<PAGE>1
As filed with the U.S. Securities and Exchange Commission
on September 22, 1995
Securities Act File No. 33-18632
Investment Company Act File No. 811-5396
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. 11 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT of 1940 [x]
Amendment No. 13 [x]
(Check appropriate box or boxes)
Counsellors Emerging Growth Fund, Inc.
....................................................................
(Exact Name of Registrant as Specified in Charter)
466 Lexington Avenue
New York, New York 10017-3147
....................................... ........................
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 878-0600
Mr. Eugene P. Grace
Warburg, Pincus Emerging Growth 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 (the "1933 Act"), pursuant to Section
(a)(1) of Rule 24f-2 under the Investment Company of 1940, as amended (the
"1940 Act"). The Rule 24f-2 Notice for Registrant's fiscal year ending on
October 31, 1994 was filed on December 29, 1994.
<PAGE>3
WARBURG, PINCUS EMERGING GROWTH FUND
FORM N-1A
CROSS REFERENCE SHEET
Heading for
the Common Shares
and the
Part A Advisor Shares
Item No. 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, Distributions and
Taxes"; and "General Information"
19. Purchase, Redemption and Pricing
of Securities Being Offered...... Additional Purchase and
Redemption Information
20. Tax Status......................... Additional Information
Concerning Taxes
See Prospectuses--
"Dividends, Distributions
and Taxes"
<PAGE>5
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............... Reports 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 EMERGING GROWTH FUND
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED 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 EMERGING GROWTH FUND seeks maximum capital appreciation by
investing in equity securities of small- to medium-sized companies in the United
States with emerging or renewed growth potential.
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.
- --------------------------------------------------------------------------------
<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...................................................................................... .86%
12b-1 Fees........................................................................................... .75%*
Other Expenses....................................................................................... .36%
--------
Total Fund Operating Expenses........................................................................ 1.97%
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............................................................................................... $20
3 years.............................................................................................. $62
5 years.............................................................................................. $106
10 years............................................................................................. $230
</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 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 been .90% and the Total Fund Operating Expenses would have been
2.01%. The Example should not be considered a representation of past or future
expenses; actual Fund expenses may be greater or less than those shown.
Moreover, while the Example assumes a 5% annual return, the Fund's actual
performance will vary and may result in a return greater or less than 5%.
Long-term shareholders of Advisor Shares may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the National
Association of Securities Dealers, Inc. (the 'NASD').
2
<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 ISSUANCE)
APRIL 30, FOR THE YEAR ENDED OCTOBER 31, THROUGH
1995 -------------------------------- OCTOBER 31,
(UNAUDITED) 1994 1993 1992 1991
----------- ------- ------- ------ -------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period...... $ 22.05 $ 23.51 $ 18.19 $16.99 $ 15.18
----------- ------- ------- ------ -------
Income from Investment Operations
Net Investment Income (Loss)............ (.09) .00 (.08) (.06) .00
Net Gains (Loss) from Securities (both
realized and unrealized)............. 1.67 (.10) 5.77 1.62 1.82
----------- ------- ------- ------ -------
Total from Investment Operations........ 1.58 (.10) 5.69 1.56 1.82
----------- ------- ------- ------ -------
Less Distributions
Dividends (from net investment
income).............................. .00 .00 .00 .00 (.01)
Distributions (from capital gains)...... .00 (1.36) (.37) (.36) .00
----------- ------- ------- ------ -------
Total Distributions..................... .00 (1.36) (.37) (.36) (.01)
----------- ------- ------- ------ -------
Net Asset Value, End of Period............ $ 23.63 $ 22.05 $ 23.51 $18.19 $ 16.99
----------- ------- ------- ------ -------
----------- ------- ------- ------ -------
Total Return.............................. 14.97%* (.29%) 31.67% 9.02% 23.43%*
Ratios/Supplemental Data
Net Assets, End of Period (000s).......... $97,725 $64,009 $26,029 $5,398 $275
Ratios to Average Daily Net Assets:
Operating expenses...................... 1.75%* 1.72% 1.73% 1.74% 1.74%*
Net investment income (loss)............ (1.01%)* (1.08%) (1.09%) (.87%) (.49%)*
Decrease reflected in above expense
ratios due to
waivers/reimbursements............... .00% .04% .00% .06% .42%*
Portfolio Turnover Rate................... 97.48%* 60.38% 68.35% 63.38% 97.69%
</TABLE>
- ------------
* Annualized.
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks maximum 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 non-diversified management investment company that pursues
its investment objective by investing in a portfolio of equity securities of
domestic companies. The Fund ordinarily will invest at least 65% of its total
assets in common stocks or warrants of emerging growth companies that represent
attractive opportunities for maximum capital appreciation. Emerging growth
companies are small- or medium-sized companies that have passed their start-up
phase and that show positive earnings and prospects of achieving significant
profit and gain in a relatively short period of time.
