------------
------------- --------------- ------------ ------------- --------------- ------------
</TABLE>
7. CAPITAL LOSS CARRYOVER
At October 31, 1994, the Emerging Growth Fund has a capital loss carryover
of $5,789,170 expiring in 2002 to offset possible future capital gains of the
Fund.
38
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JAPAN OTC FUND
Common Series 2
INTERNATIONAL EQUITY FUND Shares Shares
Common Shares Series 2 Shares ------------- ---------------
---------------------------- ------------------------- For the Period
For the Year Ended October 31, September 30, 1994
------------------------------------------------------- (Commencement of Operations)
1994 1993 1994 1993 through October 31, 1994
-------------- ------------ ------------ ----------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
64,218,907 15,914,077 7,956,088 2,510,712 2,025,697 15
147,031 89,544 6,879 1,957 0 0
(11,861,720) (2,060,764) (795,406) (16,861) (18,605) 0
-------------- ------------ ------------ ----------- ------------- ---------------
52,504,218 13,942,857 7,167,561 2,495,808 2,007,092 15
-------------- ------------ ------------ ----------- ------------- ---------------
-------------- ------------ ------------ ----------- ------------- ---------------
$1,275,306,263 $244,888,526 $155,433,660 $38,719,824 $20,287,008 $ 150
2,820,903 1,158,643 129,869 25,942 0 0
(233,614,600) (29,121,414) (15,435,478) (239,579) (185,101) 0
-------------- ------------ ------------ ----------- ------------- ---------------
$1,044,512,566 $216,925,755 $140,128,051 $38,506,187 $20,101,907 $ 150
-------------- ------------ ------------ ----------- ------------- ---------------
-------------- ------------ ------------ ----------- ------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND JAPAN OTC FUND
Common Shares Series 2 Shares Total Common Shares Series 2 Shares Total
-------------- --------------- -------------- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
$1,368,158,592 $ 180,212,108 $1,548,370,700 $19,924,176 $ 1,150 $19,925,326
4,309,014 429,089 4,738,103 0 0 0
34,680,906 4,327,914 39,008,820 (11,574) (17) (11,591)
126,723,436 14,434,444 141,157,880 (35,099) 0 (35,099)
-------------- --------------- -------------- ------------- ------- -----------
$1,533,871,948 $ 199,403,555 $1,733,275,503 $19,877,503 $ 1,133 $19,878,636
-------------- --------------- -------------- ------------- ------- -----------
-------------- --------------- -------------- ------------- ------- -----------
</TABLE>
39
- --------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------
WARBURG PINCUS CAPITAL APPRECIATION FUND
STATEMENT OF NET ASSETS
April 30, 1995 (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
--------- ---------
<S> <C> <C>
COMMON STOCK (97.4%)
BASIC INDUSTRIES
Chemicals (5.6%)
Avery Dennison Corp. 77,900 $ 3,164,688
Grace & Co., W.R. 20,000 1,072,500
Hercules, Inc. 90,000 4,488,750
Praxair, Inc. 76,800 1,824,000
---------
10,549,938
---------
Conglomerates (2.0%)
Thermo Electron Corp. + 69,600 3,749,700
---------
CAPITAL GOODS
Capital Equipment (7.4%)
Clark Equipment Co. 165,000 14,107,500
---------
Computers (6.2%)
Alliant Techsystems Inc. 70,000 2,581,250
Informix Corp. + 56,100 2,208,932
Parametric Technology Corp. 79,500 3,776,250
Platinum Technology, Inc. + 33,000 660,000
Synopsys, Inc. + 48,100 2,609,425
---------
11,835,857
---------
Distribution (2.7%)
Alco Standard Corp. 71,400 5,060,475
---------
Electronics (5.6%)
Cabletron Systems, Inc. 49,000 2,327,500
Linear Technology Corp. 70,000 4,182,500
Molex, Inc. 41,543 1,568,248
Xilinx, Inc. + 33,400 2,563,450
---------
10,641,698
---------
CONSUMER
Agriculture (1.2%)
Pioneer Hi-Bred International Inc. 62,900 2,358,750
---------
Business Services (7.1%)
Block (H & R), Inc. 42,800 1,802,950
First Data Corp. 56,400 3,172,500
Manpower, Inc. 81,000 2,703,375
Olsten Corp. Class B 104,400 3,562,650
Omnicom Group Inc. 40,800 2,269,500
---------
13,510,975
---------
Consumer Non-Durables (6.6%)
Premark International, Inc. 52,000 2,509,000
Reebok International, Ltd. 185,000 5,781,250
Scott Paper Co. 48,600 4,331,475
---------
12,621,725
---------
</TABLE>
See Accompanying Notes to Financial Statements.
5
- ------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------
WARBURG PINCUS CAPITAL APPRECIATION FUND
STATEMENT OF NET ASSETS (CONT'D)
April 30, 1995 (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
--------- ---------
<S> <C> <C>
COMMON STOCK (CONT'D)
Leisure & Entertainment (2.6%)
Carnival Cruise Lines Inc. 33,400 $ 830,825
Disney (Walt) Co. 73,500 4,070,063
---------
4,900,888
---------
Retail (1.7%)
Tandy Corp. 35,000 1,732,500
Toys R Us, Inc. + 60,000 1,515,000
---------
3,247,500
---------
ENERGY AND RELATED
Energy (2.9%)
Noble Affiliates, Inc. 125,500 3,388,500
Nuevo Energy Co. + 115,300 2,205,113
---------
5,593,613
---------
Healthcare (8.9%)
Bard, Inc. C.R. 77,500 2,257,188
Becton Dickinson & Co. 50,000 2,787,500
Health Care & Retirement Corp. + 84,400 2,384,300
Health Management Association 75,000 2,175,000
McKesson Corp. 100,000 3,962,500
PacifiCare Health Systems, Inc. Class B + 50,000 3,100,000
---------
16,666,488
----------
FINANCE
Banks & Savings & Loans (11.0%)
Corestate Financial Corp. 125,000 4,078,125
First Fidelity Bancorp 41,800 2,016,850
Midlantic Corp. 50,000 1,825,000
PNC Financial Corp. 234,500 5,891,813
Wells Fargo & Co. 42,500 7,049,688
---------
20,861,476
---------
Financial Services (5.9%)
Federal Home Loan Mortgage Corp. 55,700 3,634,425
Fund American Enterprises Holdings, Inc. + 12,196 879,637
John Nuveen Co. Class A 72,100 1,613,238
Mercury Finance Co. 40,000 605,000
Travelers, Inc. 110,000 4,551,250
---------
11,283,550
---------
MEDIA
Communications & Media (10.6%)
Bell Cablemedia, PLC ADR + 60,000 997,500
Evergreen Media Corp. 49,000 912,625
Gannett, Inc. 100,000 5,262,500
Gaylord Entertainment Co. 110,000 2,598,750
Infinity Broadcasting Corp. Class A + 67,500 2,877,188
LIN Television Corp. + 30,250 1,089,000
Multimedia Inc. 75,000 2,821,875
</TABLE>
See Accompanying Notes to Financial Statements.
6
- ------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------
WARBURG PINCUS CAPITAL APPRECIATION FUND
STATEMENT OF NET ASSETS (CONT'D)
April 30, 1995 (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
--------- ---------
<S> <C> <C>
COMMON STOCK (CONT'D)
News Corp. Ltd. ADR 65,000 $ 1,267,500
Viacom, Inc. Class B + 51,800 2,376,325
---------
20,203,263
---------
Publishing (4.6%)
Harcourt General, Inc. 105,700 4,320,488
Houghton Mifflin Co. 50,000 2,406,250
Wiley (John) & Sons Inc. 36,300 2,032,800
---------
8,759,538
---------
Telecommunications & Equipment (3.7%)
Intermedia Communications of Florida, Inc. + 50,000 525,000
Picturetel Corp. 41,600 1,773,200
Tellabs, Inc. + 35,000 2,415,000
Vodafone Group PLC ADR 70,700 2,253,563
---------
6,966,763
---------
MISCELLANEOUS
Automobiles (1.1%)
Chrysler Corporation Holding Company 50,000 2,156,250
---------
TOTAL COMMON STOCK (Cost $151,520,797) 185,075,947
---------
PREFERRED STOCK (0.5%)
Communications & Media (0.5%)
News Corp. ADR + (Cost $621,032) 52,500 945,000
---------
Par
---------
SHORT-TERM INVESTMENTS (2.4%)
Repurchase agreement with State Street Bank & Trust Co.
dated 04/28/95 at 5.87% to be repurchased at $4,548,224
on 05/01/95. (Collateralized by $4,605,000 U.S. Treasury
Note at 6.25%, due 08/31/96, with a market value of
$4,639,538.) (Cost $4,546,000) $4,546,000 4,546,000
------------
TOTAL INVESTMENTS AT VALUE (100.3%) (Cost $156,687,829*) 190,566,947
LIABILITIES IN EXCESS OF OTHER ASSETS (0.3%) (492,437)
------------
NET ASSETS (100.0%) (applicable to 12,852,921 Common Shares
and 641,227 Advisor Shares**) $190,074,510
------------
------------
NET ASSET VALUE, offering and redemption price per Common
Share ($181,108,676[div]12,852,921) $14.09
------------
------------
NET ASSET VALUE, offering and redemption price per Advisor
Share** ($8,965,834[div]641,227) $13.98
------------
------------
</TABLE>
+ Non-income producing security.
* Also cost for Federal income tax purposes.
** Advisor Shares refer to Series 2 Shares herein and in the prospectus.
See Accompanying Notes to Financial Statements.
7
- ------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
STATEMENTS OF OPERATIONS
For the Six Months Ended April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus Warburg Pincus Warburg Pincus
Capital Appreciation Emerging Growth International Equity Japan OTC
Fund Fund Fund Fund
-------------------- --------------- -------------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 866,566 $ 385,287 $ 16,884,622 $ 92,394
Interest 417,191 777,120 6,035,578 52,639
Foreign taxes withheld (2,423) 0 (2,632,413) (13,859)
-------------------- --------------- -------------------- --------------
Total investment income 1,281,334 1,162,407 20,287,787 131,174
-------------------- --------------- -------------------- --------------
EXPENSES:
Investment advisory 572,180 1,428,874 8,871,020 141,840
Administrative services 163,480 317,528 1,516,613 53,847
Audit 11,486 11,348 25,098 9,837
Custodian/Sub-custodian 26,453 56,264 900,807 22,943
Directors/Trustees 4,960 4,960 4,960 3,720
Distribution 0 0 0 28,368
Insurance 7,467 7,935 20,767 2,266
Legal 13,889 13,785 24,437 12,397
Organizational 0 0 0 19,066
Printing 12,853 16,604 39,399 7,690
Registration 16,018 43,913 292,491 24,613
Shareholder servicing 20,418 188,426 532,559 0
Transfer agent 37,099 60,883 532,321 41,327
Miscellaneous 17,498 15,667 38,126 3,712
-------------------- --------------- -------------------- --------------
903,801 2,166,187 12,798,598 371,626
Less: fees waived and expenses
reimbursed 0 0 0 (258,152)
-------------------- --------------- -------------------- --------------
Total expenses 903,801 2,166,187 12,798,598 113,474
-------------------- --------------- -------------------- --------------
Net investment income (loss) 377,533 (1,003,780) 7,489,189 17,700
-------------------- --------------- -------------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENTS AND FOREIGN CURRENCY RELATED ITEMS:
Net realized gain (loss) from security
transactions 6,497,435 14,451,273 (53,266,705) (1,943,522)
Net realized gain (loss) from foreign
currency related items 0 0 3,272,321 (3,394,945)
Net increase (decrease) in unrealized
appreciation from investments and
foreign currency related items 3,936,137 11,679,784 (110,594,381) 70,023
-------------------- --------------- -------------------- --------------
Net realized and unrealized gain
(loss) from investments and
foreign currency related
items 10,433,572 26,131,057 (160,588,765) (5,268,444)
-------------------- --------------- -------------------- --------------
Net increase (decrease) in net
assets from operations $ 10,811,105 $25,127,277 $ (153,099,576) $ (5,250,744)
-------------------- --------------- -------------------- --------------
-------------------- --------------- -------------------- --------------
</TABLE>
See Accompanying Notes to Financial Statements.
21
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus
Capital Appreciation Emerging Growth
Fund Fund
----------------------------------- -----------------------------------
For the For the
Six Months Ended For the Six Months Ended For the
April 30, 1995 Year Ended April 30, 1995 Year Ended
(Unaudited) October 31, 1994 (Unaudited) October 31, 1994
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 377,533 $ 384,246 $ (1,003,780) $ (1,678,646)
Net realized gain (loss) from security
transactions 6,497,435 11,173,174 14,451,273 (5,721,525)
Net realized gain (loss) from foreign currency
related items 0 0 0 0
Net change in unrealized appreciation
(depreciation) from investments and foreign
currency related items 3,936,137 (9,106,613) 11,679,784 10,930,919
---------------- ---------------- ---------------- ----------------
Net increase (decrease) in net assets
resulting from operations 10,811,105 2,450,807 25,127,277 3,530,748
---------------- ---------------- ---------------- ----------------
FROM DISTRIBUTIONS:
Dividends from net investment income:
Common shares 0 (419,337) 0 0
Advisor shares 0 (27,724) 0 0
Distributions in excess of net investment
income:
Common shares 0 0 0 0
Advisor shares 0 0 0 0
Distributions from capital gains:
Common shares (10,460,742) (12,899,141) 0 (10,576,150)
Advisor shares (575,892) (852,608) 0 (1,639,316)
---------------- ---------------- ---------------- ----------------
Net decrease from distributions (11,036,634) (14,198,810) 0 (12,215,466)
---------------- ---------------- ---------------- ----------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 39,742,671 45,617,531 111,724,784 180,813,270
Reinvested dividends 10,763,492 13,809,167 347,867 12,758,387
Net asset value of shares redeemed (27,720,617) (49,851,500) (54,921,210) (71,767,717)
---------------- ---------------- ---------------- ----------------
Net increase in net assets from capital
share transactions 22,785,546 9,575,198 57,151,441 121,803,940
---------------- ---------------- ---------------- ----------------
Net increase (decrease) in net assets 22,560,017 (2,172,805) 82,278,718 113,119,222
NET ASSETS:
Beginning of period 167,514,493 169,687,298 304,672,758 191,553,536
---------------- ---------------- ---------------- ----------------
End of period $190,074,510 $167,514,493 $386,951,476 $304,672,758
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
</TABLE>
See Accompanying Notes to Financial Statements.
22
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus
International Equity Japan OTC
Fund Fund
------------------------------------ ---------------------------------------
For the Period
For the For the September 30, 1994
Six Months Ended For the Six Months Ended (Commencement of
April 30, 1995 Year Ended April 30, 1995 Operations) through
(Unaudited) October 31, 1994 (Unaudited) October 31, 1994
---------------- ---------------- ---------------- -------------------
<S> <C> <C> <C>
$ 7,489,189 $ 1,310,933 $ 17,700 $ 5,115
(53,266,705) 48,091,665 (1,943,522) 0
3,272,321 (2,772,944) (3,394,945) (294,437)
(110,594,381) 82,484,415 70,023 (35,099)
---------------- ---------------- ---------------- -------------------
(153,099,576) 129,114,069 (5,250,744) (324,421)
---------------- ---------------- ---------------- -------------------
(5,808,212) (1,764,380) 0 0
(332,184) (218,961) 0 0
0 (223,659) 0 0
0 0 0 0
(42,332,078) (1,047,367) 0 0
(5,756,403) (129,979) 0 0
---------------- ---------------- ---------------- -------------------
(54,228,877) (3,384,346) 0 0
---------------- ---------------- ---------------- -------------------
826,097,889 1,430,739,923 17,783,234 20,287,158
49,503,945 2,950,772 0 0
(345,979,679) (249,050,078) (5,837,595) (185,101)
---------------- ---------------- ---------------- -------------------
529,622,155 1,184,640,617 11,945,639 20,102,057
---------------- ---------------- ---------------- -------------------
322,293,702 1,310,370,340 6,694,895 19,777,636
1,733,275,503 422,905,163 19,878,636 101,000
---------------- ---------------- ---------------- -------------------
$2,055,569,205 $1,733,275,503 $ 26,573,531 $19,878,636
---------------- ---------------- ---------------- -------------------
---------------- ---------------- ---------------- -------------------
</TABLE>
23
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS
(For a Share of the Fund Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Shares
-----------------------------------------------------------------
For the Six
Months
Ended
April 30, For the Year Ended October 31,
1995 -------------------------------------------------
(Unaudited) 1994 1993 1992 1991 1990
----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.29 $15.32 $13.30 $12.16 $9.78 $11.48
----------- ------ ------ ------ ------ ------
Income From Investment Operations:
Net Investment Income (Loss) .03 .04 .05 .04 .15 .20
Net Gain (Loss) from Securities (both
realized and unrealized) .75 .17 2.78 1.21 2.41 (1.28)
----------- ------ ------ ------ ------ ------
Total From Investment Operations .78 .21 2.83 1.25 2.56 (1.08)
----------- ------ ------ ------ ------ ------
Less Distributions:
Dividends from net investment income .00 (.05) (.05) (.06) (.18) (.21)
Distributions from capital gains (.98) (1.19) (.76) (.05) .00 (.41)
----------- ------ ------ ------ ------ ------
Total Distributions (.98) (1.24) (.81) (.11) (.18) (.62)
----------- ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $14.09 $14.29 $15.32 $13.30 $12.16 $9.78
----------- ------ ------ ------ ------ ------
----------- ------ ------ ------ ------ ------
Total Return 13.25%* 1.65% 22.19% 10.40% 26.39% (10.11%)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $181,109 $159,346 $159,251 $117,900 $115,191 $76,537
Ratios to average daily net assets:
Operating expenses 1.08%* 1.05% 1.01% 1.06% 1.08% 1.04%
Net investment income (loss) .49%* .26% .30% .41% 1.27% 2.07%
Decrease reflected in above expense
ratios due to waivers/reimbursements .00% .01% .00% .01% .00% .01%
Portfolio turnover rate 153.53%* 51.87% 48.26% 55.83% 39.50% 37.10%
<CAPTION>
Advisor Shares
------------------------------------------------------------------
For the Period
For the Six April 4, 1991
Months Ended For the Year Ended October (Initial Issuance)
April 30, 31, Through
1995 ---------------------------- October 31,
(Unaudited) 1994 1993 1992 1991
------------ ------ ------ ------ ------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.22 $15.28 $13.28 $12.16 $12.04
------ ------ ------ ------ ------
Income From Investment Operations:
Net Investment Income (Loss) .00 .05 .00 (.01) .05
Net Gain (Loss) from Securities (both
realized and unrealized) .74 .10 2.76 1.20 .13
------ ------ ------ ------ ------
Total From Investment Operations .74 .15 2.76 1.19 .18
------ ------ ------ ------ ------
Less Distributions:
Dividends from net investment income .00 (.02) .00 (.02) (.06)
Distributions from capital gains (.98) (1.19) (.76) (.05) .00
------ ------ ------ ------ ------
Total Distributions (.98) (1.21) (.76) (.07) (.06)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $13.98 $14.22 $15.28 $13.28 $12.16
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total Return 12.70%* 1.23% 21.64% 9.83% 2.66%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $8,966 $8,169 $10,437 $1,655 $443
Ratios to average daily net assets:
Operating expenses 1.58%* 1.55% 1.51% 1.56% 1.63%*
Net investment income (loss) (.01%)* (.24%) (.25%) (.11%) .25%*
Decrease reflected in above expense
ratios due to waivers/reimbursements .00% .01% .00% .01% .01%*
Portfolio turnover rate 153.53%* 51.87% 48.26% 55.83% 39.50%
</TABLE>
* Annualized
See Accompanying Notes to Financial Statements.
24
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Warburg Pincus Equity Funds are comprised of Warburg Pincus Capital
Appreciation Fund (the 'Capital Appreciation Fund') and Warburg Pincus
International Equity Fund (the 'International Equity Fund') which are registered
under the Investment Company Act of 1940, as amended (the '1940 Act'), as
diversified, open-end management investment companies, and Warburg Pincus
Emerging Growth Fund (the 'Emerging Growth Fund') and Warburg Pincus Japan OTC
Fund (the 'Japan OTC Fund,' together with the Capital Appreciation Fund, the
International Equity Fund and the Emerging Growth Fund, the 'Funds') which are
registered under the 1940 Act as non-diversified, open-end management investment
companies.
Investment objectives for each Fund are as follows: the Capital
Appreciation Fund, the International Equity Fund and the Japan OTC Fund seek
long-term capital appreciation; the Emerging Growth Fund seeks maximum capital
appreciation.
The net asset value of each Fund is determined daily as of the close of
regular trading on the New York Stock Exchange. Each Fund's investments are
generally valued at market value, which is currently determined using the last
reported sales price. If no sales are reported, investments are valued at the
last reported bid price. In the absence of market quotations, investments are
generally valued at fair value as determined by or under the direction of the
Fund's governing Board. Short-term investments that mature in 60 days or less
are valued on the basis of amortized cost, which attempts to approximate market
value.
The books and records of the Funds are maintained in U.S. dollars.
Transactions denominated in foreign currencies are recorded at the current
prevailing exchange rates. All assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the current exchange rate.
Translation gains or losses resulting from changes in the exchange rate during
the reporting period and realized gains and losses on the settlement of foreign
currency transactions are reported in the results of operations for the current
period. The Funds do not isolate that portion of gains and losses on investments
in equity securities which are due to changes in the foreign exchange rate from
that which are due to changes in market prices of equity securities.
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
Income, expenses (excluding class-specific expenses) and realized/unrealized
gains/losses are allocated proportionately to each class of shares based upon
the relative net asset value of outstanding shares. 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 and paid semiannually for
all Funds. Distributions of net realized capital gains, if any, are declared
annually. However, to the extent that a net realized capital gain can be reduced
by a capital loss carryover, such gain will not be distributed. Income and
capital gain distributions are determined in accordance with Federal income tax
regulations which may differ from generally accepted accounting principles.
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.
28
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
Costs incurred by the Japan OTC Fund in connection with its organization
have been deferred and are being amortized over a period of five years from the
date the Japan OTC Fund commenced its operations.
Each Fund may enter into repurchase agreement transactions. Under the terms
of a typical repurchase agreement, a Fund acquires an underlying security
subject to an obligation of the seller to repurchase. The value of the
underlying security collateral will be maintained at an amount at least equal to
the total amount of the purchase obligation, including interest. The collateral
is in the Fund's possession.
2. INVESTMENT 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 receives the following fees based on each Fund's average daily net
assets:
<TABLE>
<CAPTION>
FUND ANNUAL RATE
- --------------------------------- ----------------------------------
<S> <C>
Capital Appreciation .70% of average daily net assets
Emerging Growth .90% of average daily net assets
International Equity 1.00% of average daily net assets
Japan OTC 1.25% of average daily net assets
</TABLE>
For the six months ended April 30, 1995, investment advisory fees, waivers
and reimbursements were as follows:
<TABLE>
<CAPTION>
GROSS NET EXPENSE
FUND ADVISORY FEE WAIVER ADVISORY FEE REIMBURSEMENTS
- ------------------------------------------ ------------ ---------- ------------ --------------
<S> <C> <C> <C> <C>
Capital Appreciation $ 572,180 $ 0 $ 572,180 $ 0
Emerging Growth 1,428,874 0 1,428,874 0
International Equity 8,871,020 0 8,871,020 0
Japan OTC 141,840 (141,840) 0 116,312
</TABLE>
SPARX Investment & Research, USA, Inc. ('SPARX USA') serves as
sub-investment adviser for the Japan OTC Fund. From its investment advisory fee,
Counsellors pays SPARX USA a fee at an annual rate of .625% of the average daily
net assets of the Japan OTC Fund. No compensation is payable by the Japan OTC
Fund to SPARX USA for its sub-investment advisory services.