Although under current market conditions the Fund expects to invest in
companies having stock market capitalizations of up to approximately $500
million, the Fund may invest in emerging growth companies without regard to
their market capitalization. Emerging growth companies generally stand to
benefit from new products or services, technological developments or changes in
management and other factors and include smaller companies experiencing unusual
developments affecting their market value. These 'special situation companies'
include companies that are involved in the following: an acquisition or
consolidation; a reorganization; a recapitalization; a merger, liquidation, or
distribution of cash, securities or other assets; a tender or exchange offer; a
breakup or workout of a holding company; litigation which, if resolved
favorably, would improve the value of the company's stock; or a change in
corporate control.
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 Warburg,
Pincus Counsellors, Inc., the Fund's investment adviser ('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.
When Counsellors believes that a defensive posture is warranted, the Fund
may invest temporarily without limit in investment grade
4
<PAGE>
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. The Fund may enter into 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 Directors (the
'Board'), monitors the creditworthiness of those bank and non-bank dealers with
which the Fund enters into repurchase agreements to evaluate this risk. A
repurchase agreement is considered to be a loan under the Investment Company Act
of 1940, as amended (the '1940 Act').
Money Market Mutual Funds. Where 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.
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
5
<PAGE>
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
EMERGING GROWTH AND SMALL COMPANIES. Investing in common stocks and securities
convertible into common stocks is subject to the inherent risk of fluctuations
in the prices of such securities. Investing in securities of emerging growth
companies may involve greater risks since these securities may have limited
marketability and, thus, may be more volatile. In addition, small-and
medium-sized companies are typically subject to a greater degree of changes in
earnings and business prospects than are larger, more established companies.
Because smaller 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 smaller companies
than for larger, more established ones. Securities of issuers in 'special
situations' also may be more volatile, since the market value of these
securities may decline in value if the anticipated benefits do not materialize.
Companies in 'special situations' include, but are not limited to, companies
involved in acquisition or consolidation; reorganization; recapitalization;
merger, liquidation or distribution of cash, securities or other assets; a
tender or exchange offer; a breakup or workout of a holding company; or
litigation which, if resolved favorably, would improve the value of the
companies' securities. Although investing in securities of emerging growth
companies or 'special situations' offers potential for above-average returns if
the companies are successful, the risk exists that the companies will not
succeed and the prices of the companies' shares could significantly decline in
value. Therefore, an investment in the Fund may involve a greater degree of risk
than an investment in other mutual funds that seek capital appreciation by
investing in 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' beginning at page 7.
INVESTMENTS IN NON-PUBLICLY TRADED SECURITIES. Although the Fund expects to
invest primarily in publicly traded equity securities, it may invest up to 10%
of its assets in non-publicly traded equity securities, which may involve a high
degree of business and financial risk and may result in substantial losses.
Because of the absence of any liquid trading market currently for these
investments, the Fund may take longer to liquidate these positions than would be
the case for publicly traded securities. Although these securities may be resold
in privately negotiated transactions, the prices realized on such sales could be
less than those originally paid by the Fund. Further, companies whose securities
are not publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to companies whose securities are publicly
traded. The Fund's investment in illiquid securities is subject to the risk that
should the Fund desire to sell any of these securities when a ready buyer is not
available at a price that is deemed to be representative of their value, the
value of the Fund's net assets could be adversely affected.
NON-DIVERSIFIED STATUS. The Fund is classified as a non-diversified investment
company under the 1940 Act, which means that the Fund is not limited by the 1940
Act in the proportion of its assets that it may invest in the obligations of a
single issuer. The Fund will, however, comply with diversification requirements
imposed by the
6
<PAGE>
Internal Revenue Code of 1986, as amended (the 'Code') for qualification as a
regulated investment company. As a non-diversified investment company, the Fund
may invest a greater proportion of its assets in the obligations of a small
number of issuers and, as a result, may be subject to greater risk with respect
to portfolio securities. To the extent that the Fund assumes large positions in
the securities of a small number of issuers, its return may fluctuate to a
greater extent than that of a diversified company as a result of changes in the
financial condition or in the market's assessment of the issuers.
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
Fund may invest in instruments commonly referred to as 'derivative securities,'
such as options on securities and stock indexes and futures conracts 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 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 10% 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
7
<PAGE>
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.
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 the 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
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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, a Fund may, at
times, have to limit its option writing in order to qualify as a regulated
investment company under 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. The 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 value of 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
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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 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
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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 options written by the Fund on securities and indexes;
interest rate and stock index futures contracts and options on these 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 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 investments 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 governing 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 Funds in accordance
with the Fund's investment objective and stated investment policies. Counsellors
makes investment decisions for the Fund and
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<PAGE>
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 .90% of the Fund's average daily net assets.
Although this advisory fee is higher than that paid by most other investment
companies, including money market and fixed income funds, Counsellors believes
that it is comparable to fees charged by other mutual funds with similar
policies and strategies. 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. The co-portfolio managers of the Fund are Elizabeth B. Dater
and Stephen J. Lurito, co-presidents of the Fund. Ms. Dater, a managing director
of EMW, has been portfolio manager of the Fund since its inception on January
21, 1988 and has been a portfolio manager of Counsellors since 1978. Mr. Lurito,
a managing director of EMW, has been a portfolio manager of the Fund since 1990
and has been with Counsellors since 1987, before which time he was a research
analyst at Sanford C. Bernstein & Company, Inc.
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,
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<PAGE>
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 Counsellors 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.
DIRECTORS AND OFFICERS. The officers of the Fund manage its day-to-day
operations and are directly responsible to the Board. The Board sets broad
policies for the Fund and chooses its officers. A list of the Directors and
officers of the Fund and a brief statement of their present positions and
principal occupations during the past five years is set forth in the Statement
of Additional Information.
HOW TO 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 Emerging Growth
Fund
DDA# 9904-649-2
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[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 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
day on which the Fund's net asset value is calculated. 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
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<PAGE>
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 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
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<PAGE>
dividends or distributions in cash, dividends and distributions will
automatically be reinvested in additional Advisor Shares of the relevant Fund at
net asset value. The election to receive dividends in cash may be made on the
account application or, subsequently, by writing to Warburg Pincus 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 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
16
<PAGE>
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 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 the 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
17
<PAGE>
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 2000 Small Stock Index, the
T. Rowe Price New Horizons Fund Index and the S&P 500 Index, which are unmanaged
indexes; 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.
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 incorporated on November 12, 1987 under the laws of
the State of Maryland. Although the Fund's name as set forth in its charter is
'Counsellors Emerging Growth Fund, Inc.,' it does business under the name
'Warburg, Pincus Emerging Growth Fund.' The charter of the Fund authorizes the
governing Board to issue three billion full and fractional shares of capital
stock, $.001 par value per share, of which one billion shares are designated
Series 2 Shares (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.
18
<PAGE>
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, at any time, 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 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 his share balance or share registration (other than the reinvestment of
dividends or distributions). The Fund will also send to its investors a
semiannual report and an audited annual report, each of which includes a list of
the investment securities held by the Fund and a statement of the performance of
the Fund. 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 its Customers. Distribution services would be marketing or other services in
connection with the promotion and sale of Advisor Shares. Shareholder services
that may be provided include responding to Customer inquiries, providing
information on Customer investments and providing other shareholder liaison
services. Administrative and accounting services related to the sale of Advisor
Shares may include (i) aggregating and processing purchase and redemption
requests from Customers and placing net purchase and redemption orders with the
Fund's transfer agent, (ii) processing dividend payments from the Fund on behalf
of Customers
19
<PAGE>
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.
20
<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 ................................................................. 7
CERTAIN INVESTMENT STRATEGIES ........................................... 7
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
ADEMG-1-0995
[LOGO]
[ ] WARBURG PINCUS
EMERGING GROWTH 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 EMERGING GROWTH 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 . . . . . . . . . . . . . . . 21
Additional Purchase and Redemption Information . . . 29
Exchange Privilege . . . . . . . . . . . . . . . . . 30
Additional Information Concerning Taxes . . . . . . . 31
Determination of Performance . . . . . . . . . . . . 34
Auditors and Counsel . . . . . . . . . . . . . . . . 35
Miscellaneous . . . . . . . . . . . . . . . . . . . . 35
Financial Statements . . . . . . . . . . . . . . . . 36
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 Emerging Growth Fund (the "Fund"), Warburg Pincus Capital Appreciation
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.
Information regarding the status of
<PAGE>2
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.
INVESTMENT OBJECTIVE
The investment objective of the Fund is maximum 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
Special Situation Companies. The Fund may invest in the securities
of "special situation companies" involved in an actual or prospective
acquisition or consolidation; reorganization; recapitalization; merger,
liquidation or distribution of cash, securities or other assets; a tender or
exchange offer; a breakup or workout of a holding company; or litigation
which, if resolved favorably, would improve the value of the company's stock.
If the actual or prospective situation does not materialize as anticipated,
the market price of the securities of a "special situation company" may
decline significantly. The Fund believes, however, that if Warburg, Pincus
Counsellors, Inc., the Fund's investment adviser ("Counsellors"), analyzes
"special situation companies" carefully and invests in the securities of these
companies at the appropriate time, the Fund may achieve maximum capital
appreciation. There can be no assurance, however, that a special situation
that exists at the time the Fund makes its investment will be consummated
under the terms and within the time period contemplated.