Counsellors Funds Service, Inc. ('CFSI'), a wholly owned subsidiary of
Counsellors, and PFPC Inc. ('PFPC'), an indirect, wholly owned subsidiary of PNC
Bank Corp. ('PNC'), serve as each Fund's co-administrators. For its
administrative services, CFSI receives a fee calculated at an annual rate of
.10% of each Fund's average daily net assets. For the six months ended April 30,
1995, administrative services fees earned by CFSI were as follows:
<TABLE>
<CAPTION>
FUND CO-ADMINISTRATION FEE
- ------------------------------------------- ------------------------------
<S> <C>
Capital Appreciation $ 81,740
Emerging Growth 158,764
International Equity 887,102
Japan OTC 11,347
</TABLE>
29
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended April 30, 1995, administrative services fees
earned by PFPC were as follows:
<TABLE>
<CAPTION>
FUND CO-ADMINISTRATION FEE
- ------------------------------------------- ------------------------------
<S> <C>
Capital Appreciation $ 81,740
Emerging Growth 158,764
International Equity 629,511
Japan OTC 42,500
</TABLE>
Counsellors Securities Inc. ('CSI'), also a wholly owned subsidiary of
Counsellors, serves as each Fund's distributor. No compensation is payable by
the Capital Appreciation Fund, the Emerging Growth Fund or the International
Equity Fund to CSI for distribution services. For distribution services with
respect to the Common Shares of the Japan OTC Fund, CSI receives a fee at an
annual rate of .25% of the Japan OTC Fund's average daily net assets
attributable to the Common Shares; no compensation is payable to CSI with
respect to the Fund's Advisor Shares. For the six months ended April 30, 1995,
CSI earned $28,368 in distribution fees.
3. INVESTMENTS IN SECURITIES
For the six months ended April 30, 1995, purchases and sales of investment
securities (excluding short-term investments) were as follows:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
- ------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Capital Appreciation $132,677,612 $117,699,248
Emerging Growth 191,272,370 144,738,127
International Equity 550,909,981 176,630,818
Japan OTC 23,632,862 13,544,562
</TABLE>
At April 30, 1995, the net unrealized appreciation from investments for
those securities having an excess of value over cost and net unrealized
depreciation from investments for those securities having an excess of cost over
value (based on cost for Federal income tax purposes) was as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
- --------------------------------- ------------ -------------- --------------
<S> <C> <C> <C>
Capital Appreciation $ 35,905,406 $ (2,026,288) $ 33,879,118
Emerging Growth 69,461,748 (7,067,044) 62,394,704
International Equity 174,273,357 (142,868,247) 31,405,110
Japan OTC 1,197,112 (1,147,261) 49,851
</TABLE>
4. FORWARD FOREIGN CURRENCY CONTRACTS
The International Equity Fund and the Japan OTC Fund may enter into forward
currency contracts for the purchase or sale of a specific foreign currency at a
fixed price on a future date. Risks may arise upon entering into these contracts
from the potential inability of counterparties to meet the
30
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
terms of their contracts and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar. Each Fund may enter into forward
contracts for hedging purposes or to increase income and total return. The
forward currency contracts are adjusted by the daily exchange rate of the
underlying currency and any gains or losses are recorded for financial statement
purposes as unrealized until the contract settlement date.
At April 30, 1995, the International Equity Fund had the following open
forward currency contract and had recorded an unrealized loss of $1,662,070:
<TABLE>
<CAPTION>
SETTLEMENT CURRENCY CURRENCY
DATE BOUGHT SOLD
- ---------- ------------------------ ---------------------------
<S> <C> <C>
06/21/95 55,000,000 U.S. Dollars 4,725,050,000 Japanese Yen
</TABLE>
At April 30, 1995, the Japan OTC Fund had the following open forward
currency contract and had recorded an unrealized gain of $13,751:
<TABLE>
<CAPTION>
SETTLEMENT CURRENCY CURRENCY
DATE BOUGHT SOLD
- ---------- ------------------------ ---------------------------
<S> <C> <C>
05/31/95 23,000,000 U.S. Dollars 1,922,340,000 Japanese Yen
</TABLE>
5. CAPITAL SHARE TRANSACTIONS; ADVISOR SHARES
The Emerging Growth Fund, the International Equity Fund and the Japan OTC
Fund are each authorized to issue three billion full and fractional shares of
capital stock, $.001 par value per share, of which one billion shares are
designated Advisor Shares. The Capital Appreciation Fund is authorized to issue
an unlimited number of full and fractional shares of beneficial interest, $.001
par value per share, of which one billion shares are classified as Advisor
Shares. Advisor Shares are identical to Common Shares in all respects except
that Advisor Shares are sold to institutions ('Service Organizations') that
perform certain distribution, shareholder servicing, accounting and/or
administrative services for their customers who are beneficial owners of Advisor
Shares. Advisor Shares bear the fees paid pursuant to a distribution plan
adopted by each Fund in an amount not to exceed .75% (on an annualized basis) of
the average daily net asset value of the shares held by the Service
Organizations for the benefit of their customers and enjoy certain exclusive
voting rights on matters relating to those fees.
With respect to Advisor Shares, Service Organizations earned the following
shareholder servicing fees for the six months ended April 30, 1995:
<TABLE>
<CAPTION>
FUND SHAREHOLDER SERVICING FEES
- ----------------------------------------------- --------------------------
<S> <C>
Capital Appreciation $ 20,418
Emerging Growth 188,426
International Equity 532,559
</TABLE>
31
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in shares of each Fund were as follows:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND EMERGING GROWTH FUND
Common Shares Advisor Shares Common Shares Advisor Shares
-------------------------- -------------------------- -------------------------- --------------------------
For the Six For the Six For the Six For the Six
Months Ended For the Months Ended For the Months Ended For the Months Ended For the
April 30, Year Ended April 30, Year Ended April 30, Year Ended April 30, Year Ended
1995 October 31, 1995 October 31, 1995 October 31, 1995 October 31,
(Unaudited) 1994 (Unaudited) 1994 (Unaudited) 1994 (Unaudited) 1994
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 2,912,613 2,958,494 78,480 290,193 3,619,699 6,133,751 1,394,795 2,233,737
Shares issued to
shareholders on
reinvestment of
dividends 818,282 920,210 46,554 61,526 15,653 506,720 0 80,473
Shares redeemed (2,028,054) (3,126,497) (58,310) (460,020) (2,361,976) (2,859,413) (162,815) (517,898)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Net increase
(decrease) in
shares
outstanding 1,702,841 752,207 66,724 (108,301) 1,273,376 3,781,058 1,231,980 1,796,312
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Proceeds from
sale of shares $38,700,495 $41,570,590 $1,042,176 $ 4,046,941 $81,131,951 $132,922,995 $30,592,833 $47,890,275
Reinvested
dividends 10,187,616 12,945,690 575,876 863,477 347,867 11,015,146 0 1,743,241
Net asset value
of shares
redeemed (26,954,367) (43,449,501) (766,250) (6,401,999) (51,476,215) (61,126,667) (3,444,995) (10,641,050)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Net increase
(decrease) from
capital share
transactions $21,933,744 $11,066,779 $ 851,802 $(1,491,581) $30,003,603 $82,811,474 $27,147,838 $38,992,466
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
6. NET ASSETS
Net Assets at April 30, 1995, consisted of the following:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND EMERGING GROWTH FUND
Common Shares Advisor Shares Total Common Shares Advisor Shares Total
------------- -------------- ------------ ------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Capital contributed, net $140,449,920 $8,912,717 $149,362,637 $228,499,590 $ 87,395,078 $315,894,668
Accumulated net investment
income (loss) 377,867 (334) 377,533 0 0 0
Accumulated net realized
gain (loss) from security
transactions 6,503,951 (48,729) 6,455,222 7,352,467 1,270,253 8,622,720
Net unrealized appreciation
(depreciation) from
investments and foreign
currency related items 33,776,938 102,180 33,879,118 53,373,929 9,060,159 62,434,088
------------- -------------- ------------ ------------- -------------- ------------
Net assets $181,108,676 $8,965,834 $190,074,510 $289,225,986 $ 97,725,490 $386,951,476
------------- -------------- ------------ ------------- -------------- ------------
------------- -------------- ------------ ------------- -------------- ------------
</TABLE>
32
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
Common Shares Advisor Shares
----------------------------- ---------------------------
For the Six For the Six
Months Ended For the Months Ended For the
April 30, Year Ended April 30, Year Ended
1995 October 31, 1995 October 31,
(Unaudited) 1994 (Unaudited) 1994
------------ -------------- ------------ ------------
<S> <C> <C> <C>
41,252,304 64,218,907 4,502,485 7,956,088
2,339,190 147,031 329,647 6,879
(19,160,200) (11,861,720) (224,062) (795,406)
------------ -------------- ------------ ------------
24,431,294 52,504,218 4,608,070 7,167,561
------------ -------------- ------------ ------------
------------ -------------- ------------ ------------
$745,654,489 $1,275,306,263 $80,443,400 $155,433,660
43,415,366 2,820,903 6,088,579 129,869
(341,896,486) (233,614,600) (4,083,193) (15,435,478)
------------ -------------- ------------ ------------
$447,173,369 $1,044,512,566 $82,448,786 $140,128,051
------------ -------------- ------------ ------------
------------ -------------- ------------ ------------
<CAPTION>
JAPAN OTC FUND
Common Shares Advisor Shares
----------------------------------- ----------------------------------
For the Period For the Period
For the Six September 30, 1994 For the Six September 30, 1994
Months Ended (Commencement of Months Ended (Commencement of
April 30, Operations) Through April 30, Operations) Through
1995 October 31, 1995 October 31,
(Unaudited) 1994 (Unaudited) 1994
------------- ------------------- ------------ -------------------
<S> <C> <C> <C>
2,027,520 2,025,697 0 15
0 0 0 0
(657,861) (18,605) 0 0
------------- ---------- - ---
1,369,659 2,007,092 0 15
------------- ---------- - ---
------------- ---------- - ---
$ 17,783,234 $20,287,008 $0 $ 150
0 0 0 0
(5,837,595) (185,101) 0 0
------------- ---------- - ---
$ 11,945,639 $20,101,907 $0 $ 150
------------- ---------- - ---
------------- ---------- - ---
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND JAPAN OTC FUND
Common Shares Advisor Shares Total Common Shares Advisor Shares Total
-------------- -------------- -------------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
$1,815,331,961 $262,660,894 $2,077,992,855 $28,492,692 $1,028 $28,493,720
8,381,424 977,793 9,359,217 0 0 0
(54,458,264) (7,888,102) (62,346,366) (1,955,020) (93) (1,955,113)
27,448,056 3,115,443 30,563,499 34,958 (34) 34,924
-------------- -------------- -------------- ------------- ------ -----------
$1,796,703,177 $258,866,028 $2,055,569,205 $26,572,630 $ 901 $26,573,531
-------------- -------------- -------------- ------------- ------ -----------
-------------- -------------- -------------- ------------- ------ -----------
</TABLE>
33
- --------------------------------------------------------------------------------
STATEMENT OF DIFFERENCES
The divided by symbol will be expressed as ....................... [div]
<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) Audited Financial Statements included in Part B:
(a) Report of Coopers & Lybrand L.L.P., Independent
Auditors
(b) Statement of Net Assets at October 31, 1994
(c) Statement of Operations for the year ended October
31, 1994
(d) Statement of Changes in Net Assets for the years
ended October 31, 1993 and October 31, 1994
(e) Financial Highlights (for a share of the Fund
outstanding throughout each period) at October 31 of
each of the years 1990-1994 (for common shares), and
from April 4, 1991 through October 31, 1991 and for
each of the three years ended October 31, 1992 - 1994
(for Advisor shares)
(f) Notes to Financial Statements
(3) Unaudited Financial Statements included in Part B
(a) Statement of Net Assets at April 30, 1995
(b) Statement of Operations for the six months ended
April 30, 1995
(c) Statement of Changes in Net Assets for the year ended
October 31, 1994 and the six months ended April 30,
1995
(d) Financial Highlights (for a share of the Fund
outstanding throughout each period) at October 31 of
each of the years 1990-1994 and for the six months
ended April 30, 1995 (common shares); and for the
period April 4, 1991 through October 31, 1991, at
October 31 of each of the years
1992-1994 and for the six months ended April 30,
1995 (Advisor shares)
(e) Notes to Financial Statements
<PAGE>C-2
(b) Exhibits:
Exhibit No. Description of Exhibit
- ----------- ----------------------
1 Agreement and Declaration of Trust.
2 Second Amended and Restated By-Laws.
3 Not applicable.
4 Forms of certificates for beneficial interest.*
5 Form of Investment Advisory Agreement.
6(a) Form of Distribution Agreement between the Fund and
Counsellors Securities Inc.**
(b) Form of Distribution Agreement between Counsellors
Securities Inc. and CIGNA Securities Inc.**
(c) Form of Selected Dealer Agreement between Counsellors
Securitites Inc. and CIGNA Securities Inc.**
7 Not applicable.
8(a) Custodian Agreement.**
9(a) Transfer Agency Agreement.*
- ------------------------
* Incorporated by reference; material provisions of this exhibit
substantially similar to those of this exhibit in Pre-Effective Amendment
No. 1 to the Registration Statement on Form N-1A of Warburg, Pincus Trust
filed on June 14, 1995 (Securities Act File No. 33-58125; EDGAR Accession
No. 950117-95-221).
** Incorporated by reference; material provisions of this exhibit
substantially similar to those of this exhibit in Post-Effective
Amendment No. 10 to the Registration Statement on Form N-1A of
Counsellors International Equity Fund, Inc. filed on September 22, 1995
(Securities Act File No. 33-27031).
<PAGE>C-3
Exhibit No. Description of Exhibit
- ----------- ----------------------
(b-1) Form of Co-Administration Agreement with Counsellors Funds
Service, Inc.*
(b-2) Form of Co-Administration Agreement with PFPC Inc.**
10(a) Consent of Willkie Farr & Gallagher.
(b) Opinion of Willkie Farr & Gallagher.***
11(a) Consent of Coopers & Lybrand L.L.P., Independent Auditors.
(b) Consent of Ernst & Young LLP, Independent Auditors.
12 Not applicable.
13 Form of Purchase Agreement.
14 Retirement Plans.****
15(a) Shareholder Services Plan.**
(b) Distribution Plan.**
(c) Rule 18f-3 Plan.**
16 Schedule for Computation of Total Return Performance
Quotation.
17(a) Financial Data Schedule relating to semiannual financials
(Common Shares).
(b) Financial Data Schedule relating to semiannual financials
(Advisor Shares).
- ------------------------
*** Incorporated by reference to Opinion of Willkie Farr & Gallagher
filed with Registrant's Rule 24f-2 Notice which was filed with the
SEC on December 29, 1994.
**** Incorporated by reference to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of Warburg, Pincus Managed Bond
Trust, filed on February 28, 1995 (Securities Act File No. 33-73672).
<PAGE>C-4
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. ("EMW") 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, Chairman of the Board and Chief Executive Officer of EMW,
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
Number of Record Holders
Title of Class as of August 31, 1995
-------------- ------------------------
Shares of beneficial interest,
par value $.001 per share 2,990
Shares of beneficial interest,
par value $.001 per share
- Series 1 0
Shares of beneficial interest,
par value $.001 per share
- Series 2 (Advisor shares)
5
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. These policies provide insurance
for any "Wrongful Act" of an officer, director or trustee. Wrongful Act is
defined as breach of duty, neglect, error, misstatement, misleading statement,
omission or other act done or wrongfully attempted by an officer, director or
trustee in connection with the operation of Registrant. Insurance coverage
does not extend to (a) conflicts of interest or gaining in fact any profit or
advantage to which one is not legally entitled, (b) intentional non-compliance
with any statute or regulation or (c) commission of dishonest, fraudulent acts
or omissions. Insofar as it relates to Registrant, the coverage is limited in
amount and, in certain circumstances, is subject to a deductible.
Under Section 8.1 of the Agreement and Declaration of Trust (the
"Agreement"), the Trustees and officers of Registrant,
<PAGE>C-5
in incurring any debts, liabilities or obligations, or in limiting or omitting
any other actions for or in connection with Registrant, are or shall be deemed
to be acting as Trustees or officers of Registrant and not in their own
capacities. No Trustee, officer, employee or agent of the Trust shall be
subject to any personal liability whatsoever in tort, contract, or otherwise,
to any other person or persons in connection with the assets or affairs of
Registrant save only that arising from his own willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct
of his office or the discharge of his functions. Registrant shall be solely
liable for any and all debts, claims, demands, judgments, decrees, liabilities
or obligations of any and every kind, against or with respect to Registrant in
tort, contract or otherwise in connection with the assets or the affairs of
Registrant and all persons dealing with Registrant shall be deemed to have
agreed that resort shall be had solely to the Trust Property (as defined in
the Agreement) of Registrant for the payment or performance thereof.
Section 8.2 of the Agreement and further limits the liability of the
Trustees by providing that a Trustee shall not be liable for errors of
judgment or mistakes of fact or law. Furthermore, (i) the Trustees shall not
be responsible or liable in any event for any neglect or wrongdoing of any
officer, agent, employee, consultant, Investment Advisor, Administrator,
Distributor or Principal Underwriter, Custodian or Transfer Agent, Dividend
Disbursing Agent, Shareholder Servicing Agent or Accounting Agent (as such
terms are defined in the Agreement) of Registrant, nor shall any Trustee be
responsible for the act or omission of any other Trustee; (ii) the Trustees
may take advice of counsel or other experts with respect to the meaning and
operation of the Agreement and their duties as Trustees, and shall be under no
liability for any act or omission in accordance with such advice or for
failing to follow such advice; and (iii) in discharging their duties, the
Trustees, when acting in good faith, shall be entitled to rely upon the books
of account of Registrant and upon written reports made to the Trustees by any
officer appointed by them, any independent public accountant, and (with
respect to the subject matter of the contract involved) any officer, partner
or responsible employee of a Contracting Party (as defined in the Agreement)
appointed by the Trustees pursuant to Section 5.2 of the Agreement. The
Trustees are not required to give any bond or surety or any other security for
the performance of their duties.
Under Section 8.4 of the Agreement any past or present Trustee
or officer of Registrant (including persons who serve at Registrant's request
as directors, officers or trustees of another organization in which Registrant
has any interest as a shareholder, creditor or otherwise (hereinafter referred
to as a "Covered Person")) is indemnified to the fullest extent permitted
<PAGE>C-6
by law against liability and all expenses reasonably incurred by him in
connection with any action, suit or proceeding to which he may be a party or
otherwise involved by reason of his being or having been a Covered Person.
This provision does not authorize indemnification when it is determined, in
the manner specified in the Agreement that such Covered Person has not acted
in good faith in the reasonable belief that his actions were in or not opposed
to the best interests of Registrant. Moreover, this provision does not
authorize indemnification when it is determined, in the manner specified in
the Agreement that such Covered Person would otherwise be liable to Registrant
or its shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of his duties. Expenses may be paid by
Registrant in advance of the final disposition of any action, suit or
proceeding upon receipt of an undertaking by such Covered Person to repay such
expenses to Registrant in the event that it is ultimately determined that
indemnification of such expenses is not authorized under the Agreement and
either (i) the Covered Person provides security for such undertaking, (ii)
Registrant is insured against losses from such advances or (iii) the
disinterested Trustees or independent legal counsel determines, in the manner
specified in the Agreement that there is reason to believe the Covered Person
will be found to be entitled to indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended (the "Act"), may be permitted to Trustees,
officers and controlling persons of Registrant pursuant to the foregoing
provisions, or otherwise, Registrant has been advised that in the opinion of
the Securities and Exchange Commission ("SEC") such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by Registrant of expenses incurred or paid by a Trustee,
officer or controlling person of Registrant in the successful defense of any
action, suit or proceeding) is asserted by such Trustee, officer or
controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
Item 28. Business and Other Connections of
Investment Adviser
Counsellors, a wholly owned 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
<PAGE>C-7
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. 801-07321).
Item 29. Principal Underwriter
(a) Counsellors Securities will act as distributor for Registrant.
Counsellors Securities currently acts as distributor for 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 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 Post-Venture Capital Fund; Warburg, Pincus New
York Tax Exempt Fund; The RBB Fund, Inc.; Warburg, Pincus Short-Term Tax-
Advantaged Bond Fund and Warburg, Pincus Trust.
(b) For information relating to each director, officer or partner
of Counsellors Securities, reference is made to Form BD (SEC File No. 8-32482)
filed by Counsellors Securities under the Securities Exchange Act of 1934, as
amended.
Item 30. Location of Accounts and Records
(1) Warburg, Pincus Capital Appreciation Fund
466 Lexington Avenue
New York, New York 10017-3147
(Fund's Agreement and Declaration of Trust,
by-laws and minute books)
(2) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(records relating to its functions as transfer agent and
dividend disbursing agent)
(3) PFPC Inc.
103 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as co-administrator)
(4) Counsellors Funds Service, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as co-administrator)
<PAGE>C-8
(5) PNC Bank, National Association
Broad and Chestnut Streets
Philadelphia, Pennsylvania 19101
(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-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and the State of New York,
on the 20th day of September, 1995.
WARBURG, PINCUS CAPITAL
APPRECIATION FUND
By:/s/George U. Wyper
George U. Wyper
Co-President
By:/s/Susan L. Black
Susan L. Black
Co-President
<PAGE>C-10
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(a) 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 the State of New York, on the 20th day of September, 1995.
WARBURG, PINCUS CAPITAL
APPRECIATION FUND
By: /s/ John L. Furth
John L. Furth
Chairman of the Board
POWER OF ATTORNEY
Each person whose signature appears below on this Amendment to
Registration Statement hereby constitutes and appoints John L. Furth and
Arnold M. Reichman and each of them, with full power to act without the other,
his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities (until revoked in writing) to sign any and all
amendments to this Registration Statement (including post-effective amendments
and amendments thereto), and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment has been signed below by the following persons in the
capacities and on the date indicated:
Signature Title Date
- --------- ----- ----
/s/ John L. Furth Chairman of the September 20, 1995
John L. Furth Board and Trustee
/s/ Stephen Distler Vice President and September 20, 1995
Stephen Distler Chief Financial Officer
<PAGE>C-11
/s/ Howard Conroy Vice President, September 20, 1995
Howard Conroy Treasurer and Chief
Accounting Officer
/s/ Richard N. Cooper Trustee September 20, 1995
Richard N. Cooper
/s/ Donald J. Donahue Trustee September 20, 1995
Donald J. Donahue
/s/ Jack W. Fritz Trustee September 20, 1995
Jack W. Fritz
/s/ Thomas A. Melfe Trustee September 20, 1995
Thomas A. Melfe
/s/ Alexander B. Trowbridge Trustee September 20, 1995
Alexander B. Trowbridge
<PAGE>C-12
POWER OF ATTORNEY
Each person whose signature appears below on this Amendment to
Registration Statement hereby constitutes and appoints John L. Furth and
Arnold M. Reichman and each of them, with full power to act without the other,
his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities (until revoked in writing) to sign any and all
amendments to this Registration Statement (including post-effective amendments
and amendments thereto), and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment has been signed below by the following persons in the
capacities and on the date indicated:
Signature Title Date
- --------- ----- ----
/s/ George U. Wyper Co-President September 20, 1995
George U. Wyper
/s/ Susan L. Black Co-President September 20, 1995
Susan L. Black
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
1 Agreement and Declaration of Trust.
2 Second Amended and Restated By-Laws.
3 Not applicable.
4 Forms of certificates for beneficial interest.*
5 Form of Investment Advisory Agreement.
6(a) Form of Distribution Agreement between the Fund and Counsellors
Securities Inc.**
(b) Form of Distribution Agreement between Counsellors Securities
Inc. and CIGNA Securities Inc.**
(c) Form of Selected Dealer Agreement between Counsellors
Securities Inc. and CIGNA Securities Inc.**
7 Not applicable.
8(a) Custodian Agreement.**
9(a) Transfer Agency Agreement.*
(b-1) Form of Co-Administration Agreement with Counsellors Funds
Service, Inc.*
(b-2) Form of Co-Administration Agreement with PFPC Inc.**
- ------------------------
* Incorporated by reference; material provisions of this exhibit
substantially similar to those of this exhibit in Pre-Effective Amendment
No. 1 to the Registration Statement on Form N-1A of Warburg, Pincus Trust
filed on June 14, 1995 (Securities Act File No. 33-58125; EDGAR Accession
No. 950117-95-221).
** Incorporated by reference; material provisions of this exhibit
substantially similar to those of this exhibit in Post-
Effective Amendment No. 10 to the Registration Statement on Form N-1A of
Counsellors International Equity Fund, Inc.filed on September 22,
1995 (Securities Act File No. 33-27031).
<PAGE>
Exhibit No. Description of Exhibit
- ----------- ----------------------
10(a) Consent of Willkie Farr & Gallagher.
(b) Opinion of Willkie Farr & Gallagher.***
11(a) Consent of Coopers & Lybrand L.L.P., Independent Auditors.
(b) Consent of Ernst & Young LLP, Independent Auditors.
12 Not applicable.
13 Form of Purchase Agreement.
14 Retirement Plans.****
15(a) Shareholder Services Plan.**
(b) Distribution Plan.**
(c) Rule 18f-3 Plan.**
16 Schedule for Computation of Total Return Performance Quotation.
17(a) Financial Data Schedule relating to semiannual financials
(Common Shares).
(b) Financial Data Schedule relating to semiannual financials
(Advisor Shares).
- ------------------------
*** Incorporated by reference to Opinion of Willkie Farr & Gallagher
filed with Registrant's Rule 24f-2 Notice which was filed
with the SEC on December 29, 1994.
**** Incorporated by reference to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of Warburg, Pincus Managed Bond
Trust, filed on February 28, 1995 (Securities Act File No. 33-73672).
<PAGE>1
COUNSELLORS CAPITAL APPRECIATION FUND
_______________________________
AGREEMENT AND DECLARATION OF TRUST
_______________________________
Dated: January 20, 1987
<PAGE>2
COUNSELLORS CAPITAL APPRECIATION FUND
AGREEMENT AND DECLARATION OF TRUST
Index
Page
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1 THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.1. Name . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.2. Location . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.3. Nature of Trust . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.4. Definitions . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 1.5. Real Property to be Converted into Personal Property . . . 7
ARTICLE 2 PURPOSE OF THE TRUST . . . . . . . . . . . . . . . . . . . 7
ARTICLE 3 POWERS OF THE TRUSTEES . . . . . . . . . . . . . . . . . . 8
SECTION 3.1. Powers in General . . . . . . . . . . . . . . . . . . . . 8
(a) Investments . . . . . . . . . . . . . . . . . . . . . 9
(b) Disposition of Assets . . . . . . . . . . . . . . . . 9
(c) Ownership Powers . . . . . . . . . . . . . . . . . . 10
(d) Form of Holding . . . . . . . . . . . . . . . . . . . 10
(e) Reorganization, etc . . . . . . . . . . . . . . . . . 10
(f) Voting Trusts, etc . . . . . . . . . . . . . . . . . 10
(g) Contracts, etc . . . . . . . . . . . . . . . . . . . 11
(h) Guarantees, etc . . . . . . . . . . . . . . . . . . . 11
(i) Partnerships, etc . . . . . . . . . . . . . . . . . . 11
(j) Insurance . . . . . . . . . . . . . . . . . . . . . . 11
(k) Pensions, etc . . . . . . . . . . . . . . . . . . . . 11
(l) Power of Collection and Litigation . . . . . . . . . 12
(m) Issuance and Repurchase of Shares . . . . . . . . . . 12
(n) Offices . . . . . . . . . . . . . . . . . . . . . . . 12
(o) Expenses . . . . . . . . . . . . . . . . . . . . . . 12
(p) Agents, etc . . . . . . . . . . . . . . . . . . . . . 12
(q) Accounts . . . . . . . . . . . . . . . . . . . . . . 13
(r) Valuation . . . . . . . . . . . . . . . . . . . . . . 13
(s) Indemnification . . . . . . . . . . . . . . . . . . . 13
(t) General . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 3.2. Borrowings; Financings; Issuance of Securities . . . . . . 13
SECTION 3.3. Deposits . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 3.4. Allocations . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 3.5. Further Powers; Limitations . . . . . . . . . . . . . . . 15
<PAGE>3
ARTICLE 4 TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . 15
SECTION 4.1. Number, Designation, Election, Term, etc . . . . . . . . . 15
(a) Initial Trustee . . . . . . . . . . . . . . . . . . . 15
(b) Number . . . . . . . . . . . . . . . . . . . . . . . 15
(c) Election and Term . . . . . . . . . . . . . . . . . . 15
(d) Resignation and Retirement . . . . . . . . . . . . . 16
(e) Removal . . . . . . . . . . . . . . . . . . . . . . . 16
(f) Vacancies . . . . . . . . . . . . . . . . . . . . . . 16
(g) Acceptance of Trusts . . . . . . . . . . . . . . . . 17
(h) Effect of Death, Resignation, etc . . . . . . . . . . 17
(i) Conveyance . . . . . . . . . . . . . . . . . . . . . 17
(j) No Accounting . . . . . . . . . . . . . . . . . . . . 18
(k) Filings . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 4.2. Trustees' Meetings; Participation by Telephone, etc . . . 18
SECTION 4.3. Committees; Delegation . . . . . . . . . . . . . . . . . . 19
SECTION 4.4. Officers . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 4.5. Compensation of Trustees and Officers . . . . . . . . . . 19
SECTION 4.6. Ownership of Shares and Securities of
the Trust . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 4.7. Right of Trustees and Officers to Own
Property or to Engage in Business; Authority
of Trustees to Permit Others to Do Likewise . . . . . . . 20
SECTION 4.8. Reliance on Experts . . . . . . . . . . . . . . . . . . . 20
SECTION 4.9. Surety Bonds . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 4.10. Apparent Authority of Trustees and Officers . . . . . . . 21
SECTION 4.11. Other Relationships Not Prohibited . . . . . . . . . . . . 21
SECTION 4.12. Payment of Trust Expenses . . . . . . . . . . . . . . . . 22
SECTION 4.13. Ownership of the Trust Property . . . . . . . . . . . . . 22
ARTICLE 5 DELEGATION OF MANAGERIAL RESPONSIBILITIES . . . . . . . . 23
SECTION 5.1. Appointment; Action by Less than All Trustees . . . . . . 23
SECTION 5.2. Certain Contracts . . . . . . . . . . . . . . . . . . . . 23
(a) Advisory . . . . . . . . . . . . . . . . . . . . . . 24
(b) Administration . . . . . . . . . . . . . . . . . . . 24
(c) Distribution . . . . . . . . . . . . . . . . . . . . 24
(d) Custodian . . . . . . . . . . . . . . . . . . . . . . 25
(e) Transfer and Dividend Disbursing Agency . . . . . . . 25
(f) Shareholder Servicing . . . . . . . . . . . . . . . . 25
(g) Accounting . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 6 PORTFOLIOS AND SHARES . . . . . . . . . . . . . . . . . . 26
SECTION 6.1. Description of Portfolios and Shares . . . . . . . . . . . 26
(a) Shares; Portfolios; Series of Shares . . . . . . . . 26
<PAGE>4
(b) Establishment, etc. of Portfolios; Authorization of
Shares . . . . . . . . . . . . . . . . . . . . . . . 26
(c) Character of Separate Portfolios and
Shares Thereof . . . . . . . . . . . . . . . . . . . 27
(d) Consideration for Shares . . . . . . . . . . . . . . 27
SECTION 6.2. Establishment and Designation of Counsellors Capital
Appreciation Portfolio; General
Provisions for All Portfolios . . . . . . . . . . . . . . 28
(a) Assets Belonging to Portfolios . . . . . . . . . . . 28
(b) Liabilities of Portfolios . . . . . . . . . . . . . . 29
(c) Dividends . . . . . . . . . . . . . . . . . . . . . . 29
(d) Liquidation . . . . . . . . . . . . . . . . . . . . . 30
(e) Voting . . . . . . . . . . . . . . . . . . . . . . . 30
(f) Redemption by Shareholder . . . . . . . . . . . . . . 30
(g) Redemption at the Option of the Trust . . . . . . . . 31
(h) Net Asset Value . . . . . . . . . . . . . . . . . . . 31
(i) Transfer . . . . . . . . . . . . . . . . . . . . . . 31
(j) Equality . . . . . . . . . . . . . . . . . . . . . . 32
(k) Rights of Fractional Shares . . . . . . . . . . . . . 32
(l) Conversion Rights . . . . . . . . . . . . . . . . . . 32
SECTION 6.3. Ownership of Shares . . . . . . . . . . . . . . . . . . . 32
SECTION 6.4. Investments in the Trust . . . . . . . . . . . . . . . . . 33
SECTION 6.5. No Pre-emptive Rights . . . . . . . . . . . . . . . . . . 33
SECTION 6.6. Status of Shares . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE 7 SHAREHOLDERS' VOTING POWERS AND MEETINGS . . . . . . . . . 33
SECTION 7.1. Voting Powers . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 7.2. Number of Votes and Manner of Voting; Proxies . . . . . . 34
SECTION 7.3. Meetings . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 7.4. Record Dates . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 7.5. Quorum and Required Vote . . . . . . . . . . . . . . . . . 36
SECTION 7.6. Action by Written Consent . . . . . . . . . . . . . . . . 36
SECTION 7.7. Inspection of Records . . . . . . . . . . . . . . . . . . 36
SECTION 7.8. Additional Provisions . . . . . . . . . . . . . . . . . . 36
ARTICLE 8 LIMITATION OF LIABILITY; INDEMNIFICATION . . . . . . . . . 36
SECTION 8.1. Trustees, Shareholders, etc. Not Personally Liable; Notice 36
SECTION 8.2. Trustees' Good Faith Action; Expert Advice; No Bond or Surety
37
SECTION 8.3. Indemnification of Shareholders . . . . . . . . . . . . . 38
SECTION 8.4. Indemnification of Trustees, Officers, etc . . . . . . . . 38
SECTION 8.5. Compromise Payment . . . . . . . . . . . . . . . . . . . . 40
SECTION 8.6. Indemnification Not Exclusive, etc . . . . . . . . . . . . 40
SECTION 8.7. Liability of Third Persons Dealing with
Trustees . . . . . . . . . . . . . . . . . . . . . . . . . 40
<PAGE>5
ARTICLE 9 DURATION; REORGANIZATION; AMENDMENTS . . . . . . . . . . . 40
SECTION 9.1. Duration and Termination of Trust . . . . . . . . . . . . 40
SECTION 9.2. Reorganization . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 9.3. Amendments; etc . . . . . . . . . . . . . . . . . . . . . 42
SECTION 9.4. Filing of Copies of Declaration and Amendments . . . . . . 42
ARTICLE 10 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 10.1. Governing Law . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 10.2. Counterparts . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 10.3. Reliance by Third Parties . . . . . . . . . . . . . . . . 43
SECTION 10.4. References; Headings . . . . . . . . . . . . . . . . . . . 43
SECTION 10.5. Use of the Name "Counsellors" . . . . . . . . . . . . . . 44
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
<PAGE>6
AGREEMENT AND DECLARATION OF TRUST
OF
COUNSELLORS CAPITAL APPRECIATION FUND
This AGREEMENT AND DECLARATION OF TRUST, made at Boston, Massachusetts
this 20th day of January, 1987, by and between the Settlor and the Trustee
whose signature is set forth below (the "Initial Trustee"),
W I T N E S S E T H T H A T:
WHEREAS, Virginia Spencer, an individual residing in Boston,
Massachusetts (the "Settlor"), proposes to deliver to the Initial Trustee the
sum of one hundred dollars ($100.00) lawful money of the United States of
America in trust hereunder and to authorize the Initial Trustee and all other
Persons acting as Trustees hereunder to employ such funds, and any other funds
coming into their hands or the hands of their successor or successors as such
Trustees, to carry on the business of an investment company, and as such of
buying, selling, investing in or otherwise dealing in and with stocks, bonds,
debentures, warrants, options, futures contracts and other securities and
interests therein, or calls or puts with respect to any of the same, or such
other and further investment media and other property as the Trustees may deem
advisable, which are not prohibited by law or the terms of this Declaration;
and
WHEREAS, the Initial Trustee is willing to accept such sum, together with
any and all additions thereto and the income or increments thereof, upon the
terms, conditions and trusts hereinafter set forth; and
WHEREAS, it is proposed that the assets held by the Trustees be divided
into separate portfolios, each with its own separate assets, investment
objectives, policies and purposes, and that the beneficial interest in each
such portfolio shall be divided into transferable Shares of Beneficial
Interest, a separate Series of Shares for each portfolio, all in accordance
with the provisions hereinafter set forth; and
WHEREAS, it is desired that the trust established hereby (the "Trust") be
managed and operated as a trust with transferable shares under the laws of
Massachusetts, of the type commonly known as and referred to as a
Massachusetts business trust, in accordance with the provisions hereinafter
set forth,
NOW, THEREFORE, the Initial Trustee, for himself and his successors as
Trustees, hereby declares, and agrees with the
<PAGE>7
Settlor, for himself and for all Persons who shall hereafter become holders of
Shares of Beneficial Interest of the Trust, of any Series, that the Trustees
will hold the sum delivered to them upon the execution hereof, and all other
and further cash, securities and other property of every type and description
which they may in any way acquire in their capacity as such Trustees, together
with the income therefrom and the proceeds thereof, IN TRUST NEVERTHELESS, to
manage and dispose of the same for the benefit of the holders from time to
time of the Shares of Beneficial Interest of the several Series being issued
and to be issued hereunder and in the manner and subject to the provisions
hereof, to wit:
ARTICLE 1
THE TRUST
SECTION 1.1. Name. The name of the Trust shall be
"COUNSELLORS CAPITAL APPRECIATION FUND",
and so far as may be practicable the Trustees shall conduct the Trust's
activities, execute all documents and sue or be sued under that name, which
name (and the word "Trust" wherever used in this Agreement and Declaration of
Trust, except where the context otherwise requires) shall refer to the
Trustees in their capacity as Trustees, and not individually or personally,
and shall not refer to the officers, agents or employees of the Trust or of
such Trustees, or to the holders of the Shares of Beneficial Interest of the
Trust, of any Series. If the Trustees determine that the use of such name is
not practicable, legal or convenient at any time or in any jurisdiction, or if
the Trust is required to discontinue the use of such name pursuant to Section
10.5 hereof, then subject to that Section, the Trustees may use such other
designation, or they may adopt such other name for the Trust as they deem
proper, and the Trust may hold property and conduct its activities under such
designation or name.
SECTION 1.2. Location. The Trust shall have an office in Boston,
Massachusetts, unless changed by the Trustees to another location in
Massachusetts or elsewhere, but such office need not be the sole or principal
office of the Trust. The Trust may have such other offices or places of
business as the Trustees may from time to time determine to be necessary or
expedient.
SECTION 1.3. Nature of Trust. The Trust shall be a trust with
transferable shares under the laws of The Commonwealth of Massachusetts, of
the type referred to in Section 1 of Chapter
<PAGE>8
182 of the Massachusetts General Laws and commonly termed a Massachusetts
business trust. The Trust is not intended to be, shall not be deemed to be,
and shall not be treated as, a general partnership, limited partnership, joint
venture, corporation or joint stock company. The Shareholders shall be
beneficiaries and their relationship to the Trustees shall be solely in that
capacity in accordance with the rights conferred upon them hereunder.
SECTION 1.4. Definitions. As used in this Agreement and Declaration of
Trust, the following terms shall have the meanings set forth below unless the
context thereof otherwise requires:
"Accounting Agent" shall have the meaning designated in Section 5.2(g)
hereof.
"Administrator" shall have the meaning designated in Section 5.2(b)
hereof.
"Affiliated Person" shall have the meaning assigned to it in the 1940
Act.
"By-Laws" shall mean the By-Laws of the Trust, as amended from time to
time.
"Certificate of Designation" shall have the meaning designated in Section
6.1 hereof.
"Certificate of Termination" shall have the meaning designated in Section
6.1 hereof.
"Commission" shall have the same meaning as in the 1940 Act.
"Contracting Party" shall have the meaning designated in the preamble to
Section 5.2 hereof.
"Covered Person" shall have the meaning designated in Section 8.4 hereof.
"Custodian" shall have the meaning designated in Section 5.2(d) hereof.
"Declaration" and "Declaration of Trust" shall mean this Agreement and
Declaration of Trust and all amendments or modifications thereof as from time
to time in effect. References in this Agreement and Declaration of Trust to
"hereof", "herein" and "hereunder" shall be deemed to refer to the Declaration
of Trust generally, and shall not be limited to the particular text, Article
or Section in which such words appear.
<PAGE>9
"Disabling Conduct" shall have the meaning designated in Section 8.4
hereof.
"Distributor" shall have the meaning designated in Section 5.2(c) hereof.
"Dividend Disbursing Agent" shall have the meaning designated in Section
5.2(e) hereof.
"General Items" shall have the meaning defined in Section 6.2(a) hereof.
"Initial Trustee" shall have the meaning defined in the preamble hereto.
"Investment Advisor" shall have the meaning stated in Section 5.2(a)
hereof.
"Majority of the Trustees" shall mean a majority of the Trustees in
office at the time in question. At any time at which there shall be only one
(1) Trustee in office, such term shall mean such Trustee.
"Majority Shareholder Vote," as used with respect to the election of any
Trustee at a meeting of Shareholders, shall mean the vote for the election of
such Trustee of a plurality of all outstanding Shares of the Trust, without
regard to Series, represented in person or by proxy and entitled to vote
thereon, provided that a quorum (as determined in accordance with the ByLaws)
is present, and as used with respect to any other action required or permitted
to be taken by Shareholders, shall mean the vote for such action of the
holders of that majority of all outstanding Shares (or, where a separate vote
of Shares of any particular Series is to be taken, the affirmative vote of
that majority of the outstanding Shares of that Series) of the Trust which
consists of: (i) a majority of all Shares (or of Shares of the particular
Series) represented in person or by proxy and entitled to vote on such action
at the meeting of Shareholders at which such action is to be taken, provided
that a quorum (as determined in accordance with the By-Laws) is present; or
(ii) if such action is to be taken by written consent of Shareholders, a
majority of all Shares (or of Shares of the particular Series) issued and
outstanding and entitled to vote on such action; provided, that (iii) as used
with respect to any action requiring the affirmative vote of "a majority of
the outstanding voting securities", as the quoted phrase is defined in the
1940 Act, of the Trust or of any Portfolio, "Majority Shareholder Vote" means
the vote for such action at a meeting of Shareholders of the smallest majority
of all outstanding Shares of the Trust (or of
<PAGE>10
Shares of the particular Portfolio) entitled to vote on such action which
satisfies such 1940 Act voting requirement.
"1940 Act" shall mean the provisions of the Investment Company Act of
1940 and the rules and regulations thereunder, both as amended from time to
time, and any order or orders thereunder which may from time to time be
applicable to the Trust.
"Person" shall mean and include individuals, as well as corporations,
limited partnerships, general partnerships, joint stock companies, joint
ventures, associations, banks, trust companies, land trusts, business trusts
or other organizations established under the laws of any jurisdiction, whether
or not considered to be legal entities, and governments and agencies and
political subdivisions thereof.
"Portfolio" or "Portfolios" shall mean one or more of the separate
components of the assets of the Trust which are now or hereafter established
and designated under or in accordance with the provisions of Article 6 hereof.
"Portfolio Assets" shall have the meaning defined in Section 6.2(a)
hereof.
"Principal Underwriter" shall have the meaning designated in Section
5.2(c) hereof.
"Prospectus," as used with respect to any Portfolio or Series of Shares,
shall mean the prospectus relating to such Portfolio or Series which
constitutes part of the currently effective Registration Statement of the
Trust under the Securities Act of 1933, as such prospectus may be amended or
supplemented from time to time.
"Securities" shall mean any and all bills, notes, bonds, debentures or
other obligations or evidences of indebtedness, certificates of deposit,
bankers' acceptances, commercial paper, repurchase agreements or other money
market instruments; stocks, shares or other equity ownership interests; and
warrants, options or other instruments representing rights to subscribe for,
purchase, receive or otherwise acquire or to sell, transfer, assign or
otherwise dispose of, and scrip, certificates, receipts or other instruments
evidencing any ownership rights or interests in, any of the foregoing and
"when issued" and "delayed delivery" contracts for securities, issued,
guaranteed or sponsored by any governments, political subdivisions or
governmental authorities, agencies or instrumentalities, by any individuals,
firms, companies, corporations, syndicates, associations or trusts, or
<PAGE>11
by any other organizations or entities whatsoever, irrespective of their forms
or the names by which they may be described, whether or not they be organized
and operated for profit, and whether they be domestic or foreign with respect
to The Commonwealth of Massachusetts or the United States of America.
"Securities of the Trust" shall mean any Securities issued by the Trust.
"Series" shall mean one or more of the series of Shares authorized by the
Trustees to represent the beneficial interest in one or more of the
Portfolios.
"Settlor" shall have the meaning stated in the first "Whereas" clause set
forth above.
"Shareholder" shall mean as of any particular time any Person shown of
record at such time on the books of the Trust as a holder of outstanding
Shares of any Series, and shall include a pledgee into whose name any such
Shares are transferred in pledge.
"Shareholder Servicing Agent" shall have the meaning designated in
Section 5.2(f) hereof.
"Shares" shall mean the transferable units into which the beneficial
interest in the Trust and each Portfolio of the Trust (as the context may
require) shall be divided from time to time, and includes fractions of Shares
as well as whole Shares. All references herein to "Shares" which are not
accompanied by a reference to any particular Series or Portfolio shall be
deemed to apply to outstanding Shares without regard to Series.
"Single Class Voting," as used with respect to any matter to be acted
upon at a meeting or by written consent of Shareholders, shall mean a style of
voting in which each holder of one or more Shares shall be entitled to one
vote on the matter in question for each Share standing in his name on the
records of the Trust, irrespective of Series, and all outstanding Shares of
all Series vote as a single class.
"Statement of Additional Information," as used with respect to any
Portfolio or Series of Shares, shall mean the statement of additional
information relating to such Portfolio or Series, which constitutes part of
the currently effective Registration Statement of the Trust under the
Securities Act of 1933, as such statement of additional information may be
amended or supplemented from time to time.
<PAGE>12
"Transfer Agent" shall have the meaning defined in Section 5.2(e) hereof.
"Trust" shall have the meaning stated in the fourth "Whereas" clause set
forth above.
"Trust Property" shall mean, as of any particular time, any and all
property which shall have been transferred, conveyed or paid to the Trust or
the Trustees, and all interest, dividends, income, earnings, profits and gains
therefrom, and proceeds thereof, including any proceeds derived from the sale,
exchange or liquidation thereof, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, and which at
such time is owned or held by, or for the account of, the Trust or the
Trustees, without regard to the Portfolio to which such property is allocated.
"Trustees" shall mean, collectively, the Initial Trustee, so long as he
shall continue in office, and all other individuals who at the time in
question have been duly elected or appointed as Trustees of the Trust in
accordance with the provisions hereof and who have qualified and are then in
office. At any time at which there shall be only one (1) Trustee in office,
such term shall mean such single Trustee.
SECTION 1.5. Real Property to be Converted into Personal Property.
Notwithstanding any other provision hereof, any real property at any time
forming part of the Trust Property shall be held in trust for sale and
conversion into personal property at such time or times and in such manner and
upon such terms as the Trustees shall approve, but the Trustees shall have
power until the termination of this Trust to postpone such conversion as long
as they in their uncontrolled discretion shall think fit, and for the purpose
of determining the nature of the interest of the Shareholders therein, all
such real property shall at all times be considered as personal property.
ARTICLE 2
PURPOSE OF THE TRUST
The purpose of the Trust shall be to engage in the business of being an
investment company, and as such of subscribing for, purchasing or otherwise
acquiring, holding for investment or trading in, borrowing, lending and
selling short, selling, assigning negotiating or exchanging and otherwise
disposing of, and turning to account, realizing upon and generally dealing in
and with, in any manner, (a) Securities of all kinds, (b)
<PAGE>13
precious metals and other minerals, contracts to purchase and sell, and other
interests of every nature and kind in, such metals or minerals, and (c) rare
coins and other numismatic items, and all as the Trustees in their discretion
shall determine to be necessary, desirable or appropriate, and to exercise and
perform any and every act, thing or power necessary, suitable or desirable for
the accomplishment of such purpose, the attainment of any of the objects or
the furtherance of any of the powers given hereby which are lawful purposes,
objects or powers of a trust with transferable shares of the type commonly
termed a Massachusetts business trust; and to do every other act or acts or
thing or things incidental or appurtenant to or growing out of or in
connection with the aforesaid objects, purposes or powers, or any of them,
which a trust of the type commonly termed a Massachusetts business trust is
not now or hereafter prohibited from doing, exercising or performing.