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
<PAGE>3
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 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 Directors (the "Board"). These loans, if and when made, may
not exceed 20% of the Fund's total assets taken at value. The Fund will not
lend portfolio securities to E.M. Warburg, Pincus & Co., Inc. ("EMW") or its
affiliates unless it has applied for and received specific authority to do so
from the U.S. 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 an investment objective of the Fund, income
received could be used to pay the Fund's expenses and would increase an
investor's total return. The Fund will adhere to the following conditions
whenever its portfolio securities are loaned: (i) the Fund must receive at
least 100% cash collateral or equivalent securities of the type discussed in
the preceding paragraph from the borrower; (ii) the borrower must increase
such collateral whenever the market value of the securities rises above the
level of such collateral; (iii) the Fund must be able to terminate the loan at
any time; (iv) the Fund must receive reasonable interest on the loan, as well
as any dividends, interest or other distributions on the loaned securities and
any increase in market value; (v) the Fund may pay only reasonable custodian
fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower, provided, however, that if a material
event adversely affecting the investment occurs, the Board must terminate the
loan
<PAGE>4
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 10% 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 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
<PAGE>5
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 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
<PAGE>6
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 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.
<PAGE>7
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.
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
commitment. Due to fluctuations in the value of securities purchased or sold
on a when-issued or delayed-delivery basis, the yields obtained on such
securities may be higher or lower than the yields available in the market on
the dates when the investments are actually delivered to the buyers.
<PAGE>8
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.
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
<PAGE>9
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 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
<PAGE>10
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 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
<PAGE>11
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 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
<PAGE>12
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
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. The Fund will limit the
aggregate premiums paid on all stock index options and options on futures
contracts to 20% 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 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-
<PAGE>13
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 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
<PAGE>14
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 or legal or contractual
restrictions on resale, repurchase agreements which have a maturity of longer
than seven days and time deposits maturing in more than seven days.
Securities that have legal or contractual restrictions on resale but have a
readily available market are not considered illiquid for purposes of this
limitation. Repurchase agreements subject to demand are deemed to have a
maturity equal to the notice period.
Historically, illiquid securities have included securities subject
to contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
amount of these restricted or other illiquid securities because of the
potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal restrictions on
resale to the general public or to certain institutions may not be indicative
of the liquidity of such investments.
Rule 144A 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
<PAGE>15
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 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 Policies and Practices of the Fund
Non-Diversified Status. The Fund is classified as non-diversified
within the meaning of the 1940 Act, which means that it is not limited by such
Act in the proportion of its assets that it may invest in securities of a
single issuer. The Fund's investments will be limited, however, in order to
qualify as a "regulated investment company" for purposes of the Code. See
"Additional Information Concerning Taxes." To qualify, the Fund will comply
with certain requirements, including limiting its investments so that at the
close of each quarter of the taxable year (a) not more than 25% of the market
value of its total assets will be invested in the securities of a single
issuer, and (b) with respect to 50% of the market value of its total assets,
not more than 5% of the market value of its total assets will be invested in
the securities of a single issuer and the will not own more than 10% of the
outstanding voting securities of a single issuer.
Other Investment Limitations
The investment limitations numbered 1 through 9 may not be changed
without the affirmative vote of the holders of a majority of the Fund's
outstanding shares. Such majority is defined as the lesser of (i) 67% or more
of the shares present at the meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii)
more than 50% of the outstanding shares. Investment limitations 10 through 15
may be changed by a vote of the Board at any time.
<PAGE>16
The Fund may not:
1. 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.
2. Purchase any securities which would cause 25% or more of the
value of the Fund's total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the
same industry; provided that there shall be no limit on the purchase of U.S.
government securities.
3. Make loans, except that the Fund may purchase or hold publicly
distributed fixed-income securities, lend portfolio securities and enter into
repurchase agreements.
4. 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.
5. Purchase or sell real estate, real estate investment trust
securities, real estate limited partnerships, 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.
6. Make short sales of securities or maintain a short position.
7. 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.
<PAGE>17
8. 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.
9. 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.
10. Invest more than 10% of the value of the Fund's total assets in
securities which may be illiquid because of legal or contractual restrictions
on resale or securities for which there are no readily available market
quotations. For purposes of this limitation, repurchase agreements with
maturities greater than seven days shall be considered illiquid securities.
11. Invest more than 10% of the value of the Fund's total assets in
time deposits maturing in more than seven calendar days.
12. 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.
13. Purchase or retain securities of any company if, to the
knowledge of the Fund, any of the Fund's officers or Directors 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.
14. 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.
15. Invest in oil, gas or mineral leases.
The Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of Fund shares in certain states.
Should the Fund determine that any such commitment is no longer in the best
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
<PAGE>18
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
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
<PAGE>19
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 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
<PAGE>20
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
Counsellors 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 $184,616,
$237,078 and $390,241, respectively, in commissions to broker-dealers for
execution of portfolio transactions. Increased brokerage costs in recent
fiscal years is attributable to the increased size of the Fund. No portfolio
transactions have been executed through Counsellors Securities since the
commencement of the Fund's operation.
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, par value $.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 elsewhere. Such
dealers usually are acting as principal for their own account. On occasion,
<PAGE>21
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.
The Fund's investment in special situation companies could result in
high portfolio turnover. To the extent that its portfolio is traded for the
short-term, the Fund will be engaged essentially in trading activities based
on short-term considerations affecting the value of an issuer's stock instead
of long-term investments based on fundamental valuation of securities.
Because of this policy, portfolio securities may be sold without regard to the
length of time for which they have been held. Consequently, the annual
portfolio turnover rate of the Fund may be higher than mutual funds having a
similar objective that do not invest in special situation companies.
MANAGEMENT OF THE FUND
Officers and Board of Directors
The names (and ages) of the Fund's Directors and officers, their
addresses, present positions and principal occupations during the past five
years and other affiliations are set forth below.
<PAGE>22
Richard N. Cooper (61). . . Director
Room 7E47OHB National Intelligence Counsel;
Central Intelligence Agency Professor at Harvard University; Director or
930 Dolly Madison Blvd. Trustee of CNA Financial Corporation, Circuit
McClain, Virginia 22107 City Stores, Inc. (retail electronics and
appli-ances) and Phoenix Home Life Insurance
Co.
Donald J. Donahue (71). . . Director
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) . . . Director
2425 North Fish Creek Road Private investor; Consultant and
P.O. Box 483 Director of Fritz Broadcasting, Inc. and
Wilson, Wyoming 83014 Fritz Communications (developers and operators
of radio stations); Director of Advo, Inc.
(direct mail advertising).
John L. Furth* (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) . . Director
30 Rockefeller Plaza Partner in the law firm of Donovan Leisure
New York, New York 10112 Newton & Irvine; Director of Municipal Fund
for New York Investors, Inc.
Alexander B. Trowbridge (66) Director
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
- ------------------------
* Indicates a Director who is an "interested person" of the Fund as defined
in the 1940 Act.
<PAGE>23
(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).
Elizabeth B. Dater (50) . 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 1978.
Stephen J. Lurito (33) . Co-President and Co-Portfolio Manager of the
466 Lexington Avenue Fund
New York, New York 10017-3147 Managing Director of Counsellors since 1993;
Associated with EMW since 1987; Investment
Management Research Analyst at Sanford C.
Bernstein & Company, Inc. from 1985-1987.
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;
New York, New York 10017-3147 Associated with EMW since 1991; Vice President
of Citibank, N.A. from 1987-1991; Senior Vice
President of Counsellors Securities and 15
other investment companies advised by
Counsellors.
<PAGE>24
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.
Stephen Distler (42) . . Vice President and Chief
466 Lexington Avenue Financial Officer
New York, New York 10017-3147 Managing Director, Controller and Assistant
Secretary of EMW; Associated with EMW since
1984; Treasurer of Counsellors Securities;
Vice President, Treasurer and Chief Accounting
Officer or 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 director of the Fund. Each Director 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 Director and is reimbursed for
expenses incurred in connection with his attendance at Board meetings.
<PAGE>25
Directors' Compensation
(for the fiscal year ended October 31, 1994)
<TABLE>
<CAPTION>
Total Total Compensation from
Compensation from all Investment Companies
Name of Director Fund Managed by Counsellors*
---------------- ----------------- ------------------------
<S> <C> <C>
John L. Furth None** None**
Richard N. Cooper $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 Director also 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.
Ms. Elizabeth B. Dater, co-president and co-portfolio manager of the
Fund, is also co-portfolio manager of Warburg Pincus Post-Venture Capital Fund
and the Small Company Growth Portfolio of Warburg Pincus Trust. Ms. Dater has
been with the Fund since its inception and she manages another post-venture
capital fund. Ms. Dater is the former director of research for Counsellors'
investment management activities. Prior to joining Counsellors in 1978, she
was a vice president of research at Fiduciary Trust Company of New York and an
institutional sales assistant at Lehman Brothers. Ms. Dater has been a
regular panelist on Maryland Public Television's "Wall Street Week" since
1976. Ms. Dater earned a B.A. degree from Boston University in Massachusetts.
Mr. Stephen J. Lurito, co-president and co-portfolio manager of the
Fund, is also co-portfolio manager of Warburg Pincus Post-Venture Capital Fund
and the Small Company Growth Portfolio of Warburg Pincus Trust. Mr. Lurito,
also the research coordinator and a portfolio manager for micro-cap equity and
post-venture products, has been with EMW since 1987 and has been with the Fund
since 1990. Prior to that he was a research analyst at Sanford C. Bernstein &
Company, Inc. Mr. Lurito earned a B.A. degree from the University of Virginia
and an M.B.A. from the Wharton School of Business of the University of
Pennsylvania.