ARTICLE 3
POWERS OF THE TRUSTEES
SECTION 3.1. Powers in General. The Trustees shall have, without other
or further authorization, full, entire, exclusive and absolute power, control
and authority over, and management of, the business of the Trust and over the
Trust Property, to the same extent as if the Trustees were the sole owners of
the business and property of the Trust in their own right, and with such
powers of delegation as may be permitted by this Declaration, subject only to
such limitations as may be expressly imposed by this Declaration of Trust or
by applicable law. The enumeration of any specific power or authority herein
shall not be construed as limiting the aforesaid power or authority or any
specific power or authority. Without limiting the foregoing, the Trustees may
adopt By-Laws not inconsistent with this Declaration of Trust providing for
the conduct of the business and affairs of the Trust and may amend and repeal
them to the extent that such By-Laws do not reserve that right to the
Shareholders; they may select, and from time to time change, the fiscal year
of the Trust; they may adopt and use a seal for the Trust, provided, that
unless otherwise required by the Trustees, it shall not be necessary to place
the seal upon, and its absence shall not impair the validity of, any document,
instrument or other paper executed and delivered by or on behalf of the Trust;
they may from time to time in accordance with the provisions of Section 6.1
hereof establish one or more Portfolios to which they may allocate such of the
Trust Property, subject to such liabilities, as they shall deem appropriate,
each such Portfolio to be operated by the Trustees as a separate and distinct
investment
<PAGE>14
medium and with separately defined investment objectives and policies and
distinct investment purposes, all as established by the Trustees, or from time
to time changed by them; they may as they consider appropriate elect and
remove officers and appoint and terminate agents and consultants and hire and
terminate employees, any one or more of the foregoing of whom may be a
Trustee; they may appoint from their own number, and terminate, any one or
more committees consisting of one or more Trustees, including without implied
limitation an Executive Committee, which may, when the Trustees are not in
session and subject to the 1940 Act, exercise some or all of the power and
authority of the Trustees as the Trustees may determine; in accordance with
Section 5.2 they may employ one or more Investment Advisors, Administrators
and Custodians and may authorize any Custodian to employ subcustodians or
agents and to deposit all or any part of such assets in a system or systems
for the central handling of Securities, retain Transfer, Dividend Disbursing,
Accounting or Shareholder Servicing Agents or any of the foregoing, provide
for the distribution of Shares by the Trust through one or more Distributors,
Principal Underwriters or otherwise, set record dates or times for the
determination of Shareholders entitled to participate in, benefit from or act
with respect to various matters; and in general they may delegate to any
officer of the Trust, to any Committee of the Trustees and to any employee,
Investment Advisor, Administrator, Distributor, Custodian, Transfer Agent,
Dividend Disbursing Agent, or any other agent or consultant of the Trust, such
authority, powers, functions and duties as they consider desirable or
appropriate for the conduct of the business and affairs of the Trust,
including without implied limitation the power and authority to act in the
name of the Trust and of the Trustees, to sign documents and to act as
attorney-in-fact for the Trustees. Without limiting the foregoing and to the
extent not inconsistent with the 1940 Act or other applicable law, the
Trustees shall have power and authority:
(a) Investments. To invest and reinvest cash and other property;
to buy, for cash or on margin, and otherwise acquire and hold, Securities
created or issued by any Persons, including Securities maturing after the
possible termination of the Trust; to make payment therefor in any lawful
manner in exchange for any of the Trust Property; and to hold cash or
other property uninvested without in any event being bound or limited by
any present or future law or custom in regard to investments by trustees;
(b) Disposition of Assets. Upon such terms and conditions as they
deem best, to lend, sell, exchange, mortgage, pledge, hypothecate, grant
security interests in,
<PAGE>15
encumber, negotiate, convey, transfer or otherwise dispose of, and to trade
in, any and all of the Trust Property, free and clear of all trusts, for cash
or on terms, with or without advertisement, and on such terms as to payment,
security or otherwise, all as they shall deem necessary or expedient;
(c) Ownership Powers. To vote or give assent, or exercise any and
all other rights, powers and privileges of ownership with respect to, and
to perform any and all duties and obligations as owners of, any
Securities or other property forming part of the Trust Property, the same
as any individual might do; to exercise powers and rights of subscription
or otherwise which in any manner arise out of ownership of Securities,
and to receive powers of attorney from, and to execute and deliver
proxies or powers of attorney to, such Person or Persons as the Trustees
shall deem proper, receiving from or granting to such Person or Persons
such power and discretion with relation to Securities or other property
of the Trust, all as the Trustees shall deem proper;
(d) Form of Holding. To hold any Security or other property in a
form not indicating any trust, whether in bearer, unregistered or other
negotiable form, or in the name of the Trustees or of the Trust, or of
the Portfolio to which such Securities or property belong, or in the name
of a Custodian, subcustodian or other nominee or nominees, or otherwise,
upon such terms, in such manner or with such powers, as the Trustees may
determine, and with or without indicating any trust or the interest of
the Trustees therein;
(e) Reorganization, etc. To consent to or participate in any plan
for the reorganization, consolidation or merger of any corporation or
issuer, any Security of which is or was held in the Trust or any
Portfolio; to consent to any contract, lease, mortgage, purchase or sale
of property by such corporation or issuer, and to pay calls or subscrip-
tions with respect to any Security forming part of the Trust Property;
(f) Voting Trusts, etc. To join with other holders of any
Securities in acting through a committee, depository, voting trustee or
otherwise, and in that connection to deposit any Security with, or
transfer any Security to, any such committee, depository or trustee, and
to delegate to them such power and authority with relation to any
Security (whether or not so deposited or transferred) as the Trustees
shall deem proper, and to agree to pay, and to pay, such por
<PAGE>16
tion of the expenses and compensation of such committee, depository or trustee
as the Trustees shall deem proper;
(g) Contracts, etc. To enter into, make and perform all such
obligations, contracts, agreements and undertakings of every kind and
description, with any Person or Persons, as the Trustees shall in their
discretion deem expedient in the conduct of the business of the Trust,
for such terms as they shall see fit, whether or not extending beyond the
term of office of the Trustees, or beyond the possible expiration of the
Trust; to amend, extend, release or cancel any such obligations,
contracts, agreements or understandings; and to execute, acknowledge,
deliver and record all written instruments which they may deem necessary
or expedient in the exercise of their powers;
(h) Guarantees, etc. To endorse or guarantee the payment of any
notes or other obligations of any Person; to make contracts of guaranty
or suretyship, or otherwise assume liability for payment thereof; and to
mortgage and pledge the Trust Property or any part thereof to secure any
of or all such obligations;
(i) Partnerships, etc. To enter into joint ventures, general or
limited partnerships and any other combinations or associations;
(j) Insurance. To purchase and pay for entirely out of Trust
Property such insurance as they may deem necessary or appropriate for the
conduct of the business, including, without limitation, insurance
policies insuring the assets of the Trust and payment of distributions
and principal on its portfolio investments, and insurance policies
insuring the Shareholders, Trustees, officers, employees, agents,
consultants, Investment Advisors, managers, Administrators, Distributors,
Principal Underwriters, or other independent contractors, or any thereof
(or any Person connected therewith), of the Trust, individually, against
all claims and liabilities of every nature arising by reason of holding,
being or having held any such office or position, or by reason of any
action alleged to have been taken or omitted by any such Person in any
such capacity, including any action taken or omitted that may be
determined to constitute negligence, whether or not the Trust would have
the power to indemnify such Person against such liability;
(k) Pensions, etc. To pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish and carry out
pension, profit-sharing, share bonus,
<PAGE>17
share purchase, savings, thrift and other retirement, incentive and benefit
plans, trusts and provisions, including the purchasing of life insurance and
annuity contracts as a means of providing such retirement and other benefits,
for any or all of the Trustees, officers, employees and agents of the Trust;
(l) Power of Collection and Litigation. To collect, sue for and
receive all sums of money coming due to the Trust, to employ counsel, and
to commence, engage in, prosecute, intervene in, join, defend, compound,
compromise, adjust or abandon, in the name of the Trust, any and all ac-
tions, suits, proceedings, disputes, claims, controversies, demands or
other litigation or legal proceedings relating to the Trust, the business
of the Trust, the Trust Property, or the Trustees, officers, employees,
agents and other independent contractors of the Trust, in their capacity
as such, at law or in equity, or before any other bodies or tribunals,
and to compromise, arbitrate or otherwise adjust any dispute to which the
Trust may be a party, whether or not any suit is commenced or any claim
shall have been made or asserted;
(m) Issuance and Repurchase of Shares. To issue, sell, repurchase,
redeem, retire, cancel, acquire, hold, resell, reissue, dispose of,
transfer, and otherwise deal in Shares of any Series, and, subject to
Article 6 hereof, to apply to any such repurchase, redemption,
retirement, cancellation or acquisition of Shares of any Series, any of
the Portfolio Assets belonging to the Portfolio to which such Series
relates, whether constituting capital or surplus or otherwise, to the
full extent now or hereafter permitted by applicable law; provided, that
any Shares belonging to the Trust shall not be voted, directly or
indirectly;
(n) Offices. To have one or more offices, and to carry on all or
any of the operations and business of the Trust, in any of the States,
Districts or Territories of the United States, and in any and all foreign
countries, subject to the laws of such State, District, Territory or
country;
(o) Expenses. To incur and pay any and all such expenses and
charges as they may deem advisable (including without limitation
appropriate fees to themselves as Trustees), and to pay all such sums of
money for which they may be held liable by way of damages, penalty, fine
or otherwise;
(p) Agents, etc. To retain and employ any and all such servants,
agents, employees, attorneys, brokers, invest
<PAGE>18
ment advisers, accountants, architects, engineers, builders, escrow agents,
depositories, consultants, ancillary trustees, custodians, agents for
collection, insurers, banks and officers, as they think best for the business
of the Trust or any Portfolio, to supervise and direct the acts of any of the
same, and to fix and pay their compensation and define their duties;
(q) Accounts. To determine, and from time to time change, the
method or form in which the accounts of the Trust shall be kept;
(r) Valuation. Subject to the requirements of the 1940 Act, to
determine from time to time the value of all or any part of the Trust
Property and of any services, Securities, property or other consideration
to be furnished to or acquired by the Trust, and from time to time to
revalue all or any part of the Trust Property in accordance with such
appraisals or other information as is, in the Trustees' sole judgment,
necessary and satisfactory;
(s) Indemnification. In addition to the mandatory indemnification
provided for in Article 8 hereof and to the extent permitted by law, to
indemnify or enter into agreements with respect to indemnification with
any Person with whom this Trust has dealings, including, without
limitation, any independent contractor, to such extent as the Trustees
shall determine; and
(t) General. To do all such other acts and things and to conduct,
operate, carry on and engage in such other lawful businesses or business
activities as they shall in their sole and absolute discretion consider
to be incidental to the business of the Trust or any Portfolio as an
investment company, and to exercise all powers which they shall in their
discretion consider necessary, useful or appropriate to carry on the
business of the Trust or any Portfolio, to promote any of the purposes
for which the Trust is formed, whether or not such things are
specifically mentioned herein, in order to protect or promote the
interests of the Trust or any Portfolio, or otherwise to carry out the
provisions of this Declaration.
SECTION 3.2. Borrowings; Financings; Issuance of Securities. The
Trustees have power to borrow or in any other manner raise such sum or sums of
money, and to incur such other indebtedness for goods or services, or for or
in connection with the purchase or other acquisition of property, as they
shall deem advisable for the purposes of the Trust, in any manner and on any
terms, and to
<PAGE>19
evidence the same by negotiable or non-negotiable Securities which may mature
at any time or times, even beyond the possible date of termination of the
Trust; to issue Securities of any type for such cash, property, services or
other considerations, and at such time or times and upon such terms, as they
may deem advisable; and to reacquire any such Securities. Any such Securities
of the Trust may, at the discretion of the Trustees, be made convertible into
Shares of any Series, or may evidence the right to purchase, subscribe for or
otherwise acquire Shares of any Series, at such times and on such terms as the
Trustees may prescribe.
SECTION 3.3. Deposits. Subject to the requirements of the 1940 Act, the
Trustees shall have power to deposit any moneys or Securities included in the
Trust Property with any one or more banks, trust companies or other banking
institutions, whether or not such deposits will draw interest. Such deposits
are to be subject to withdrawal in such manner as the Trustees may determine,
and the Trustees shall have no responsibility for any loss which may occur by
reason of the failure of the bank, trust company or other banking institution
with which any such moneys or Securities have been deposited, other than
liability based on their gross negligence or willful fault.
SECTION 3.4. Allocations. The Trustees shall have power to determine
whether moneys or other assets received by the Trust shall be charged or
credited to income or capital, or allocated between income and capital,
including the power to amortize or fail to amortize any part or all of any
premium or discount, to treat any part or all of the profit resulting from the
maturity or sale of any asset, whether purchased at a premium or at a
discount, as income or capital, or to apportion the same between income and
capital, to apportion the sale price of any asset between income and capital,
and to determine in what manner any expenses or disbursements are to be borne
as between income and capital, whether or not in the absence of the power and
authority conferred by this Section 3.4 such assets would be regarded as
income or as capital or such expense or disbursement would be charged to
income or to capital; to treat any dividend or other distribution on any
investment as income or capital, or to apportion the same between income and
capital; to provide or fail to provide reserves, including reserves for
depreciation, amortization or obsolescence in respect of any Trust Property in
such amounts and by such methods as they shall determine; to allocate less
than all of the consideration paid for Shares of any Series to the shares of
beneficial interest account of the Portfolio to which such Shares relate and
to allocate the balance thereof to paid-in capital of that Portfolio, and to
reallocate such amounts from time to time; all as the Trustees may reasonably
deem proper.
<PAGE>20
SECTION 3.5. Further Powers; Limitations. The Trustees shall have power
to do all such other matters and things, and to execute all such instruments,
as they deem necessary, proper or desirable in order to carry out, promote or
advance the interests of the Trust, although such matters or things are not
herein specifically mentioned. Any determination as to what is in the
interests of the Trust made by the Trustees in good faith shall be conclusive.
In construing the provisions of this Declaration of Trust, the presumption
shall be in favor of a grant of power to the Trustees. The Trustees shall not
be required to obtain any court order to deal with the Trust Property. The
Trustees may limit their right to exercise any of their powers through express
restrictive provisions in the instruments evidencing or providing the terms
for any Securities of the Trust or in other contractual instruments adopted on
behalf of the Trust.
ARTICLE 4
TRUSTEES AND OFFICERS
SECTION 4.1. Number, Designation, Election, Term, etc.
(a) Initial Trustee. Upon his execution of this Declaration of
Trust or a counterpart hereof or some other writing in which he accepts
such Trusteeship and agrees to the provisions hereof, the individual
whose signature is affixed hereto as Initial Trustee shall become the
Initial Trustee hereof.
(b) Number. The Trustees serving as such, whether named above or
hereafter becoming Trustees, may increase (to not more than twenty (20))
or decrease the number of Trustees to a number other than the number
theretofore determined by a written instrument signed by a Majority of
the Trustees (or by an officer of the Trust pursuant to the vote of a
Majority of the Trustees). No decrease in the number of Trustees shall
have the effect of removing any Trustee from office prior to the
expiration of his term, but the number of Trustees may be decreased in
conjunction with the removal of a Trustee pursuant to subsection (e) of
this Section 4.1.
(c) Election and Term. The Trustees shall be elected by the
Shareholders of the Trust at the first meeting of Shareholders
immediately prior to the initial public offering of Shares of the Trust,
and the term of office of any Trustees in office before such election
shall terminate at the time of such election. Subject to Section 16(a)
of the 1940 Act and to the preceding sentence of this subsection
<PAGE>21
(c), the Trustees shall have the power to set and alter the terms of
office of the Trustees, and at any time to lengthen or shorten their own
terms or make their terms of unlimited duration, to elect their own
successors and, pursuant to subsection (f) of this Section 4.1, to
appoint Trustees to fill vacancies; provided, that Trustees shall be
elected by a Majority Shareholder Vote at any such time or times as the
Trustees shall determine that such action is required under Section
16(a) of the 1940 Act or, if not so required, that such action is
advisable; and further provided, that, after the initial election of
Trustees by the Shareholders, the term of office of any incumbent
Trustee shall continue until the termination of this Trust or his
earlier death, resignation, retirement, bankruptcy, adjudicated
incompetency or other incapacity or removal, or if not so terminated,
until the election of such Trustee's successor in office has become
effective in accordance with this subsection (c).
(d) Resignation and Retirement. Any Trustee may resign his trust
or retire as a Trustee, by a written instrument signed by him and
delivered to the other Trustees or to any officer of the Trust, and such
resignation or retirement shall take effect upon such delivery or upon
such later date as is specified in such instrument.
(e) Removal. Any Trustee may be removed with or without cause at
any time: (i) by written instrument, signed by at least two-thirds (2/3)
of the number of Trustees prior to such removal, specifying the date upon
which such removal shall become effective; or (ii) by vote of
Shareholders holding not less than two-thirds (2/3) of the Shares of each
Series then outstanding, cast in person or by proxy at any meeting called
for the purpose; or (iii) by a written declaration signed by Shareholders
holding not less than two-thirds (2/3) of the Shares of each Series then
outstanding and filed with the Trust's Custodian.
(f) Vacancies. Any vacancy or anticipated vacancy resulting from
any reason, including an increase in the number of Trustees, may (but
need not unless required by the 1940 Act) be filled by a Majority of the
Trustees, subject to the provisions of Section 16(a) of the 1940 Act,
through the appointment in writing of such other individual as such
remaining Trustees in their discretion shall determine; provided, that if
there shall be no Trustees in office, such vacancy or vacancies shall be
filled by vote of the Shareholders. Any such appointment or election
shall be effective upon such individual's written acceptance of his
appointment as a Trustee and his agreement to be bound by the provisions
<PAGE>22
of this Declaration of Trust, except that any such appointment in
anticipation of a vacancy to occur by reason of retirement, resignation
or increase in the number of Trustees to be effective at a later date
shall become effective only at or after the effective date of said
retirement, resignation or increase in the number of Trustees.
(g) Acceptance of Trusts. Any individual appointed as a Trustee
under subsection (f), and any individual elected as a Trustee under
subsection (c), of this Section 4.1 who was not, immediately prior to
such election, acting as a Trustee, shall accept such appointment or
election in writing and agree in such writing to be bound by the
provisions hereof, and whenever such individual shall have executed such
writing and any conditions to such appointment or election shall have
been satisfied, such individual shall become a Trustee and the Trust
Property shall vest in the new Trustee, together with the continuing
Trustees, without any further act or conveyance.
(h) Effect of Death, Resignation, etc. No vacancy, whether
resulting from the death, resignation, retirement, removal or incapacity
of any Trustee, an increase in the number of Trustees or otherwise, shall
operate to annul or terminate the Trust hereunder or to revoke or
terminate any existing agency or contract created or entered into
pursuant to the terms of this Declaration of Trust. Until such vacancy
is filled as provided in this Section 4.1, the Trustees in office (if
any), regardless of their number, shall have all the powers granted to
the Trustees and shall discharge all the duties imposed upon the Trustees
by this Declaration. A written instrument certifying the existence of
such vacancy signed by a Majority of the Trustees shall be conclusive
evidence of the existence of such vacancy.
(i) Conveyance. In the event of the resignation or removal of a
Trustee or his otherwise ceasing to be a Trustee, such former Trustee or
his legal representative shall, upon request of the continuing Trustees,
execute and deliver such documents as may be required for the purpose of
consummating or evidencing the conveyance to the Trust or the remaining
Trustees of any Trust Property held in such former Trustee's name, but
the execution and delivery of such documents shall not be requisite to
the vesting of title to the Trust Property in the remaining Trustees, as
provided in subsection (g) of this Section 4.1 and in Section 4.13
hereof.
<PAGE>23
(j) No Accounting. Except to the extent required by the 1940 Act
or under circumstances which would justify his removal for cause, no
Person ceasing to be a Trustee (nor the estate of any such Person) shall
be required to make an accounting to the Shareholders or remaining
Trustees upon such cessation.
(k) Filings. Whenever there shall be a change in the composition
of the Trustees, the Trust shall cause to be filed in the office of the
Secretary of State of The Commonwealth of Massachusetts and in each other
place where the Trust is required to file amendments to this Declaration
a copy of (i) the instrument by which (in the case of the appointment of
a new Trustee, or the election of an individual who was not theretofore a
Trustee) the new Trustee accepted his appointment or election and agreed
to be bound by the terms of this Declaration, or (in the case of a
resignation) by which the former Trustee resigned as such, together in
either case with a certificate of one of the other Trustees as to the
circumstances of such election, appointment or resignation, or (ii) in
the case of the removal or death of a Trustee, a certificate of one of
the Trustees as to the circumstances of such removal or resignation.
SECTION 4.2. Trustees' Meetings; Participation by Telephone, etc. An
annual meeting of Trustees shall be held not later than the last day of the
fourth month after the end of each fiscal year of the Trust and special
meetings may be held from time to time, in each case, upon the call of such
officers as may be thereunto authorized by the By-Laws or vote of the
Trustees, or by any two (2) Trustees, or pursuant to a vote of the Trustees
adopted at a duly constituted meeting of the Trustees, and upon such notice as
shall be provided in the By-Laws. The Trustees may act with or without a
meeting, and a written consent to any matter, signed by a Majority of the
Trustees, shall be equivalent to action duly taken at a meeting of the
Trustees, duly called and held. Except as otherwise provided by the 1940 Act
or other applicable law, or by this Declaration of Trust or the By-Laws, any
action to be taken by the Trustees may be taken by a majority of the Trustees
present at a meeting of Trustees (a quorum, consisting of at least a Majority
of the Trustees, being present), within or without Massachusetts. If
authorized by the By-Laws, all or any one or more Trustees may participate in
a meeting of the Trustees or any Committee thereof by means of conference
telephone or similar means of communication by means of which all Persons
participating in the meeting can hear each other, and participation in a
meeting pursuant to such means of communication shall constitute presence in
person at such meeting. The minutes of any meeting thus held
<PAGE>24
shall be prepared in the same manner as a meeting at which all participants
were present in person.
SECTION 4.3. Committees; Delegation. The Trustees shall have power,
consistent with their ultimate responsibility to supervise the affairs of the
Trust, to delegate from time to time to an Executive Committee, and to one or
more other Committees, or to any single Trustee, the doing of such things and
the execution of such deeds or other instruments, either in the name of the
Trust or the names of the Trustees or as their attorney or attorneys in fact,
or otherwise as the Trustees may from time to time deem expedient, and any
agreement, deed, mortgage, lease or other instrument or writing executed by
the Trustee or Trustees or other Person to whom such delegation was made shall
be valid and binding upon the Trustees and upon the Trust.
SECTION 4.4. Officers. The Trustees shall annually elect such officers
or agents, who shall have such powers, duties and responsibilities as the
Trustees may deem to be advisable, and as they shall specify by resolution or
in the By-Laws. Except as may be provided in the By-Laws, any officer elected
by the Trustees may be removed at any time with or without cause. Any two (2)
or more offices may be held by the same individual.
SECTION 4.5. Compensation of Trustees and Officers. The Trustees shall
fix the compensation of all officers and Trustees. Without limiting the
generality of any of the provisions hereof, the Trustees shall be entitled to
receive reasonable compensation for their general services as such, and to fix
the amount of such compensation, and to pay themselves or any one or more of
themselves such compensation for special services, including legal,
accounting, or other professional services, as they in good faith may deem
reasonable. No Trustee or officer resigning and (except where a right to
receive compensation for a definite future period shall be expressly provided
in a written agreement with the Trust, duly approved by the Trustees) no
Trustee or officer removed shall have any right to any compensation as such
Trustee or officer for any period following his resignation or removal, or any
right to damages on account of his removal, whether his compensation be by the
month, by the year or otherwise.
SECTION 4.6. Ownership of Shares and Securities of the Trust. Any
Trustee, and any officer, employee or agent of the Trust, and any organization
in which any such Person is interested, may acquire, own, hold and dispose of
Shares of any Series and other Securities of the Trust for his or its
individual account, and may exercise all rights of a holder of such Shares or
Securities to the same extent and in the same manner as if such
<PAGE>25
Person were not such a Trustee, officer, employee or agent of the Trust;
subject, in the case of Trustees and officers, to the same limitations as
directors or officers (as the case may be) of a Massachusetts business
corporation; and the Trust may issue and sell or cause to be issued and sold
and may purchase any such Shares or other Securities from any such Person or
any such organization, subject only to the general limitations, restrictions
or other provisions applicable to the sale or purchase of Shares of such
Series or other Securities of the Trust generally.
SECTION 4.7. Right of Trustees and Officers to Own Property or to Engage
in Business; Authority of Trustees to Permit Others to Do Likewise. The
Trustees, in their capacity as Trustees, and (unless otherwise specifically
directed by vote of the Trustees) the officers of the Trust in their capacity
as such, shall not be required to devote their entire time to the business and
affairs of the Trust. Except as otherwise specifically provided by vote of
the Trustees, or by agreement in any particular case, any Trustee or officer
of the Trust may acquire, own, hold and dispose of, for his own individual
account, any property, and acquire, own, hold, carry on and dispose of, for
his own individual account, any business entity or business activity, whether
similar or dissimilar to any property or business entity or business activity
invested in or carried on by the Trust, and without first offering the same as
an investment opportunity to the Trust, and may exercise all rights in respect
thereof as if he were not a Trustee or officer of the Trust. The Trustees
shall also have power, generally or in specific cases, to permit employees or
agents of the Trust to have the same rights (or lesser rights) to acquire,
hold, own and dispose of property and businesses, to carry on businesses, and
to accept investment opportunities without offering them to the Trust, as the
Trustees have by virtue of this Section 4.7.