<PAGE>26
As of August 31, 1995, directors and officers of the Fund as a group
owned of record 32,275 of the Fund's outstanding Common Shares. As of the
same date, Mr. Furth may be deemed to have beneficially owned 55.83% of the
Fund's outstanding Common Shares, including shares owned by clients for which
Counsellors has investment discretion. Mr. Furth disclaims ownership of these
shares and does not intend to exercise voting rights with respect to these
shares. No Director 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 $65,349 of the $776,654,
earned by it under the Advisory Agreement. For the year ending October 31,
1993, Counsellors earned $1,248,820 in investment advisory fees. For the year
ending October 31, 1994 Counsellors voluntarily waived $100,408 of the
$2,234,376 earned by it under the Advisory Agreement. During the fiscal year
ending October 31, 1992, PFPC voluntarily waived $3,489 of the $89,784 in
administration fees earned. During the fiscal year ending October 31, 1993
PFPC earned $138,760 in administration fees and during the fiscal year ending
October 31, 1994 received $248,264 under the PFPC Co-Administration Agreement.
During the fiscal years ending October 31, 1992, October 31, 1993 and October
<PAGE>27
31, 1994 Counsellors Service earned $45,808, $75,824 and $202,895,
respectively, in administrative services fees or co-administration fees.
Organization of the Fund
The Fund was incorporated on November 12, 1987 under the laws of the
State of Maryland under the name "Counsellors Emerging Growth Fund, Inc." As
of approximately February 11, 1992, the Fund began doing business under the
name "Warburg, Pincus Emerging Growth Fund". The Fund's charter authorizes
the Board to issue three billion full and fractional shares of common stock,
$.001 par value per share. Common Stock ("Common Shares"), Common Stock -
Series 1 and Advisor Shares have been authorized by the Fund's charter,
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 Directors unless and until such time as less than a
majority of the Directors holding office have been elected by shareholders.
The Directors will call a meeting for any purpose when requested to do so in
writing by shareholders of record of not less than 25% (10% for the purpose of
removing a Director) of the Fund's outstanding shares.
All shareholders of the Fund in each class, upon liquidation, will
participate ratably in the Fund's net assets. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Directors can elect all Directors. Shares are
transferable but have no preemptive, conversion or subscription rights.
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) 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.
<PAGE>28
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 Fund's Board of
Directors concerning the transfer agent's operations with respect to the Fund.
State Street has delegated to Boston Financial Data Services, Inc., a 50%
owned subsidiary ("BFDS"), responsibility for most shareholder servicing
functions. BFDS's principal business address is 2 Heritage Drive, 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% 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 $226,626 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 Customer, with
respect to the cash management or other services provided by the Institution:
(i) account fees (a fixed amount per month or per year); (ii) transaction fees
(a fixed amount per transaction processed); (iii) compensation balance
requirements (a minimum dollar amount a Customer must maintain in order to
obtain the services offered); or (iv) account maintenance fees (a periodic
charge based upon the percentage of assets in the account or of the dividend
paid on those assets). Services provided by an Institution to Customers are
in addition to, and not duplicative of, the services to be provided under the
Fund's co-administration and distribution. 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
<PAGE>29
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 Directors 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 Directors"). 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 Directors 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 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
<PAGE>30
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 Capital Appreciation 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 Capital Appreciation Fund,
Warburg Pincus International Equity Fund and Warburg Pincus Growth & Income
Fund at their relative net asset values at the 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 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.
<PAGE>31
ADDITIONAL INFORMATION CONCERNING TAXES
The discussion set out below of tax considerations generally
affecting the Fund and its shareholders is intended to be only a summary and
is not intended as a substitute for careful tax planning by prospective
shareholders. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the
Fund.
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 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.
<PAGE>32
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 and
distributions that were paid (or that are treated as having been paid) by the
Fund to its shareholders during the preceding year.
<PAGE>33
If a shareholder fails to furnish a correct taxpayer identification
number, fails to report fully dividend or interest income, or fails to certify
that he has provided a correct taxpayer identification number and that he is
not subject to "backup withholding," the shareholder may be subject to a 31%
"backup withholding" tax with respect to (i) taxable dividends and
distributions and (ii) the proceeds of any sales or repurchases of shares of
the Fund. An individual's taxpayer identification number is his social
security number. 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.