SECTION 4.8. Reliance on Experts. The Trustees and officers may consult
with counsel, engineers, brokers, appraisers, auctioneers, accountants,
investment bankers, securities analysts or other Persons (any of which may be
a firm in which one or more of the Trustees or officers is or are members or
otherwise interested) whose profession gives authority to a statement made by
them on the subject in question, and who are reasonably deemed by the Trustees
or officers in question to be competent, and the advice or opinion of such
Persons shall be full and complete personal protection to all of the Trustees
and officers in respect of any action taken or suffered by them in good faith
and in reliance on or in accordance with such advice or opinion. In discharg-
ing their duties, Trustees and officers, when acting in good faith, may rely
upon financial statements of the Trust
<PAGE>26
represented to them to be correct by any officer of the Trust having charge of
its books of account, or stated in a written report by an independent
certified public accountant fairly to present the financial position of the
Trust. The Trustees and officers may rely, and shall be personally protected
in acting, upon any instrument or other document believed by them to be
genuine.
SECTION 4.9. Surety Bonds. No Trustee, officer, employee or agent of
the Trust shall, as such, be obligated to give any bond or surety or other
security for the performance of any of his duties, unless required by
applicable law or regulation, or unless the Trustees shall otherwise determine
in any particular case.
SECTION 4.10. Apparent Authority of Trustees and Officers.
No purchaser, lender, transfer agent or other Person dealing with the Trustees
or any officer of the Trust shall be bound to make any inquiry concerning the
validity of any transaction purporting to be made by the Trustees or by such
officer, or to make inquiry concerning or be liable for the application of
money or property paid, loaned or delivered to or on the order of the Trustees
or of such officer.
SECTION 4.11. Other Relationships Not Prohibited. The fact that:
(a) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
adviser, principal underwriter or distributor or agent of or for any
Contracting Party (as defined in Section 5.2 hereof), or of or for any
parent or Affiliated Person of any Contracting Party, or that the
Contracting Party or any parent or Affiliated Person thereof is a
Shareholder or has an interest in the Trust or any Portfolio, or that
(b) any Contracting Party may have a contract providing for the
rendering of any similar services to one or more other corporations,
trusts, associations, partnerships, limited partnerships or other
organizations, or have other business or interests,
shall not affect the validity of any contract for the performance and
assumption of services, duties and responsibilities to, for or of the Trust
and/or the Trustees or disqualify any Shareholder, Trustee or officer of the
Trust from voting upon or executing the same or create any liability or
accountability to the Trust or to the holders of Shares of any Series;
provided, that, in the case of any relationship or interest referred to in the
preceding
<PAGE>27
clause (a) on the part of any Trustee or officer of the Trust, either (x) the
material facts as to such relationship or interest have been disclosed to or
are known by the Trustees not having any such relationship or interest and the
contract involved is approved in good faith by a majority of such Trustees not
having any such relationship or interest (even though such unrelated or
disinterested Trustees are less than a quorum of all of the Trustees), (y) the
material facts as to such relationship or interest and as to the contract have
been disclosed to or are known by the Shareholders entitled to vote thereon
and the contract involved is specifically approved in good faith by vote of
the Shareholders, or (z) the specific contract involved is fair to the Trust
as of the time it is authorized, approved or ratified by the Trustees or by
the Shareholders.
SECTION 4.12. Payment of Trust Expenses. The Trustees are authorized to
pay or to cause to be paid out of the principal or income of the Trust, or
partly out of principal and partly out of income, and according to any
allocation to particular Portfolios made by them pursuant to Section 6.2(b)
hereof, all expenses, fees, charges, taxes and liabilities incurred or arising
in connection with the business and affairs of the Trust or in connection with
the management thereof, including, but not limited to, the Trustees'
compensation and such expenses and charges for the services of the Trust's
officers, employees, Investment Advisor, Administrator, Distributor, Principal
Underwriter, auditor, counsel, Custodian, Transfer Agent, Dividend Disbursing
Agent, Accounting Agent, Shareholder Servicing Agent, and such other agents,
consultants, and independent contractors and such other expenses and charges
as the Trustees may deem necessary or proper to incur.
SECTION 4.13. Ownership of the Trust Property. Legal title to all the
Trust Property shall be vested in the Trustees as joint tenants, except that
the Trustees shall have power to cause legal title to any Trust Property to be
held by or in the name of one or more of the Trustees, or in the name of the
Trust, or of any particular Portfolio, or in the name of any other Person as
nominee, on such terms as the Trustees may determine; provided, that the
interest of the Trust and of the respective Portfolio therein is appropriately
protected. The right, title and interest of the Trustees in the Trust
Property shall vest automatically in each Person who may hereafter become a
Trustee. Upon the termination of the term of office of a Trustee as provided
in Section 4.1(c), (d) or (e) hereof, such Trustee shall automatically cease
to have any right, title or interest in any of the Trust Property, and the
right, title and interest of such Trustee in the Trust Property shall vest
automatically in the remaining Trustees. Such vesting and cessation of title
shall be effective whether or not
<PAGE>28
conveyancing documents have been executed and delivered pursuant to Section
4.1(i) hereof.
ARTICLE 5
DELEGATION OF MANAGERIAL RESPONSIBILITIES
SECTION 5.1. Appointment; Action by Less than All Trustees. The
Trustees shall be responsible for the general operating policy of the Trust
and for the general supervision of the business of the Trust conducted by
officers, agents, employees or advisers of the Trust or by independent
contractors, but the Trustees shall not be required personally to conduct all
the business of the Trust and, consistent with their ultimate responsibility
as stated herein, the Trustees may appoint, employ or contract with one or
more officers, employees and agents to conduct, manage and/or supervise the
operations of the Trust, and may grant or delegate such authority to such
officers, employees and/or agents as the Trustees may, in their sole
discretion, deem to be necessary or desirable, without regard to whether such
authority is normally granted or delegated by trustees. With respect to those
matters of the operation and business of the Trust which they shall elect to
conduct themselves, except as otherwise provided by this Declaration or the
By-Laws, if any, the Trustees may authorize any single Trustee or defined
group of Trustees, or any committee consisting of a number of Trustees less
than the whole number of Trustees then in office without specification of the
particular Trustees required to be included therein, to act for and to bind
the Trust, to the same extent as the whole number of Trustees could do, either
with respect to one or more particular matters or classes of matters, or
generally.
SECTION 5.2. Certain Contracts. Subject to compliance with the
provisions of the 1940 Act, but notwithstanding any limitations of present and
future law or custom in regard to delegation of powers by trustees generally,
the Trustees may, at any time and from time to time in their discretion and
without limiting the generality of their powers and authority otherwise set
forth herein, enter into one or more contracts with any one or more
corporations, trusts, associations, partnerships, limited partner ships or
other types of organizations, or individuals ("Contracting Party"), to provide
for the performance and assumption of some or all of the following services,
duties and responsibilities to, for or on behalf of the Trust and/or any
Portfolio, and/or the Trustees, and to provide for the performance and
assumption of such other services, duties and responsibilities in addition to
those set forth below, as the Trustees may deem appropriate:
<PAGE>29
(a) Advisory. An investment advisory or management agreement
whereby the Investment Advisor shall undertake to furnish the Trust such
management, investment advisory or supervisory, administrative,
accounting, legal, statistical and research facilities and services, and
such other facilities and services, if any, as the Trustees shall from
time to time consider desirable, all upon such terms and conditions as
the Trustees may in their discretion determine to be not inconsistent
with this Declaration, the applicable provisions of the 1940 Act or any
applicable provisions of the By-Laws. Any such advisory or management
agreement and any amendment thereto shall be subject to approval by a
Majority Shareholder Vote at a meeting of the Shareholders of the Trust.
Notwithstanding any provisions of this Declaration, the Trustees may
authorize the Investment Advisor (subject to such general or specific
instructions as the Trustees may from time to time adopt) to effect
purchases, sales, loans or exchanges of portfolio securities of the Trust
on behalf of the Trustees or may authorize any officer or employee of the
Trust or any Trustee to effect such purchases, sales, loans or exchanges
pursuant to recommendations of the Investment Advisor (and all without
further action by the Trustees). Any such purchases, sales, loans and
exchanges shall be deemed to have been authorized by all of the Trustees.
The Trustees may, in their sole discretion, call a meeting of
Shareholders in order to submit to a vote of Shareholders at such meeting
the approval of continuance of any such investment advisory or management
agreement. If the Shareholders of any Portfolio should fail to approve
any such investment advisory or management agreement, the Investment
Advisor may nonetheless serve as Investment Advisor with respect to any
other Portfolio whose Shareholders shall have approved such contract.
(b) Administration. An agreement whereby the agent, subject to the
general supervision of the Trustees and in conformity with any policies
of the Trustees with respect to the operations of the Trust and each
Portfolio, will supervise all or any part of the operations of the Trust
and each Portfolio, and will provide all or any part of the
administrative and clerical personnel, office space and office equipment
and services appropriate for the efficient administration and operations
of the Trust and each Portfolio (any such agent being herein referred to
as an "Administrator").
(c) Distribution. An agreement providing for the sale of Shares of
any one or more Series to net the Trust not less than the net asset value
per Share (as described in Section
<PAGE>30
6.2(h) hereof) and pursuant to which the Trust may appoint the other
party to such agreement as its principal underwriter or sales agent for
the distribution of such Shares. The agreement shall contain such terms
and conditions as the Trustees may in their discretion determine to be
not inconsistent with this Declaration, the applicable provisions of the
1940 Act and any applicable provisions of the By-Laws (any such agent
being herein referred to as a "Distributor" or a "Principal
Underwriter", as the case may be).
(d) Custodian. The appointment of a bank or trust company having
an aggregate capital, surplus and undivided profits (as shown in its last
published report) of at least two million dollars ($2,000,000) as
custodian of the Securities and cash of the Trust and of each Portfolio
and of the accounting records in connection therewith (any such agent
being herein referred to as a "Custodian").
(e) Transfer and Dividend Disbursing Agency. An agreement with an
agent to maintain records of the ownership of outstanding Shares, the
issuance and redemption and the transfer thereof (any such agent being
herein referred to as a "Transfer Agent"), and to disburse any dividends
declared by the Trustees and in accordance with the policies of the
Trustees and/or the instructions of any particular Shareholder to
reinvest any such dividends (any such agent being herein referred to as a
"Dividend Disbursing Agent").
(f) Shareholder Servicing. An agreement with an agent to provide
service with respect to the relationship of the Trust and its
Shareholders, records with respect to Shareholders and their Shares, and
similar matters (any such agent being herein referred to as a
"Shareholder Servicing Agent").
(g) Accounting. An agreement with an agent to handle all or any
part of the accounting responsibilities, whether with respect to the
Trust's properties, Shareholders or otherwise (any such agent being
herein referred to as an "Accounting Agent").
The same Person may be the Contracting Party for some or all of the services,
duties and responsibilities to, for and of the Trust and/or the Trustees, and
the contracts with respect thereto may contain such terms interpretive of or
in addition to the delineation of the services, duties and responsibilities
provided for, including provisions that are not inconsistent with the 1940 Act
relating to the standard of duty of and the rights to indemnifica
<PAGE>31
tion of the Contracting Party and others, as the Trustees may determine.
Nothing herein shall preclude, prevent or limit the Trust or a Contracting
Party from entering into subcontractual arrangements relative to any of the
matters referred to in subsections (a) through (g) of this Section 5.2.
ARTICLE 6
PORTFOLIOS AND SHARES
SECTION 6.1. Description of Portfolios and Shares.
(a) Shares; Portfolios; Series of Shares. The beneficial interest
in the Trust shall be divided into Shares having a nominal or par value
of one mill ($.001) per Share, and all of one class, of which an
unlimited number may be issued. The Trustees shall have the authority
from time to time to establish and designate one or more separate,
distinct and independent Portfolios into which the assets of the Trust
shall be divided, and to authorize a separate Series of Shares for each
such Portfolio (each of which Series, including without limitation each
Series authorized in Section 6.2 hereof, shall represent interests only
in the Portfolio with respect to which such Series was authorized), as
they deem necessary or desirable. Except as otherwise provided as to a
particular Portfolio herein, or in the Certificate of Designation
therefor, the Trustees shall have all the rights and powers, and be
subject to all the duties and obligations, with respect to each such
Portfolio and the assets and affairs thereof as they have under this
Declaration with respect to the Trust and the Trust Property in general.
(b) Establishment, etc. of Portfolios; Authorization of Shares.
The establishment and designation of any Portfolio in addition to the
Portfolios established and designated in Section 6.2 hereof and the
authorization of the Shares thereof shall be effective upon the execution
by a Majority of the Trustees (or by an officer of the Trust pursuant to
the vote of a Majority of the Trustees) of an instrument setting forth
such establishment and designation and the relative rights and
preferences of the Shares of such Portfolio and the manner in which the
same may be amended (a "Certificate of Designation"), and may provide
that the number of Shares of such Series which may be issued is un-
limited, or may limit the number issuable. At any time that there are no
Shares outstanding of any particular Portfolio previously established and
designated, including any Port
<PAGE>32
folio established and designated in Section 6.2 hereof, the Trustees may
by an instrument executed by a Majority of the Trustees (or by an
officer of the Trust pursuant to the vote of a Majority of the Trustees)
terminate such Portfolio and the establishment and designation thereof
and the authorization of its Shares (a "Certificate of Termination").
Each Certificate of Designation, Certificate of Termination and any
instrument amending a Certificate of Designation shall have the status
of an amendment to this Declaration of Trust, and shall be filed and
become effective as provided in Section 9.4 hereof.
(c) Character of Separate Portfolios and Shares Thereof. Each
Portfolio established hereunder shall be a separate component of the
assets of the Trust, and the holders of Shares of the Series representing
the beneficial interest in the assets of that Portfolio shall be
considered Shareholders of such Portfolio, but such Shareholders shall
also be considered Shareholders of the Trust for purposes of receiving
reports and notices and, except as otherwise provided herein or in the
Certificate of Designation of a particular Portfolio as to such
Portfolio, or as required by the 1940 Act or other applicable law, the
right to vote, all without distinction by Series. The Trustees shall
have exclusive power without the requirement of Shareholder approval to
establish and designate such separate and distinct Portfolios, and to fix
and determine the relative rights and preferences as between the shares
of the respective Portfolios as to rights of redemption and the price,
terms and manner of redemption, special and relative rights as to
dividends and other distributions and on liquidation, sinking or purchase
fund provisions, conversion rights, and conditions under which the
Shareholders of the several Portfolios shall have separate voting rights
or no voting rights.
(d) Consideration for Shares. The Trustees may issue Shares of any
Series for such consideration (which may include property subject to, or
acquired in connection with the assumption of, liabilities) and on such
terms as they may determine (or for no consideration if pursuant to a
Share dividend or split up), all without action or approval of the
Shareholders. All Shares when so issued on the terms determined by the
Trustees shall be fully paid and non-assessable (but may be subject to
mandatory contribution back to the Trust as provided in Section 6.2(h)
hereof). The Trustees may classify or reclassify any unissued Shares, or
any Shares of any Series previously issued and reacquired by
<PAGE>33
the Trust, into Shares of one or more other Portfolios that may be
established and designated from time to time.
SECTION 6.2. Establishment and Designation of Counsellors Capital
Appreciation Portfolio; General Provisions for All Portfolios. Without
limiting the authority of the Trustees set forth in Section 6.1(a) hereof to
establish and designate further Portfolios, there is hereby established and
designated Counsellors Capital Appreciation Portfolio. The Shares of such
Portfolio, and the Shares of any further Portfolios that may from time to time
be established and designated by the Trustees shall (unless the Trustees
otherwise determine with respect to some further Portfolio at the time of
establishing and designating the same) have the following relative rights and
preferences:
(a) Assets Belonging to Portfolios. Any portion of the Trust
Property allocated to a particular Portfolio, and all consideration
received by the Trust for the issue or sale of Shares of such Portfolio,
together with all assets in which such consideration is invested or
reinvested, all interest, dividends, income, earnings, profits and gains
therefrom, and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same
may be, shall be held by the Trustees in trust for the benefit of the
holders of Shares of that Portfolio and shall irrevocably belong to that
Portfolio for all purposes, and shall be so recorded upon the books of
account of the Trust, and the Shareholders of such Portfolio shall not
have, and shall be conclusively deemed to have waived, any claims to the
assets of any Portfolio of which they are not Shareholders. Such
consideration, assets, interest, dividends, income, earnings, profits,
gains and proceeds, together with any General Items allocated to that
Portfolio as provided in the following sentence, are herein referred to
collectively as "Portfolio Assets" of such Portfolio, and as assets
"belonging to" that Portfolio. In the event that there are any assets,
income, earnings, profits, and proceeds thereof, funds, or payments which
are not readily identifiable as belonging to any particular Portfolio
(collectively "General Items"), the Trustees shall allocate such General
Items to and among any one or more of the Portfolios established and
designated from time to time in such manner and on such basis as they, in
their sole discretion, deem fair and equitable; and any General Items so
allocated to a particular Portfolio shall belong to and be part of the
Portfolio Assets of that Portfolio. Each such allocation by the Trustees
shall be
<PAGE>34
conclusive and binding upon the Shareholders of all Portfolios for all
purposes.
(b) Liabilities of Portfolios. The assets belonging to each
particular Portfolio shall be charged with the liabilities in respect of
that Portfolio and all expenses, costs, charges and reserves attributable
to that Portfolio, and any general liabilities, expenses, costs, charges
or reserves of the Trust which are not readily identifiable as pertaining
to any particular Portfolio shall be allocated and charged by the
Trustees to and among any one or more of the Portfolios established and
designated from time to time in such manner and on such basis as the
Trustees in their sole discretion deem fair and equitable. The
indebtedness, expenses, costs, charges and reserves allocated and so
charged to a particular Portfolio are herein referred to as "liabilities
of" that Portfolio. Each allocation of liabilities, expenses, costs,
charges and reserves by the Trustees shall be conclusive and binding upon
the Shareholders of all Portfolios for all purposes. Any creditor of any
Portfolio may look only to the assets of that Portfolio to satisfy such
creditor's debt.
(c) Dividends. Dividends and distributions on Shares of a
particular Portfolio may be paid with such frequency as the Trustees may
determine, which may be daily or otherwise pursuant to a standing
resolution or resolutions adopted only once or with such frequency as the
Trustees may determine, to the Shareholders of that Portfolio, from such
of the income, accrued or realized, and capital gains, realized or
unrealized, and out of the assets belonging to that Portfolio, as the
Trustees may determine, after providing for actual and accrued
liabilities of that Portfolio. All dividends and distributions on Shares
of a particular Portfolio shall be distributed pro rata to the
Shareholders of that Portfolio in proportion to the number of such Shares
held by such holders at the date and time of record established for the
payment of such dividends or distributions, except that in connection
with any dividend or distribution program or procedure the Trustees may
determine that no dividend or distribution shall be payable on Shares as
to which the Shareholder's purchase order and/or payment have not been
received by the time or times established by the Trustees under such
program or procedure, or that dividends or distributions shall be payable
on Shares which have been tendered by the holder thereof for redemption
or repurchase, but the redemption or repurchase proceeds of which have
not yet been paid to such Shareholder. Such dividends and distributions
may be made in cash or Shares of that Portfolio or a combination thereof
as
<PAGE>35
determined by the Trustees, or pursuant to any program that the Trustees
may have in effect at the time for the election by each Shareholder of
the mode of the making of such dividend or distribution to that
Shareholder. Any such dividend or distribution paid in Shares will be
paid at the net asset value thereof as determined in accordance with
subsection (h) of this Section 6.2.
(d) Liquidation. In the event of the liquidation or dissolution of
the Trust, the Shareholders of each Portfolio of which Shares are
outstanding shall be entitled to receive, when and as declared by the
Trustees, the excess of the Portfolio Assets over the liabilities of such
Portfolio. The assets so distributable to the Shareholders of any
particular Portfolio shall be distributed among such Shareholders in
proportion to the number of Shares of that Portfolio held by them and
recorded on the books of the Trust. The liquidation of any particular
Portfolio may be authorized by vote of a Majority of the Trustees,
subject to the affirmative vote of "a majority of the outstanding voting
securities" of that Portfolio, as the quoted phrase is defined in the
1940 Act, determined in accordance with clause (iii) of the definition of
"Majority Shareholder Vote" in Section 1.4 hereof.
(e) Voting. The Shareholders shall have the voting rights set
forth in or determined under Article VII hereof.
(f) Redemption by Shareholder. Each holder of Shares of a
particular Portfolio shall have the right at such times as may be
permitted by the Trust, but no less frequently than once each week, to
require the Trust to redeem all or any part of his Shares of that
Portfolio at a redemption price equal to the net asset value per Share of
that Portfolio next determined in accordance with subsection (h) of this
Section 6.2 after the Shares are properly tendered for redemption;
provided, that the Trustees may from time to time, in their discretion,
determine and impose a fee for such redemption. Payment of the
redemption price shall be in cash; provided, however, that if the
Trustees determine, which determination shall be conclusive, that
conditions exist which make payment wholly in cash unwise or undesirable,
the Trust may make payment wholly or partly in Securities or other assets
belonging to such Portfolio at the value of such Securities or assets
used in such determination of net asset value. Notwithstanding the
foregoing, the Trust may postpone payment of the redemption price and may
suspend the right of the holders of Shares of any Portfolio to require
the Trust to redeem Shares of that Portfolio during any period or at any
time when and to the extent permissible under the 1940 Act.
<PAGE>36
(g) Redemption at the Option of the Trust. Each Share of any
Portfolio shall be subject to redemption at the option of the Trust at
the redemption price which would be applicable if such Share were then
being redeemed by the Shareholder pursuant to subsection (f) of this
Section 6.2: (i) at any time, if the Trustees determine in their sole
discretion that failure to so redeem may have materially adverse
consequences to the holders of the Shares of the Trust or of any
Portfolio, or (ii) upon such other conditions with respect to maintenance
of Shareholder accounts of a minimum amount as may from time to time be
determined by the Trustees and set forth in the then current Prospectus
or Statement of Additional Information of such Portfolio. Upon such
redemption the holders of the Shares so redeemed shall have no further
right with respect thereto other than to receive payment of such
redemption price.
(h) Net Asset Value. The net asset value per Share of any
Portfolio at any time shall be the quotient obtained by dividing the
value of the net assets of such Portfolio at such time (being the current
value of the assets belonging to such Portfolio, less its then existing
liabilities) by the total number of Shares of that Portfolio then
outstanding, all determined in accordance with the methods and
procedures, including without limitation those with respect to rounding,
established by the Trustees from time to time. The Trustees may
determine to maintain the net asset value per Share of any Portfolio at a
designated constant dollar amount and in connection therewith may adopt
procedures not inconsistent with the 1940 Act for the continuing
declaration of income attributable to that Portfolio as dividends payable
in additional Shares of that Portfolio at the designated constant dollar
amount and for the handling of any losses attributable to that Portfolio.
Such procedures may provide that in the event of any loss each
Shareholder shall be deemed to have contributed to the shares of
beneficial interest account of that Portfolio his pro rata portion of the
total number of Shares required to be canceled in order to permit the net
asset value per Share of that Portfolio to be maintained, after
reflecting such loss, at the designated constant dollar amount. Each
Shareholder of the Trust shall be deemed to have expressly agreed, by his
investment in any Portfolio with respect to which the Trustees shall have
adopted any such procedure, to make the contribution referred to in the
preceding sentence in the event of any such loss.
(i) Transfer. All Shares of each particular Portfolio shall be
transferable, but transfers of Shares of a particular Portfolio will be
recorded on the Share transfer
<PAGE>37
records of the Trust applicable to that Portfolio only at such times as
Shareholders shall have the right to require the Trust to redeem Shares
of that Portfolio and at such other times as may be permitted by the
Trustees.
(j) Equality. All Shares of each particular Portfolio shall
represent an equal proportionate interest in the assets belonging to that
Portfolio (subject to the liabilities of that Portfolio), and each Share
of any particular Portfolio shall be equal to each other Share thereof;
but the provisions of this sentence shall not restrict any distinctions
permissible under subsection (c) of this Section 6.2 that may exist with
respect to dividends and distributions on Shares of the same Portfolio.
The Trustees may from time to time divide or combine the Shares of any
particular Portfolio into a greater or lesser number of Shares of that
Portfolio without thereby changing the proportionate beneficial interest
in the assets belonging to that Portfolio or in any way affecting the
rights of the holders of Shares of any other Portfolio.
(k) Rights of Fractional Shares. Any fractional Share of any
Series shall carry proportionately all the rights and obligations of a
whole Share of that Series, including rights and obligations with respect
to voting, receipt of dividends and distributions, redemption of Shares,
and liquidation of the Trust or of the Portfolio to which they pertain.
(l) Conversion Rights. Subject to compliance with the requirements
of the 1940 Act, the Trustees shall have the authority to provide that
holders of Shares of any Portfolio shall have the right to convert said
Shares into Shares of one or more other Portfolios in accordance with
such requirements and procedures as the Trustees may establish.
SECTION 6.3. Ownership of Shares. The ownership of Shares shall be
recorded on the books of the Trust or of a Transfer Agent or similar agent for
the Trust, which books shall be maintained separately for the Shares of each
Series that has been authorized. Certificates evidencing the ownership of
Shares need not be issued except as the Trustees may otherwise determine from
time to time, and the Trustees shall have power to call outstanding Share
certificates and to replace them with book entries. The Trustees may make
such rules as they consider appropriate for the issuance of Share
certificates, the use of facsimile signatures, the transfer of Shares and
similar matters. The record books of the Trust as kept by the Trust or any
Transfer Agent or similar agent, as the case may be, shall be conclusive as to
who are the Share
<PAGE>38
holders and as to the number of Shares of each Portfolio held from time to
time by each such Shareholder.
The holders of Shares of each Portfolio shall upon demand disclose to the
Trustees in writing such information with respect to their direct and indirect
ownership of Shares of such Portfolio as the Trustees deem necessary to comply
with the provisions of the Internal Revenue Code, or to comply with the
requirements of any other authority.
SECTION 6.4. Investments in the Trust. The Trustees may accept
investments in any Portfolio of the Trust from such Persons and on such terms
and for such consideration, not inconsistent with the provisions of the 1940
Act, as they from time to time authorize. The Trustees may authorize any
Distributor, Principal Underwriter, Custodian, Transfer Agent or other Person
to accept orders for the purchase of Shares that conform to such authorized
terms and to reject any purchase orders for Shares, whether or not conforming
to such authorized terms.
SECTION 6.5. No Pre-emptive Rights. No Shareholder, by virtue of
holding Shares of any Portfolio, shall have any preemptive or other right to
subscribe to any additional Shares of that Portfolio, or to any shares of any
other Portfolio, or any other Securities issued by the Trust.
SECTION 6.6. Status of Shares. Every Shareholder, by virtue of having
become a Shareholder, shall be held to have expressly assented and agreed to
the terms hereof and to have become a party hereto. Shares shall be deemed to
be personal property, giving only the rights provided herein. Ownership of
Shares shall not entitle the Shareholder to any title in or to the whole or
any part of the Trust Property or right to call for a partition or division of
the same or for an accounting, nor shall the ownership of Shares constitute
the Shareholders partners. The death of a Shareholder during the continuance
of the Trust shall not operate to terminate the Trust or any Portfolio, nor
entitle the representative of any deceased Shareholder to an accounting or to
take any action in court or elsewhere against the Trust or the Trustees, but
only to the rights of said decedent under this Declaration of Trust.
ARTICLE 7
SHAREHOLDERS' VOTING POWERS AND MEETINGS
SECTION 7.1. Voting Powers. The Shareholders shall have power to vote
only (i) for the election or removal of Trustees as
<PAGE>39
provided in Sections 4.1(c) and (e) hereof, (ii) with respect to the approval
or termination in accordance with the 1940 Act of any contract with a
Contracting Party as provided in Section 5.2 hereof as to which Shareholder
approval is required by the 1940 Act, (iii) with respect to any termination or
reorganization of the Trust or any Portfolio to the extent and as provided in
Sections 9.1 and 9.2 hereof, (iv) with respect to any amendment of this
Declaration of Trust to the extent and as provided in Section 9.3 hereof, (v)
to the same extent as the stockholders of a Massachusetts business corporation
as to whether or not a court action, proceeding or claim should or should not
be brought or maintained derivatively or as a class action on behalf of the
Trust or any Portfolio, or the Shareholders of any of them (provided, however,
that a Shareholder of a particular Portfolio shall not in any event be
entitled to maintain a derivative or class action on behalf of any other
Portfolio or the Shareholders thereof), and (vi) with respect to such
additional matters relating to the Trust as may be required by the 1940 Act,
this Declaration of Trust, the By-Laws or any registration of the Trust with
the Commission (or any successor agency) or any State, or as the Trustees may
consider necessary or desirable. If and to the extent that the Trustees shall
determine that such action is required by law, they shall cause each matter
required or permitted to be voted upon at a meeting or by written consent of
Shareholders to be submitted to a separate vote of the outstanding Shares of
each Portfolio entitled to vote thereon; provided, that (i) when expressly
required by this Declaration or by the 1940 Act, actions of Shareholders shall
be taken by Single Class Voting of all outstanding Shares of each Series whose
holders are entitled to vote thereon; and (ii) when the Trustees determine
that any matter to be submitted to a vote of Shareholders affects only the
rights or interests of Shareholders of one or more but not all Portfolios,
then only the Shareholders of the Portfolios so affected shall be entitled to
vote thereon.
SECTION 7.2. Number of Votes and Manner of Voting; Proxies. On each
matter submitted to a vote of the Shareholders, each holder of Shares of any
Series shall be entitled to a number of votes equal to the number of Shares of
such Series standing in his name on the books of the Trust. There shall be no
cumulative voting in the election of Trustees. Shares may be voted in person
or by proxy. A proxy with respect to Shares held in the name of two (2) or
more Persons shall be valid if executed by any one of them unless at or prior
to exercise of the proxy the Trust receives a specific written notice to the
contrary from any one of them. A proxy purporting to be executed by or on
behalf of a Shareholder shall be deemed valid unless challenged at or prior to
its exercise and the burden of proving invalidity shall rest on the
challenger. Until Shares are issued, the Trustees may exercise
<PAGE>40
all rights of Shareholders and may take any action required by law, this
Declaration of Trust or the By-Laws to be taken by Shareholders.
SECTION 7.3. Meetings. Meetings of Shareholders may be called by the
Trustees from time to time for the purpose of taking action upon any matter
requiring the vote or.authority of the Shareholders as herein provided, or
upon any other matter deemed by the Trustees to be necessary or desirable.
Written notice of any meeting of Shareholders shall be given or caused to be
given by the Trustees by mailing such notice at least seven (7) days before
such meeting, postage prepaid, stating the time, place and purpose of the
meeting, to each Shareholder at the Shareholder's address as it appears on the
records of the Trust. The Trustees shall promptly call and give notice of a
meeting of Shareholders for the purpose of voting upon removal of any Trustee
of the Trust when requested to do so in writing by Shareholders holding not
less than ten percent (10%) of the Shares then outstanding. If the Trustees
shall fail to call or give notice of any meeting of Shareholders for a period
of thirty (30) days after written application by Shareholders holding at least
ten percent (10%) of the Shares then outstanding requesting that a meeting be
called for any other purpose requiring action by the Shareholders as provided
herein or in the By-Laws, then Shareholders holding at least ten percent (10%)
of the Shares then outstanding may call and give notice of such meeting, and
thereupon the meeting shall be held in the manner provided for herein in case
of call thereof by the Trustees.
SECTION 7.4. Record Dates. For the purpose of determining the
Shareholders who are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to participate in any dividend or distribution,
or for the purpose of any other action, the Trustees may from time to time
close the transfer books for such period, not exceeding thirty (30) days
(except at or in connection with the termination of the Trust), as the
Trustees may determine; or without closing the transfer books the Trustees may
fix a date and time not more than sixty (60) days prior to the date of any
meeting of Shareholders or other action as the date and time of record for the
determination of Shareholders entitled to vote at such meeting or any
adjournment thereof or to be treated as Shareholders of record for purposes of
such other action, and any Shareholder who was a Shareholder at the date and
time so fixed shall be entitled to vote at such meeting or any adjournment
thereof or to be treated as a Shareholder of record for purposes of such other
action, even though he has since that date and time disposed of his Shares,
and no Shareholder becoming such after that date and time shall be so entitled
to vote at such
<PAGE>41
meeting or any adjournment thereof or to be treated as a Shareholder of record
for purposes of such other action.
SECTION 7.5. Quorum and Required Vote. A majority of the Shares
entitled to vote shall be a quorum for the transaction of business at a
Shareholders' meeting, but any lesser number shall be sufficient for
adjournments. Any adjourned session or sessions may be held within a
reasonable time after the date set for the original meeting without the
necessity of further notice. A Majority Shareholder Vote at a meeting of
which a quorum is present shall decide any question, except when a different
vote is required or permitted by any provision of the 1940 Act or other
applicable law or by this Declaration of Trust or the By-Laws, or when the
Trustees shall in their discretion require a larger vote or the vote of a
majority or larger fraction of the Shares of one or more particular Series.
SECTION 7.6. Action by Written Consent. Subject to the provisions of
the 1940 Act and other applicable law, any action taken by Shareholders may be
taken without a meeting if a majority of Shareholders entitled to vote on the
matter (or such larger proportion thereof or of the Shares of any particular
Series as shall be required by the 1940 Act or by any express provision of
this Declaration of Trust or the By-Laws or as shall be permitted by the
Trustees) consent to the action in writing and if the writings in which such
consent is given are filed with the records of the meetings of Shareholders,
to the same extent and for the same period as proxies given in connection with
a Shareholders' meeting. Such consent shall be treated for all purposes as a
vote taken at a meeting of Shareholders.
SECTION 7.7. Inspection of Records. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is permitted
stockholders of a Massachusetts business corporation under the Massachusetts
Business Corporation Law.
SECTION 7.8. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters not
inconsistent with the provisions hereof.
ARTICLE 8
LIMITATION OF LIABILITY; INDEMNIFICATION
SECTION 8.1. Trustees, Shareholders, etc. Not Personally Liable;
Notice. The Trustees and officers of the Trust, in incurring any debts,
liabilities or obligations, or in limiting or omitting any other actions for
or in connection with the Trust,
<PAGE>42
are or shall be deemed to be acting as Trustees or officers of the Trust and
not in their own capacities. No Shareholder shall be subject to any personal
liability whatsoever in tort, contract or otherwise to any other Person or
Persons in connection with the assets or the affairs of the Trust or of any
Portfolio, and subject to Section 8.4 hereof, no Trustee, officer, employee or
agent of the Trust shall be subject to any personal liability whatsoever in
tort, contract, or otherwise, to any other Person or Persons in connection
with the assets or affairs of the Trust or of any Portfolio, save only that
arising from his own willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office or the
discharge of his functions. The Trust (or if the matter relates only to a
particular Portfolio, that Portfolio) shall be solely liable for any and all
debts, claims, demands, judgments, decrees, liabilities or obligations of any
and every kind, against or with respect to the Trust or such Portfolio in
tort, contract or otherwise in connection with the assets or the affairs of
the Trust or such Portfolio, and all Persons dealing with the Trust or any
Portfolio shall be deemed to have agreed that resort shall be had solely to
the Trust Property of the Trust or the Portfolio Assets of such Portfolio, as
the case may be, for the payment or performance thereof.
The Trustees shall use their best efforts to ensure that every note,
bond, contract, instrument, certificate or undertaking made or issued by the
Trustees or by any officers or officer shall give notice that this Declaration
of Trust is on file with the Secretary of State of The Commonwealth of
Massachusetts and shall recite to the effect that the same was executed or
made by or on behalf of the Trust or by them as Trustees or Trustee or as
officers or officer, and not individually, and that the obligations of such
instrument are not binding upon any of them or the Shareholders individually
but are binding only upon the assets and property of the Trust, or the
particular Portfolio in question, as the case may be, but the omission thereof
shall not operate to bind any Trustees or Trustee or officers or officer or
Shareholders or Shareholder individually, or to subject the Portfolio Assets
of any Portfolio to the obligations of any other Portfolio.
SECTION 8.2. Trustees' Good Faith Action; Expert Advice; No Bond or
Surety. The exercise by the Trustees of their powers and discretions
hereunder shall be binding upon everyone interested. Subject to Section 8.4
hereof, a Trustee shall be liable for his own willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct
of the office of Trustee, and for nothing else, and shall not be liable for
errors of judgment or mistakes of fact or law. Subject to the foregoing, (i)
the Trustees shall not be responsible or liable in any event
<PAGE>43
for any neglect or wrongdoing of any officer, agent, employee, consultant,
Investment Advisor, Administrator, Distributor or Principal Underwriter,
Custodian or Transfer Agent, Dividend Disbursing Agent, Shareholder Servicing
Agent or Accounting Agent of the Trust, nor shall any Trustee be responsible
for the act or omission of any other Trustee; (ii) the Trustees may take
advice of counsel or other experts with respect to the meaning and operation
of this Declaration of Trust and their duties as Trustees, and shall be under
no liability for any act or omission in accordance with such advice or for
failing to follow such advice; and (iii) in discharging their duties, the
Trustees, when acting in good faith, shall be entitled to rely upon the books
of account of the Trust and upon written reports made to the Trustees by any
officer appointed by them, any independent public accountant, and (with
respect to the subject matter of the contract involved) any officer, partner
or responsible employee of a Contracting Party appointed by the Trustees
pursuant to Section 5.2 hereof. The Trustees as such shall not be required to
give any bond or surety or any other security for the performance of their
duties.
SECTION 8.3. Indemnification of Shareholders. If any Shareholder (or
former Shareholder) of the Trust shall be charged or held to be personally
liable for any obligation or liability of the Trust solely by reason of being
or having been a Shareholder and not because of such Shareholder's acts or
omissions or for some other reason, the Trust (upon proper and timely request
by the Shareholder) shall assume the defense against such charge and satisfy
any judgment thereon, and the Shareholder or former Shareholder (or the heirs,
executors, administrators or other legal representatives thereof, or in the
case of a corporation or other entity, its corporate or other general
successor) shall be entitled (but solely out of the assets of the Portfolio of
which such Shareholder or former Shareholder is or was the holder of Shares)
to be held harmless from and indemnified against all loss and expense arising
from such liability.
SECTION 8.4. Indemnification of Trustees, Officers, etc. Subject to the
limitations set forth hereinafter in this Section 8.4, the Trust shall
indemnify (from the assets of the Portfolio or Portfolios to which the conduct
in question relates) each of its Trustees and officers (including Persons who
serve at the Trust's request as directors, officers or trustees of another
organization in which the Trust has any interest as a shareholder, creditor or
otherwise [hereinafter, together with such Person's heirs, executors,
administrators or personal representative, referred to as a "Covered Person"])
against all liabilities, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and
expenses,
<PAGE>44
including reasonable accountants' and counsel fees, incurred by -any Covered
Person in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such Covered Person
may be or may have been threatened, while in office or thereafter, by reason
of being or having been such a Trustee or officer, director or trustee, except
with respect to any matter as to which it has been determined that such
Covered Person (i) did not act in good faith in the reasonable belief that
such Covered Person's action was in or not opposed to the best interests of
the Trust or (ii) had acted with willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Covered Person's office (either and both of the conduct described in (i) and
(ii) being referred to hereafter as "Disabling Conduct"). A determination
that the Covered Person is entitled to indemnification may be made by (i) a
final decision on the merits by a court or other body before whom the
proceeding was brought that the Covered Person to be indemnified was not
liable by reason of Disabling Conduct, (ii) dismissal of a court action or an
administrative proceeding against a Covered Person for insufficiency of
evidence of Disabling Conduct, or (iii) a reasonable determination, based upon
a review of the facts, that the indemnitee was not liable by reason of
Disabling Conduct by (a) a vote of a majority of a quorum of Trustees who are
neither "interested persons" of the Trust as defined in Section 2(a)(19) of
the 1940 Act nor parties to the proceeding, or (b) an independent legal
counsel in a written opinion. Expenses, including accountants' and counsel
fees so incurred by any such Covered Person (but excluding amounts paid in
satisfaction of judgments, in compromise or as fines or penalties), may be
paid from time to time by the Portfolio or Portfolios to which the conduct in
question related in advance of the final disposition of any such action, suit
or proceeding; provided, that the Covered Person shall have undertaken to
repay the amounts so paid to such Portfolio or Portfolios if it is ultimately
determined that indemnification of such expenses is not authorized under this
Article 8 and (i) the Covered Person shall have provided security for such
undertaking, (ii) the Trust shall be insured against losses arising by reason
of any lawful advances, or (iii) a majority of a quorum of the disinterested
Trustees, or an independent legal counsel in a written opinion, shall have
determined, based on a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the Covered Person
ultimately will be found entitled to indemnification.
<PAGE>45
SECTION 8.5. Compromise Payment. As to any matter disposed of by a
compromise payment by any such Covered Person referred to in Section 8.4
hereof, pursuant to a consent decree or otherwise no such indemnification
either for said payment or for any other expenses shall be provided unless
such indemnification shall be approved (i) by a majority of a quorum of the
disinterested Trustees or (ii) by an independent legal counsel in a written
opinion. Approval by the Trustees pursuant to clause (i) or by independent
legal counsel pursuant to clause (ii) shall not prevent the recovery from any
Covered Person of any amount paid to such Covered Person in accordance with
either of such clauses as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction not to have
acted in good faith in the reasonable belief that such Covered Person's action
was in or not opposed to the best interests of the Trust or to have been
liable to the Trust or its Shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office.
SECTION 8.6. Indemnification Not Exclusive, etc. The right of
indemnification provided by this Article 8 shall not be exclusive of or affect
any other rights to which any such Covered Person may be entitled. As used in
this Article 8, a "disinterested" Person is one against whom none of the
actions, suits or other proceedings in question, and no other action, suit or
other proceeding on the same or similar grounds is then or has been pending or
threatened. Nothing contained in this Article 8 shall affect any rights to
indemnification to which personnel of the Trust, other than Trustees and
officers, and other Persons may be entitled by contract or otherwise under
law, nor the power of the Trust to purchase and maintain liability insurance
on behalf of any such Person.
SECTION 8.7. Liability of Third Persons Dealing with Trustees. No
person dealing with the Trustees shall be bound to make any inquiry concerning
the validity of any transaction made or to be made by the Trustees or to see
to the application of any payments made or property transferred to the Trust
or upon its order.
ARTICLE 9
DURATION; REORGANIZATION; AMENDMENTS
SECTION 9.1. Duration and Termination of Trust. Unless terminated as
provided herein, the Trust shall continue without limitation of time and,
without limiting the generality of the
<PAGE>46
foregoing, no change, alteration or modification with respect to any Portfolio
or Series of Shares shall operate to terminate the Trust. The Trust may be
terminated at any time by a Majority of the Trustees, subject to the favorable
vote of the holders of not less than a majority of the Shares outstanding and
entitled to vote of each Portfolio of the Trust, or by an instrument or
instruments in writing without a meeting, consented to by the holders of not
less than a majority of such Shares, or by such greater or different vote of
Shareholders of any Series as may be established by the Certificate of
Designation by which such Series was authorized. Upon termination, after
paying or otherwise providing for all charges, taxes, expenses and
liabilities, whether due or accrued or anticipated as may be determined by the
Trustees, the Trust shall in accordance with such procedures as the Trustees
consider appropriate reduce the remaining assets to distributable form in
cash, Securities or other property, or any combination thereof, and distribute
the proceeds to the Shareholders, in conformity with the provisions of Section
6.2(d) hereof.
SECTION 9.2. Reorganization. The Trustees may sell, convey and transfer
all or substantially all of the assets of the Trust, or the assets belonging
to any one or more Portfolios, to another trust, partnership, association or
corporation organized under the laws of any state of the United States, or may
transfer such assets to another Portfolio of the Trust, in exchange for cash,
Shares or other Securities (including, in the case of a transfer to another
Portfolio of the Trust, Shares of such other Portfolio), or to the extent
permitted by law then in effect may merge or consolidate the Trust or any
Portfolio with any other Trust or any corporation, partnership, or association
organized under the laws of any state of the United States, all upon such
terms and conditions and for such consideration when and as authorized by vote
or written consent of a majority of the Trustees and approved by the
affirmative vote of the holders of not less than a majority of the Shares
outstanding and entitled to vote of each Portfolio whose assets are affected
by such transaction, or by an instrument or instruments in writing without a
meeting, consented to by the holders of not less than a majority of such
Shares, and/or by such other vote of any Series as may be established by the
Certificate of Designation with respect to such Series. Following such
transfer, the Trustees shall distribute the cash, Shares or other Securities
or other consideration received in such transaction (giving due effect to the
assets belonging to and indebtedness of, and any other differences among, the
various Portfolios of which the assets have so been transferred) among the
Shareholders of the Portfolio of which the assets have been so transferred;
and if all of the assets of the Trust have been so transferred, the Trust
shall be terminated. Nothing in this Section 9.2 shall be construed as
requiring approval of Shareholders for the Trustees
<PAGE>47
to organize or assist in organizing one or more corporations, trusts,
partnerships, associations or other organizations, and to sell, convey or
transfer less than substantially all of the Trust Property or the assets
belonging to any Portfolio to such organizations or entities.
SECTION 9.3. Amendments; etc. All rights granted to the Shareholders
under this Declaration of Trust are granted subject to the reservation of the
right to amend this Declaration of Trust as herein provided, except that no
amendment shall repeal the limitations on personal liability of any
Shareholder or Trustee or the prohibition of assessment upon the Shareholders
(otherwise than as permitted under Section 6.2(h)) without the express consent
of each Shareholder or Trustee involved. Subject to the foregoing, the
provisions of this Declaration of Trust (whether or not related to the rights
of Shareholders) may be amended at any time, so long as such amendment does
not adversely affect the rights of any Shareholder with respect to which such
amendment is or purports to be applicable and so long as such amendment is not
in contravention of applicable law, including the 1940 Act, by an instrument
in writing signed by a Majority of the Trustees (or by an officer of the Trust
pursuant to the vote of a Majority of the Trustees). Any amendment to this
Declaration of Trust that adversely affects the rights of all Shareholders may
be adopted at any time by an instrument in writing signed by a Majority of the
Trustees (or by an officer of the Trust pursuant to a vote of a Majority of
the Trustees) when authorized to do so by the vote in accordance with Section
7.1 hereof of Shareholders holding a majority of all the Shares outstanding
and entitled to vote, without regard to Series, or if said amendment adversely
affects the rights of the Shareholders of less than all of the Portfolios, by
the vote of the holders of a majority of all the Shares entitled to vote of
each Portfolio so affected. Subject to the foregoing, any such amendment
shall be effective when the instrument containing the terms thereof and a
certificate (which may be a part of such instrument) to the effect that such
amendment has been duly adopted, and setting forth the circumstances thereof,
shall have been executed and acknowledged by a Trustee or officer of the Trust
and filed as provided in Section 9.4 hereof.
SECTION 9.4. Filing of Copies of Declaration and Amendments. The
original or a copy of this Declaration and of each amendment hereto (including
each Certificate of Designation and Certificate of Termination), as well as
the certificates called for by Section 4.1(k) hereof as to changes in the
Trustees, shall be kept at the office of the Trust where it may be inspected
by any Shareholder, and one copy of each such instrument shall be filed with
the Secretary of State of The Commonwealth of Massachusetts, as well as with
any other governmental office where such filing may from
<PAGE>48
time to time be required by the laws of Massachusetts. A restated
Declaration, integrating into a single instrument all of the provisions of
this Declaration which are then in effect and operative, may be executed from
time to time by a Majority of the Trustees and shall, upon filing with the
Secretary of State of The Commonwealth of Massachusetts, be conclusive
evidence of all amendments contained therein and may thereafter be referred to
in lieu of the original Declaration and the various amendments thereto.
ARTICLE 10
MISCELLANEOUS
SECTION 10.1. Governing Law. This Declaration of Trust is executed and
delivered in The Commonwealth of Massachusetts and with reference to the laws
thereof, and the rights of all parties and the construction and effect of
every provision hereof shall be subject to and construed according to the laws
of said Commonwealth.
SECTION 10.2. Counterparts. This Declaration of Trust and any amendment
thereto may be simultaneously executed in several counterparts, each of which
so executed shall be deemed to be an original, and such counterparts,
together, shall constitute but one and the same instrument, which shall be
sufficiently evidenced by any such original counterpart.
SECTION 10.3. Reliance by Third Parties. Any certificate executed by an
individual who, according to the records in the office of the Secretary of
State of The Commonwealth of Massachusetts appears to be a Trustee hereunder,
certifying to: (a) the number or identity of Trustees or Shareholders, (b) the
due authorization of the execution of any instrument or writing, (c) the form
of any vote passed at a meeting of Trustees or Shareholders, (d) the fact that
the number of Trustees or Shareholders present at any meeting or executing any
written instrument satisfies the requirements of this Declaration of Trust,
(e) the form of any By-Law adopted, or the identity of any officers elected,
by the Trustees, or (f) the existence or non-existence of any fact or facts
which in any manner relate to the affairs of the Trust, shall be conclusive
evidence as to the matters so certified in favor of any Person dealing with
the Trustees, or any of them, and the successors of such Person.