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
<PAGE>34
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 15.62%,
the average annual total return for the one-year period ended October 31, 1994
was .16% (.12% without waivers), the average annual total return for the five-
year period ending October 31, 1994 was 13.76% (13.60% without waivers) and
the average annual total return for the period commencing January 21, 1988
(commencement of operations) and ending October 31, 1994 was 15.53% (15.20%
without waivers). These figures are calculated by finding the average
compounded rates of return for the one-, five- and ten- (or such shorter
period as the relevant class of shares has been offered) year periods that
would equate the initial amount invested to the ending redeemable value
according to the following formula: P (1 + T)[*GRAPHIC OMITTED-SEE FOOTNOTE
BELOW] = ERV. For purposes of this formula, "P" is a hypothetical investment
of $1,000; "T" is average annual total return; "n" is number of years; and
"ERV" is the ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the one-, five- or ten-year periods (or fractional portion
thereof). Total return or "T" is computed by finding the average annual
change in the value of an initial $1,000 investment over the period and
assumes that all dividends and distributions are reinvested during the
period. The Advisor Shares average annual total return for the six-month
period ended April 30, 1995 was 14.98%, the average annual total return for
the one-year period ending October 31, 1994 was -.29% (-.33% without waivers)
and the average annual total return for the period commencing April 4, 1991
(initial issuance) and ending October 31, 1994 was 14.30% (14.28% 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 -1.43% and 0.59%, respectively. With
respect to Advisor Shares, the Fund's actual total return for the calendar
year and for the three-month period ended December 31, 1994 was -1.86% and
0.46%, 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 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
- ------------------------
* - The expression (1 + T) is being raised to the nth power.
<PAGE>35
such fees, if charged, will reduce the actual return received by customers on
their investments.
From time to time, reference may be made in advertising a class of
Fund shares to opinions of Wall Street economists and analysts regarding
economic cycles and their effects historically on the performance of small
companies, both as a class and relative to other investments. The Fund may
also discuss its beta, or volatility relative to the market, and make
reference to its relative performance in various market cycles in the United
States. In addition, 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:
Common Shares
Charles Schwab & Co., Inc., Reinvest Account, Attn: Mutual Funds
Dept., 101 Montgomery Street, San Francisco, CA 94104-4122 -- 13.08% and
Nat'l Financial Svs
<PAGE>36
Corp., FBO Customers, P.O. Box 3908, Church Street Station, New York, New York
10008-3908 -- 37.57%. The Fund believes that these entities are not the
beneficial owners of shares held of record by them. Mr. Lionel I. Pincus,
Chairman of the Board and Chief Executive Officer of EMW, may be deemed to
have beneficially owned 57.48% 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 ended October
31, 1994 (audited) and for the period ended April 30, 1995 (unaudited) follow
the Report of Independent Auditors.
<PAGE>37
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.
<PAGE>38
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.
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 EMERGING GROWTH FUND
STATEMENT OF NET ASSETS
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCK (92.5%)
BASIC INDUSTRIES
Chemicals (0.3%)
Celgene Corp. + 160,400 $ 1,082,700
------------
CAPITAL GOODS
Capital Equipment (1.3%)
Johnstown America Ind., Inc. + 194,000 3,831,500
------------
Computers (7.2%)
Auspex Systems, Inc. + 290,000 2,138,750
IVI Publishing, Inc. + 105,000 1,548,750
Norand Corp. + 136,700 5,365,475
Platinum Technology, Inc. + 242,000 5,354,250
Synopsys, Inc. + 164,500 7,587,563
------------
21,994,788
------------
Electronics (9.5%)
Altera Corp. + 125,000 4,929,688
Glenayre Technologies, Inc. + 86,500 5,384,625
Maxim Integrated Products, Inc. + 169,300 11,343,100
Xilinx, Inc. + 126,650 7,361,531
------------
29,018,944
------------
Office Equipment & Supplies (2.9%)
Nu-Kote Holdings, Inc. Class A + 181,500 3,380,438
Viking Office Products, Inc. + 175,000 5,425,000
------------
8,805,438
------------
CONSUMER
Business Services (10.4%)
Catalina Marketing Corp. + 110,500 5,621,688
Commerce Clearing House, Inc. Class A 18,000 310,500
Commerce Clearing House, Inc. Class B 135,300 2,266,275
GMIS, Inc. + 196,500 3,684,375
Norrell Corp. 170,900 3,332,550
On Assignment, Inc. + 251,000 3,514,000
QuickResponse Services, Inc. + 262,200 4,260,750
Solectron Corp. + 307,200 8,563,200
------------
31,553,338
------------
Consumer Durables (2.4%)
Automotive Industries Holding, Inc. Class A + 139,200 3,375,600
Hayes Wheels International, Inc. 165,200 3,882,200
------------
7,257,800
------------
Consumer Non-Durables (1.5%)
Nutramax Products, Inc. + 447,600 4,476,000
------------
Food & Beverages (1.0%)
Forschner Group, Inc. + 268,000 3,015,000
------------
</TABLE>
See Accompanying Notes to Financial Statements.