SECTION 10.4. References; Headings. The masculine gender shall include
the feminine and neuter genders. Headings are placed herein for convenience
of reference only and shall not be
<PAGE>49
taken as a part of this Declaration or control or affect the meaning,
construction or effect hereof.
SECTION 10.5. Use of the Name "Counsellors". Warburg, Pincus
Counsellors, Inc. ("Warburg") has consented to the use by the Trust of the
name "Counsellors", which is a property right of Warburg. The Trust will only
use the name "Counsellors" and will not purport to grant to any third party
the right to use such name for any purpose. Warburg or any corporate
affiliate of Warburg may use or grant to others the right to use the name
"Counsellors", as all or a portion of a corporate or business name or for any
commercial purpose, including a grant of such right to any other investment
company. At the request of Warburg, the Trust will take such action as may be
required to provide its consent to the use of such name by Warburg, or any
corporate affiliate of Warburg, or by any Person to whom Warburg or an
affiliate of Warburg shall have granted the right to the use of the name
"Counsellors". Upon the termination of any investment advisory or management
agreement into which Warburg and the Trust may enter, the Trust shall, upon
request by Warburg, cease to use the name "Counsellors" as its name, and shall
not use such name or initials as a part of its name or for any other
commercial purpose, and shall cause its officers and Trustees to take any and
all actions which Warburg may request to effect the foregoing and to reconvey
to Warburg or such corporate affiliate any and all rights to such name.
<PAGE>50
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal,
for himself and his assigns, and has thereby accepted the Trusteeship as the
Initial Trustee of Counsellors Capital Appreciation Fund hereby granted and
agreed to the provisions hereof, all as of the day and year first above
written.
/s/ Bryan G. Tyson
Bryan G. Tyson
The undersigned Settlor of Counsellors Capital Appreciation Fund, hereby
accepts, approves and authorizes the foregoing Agreement and Declaration of
Trust of Counsellors Capital Appreciation Fund.
Dated: January 20, 1987
/s/ Virginia Spencer
Virginia Spencer
<PAGE>51
ACKNOWLEDGMENTS
M A S S A C H U S E T T S
Suffolk, ss.: January 20, 1987
Then personally appeared the above named Bryan G. Tyson and acknowledged
the foregoing instrument to be his free act and deed.
Before me,
/s/ Linda M. Rose
Notary Public
M A S S A C H U S E T T S
Suffolk, ss.: January 20, 1987
Then personally appeared the above named Virginia Spencer and
acknowledged the foregoing instrument to be her free act and deed.
Before me,
/s/ Linda M. Rose
Notary Public
<PAGE>1
-------------------------------------
Second Amended and Restated By-Laws
-------------------------------------
<PAGE>2
WARBURG, PINCUS CAPITAL APPRECIATION FUND
Second Amended and Restated By-Laws
Index
Page No.
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1 - SHAREHOLDERS AND SHAREHOLDERS' MEETINGS . . . . . . . . . . . 1
SECTION 1.1. Meetings . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2. Presiding Officer; Secretary . . . . . . . . . . . . . 1
SECTION 1.3. Authority of Chairman of Meeting to
Interpret Declaration and By-Laws . . . . . . . . . 2
SECTION 1.4. Voting; Quorum . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.5. Inspectors . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.6. Notice of Shareholder Business . . . . . . . . . . . . 2
SECTION 1.7. Shareholders' Action in Writing . . . . . . . . . . . 3
SECTION 1.8. Shareholder Business not Eligible for
Consideration . . . . . . . . . . . . . . . . . . . 3
ARTICLE 2 - TRUSTEES AND TRUSTEES' MEETINGS . . . . . . . . . . . . . . . 4
SECTION 2.1. Number of Trustees . . . . . . . . . . . . . . . . . . 4
SECTION 2.2. Regular Meetings of Trustees . . . . . . . . . . . . . 4
SECTION 2.3. Special Meetings of Trustees . . . . . . . . . . . . . 4
SECTION 2.4. Notice of Meetings . . . . . . . . . . . . . . . . . . 4
SECTION 2.5. Quorum; Presiding Officer . . . . . . . . . . . . . . 5
SECTION 2.6. Participation by Telephone . . . . . . . . . . . . . . 5
SECTION 2.7. Location of Meetings . . . . . . . . . . . . . . . . . 5
SECTION 2.8. Votes . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 2.9. Rulings of Chairman . . . . . . . . . . . . . . . . . 5
SECTION 2.10. Trustees' Action in Writing . . . . . . . . . . . . . 6
SECTION 2.11. Resignations . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.12. Trustee Nominations . . . . . . . . . . . . . . . . . 6
ARTICLE 3
OFFICERS . . . . . . . . . . . . . . . 7
SECTION 3.1. Officers of the Trust . . . . . . . . . . . . . . . . 7
SECTION 3.2. Time and Terms of Election . . . . . . . . . . . . . . 7
SECTION 3.3. Resignation and Removal . . . . . . . . . . . . . . . 8
SECTION 3.4. Fidelity Bond . . . . . . . . . . . . . . . . . . . . 8
SECTION 3.5. Chairman of the Trustees . . . . . . . . . . . . . . . 8
SECTION 3.6. Vice Chairmen . . . . . . . . . . . . . . . . . . . . 8
SECTION 3.7. President . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 3.8. Vice Presidents . . . . . . . . . . . . . . . . . . . 9
SECTION 3.9. Treasurer and Assistant Treasurers . . . . . . . . . . 9
SECTION 3.10. Controller and Assistant Controllers . . . . . . . . . 9
<PAGE>3
SECTION 3.11. Secretary and Assistant Secretaries . . . . . . . . . 10
SECTION 3.12. Substitutions . . . . . . . . . . . . . . . . . . . . 10
SECTION 3.13. Execution of Deeds, etc. . . . . . . . . . . . . . . . 10
SECTION 3.14. Power to Vote Securities . . . . . . . . . . . . . . . 10
ARTICLE 4 - COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.1. Power of Trustees to Designate
Committees . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.2. Rules for Conduct of Committee Affairs. . . . . . . . 11
SECTION 4.3. Trustees May Alter, Abolish, etc. . . . . . . . . . . 11
SECTION 4.4. Minutes; Review by Trustees . . . . . . . . . . . . . 11
ARTICLE 5 - SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 6 - SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 6.1. Issuance of Shares . . . . . . . . . . . . . . . . . . 12
SECTION 6.2. Uncertificated Shares . . . . . . . . . . . . . . . . 12
SECTION 6.3. Share Certificates . . . . . . . . . . . . . . . . . . 12
SECTION 6.4. Lost, Stolen, etc., Certificates . . . . . . . . . . . 13
SECTION 6.5. Record Transfer of Pledged Shares . . . . . . . . . . 13
ARTICLE 7 - CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 8 - AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 8.1. By-Laws Subject to Amendment . . . . . . . . . . . . . 14
SECTION 8.2. Notice of Proposal to Amend By-Laws
Required . . . . . . . . . . . . . . . . . . . . . . 14
<PAGE>4
SECOND AMENDED AND RESTATED
BY-LAWS
OF
WARBURG, PINCUS CAPITAL APPRECIATION FUND
These Articles are the Second Amended and Restated By-Laws of
Warburg, Pincus Capital Appreciation Fund, a trust with transferable shares
established under the laws of The Commonwealth of Massachusetts (the "Trust"),
pursuant to an Agreement and Declaration of Trust of the Trust made the 20th
day of January, 1987, and filed in the office of the Secretary of The
Commonwealth (as amended from time to time, the "Declaration"). These By-Laws
have been adopted by the Trustees pursuant to the authority granted by Section
3.1 of the Declaration.
All words and terms capitalized in these By-Laws, unless otherwise
defined herein, shall have the same meanings as they have in the Declaration.
ARTICLE 1
SHAREHOLDERS AND SHAREHOLDERS' MEETINGS
SECTION 1.1. Meetings. A meeting of the Shareholders of the Trust
shall be held whenever called by the Trustees and whenever election of a
Trustee or Trustees by Shareholders is required by the provisions of the 1940
Act. Meetings of Shareholders shall also be called by the Trustees when
requested in writing by Shareholders holding at least ten percent (10%) of the
Shares then outstanding for the purpose of voting upon removal of any Trustee,
or if the Trustees shall fail to call or give notice of any such meeting of
Shareholders for a period of thirty (30) days after such application, then
Shareholders holding at least ten percent (10%) of the Shares then outstanding
may call and give notice of such meeting. Notice of Shareholders' meetings
shall be given as provided in the Declaration.
SECTION 1.2. Presiding Officer; Secretary. The Chairman of the
Trustees, if any, or in his absence the Vice Chairman or Chairmen, if any, in
the order of their seniority or as the Trustees shall otherwise determine, and
in the absence of the Chairman and all Vice Chairmen, if any (or if there are
none), the President, shall preside at each Shareholders' meeting as chairman
of the meeting, or in the absence of the Chairman, all Vice-Chairmen and the
President, the Trustees present at the meeting shall elect one of their number
as chairman of the meeting. Unless otherwise provided for by the Trustees,
the
<PAGE>5
Secretary of the Trust shall be the secretary of all meetings of Shareholders
and shall record the minutes thereof.
SECTION 1.3. Authority of Chairman of Meeting to Interpret
Declaration and By-Laws. At any Shareholders' meeting the chairman of the
meeting shall be empowered to determine the construction or interpretation of
the Declaration or these By-Laws, or any part thereof or hereof, and his
ruling shall be final.
SECTION 1.4. Voting; Quorum. At each meeting of Shareholders,
except as otherwise provided by the Declaration, every, holder of record of
Shares entitled to vote shall be entitled to a number of votes equal to the
number of Shares standing in his name on the Share register of the Trust.
Shareholders may vote by proxy and the form of any such proxy may be
prescribed from time to time by the Trustees. A quorum shall exist if the
holders of a majority of the outstanding Shares of the Trust entitled to vote
without regard to Series are present in person or by proxy, but any lesser
number shall be sufficient for adjournments. At all meetings of the
Shareholders, votes shall be taken by ballot for all matters which may be
binding upon the Trustees pursuant to Section 7.1 of the Declaration. On
other matters, votes of Shareholders need not be taken by ballot unless
otherwise provided for by the Declaration or by vote of the Trustees, or as
required by the Act or the Regulations, but the chairman of the meeting may in
his discretion authorize any matter to be voted upon by ballot.
SECTION 1.5. Inspectors. At any meeting of Shareholders, the
chairman of the meeting may appoint one or more Inspectors of Election or
Balloting to supervise the voting at such meeting or any adjournment thereof.
If Inspectors are not so appointed, the chairman of the meeting may, and on
the request of any Shareholder present or represented and entitled to vote
shall, appoint one or more Inspectors for such purpose. Each Inspector,
before entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of Inspector of Election or Balloting, as the
case may be, at such meeting with strict impartiality and according to the
best of his ability. If appointed, Inspectors shall take charge of the polls
and, when the vote is completed, shall make a certificate of the result of the
vote taken and of such other facts as may be required by law.
SECTION 1.6. Notice of Shareholder Business. (a) At any Annual or
Special Meeting of the Shareholders, 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
<PAGE>6
direction of the Board of Trustees, (ii) otherwise properly brought before the
meeting by or at the direction of the Board of Trustees, or (iii) subject to
the provisions of Section 1.6 of this Article 1, otherwise properly brought
before the meeting by a Shareholder and (B) a proper subject under applicable
law for Shareholder action.
(b) For business to be properly brought before an Annual or Special
Meeting by a Shareholder, the Shareholder must have given timely notice
thereof in writing to the Secretary of the Trust. To be timely, any such
notice must be delivered to or mailed and received at the principal executive
offices of the Trust 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 Shareholders, any
such notice by a Shareholder 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 Shareholder shall set forth as to each
matter the Shareholder 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
Trust's books, of the Shareholder proposing such business, (iii) the class and
number of shares of the capital stock of the Trust which are beneficially
owned by the Shareholder, and (iv) any material interest of the Shareholder 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 1.6. 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 in accordance with the provisions of this Section 1.6, and if he
should so determine, he shall so declare to the meeting, and any such business
not properly brought before the meeting shall not be considered or transacted.
SECTION 1.7. Shareholders' Action in Writing. Nothing in this
Article 1 shall limit the power of the Shareholders to take any action by
means of written instruments without a meeting, as permitted by Section 7.6 of
the Declaration.
SECTION 1.8. Shareholder 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
Shareholder will not be
<PAGE>7
eligible for consideration by the Shareholders 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 Trustees of the Trust. The chairman of such Annual or Special
Meeting shall, if the facts warrant, determine and declare that a Shareholder
proposal is substantially the same as a matter properly brought before the
meeting by or at the direction of the Board of Trustees, and, if he should so
determine, he shall so declare to the meeting, and any such Shareholder
proposal shall not be considered at the meeting.
(b) This Section 1.8 shall not be construed or applied to make
ineligible for consideration by the Shareholders at any Annual or Special
Meeting any Shareholder proposal required to be included in the Trust'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 2
TRUSTEES AND TRUSTEES' MEETINGS
SECTION 2.1. Number of Trustees. There shall initially be one (1)
Trustee, and the number of Trustees shall thereafter be such number,
authorized by the Declaration, as from time to time shall be fixed by a vote
adopted by a Majority of the Trustees.
SECTION 2.2. Regular Meetings of Trustees. Regular meetings of the
Trustees may be held without call or notice at such places and at such times
as the Trustees may from time to time determine; provided, that notice of such
determination, and of the time, place and purposes of the first regular
meeting thereafter, shall be given to each absent Trustee in accordance with
Section 2.4 hereof.
SECTION 2.3. Special Meetings of Trustees. Special meetings of the
Trustees may be held at any time and at any place when called by the Chairman
of the Trustees, if any, any Vice Chairman, if any, the President or the
Treasurer or by two (2) or more Trustees, or if there shall be fewer than
three (3) Trustees, by any Trustee; provided, that notice of the time, place
and purposes thereof is given to each Trustee in accordance with Section 2.4
hereof by the Secretary or an Assistant Secretary or by the officer or the
Trustees calling the meeting.
SECTION 2.4. Notice of Meetings. Notice of any regular or special
meeting of the Trustees shall be sufficient if given in writing to each
Trustee, and if sent by mail at least five (5) days, or by telegram, Federal
Express or other similar delivery
<PAGE>8
service at least twenty-four (24) hours, before the meeting, addressed to his
usual or last known business or residence address, or if delivered to him in
person at least twenty-four (24) hours before the meeting. Notice of a
special meeting need not be given to any Trustee who was present at an earlier
meeting, not more than thirty-one (31) days prior to the subsequent meeting,
at which the subsequent meeting was called. Notice of a meeting may be waived
by any Trustee by written waiver of notice, executed by him before or after
the meeting, and such waiver shall be filed with the records of the meeting
Attendance by a Trustee at a meeting shall constitute a waiver of notice,
except where a Trustee attends a meeting for the purpose of protesting prior
thereto or at its commencement the lack of notice.
SECTION 2.5. Quorum; Presiding Officer. At any meeting of the
Trustees, a Majority of the Trustees shall constitute a quorum. Any meeting
may be adjourned from time to time by a majority of the votes cast upon the
question, whether or not a quorum is present, and the meeting may be held as
adjourned without further notice. Unless the Trustees shall otherwise elect,
generally or in a particular case, the Chairman of the Trustees, or in his
absence (or if there is none), the Vice Chairman or Vice Chairmen, if any, in
the order of their seniority or as the Trustees shall otherwise determine, or
in the absence of the Chairman and all Vice Chairmen, if any, the President,
shall preside at each meeting of the Trustees as chairman of the meeting.
SECTION 2.6. Participation by Telephone. One or more of the
Trustees may participate in a meeting thereof or of any Committee of the
Trustees by means of a conference telephone or similar communications
equipment allowing all persons participating in the meeting to hear each other
at the same time. Participation by such means shall constitute presence in
person at a meeting.
SECTION 2.7. Location of Meetings. Trustees' meetings may be held
at any place, within or without Massachusetts.
SECTION 2.8. Votes. Voting at Trustees' meetings may be conducted
orally, by show of hands or, if requested by any Trustee, by written ballot.
The results of all voting shall be recorded by the Secretary in the minute
book.
SECTION 2.9. Rulings of Chairman. All other rules of conduct
adopted and used at any Trustees' meeting shall be determined by the chairman
of such meeting, whose ruling on all procedural matters shall be final.
<PAGE>9
SECTION 2.10. Trustees' Action in Writing. Nothing in this Article
2 shall limit the power of the Trustees to take action by means of a written
instrument without a meeting, as provided in Section 4.2 of the Declaration.
SECTION 2.11. Resignations. Any Trustee may resign at any time by
written instrument signed by him and delivered to the Chairman, if any, the
President or the Secretary or to a meeting of the Trustees. Such resignation
shall be effective upon receipt unless specified to be effective at some other
time.
SECTION 2.12. Trustee Nominations. (a) Only persons who are
nominated in accordance with the procedures set forth in this Section 2.12
shall be eligible for election or re-election as Trustees. Nominations of
persons for election or re-election to the Board of Trustees as Trustees of
the Trust may be made at a meeting of Shareholders by or at the direction of
the Board of Trustees or by any Shareholder of the Trust 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 2.12.
(b) Such nominations, other than those made by or at the direction
of the Board of Trustees, shall be made pursuant to timely notice delivered in
writing to the Secretary of the Trust. To be timely, any such notice by a
Shareholder must be delivered to or mailed and received at the principal
executive offices of the Trust 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 Shareholders, any
such notice by a Shareholder 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 Shareholder shall set forth (i) as to each
person whom the Shareholder proposes to nominate for election or re-election
as a Trustee, (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 beneficial interest in the Trust 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 Trustees 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 a Trustee if elected and whether any person
intends to seek reimbursement from the Trust of the expenses of any
solicitation of proxies should such person be elected a Trustee of the Trust);
and (ii)
<PAGE>10
as to the Shareholder giving the notice (A) the name and address, as they
appear on the Trust's books, of such Shareholder and (B) the class and number
of shares of beneficial interest in the Trust which are beneficially owned by
such Shareholder. At the request of the Board of Trustees any person
nominated by the Board of Trustees for election as a Trustee shall furnish to
the Secretary of the Trust that information required to be set forth in a
Shareholder's notice of nomination which pertains to the nominee.
(d) If a notice by a Shareholder is required to be given pursuant to
this Section 2.12, no person shall be entitled to receive reimbursement from
the Trust of the expenses of a solicitation of proxies for the election as a
Trustee of a person named in such notice unless such notice states that such
reimbursement will be sought from the Trust. No person shall be eligible for
election as a Trustee of the Trust unless nominated in accordance with the
procedures set forth in this Section 2.12. 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.
ARTICLE 3
OFFICERS
SECTION 3.1. Officers of the Trust. The officers of the Trust shall
consist of a President, a Treasurer and a Secretary, and may include a
Chairman of the Trustees, one or more Vice Chairmen, Vice Presidents,
Assistant Treasurers and Assistant Secretaries, and such other officers as the
Trustees may designate. Any person may hold more than one office. Except for
the Chairman of the Trustees, if any, and any Vice Chairmen, if any, no
officer need be a Trustee.
SECTION 3.2. Time and Terms of Election. The Chairman, if any, the
President, the Treasurer and the Secretary shall be elected by the Trustees at
their first meeting and thereafter at the annual meeting of the Trustees, as
provided in Section 4.2 of the Declaration. Such officers shall hold office
until the next annual meeting of the Trustees and until their successors shall
have been duly elected and qualified, and may be removed at any meeting by the
affirmative vote of a Majority of the Trustees. All other officers of the
Trust may be elected or appointed at any meeting of the Trustees. Such
officers shall hold office for any term, or indefinitely, as determined by the
Trustees, and shall be subject to removal, with or without cause, at any time
by the Trustees.
<PAGE>11
SECTION 3.3. Resignation and Removal. Any officer may resign at any
time by giving written notice to the Trustees. Such resignation shall take
effect at the time specified therein, and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it
effective. If the office of any officer or agent becomes vacant by reason of
death, resignation, retirement, disqualification, removal from office or
otherwise, the Trustees may choose a successor, who shall hold office for the
unexpired term in respect of which such vacancy occurred. Except to the
extent expressly provided in a written agreement with the Trust, no officer
resigning or removed shall have any right to any compensation for any period
following such resignation or removal, or any right to damage on account of
such removal.
SECTION 3.4. Fidelity Bond. The Trustees may, in their discretion,
direct any officer appointed by them to furnish at the expense of the Trust a
fidelity bond approved by the Trustees, in such amount as the Trustees may
prescribe.
SECTION 3.5. Chairman of the Trustees. The Board of Trustees may,
by resolution adopted by a majority of the entire Board, designate a Chairman
of the Trustees, who shall preside at each meeting of the Trustees. If so
designated, such Chairman of the Trustees shall also preside at all meetings
of the Shareholders and, subject to the supervision of the Trustees, shall
have general charge and supervision of the business, property and affairs of
the Trust and such other powers and duties as the Trustees may prescribe, and
unless otherwise provided by law, the Declaration, these By-Laws or specific
vote of the Trustees, shall have and may exercise all of the powers given to
the Trustees by the Declaration and by these By-Laws.
SECTION 3.6. Vice Chairmen. If the Trustees shall elect one or more
Vice Chairmen, the Vice Chairman or if there shall be more than one, such Vice
Chairmen in the order of their seniority or as otherwise designated by the
Trustees, shall preside at meetings of the Shareholders and of the Trustees,
and shall exercise such other powers and duties of the Chairman as the
Trustees shall determine.
SECTION 3.7. President. The President shall be the chief
administrative officer of the Trust and, subject to the supervision of the
Chairman, if any, shall have general charge of the operations of the Trust and
general supervision of the personnel of the Trust, and such other powers and
duties as the Trustees or the Chairman, if any, shall prescribe. In the
absence or disability of the Chairman (or if there is none), the President
shall exercise the powers and duties of the Chairman, except to the extent
that the Trustees shall have delegated such
<PAGE>12
powers and duties to the Vice Chairman or Chairmen, if any, and except that he
shall not preside at meetings of the Trustees if he is not himself a Trustee.
SECTION 3.8. Vice Presidents. In the absence or disability of the
President, the Vice President or, if there shall be more than one, the Vice
Presidents in the order of their seniority or as otherwise designated by the
Trustees, shall exercise all of the powers and duties of the President. The
Vice Presidents shall have the power to execute bonds, notes, mortgages and
other contracts, agreements and instruments in the name of the Trust, and
shall do and perform such other duties as the Trustees, the Chairman, if any,
or the President shall direct.
SECTION 3.9. Treasurer and Assistant Treasurers. The Treasurer
shall be the chief financial officer of the Trust, and shall have the custody
of the Trust's funds and Securities, and shall keep full and accurate accounts
of receipts and disbursements in books belonging to the Trust and shall
deposit all moneys, and other valuable effects in the name and to the credit
of the Trust, in such depositories as may be designated by the Trustees,
taking proper vouchers for such disbursements, shall have such other duties
and powers as may be prescribed from time to time by the Trustees or the
Chairman, if any, and shall render to the Trustees, whenever they may require
it, an account of all his transactions as Treasurer and of the financial
condition of the Trust. If no Controller is elected, the Treasurer shall also
have the duties and powers of the Controller, as provided in these By-Laws.
Any Assistant Treasurer shall have such duties and powers as shall be
prescribed from time to time by the Trustees or the Treasurer, and shall be
responsible to and shall report to the Treasurer. In the absence or
disability of the Treasurer, the Assistant Treasurer or, if there shall be
more than one, the Assistant Treasurers in the order of their seniority or as
otherwise designated by the Trustees or the Chairman, if any, shall have the
powers and duties of the Treasurer.
SECTION 3.10. Controller and Assistant Controllers. If a Controller
is elected, he shall be the chief accounting officer of the Trust and shall be
in charge of its books of account and accounting records and of its accounting
procedures, and shall have such duties and powers as are commonly incident to
the office of a controller, and such other duties and powers as may be
prescribed from time to time by the Trustees. The Controller shall be
responsible to and shall report to the Trustees, but in the ordinary conduct
of the Trust's business, shall be under the supervision of the Treasurer. Any
Assistant Controller shall have such duties and powers as shall be prescribed
from time to time by the Trustees or the Controller, and shall be responsible
<PAGE>13
to and shall report to the Controller. In the absence or disability of the
Controller, the Assistant Controller or, there shall be more than one, the
Assistant Controllers in the order of their seniority or as otherwise
designated by the Trustees or the Chairman, if any, shall have the powers and
duties of the Controller.
SECTION 3.11. Secretary and Assistant Secretaries. The Secretary
shall, if and to the extent requested by the Trustees, attend all meetings of
the Trustees, any Committee of the Trustees and/or the Shareholders and record
all votes and the minutes of proceedings in a book to be kept for that
purpose, shall give or cause to be given notice of all meetings of the
Trustees, any Committee of the Trustees, and of the Shareholders and shall
perform such other duties as may be prescribed by the Trustees. The
Secretary, or in his absence any Assistant Secretary, shall affix the Trust's
seal to any instrument requiring it, and when so affixed, it shall be attested
by the signature of the Secretary or an Assistant Secretary. The Secretary
shall be the custodian of the Share records and all other books, records and
papers of the Trust (other than financial) and shall see that all books,
reports, statements, certificates and other documents and records required by
law are properly kept and filed. In the absence or disability of the
Secretary, the Assistant Secretary or, if there shall be more than one, the
Assistant Secretaries in the order of their seniority or as otherwise
designated by the Trustees or the Chairman, if any, shall have the powers and
duties of the Secretary.
SECTION 3.12. Substitutions. In case of the absence or disability
of any officer of the Trust, or for any other reason that the Trustees may
deem sufficient, the Trustees may delegate for the time being the powers or
duties, or any of them, of such officer to any other officer, or to any
Trustee.
SECTION 3.13. Execution of Deeds, etc. Except as the Trustees may
generally or in particular cases otherwise authorize or direct, all deeds,
leases, transfers, contracts, proposals, bonds, notes, checks, drafts and
other obligations made, accepted or endorsed by the Trust shall be signed or
endorsed on behalf of the Trust by the Chairman, if any, the President, one of
the Vice Presidents or the Treasurer.
SECTION 3.14. Power to Vote Securities. Unless otherwise ordered by
the Trustees, the Treasurer and the Secretary each shall have full power and
authority on behalf of the Trust to give proxies for and/or to attend and to
act and to vote at any meeting of stockholders of any corporation in which the
Trust may hold stock, and at any such meeting the Treasurer or the Secretary,
as the case may be, his proxy shall possess and
<PAGE>14
may exercise any and all rights and powers incident to the ownership of such
stock which, as the owner thereof, the Trust might have possessed and
exercised if present. The Trustees, by resolution from time to time, or, in
the absence thereof, either the Treasurer or the Secretary, may confer like
powers upon any other person or persons as attorneys and proxies of the Trust.
ARTICLE 4
COMMITTEES
SECTION 4.1. Power of Trustees to Designate Committees. The
Trustees, by vote of a Majority of the Trustees, may elect from their number
an Executive Committee and any other Committees and may delegate thereto some
or all of their powers except those which by law, by the Declaration or by
these By-Laws may not be delegated; provided, that the Executive Committee
shall not be empowered to elect the Chairman of the Trustees, if any, the
President, the Treasurer or the Secretary, to amend the By-Laws, to exercise
the powers of the Trustees under this Section 4.1 or under Section 4.3 hereof,
or to perform any act for which the action of a Majority of the Trustees is
required by law, by the Declaration or by these By-Laws. The members of any
such Committee shall serve at the pleasure of the Trustees.
SECTION 4.2. Rules for Conduct of Committee Affairs. Except as
otherwise provided by the Trustees, each Committee elected or appointed
pursuant to this Article 4 may adopt such standing rules and regulations for
the conduct of its affairs as it may deem desirable, subject to review and
approval of such rules and regulations by the Trustees at the next succeeding
meeting of the Trustees, but in the absence of any such action or any contrary
provisions by the Trustees, the business of each Committee shall be conducted,
so far as practicable, in the same manner as provided herein and in the
Declaration for the Trustees.
SECTION 4.3. Trustees May Alter, Abolish, etc., Committees. The
Trustees may at any time alter or abolish any Committee, change the membership
of any Committee, or revoke, rescind or modify any action of any Committee or
the authority of any Committee with respect to any matter or class of
matters; provided, that no such action shall impair the rights of any third
parties.
SECTION 4.4. Minutes; Review by Trustees. Any Committee to which
the Trustees delegate any of their powers or duties shall keep records of its
meetings and shall report its actions to the Trustees.
<PAGE>15
ARTICLE 5
SEAL
The seal of the Trust shall consist of a flat-faced circular die with
the word "Massachusetts", together with the name of the Trust, the words
"Trust Seal", and the year of its organization cut or engraved thereon, but,
unless otherwise required by the Trustees, the seal shall not be necessary to
be placed on, and its absence shall not impair the validity of, any document,
instrument or other paper executed and delivered by or on behalf of the Trust.
ARTICLE 6
SHARES
SECTION 6.1. Issuance of Shares. The Trustees may issue Shares of
any or all Series either in certificated or uncertificated form, they may
issue certificates to the holders of shares of a Series which was originally
issued in uncertificated form, and if they have issued Shares of any Series in
certificated form, they may at any time discontinue the issuance of Share
certificates for such Series and may, by written notice to such Shareholders
of such Series require the surrender of their Share certificates to the Trust
for cancellation, which surrender and cancellation shall not affect the
ownership of Shares for such Series.
SECTION 6.2. Uncertificated Shares. For any Series of Shares for
which the Trustees issue Shares without certificates, the Trust or the
Transfer Agent may either issue receipts therefor or may keep accounts upon
the books of the Trust for the record holders of such Shares, who shall in
either case be deemed, for all purposes hereunder, to be the holders of such
Shares as if they had received certificates therefor and shall be held to have
expressly assented and agreed to the terms hereof and of the Declaration.
SECTION 6.3. Share Certificates. For any Series of Shares for which
the Trustees shall issue Share certificates, each Shareholder of such Series
shall be entitled to a certificate stating the number of Shares owned by him
in such form as shall be prescribed from time to time by the Trustees. Such
certificate shall be signed by the Chairman, if any, or a Vice Chairman, if
any, or the President or a Vice-President, and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the Trust.
Such signatures may be facsimiles if the certificate is countersigned by a
Transfer Agent, or by a Registrar, other than a Trustee, officer or employee
of the Trust. In case any officer who has signed or
<PAGE>16
whose facsimile signature has been placed on such certificate shall cease to
be such officer before such certificate is issued, it may be issued by the
Trust with the same effect as if he were such officer at the time of its
issue.
SECTION 6.4. Lost, Stolen, etc., Certificates. If any certificate
for certificated Shares shall be lost, stolen, destroyed or mutilated, the
Trustees may authorize the issuance of a new certificate of the same tenor and
for the same number of Shares in lieu thereof. The Trustees shall require the
surrender of any mutilated certificate in respect of which a new certificate
is issued, and may, in their discretion, before the issuance of a new
certificate, require the owner of a lost, stolen or destroyed certificate, or
the owner's legal representative, to make an affidavit or affirmation setting
forth such facts as to the loss, theft or destruction as they deem necessary,
and to give the Trust a bond in such reasonable sum as the Trustees direct, in
order to indemnify the Trust.
SECTION 6.5. Record Transfer of Pledged Shares. A pledgee of Shares
pledged as collateral security shall be entitled to a new certificate in his
name as pledgee, in the case of certificated Shares, or to be registered as
the holder in pledge of such Shares in the case of uncertificated Shares;
provided, that the instrument of pledge substantially describes the debt or
duty that is intended to be secured thereby. Any such new certificate shall
express on its face that it is held as collateral security, and the name of
the pledgor shall be stated thereon, and any such registration of
uncertificated Shares shall be in a form which indicates that the registered
holder holds such Shares in pledge. After such issue or registration, and
unless and until such pledge is released, such pledgee and his successors and
assigns shall alone be entitled to the rights of a Shareholder, and entitled
to vote such Shares.
ARTICLE 7
CUSTODIAN
The Trust shall at all times employ a bank or trust company having a
capital, surplus and undivided profits of at least Two Million Dollars
($2,000,000) as Custodian of the capital assets of the Trust. The Custodian
shall be compensated for its services by the Trust upon such basis as shall be
agreed upon from time to time between the Trust and the Custodian.
<PAGE>17
ARTICLE 8
AMENDMENTS
SECTION 8.1. By-Laws Subject to Amendment. These By-Laws may be
altered, amended or repealed, in whole or in part, at any time by vote of the
holders of a majority of the Shares (or whenever there shall be more than one
Series of Shares, of the holders of a majority of the Shares of each Series)
issued, outstanding and entitled to vote. The Trustees, by vote of a majority
of the Trustees, may alter, amend or repeal these By-Laws, in whole or in
part, including By-Laws adopted by the Shareholders, except with respect to
any provision hereof which by law, the Declaration or these By-Laws requires
action by the Shareholders. By-Laws adopted by the Trustees may be altered,
amended or repealed by the Shareholders.
SECTION 8.2. Notice of Proposal to Amend By-Laws Required. No
proposal to amend or repeal these By-Laws or to adopt new By-Laws shall be
acted upon at a meeting unless either (i) such proposal is stated in the
notice or in the waiver of notice, as the case may be, of the meeting of the
Trustees or Shareholders at which such action is taken, or (ii) all of the
Trustees or Shareholders, as the case may be, are present at such meeting and
all agree to consider such proposal without protesting the lack of notice.
As adopted, April 5, 1995
<PAGE>1
INVESTMENT ADVISORY AGREEMENT
July 10, 1987
Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
Counsellors Capital Appreciation Fund (the "Fund"), a business trust
organized under the laws of the Commonwealth of Massachusetts, herewith
confirms its agreement with Warburg, Pincus Counsellors, Inc. (the "Adviser")
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 Agreement and Declaration or Trust, as may be amended from time to time,
and in its Prospectus and Statement of Additional Information as from time to
time in effect, and in such manner and to such extent as may from time to time
be approved by the Board of Trustees of the Fund. Copies of the Fund's
Prospectus, Statement of Additional Information and Agreement and Declaration
of Trust, as may be amended from time to time, have been or will be submitted
to the Adviser. The Fund desires to employ and hereby appoints the Adviser to
act as investment adviser to its sole portfolio, the Counsellors Capital
Appreciation Portfolio (hereinafter also referred to as the "Fund"). The
Adviser accepts the appointment and agrees to furnish the services for the
compensation set forth below.
2. Services as Investment Adviser
Subject to the supervision and direction of the Board of Trustees of
the Fund, the Adviser will (a) act in strict conformity with the Fund's
Agreement and Declaration of Trust, the Investment Company Act of 1940 and the
Investment Advisers Act of 1940, as the same may from time to time be amended,
(b) manage the Fund in accordance with the Fund's investment objective and
policies as stated in the Fund's Prospectus and Statement of Additional
Information as from time to time in effect, (c) make investment decisions for
the Fund and (d) place purchase and sale orders for securities on behalf of
the Fund. In providing those services, the Adviser will provide investment
research and supervision of the Fund's investments and conduct a
<PAGE>2
continual program of investment, evaluation and, if appropriate, sale and
reinvestment of the Fund's assets. In addition, the Adviser will furnish the
Fund with whatever statistical information the Fund may reasonably request
with respect to the securities that the Fund may hold or contemplate
purchasing.
3. Brokerage
In executing transactions for the Fund and selecting brokers or
dealers, the Adviser will use its best efforts to seek the best overall terms
available. In assessing the best overall terms available for any portfolio
transaction, the Adviser will consider all factors it deems relevant
including, but not limited to, breadth of the market in the security, the
price of the security, the financial condition and execution capability of the
broker or dealer and the reasonableness of any commission for the specific
transaction and for transactions executed through the broker or dealer in
aggregate. In selecting brokers or dealers to execute a particular
transaction and in evaluating the best overall terms available, the Adviser
may consider the brokerage and research services (as those terms are defined
in Section 28(e) of the Securities Exchange Act of 1934) provided to the Fund
and/or other accounts over which the Adviser or an affiliate exercises
investment discretion.
4. Information Provided to the Fund
The Adviser will keep the Fund informed of developments materially
affecting the Fund, and will, on its own initiative, furnish the Fund from
time to time with whatever information the Adviser believes is appropriate for
this purpose.
5. Standard of Care
The Adviser shall exercise its best judgment in rendering the
services listed in paragraphs 2, 3 and 4 above. The Adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters to which this Agreement relates,
provided that nothing herein shall be deemed to protect or purport to protect
the Adviser against any liability to the Fund or to shareholders of the Fund
to which the Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence on its part in the performance of
its duties or by reason of the Adviser's reckless disregard of its obligations
and duties under this Agreement.
<PAGE>3
6. Compensation
In consideration of the services rendered pursuant to this
Agreement, the Fund will pay the Adviser an annual fee calculated at an annual
rate of .50 of 1.00% of the Fund's average daily net assets. The fee for the
period from the date the Fund's initial registration statement is declared
effective by the Securities and Exchange Commission to the end of the year
during which the initial registration statement is declared effective shall be
prorated according to the proportion that such period bears to the full yearly
period. Upon any termination of this Agreement before the end of a year, the
fee for such part of that year shall be prorated according to the proportion
that such period bears to the full yearly period and shall be payable upon the
date of termination of this Agreement. For the purpose of determining fees
payable to the Adviser, the value of the Fund's net assets shall be computed
at the times and in the manner specified in the Fund's Prospectus or Statement
of Additional Information as from time to time in effect.
7. Expenses
The Adviser will bear all expenses in connection with the
performance of its services under this Agreement. The Fund will bear certain
other expenses to be incurred in its operation, including: investment
advisory and administration fees; taxes, interest, brokerage fees and
commissions, if any; fees of trustees of the Fund who are not officers,
directors, or employees of the Adviser, Provident National Bank or any of
their affiliates; fees of any pricing service employed to value shares of the
Fund; Securities and Exchange Commission fees and state Blue Sky qualification
fees; charges of custodians and transfer and dividend disbursing agents; the
Fund's proportionate share of insurance premiums; outside auditing and legal
expenses; costs of maintenance of the Fund's existence; costs attributable to
investor services, including, without limitation, telephone and personnel
expenses; costs of preparing and printing prospectuses and statements of
additional information for regulatory purposes and for distribution to
existing shareholders; costs of shareholders' reports and meetings of the
shareholders of the Fund and of the officers or Board of Trustees of the Fund;
and any extraordinary expenses.
The Fund, will be responsible for nonrecurring expenses which may
arise, including costs of litigation to which the Fund is a party and of
indemnifying officers and Trustees of the Fund with respect to such litigation
and other expenses as determined by the Trustees.
<PAGE>4
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 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, the Adviser will reimburse the Fund
for such excess expense. The Adviser's expense reimbursement obligation will
be limited to the amount of its fees received pursuant to this Agreement.
Such expense reimbursement, if any, will be estimated, reconciled and paid on
an annual basis.
9. Services to Other Companies or Accounts
The Fund understands that the Adviser now acts, will continue to act
and may act in the future as investment adviser to fiduciary and other managed
accounts and to one or more other investment companies or series of investment
companies, and the Fund has no objection to the Adviser so acting, provided
that whenever the Fund and one or more other accounts or investment companies
or portfolios advised by the Adviser have available funds for investment,
investments suitable and appropriate for each will be allocated in accordance
with a formula believed to be equitable to each entity. The Fund recognizes
that in some cases this procedure may adversely affect the size of the
position obtainable for the Fund. In addition, the Fund understands that the
persons employed by the Adviser to assist in the performance of the Adviser's
duties hereunder will not devote their full time to such service and nothing
contained herein shall be deemed to limit or restrict the right of the Adviser
or any affiliate of the Adviser to engage in and devote time and attention to
other businesses or to render services of whatever kind or nature.
10. Term of Agreement
This Agreement shall continue until April 17, 1989 and thereafter
shall continue automatically for successive annual periods ending on April 17
of each year, provided such continuance is specifically approved at least
annually by (a) the Board of Trustees 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 Trustees 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
<PAGE>5
such approval. This Agreement is terminable, without penalty, on 60 days'
written notice, by the Board of Trustees of the Fund or by vote of holders of
a majority of the Fund's shares, or upon 90 days' written notice, by the
Adviser. This Agreement will also terminate automatically in the event of its
assignment (as defined in said Act).
11. Representation by the Fund
The Fund represents that a copy of its Agreement and Declaration of
Trust, dated January 20, 1987, together with all amendments thereto, is on
file in the office of the Secretary of State of the Commonwealth of
Massachusetts.
12. Limitation of Liability
It is expressly agreed that this Agreement was executed by or on
behalf of the Fund and not by the Trustees of the Fund or its officers
individually, and the obligations of the Fund hereunder shall not be binding
upon any of the Trustees, shareholders, nominees, officers, agents or
employees of the Fund individually, but bind only the assets and property of
the Fund, as provided in the Agreement and Declaration of Trust of the Fund.
The execution and delivery of this Agreement have been authorized by the
Trustees and the sole shareholder of the Fund and signed by an authorized
officer of the Fund, acting as such, and neither such authorization by such
Trustees and shareholder nor such execution and delivery by such officer shall
be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the trust property of
the Fund as provided in its Agreement and Declaration of Trust.
13. Miscellaneous
The Fund recognizes that directors, officers and employees of the
Adviser may from time to time serve as directors, trustees, officers and
employees of corporations and business trusts (including other investment
companies) and that such other corporations and trusts may include the name
"Counsellors" or "Counsellors Securities" as part of their names, and that the
Adviser or its affiliates may enter into advisory or other agreements with
such other corporations and trusts. If the Adviser ceases to act as the
investment adviser of the Fund's shares, the Fund agrees that, at the
Adviser's request, the Fund's license to use the 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."
<PAGE>6
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below
indicated, whereupon it shall become a binding agreement between us.
Very truly yours,
COUNSELLORS CAPITAL APPRECIATION
FUND
By:_______________________________
President
Accepted:
WARBURG, PINCUS COUNSELLORS, INC.
By:________________________________
Authorized Officer
<PAGE>1
CONSENT OF COUNSEL
Warburg, Pincus Capital Appreciation Fund
We hereby consent to being named in the Statement of Additional
Information included in Post-Effective Amendment No. 15 (the "Amendment") to
the Registration Statement on Form N-1A (Securities Act File No. 33-12344,
Investment Company Act File No. 811-5041) of Warburg, Pincus Capital
Appreciation Fund (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
September 20, 1995
New York, New York
<PAGE>1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Post-Effective Amendment No. 15 to the
Registration Statement under the Securities Act of 1933 on Form N-1A (File No.
33-12344) of our report dated December 12, 1994 on our audit of the financial
statements and financial highlights of Warburg, Pincus Capital Appreciation
Fund. We also consent to the reference to our Firm under the captions
"Financial Highlights" and "Auditors and Counsel."
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
September 22, 1995
<PAGE>7
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" in the Prospectus and "Auditors and Counsel" in the Statement of
Additional Information and to the incorporation by reference of our report
dated December 15, 1992 in this Registration Statement (Form N-1A No. 33-
12344) of Warburg, Pincus Capital Appreciation Fund.
ERNST & YOUNG LLP
New York, New York
September 20, 1995
<PAGE>1
PURCHASE AGREEMENT
Counsellors Capital Appreciation Fund (the "Fund"), a business trust
organized under the laws of the Commonwealth of Massachusetts, and E.M.
Warburg, Pincus & Co., Inc. ("EMW") hereby agree as follows:
1. The Fund offers EMW and EMW hereby purchases shares of
beneficial interest of the Fund, par value $.001 per share (the "Shares"),
consisting of 9,990 Shares of the Fund at a price of $10.00 per Share. These
Shares are the "Fund Purchased Shares". EMW also has purchased 10 shares at
$10.00 per share from the Settlor of the Fund ("Settlor Shares"; together with
the Fund Purchased Shares, the "Initial Shares").
2. EMW represents and warrants to the Fund that the Shares are
being acquired for investment purposes and not for the purpose of distributing
them.
3. In the event of a redemption of any Shares purchased by EMW,
the first Shares so redeemed shall be the Initial Shares. EMW agrees that if
any holder of the Initial Shares redeems any Initial Shares in the Fund before
five years after the date upon which the Fund commences its investment
activities, the redemption proceeds will be reduced by the amount of
unamortized organizational expenses, in the same proportion as the number of
Initial Shares being redeemed bears to the number of Initial Shares
outstanding at the time of redemption. The parties hereby acknowledge that
any Shares acquired by EMW pursuant to this Agreement other than the Initial
Shares have not
<PAGE>23
been acquired to fulfill the requirements of Section 14 of the Investment
Company Act of 1940 and, if redeemed, their redemption proceeds will not be
subject to reduction based on the unamortized organizational expenses of the
Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day of March, 1987.
COUNSELLORS CAPITAL APPRECIATION
BOND FUND
By:_________________________________
E.M. WARBURG, PINCUS & CO., INC.
ATTEST:
________________________
By:_________________________
ATTEST:
________________________
Warburg Pincus Capital Appreciation Fund
For the Period November 1, 1995 to April 30, 1995
Common Shares
Annualized Total Return With Waivers:
((10,637/10,000)[*OMITTED GRAPHIC-SEE FOOTNOTE BELOW] -1) = 13.26%
Annualized Total Return Without Waivers:
((10,637/10,000)[*OMITTED GRAPHIC-SEE FOOTNOTE BELOW] -1) = 13.26%
Series 2 Shares
Annualized Total Return With Waivers:
((10,611/10,000)[*OMITTED GRAPHIC-SEE FOOTNOTE BELOW] -1) = 12.70%
Annualized Total Return Without Waivers:
((10,611/10,000)[*OMITTED GRAPHIC-SEE FOOTNOTE BELOW] -1) = 12.70%
The Schedule for Calculation of Performance Quotations for the
periods ended 10/31/94 is incorporated herein by reference to Post-Effective
Amendment No. 14 to Registrant's Registration Statement.
- --------------------------
* - The graphic omitted above is the exponent 1/.49589
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811159
<NAME> WARBURG PINCUS CAPITAL APPRECIATION FUND A
<SERIES>
<NAME> COMMON SHARES
<NUMBER> 001
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> APR-30-1995
<INVESTMENTS-AT-COST> 156687829
<INVESTMENTS-AT-VALUE> 190566947
<RECEIVABLES> 2271245
<ASSETS-OTHER> 127
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 192838319
<PAYABLE-FOR-SECURITIES> 2597181
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 166628
<TOTAL-LIABILITIES> 2763809
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 149362637
<SHARES-COMMON-STOCK> 13494147
<SHARES-COMMON-PRIOR> 11724583
<ACCUMULATED-NII-CURRENT> 377533
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6455222
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 33879118
<NET-ASSETS> 190074510
<DIVIDEND-INCOME> 864144
<INTEREST-INCOME> 417190
<OTHER-INCOME> 0
<EXPENSES-NET> 903801
<NET-INVESTMENT-INCOME> 377533
<REALIZED-GAINS-CURRENT> 6497435
<APPREC-INCREASE-CURRENT> 3936137
<NET-CHANGE-FROM-OPS> 10811105
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 11036634
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2991093
<NUMBER-OF-SHARES-REDEEMED> 2086364
<SHARES-REINVESTED> 864836
<NET-CHANGE-IN-ASSETS> 22560017
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 10994421
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 572180
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 903801
<AVERAGE-NET-ASSETS> 156599798
<PER-SHARE-NAV-BEGIN> 14.29
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> .75
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .98
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.09
<EXPENSE-RATIO> 1.08
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811159
<NAME> WARBURG PINCUS CAPITAL APPRECIATION FUND B
<SERIES>
<NAME> COMMON SHARES - SERIES 2
<NUMBER> 002
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> APR-30-1995
<INVESTMENTS-AT-COST> 156687829
<INVESTMENTS-AT-VALUE> 190566947
<RECEIVABLES> 2271245
<ASSETS-OTHER> 127
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 192838319
<PAYABLE-FOR-SECURITIES> 2597181
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 166628
<TOTAL-LIABILITIES> 2763809
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 149362637
<SHARES-COMMON-STOCK> 13494147
<SHARES-COMMON-PRIOR> 11724583
<ACCUMULATED-NII-CURRENT> 377533
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6455222
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 33879118
<NET-ASSETS> 190074510
<DIVIDEND-INCOME> 864144
<INTEREST-INCOME> 417190
<OTHER-INCOME> 0
<EXPENSES-NET> 903801
<NET-INVESTMENT-INCOME> 377533
<REALIZED-GAINS-CURRENT> 6497435
<APPREC-INCREASE-CURRENT> 3936137
<NET-CHANGE-FROM-OPS> 10811105
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 11036634
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2991093
<NUMBER-OF-SHARES-REDEEMED> 2086364
<SHARES-REINVESTED> 864836
<NET-CHANGE-IN-ASSETS> 22560017
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 10994421
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 572180
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 903801
<AVERAGE-NET-ASSETS> 8269148
<PER-SHARE-NAV-BEGIN> 14.22
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> .74
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .98
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.98
<EXPENSE-RATIO> 1.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>