13
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING GROWTH FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
COMMON STOCK (CONT'D)
<S> <C> <C>
Healthcare (11.3%)
FHP International Corp. + 130,000 $ 3,770,000
Haemonetics Corp. + 143,000 2,860,000
HealthCare Compare Corp. + 163,000 4,543,625
Healthsource, Inc. + 113,800 4,409,750
Incontrol, Inc. + 40,000 480,000
Integrated Health Services, Inc. + 163,850 6,676,888
Lincare Holdings, Inc. + 217,800 5,935,050
Mariner Health Group, Inc. + 130,000 2,941,250
Ventritex, Inc. + 112,001 2,912,025
------------
34,528,588
------------
Pharmaceuticals (1.9%)
Gilead Sciences, Inc. + 299,300 2,544,050
Medeva PLC ADR 122,800 1,412,200
Somatix Therapy Corp. + 351,440 1,757,200
------------
5,713,450
------------
Retail (5.7%)
Caldor Corp. + 180,600 5,169,675
Mac Frugal's Bargains Close-Outs, Inc. + 158,000 3,258,750
PetsMart, Inc. + 130,600 4,815,875
Rhodes, Inc. + 247,500 2,413,125
Sotheby's Holdings, Inc. Class A 138,200 1,675,675
------------
17,333,100
------------
ENERGY AND RELATED
Energy (6.0%)
Associated Natural Gas Corp. 217,258 8,282,961
Tesoro Petroleum Corp. + 315,000 2,953,125
Texas Meridian Resources Corp. + 301,500 4,145,625
Tom Brown, Inc. + 221,000 2,831,563
------------
18,213,274
------------
Oil Services (1.3%)
Oceaneering International, Inc. + 313,200 4,032,450
------------
FINANCE
Banks & Savings & Loans (1.8%)
Worthen Banking Corp. 192,743 5,517,268
------------
Financial Services (4.6%)
American Income Holding, Inc. 111,200 3,892,000
Foothill Group, Inc. Class A 188,100 2,821,500
Govett & Co. Ltd. ADR 108,500 2,576,875
Price (T. Rowe) Associates, Inc. 80,700 2,763,975
Reinsurance Group of America, Inc. 89,200 1,984,700
------------
14,039,050
------------
</TABLE>
See Accompanying Notes to Financial Statements.
14
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING GROWTH FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
COMMON STOCK (CONT'D)
<S> <C> <C>
MEDIA
Communications & Media (2.2%)
Central European Media Enterprises Ltd. Class A + 128,000 $ 2,080,000
Infinity Broadcasting Corp. Class A + 157,450 4,782,543
------------
6,862,543
------------
Publishing (4.0%)
Central Newspapers, Inc. Class A 136,500 3,839,063
McClatchy Newspapers, Inc. Class A 159,400 3,706,050
Scholastic Corp. + 101,400 4,626,375
------------
12,171,488
------------
Telecommunications & Equipment (11.3%)
Arch Communications Group, Inc. + 185,000 4,185,625
California Microwave, Inc. + 125,500 3,890,500
Cellular Communications, Inc. Class A + 35,051 1,866,465
Cellular Communications International, Inc. + 40,000 1,810,000
International CableTelecommunications, Inc. + 106,700 3,307,700
Methode Electronics, Inc. Class A 411,000 7,809,000
Paging Network, Inc. + 206,400 6,966,000
Qualcomm, Inc. + 154,000 4,543,000
------------
34,378,290
------------
Transportation (5.7%)
American Freightways Corp. + 422,800 8,984,500
Landstar Systems, Inc. + 103,300 3,434,725
M.S. Carriers, Inc. + 213,700 5,021,950
------------
17,441,175
------------
MISCELLANEOUS
Aerospace & Defense (0.2%)
Tracor, Inc. + 50,000 493,750
------------
TOTAL COMMON STOCK (Cost $231,005,630) 281,759,934
------------
WARRANTS (0.0%)
Xoma Corp. 06/12/95 + (Cost $102) 102 102
------------
<CAPTION>
PAR
-----------
<S> <C> <C>
CORPORATE BONDS (0.7%)
Intelcom Group, Inc., Convertible, Subordinated Debenture 7.00%, due 10/30/98 + #
(Cost $2,070,000) $ 2,070,000 2,070,000
------------
UNITED STATES TREASURY OBLIGATIONS (3.3%)
U.S. Treasury Bill, 4.25%, due 12/01/94 (Cost $9,964,583) 10,000,000 9,964,583
------------
</TABLE>
See Accompanying Notes to Financial Statements.
15
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING GROWTH FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
PAR VALUE
----------- ------------
SHORT-TERM INVESTMENTS (6.3%)
Repurchase agreement with PNC Securities Corp. dated 10/31/94 at
4.30% to be repurchased at $19,319,307 on 11/01/94. (Collateralized by
$19,725,000 U.S. Treasury Bill dated 09/15/94 at 4.99%, due 03/16/95,
with a market value of $19,320,638.) (Cost $19,317,000) $19,317,000 $ 19,317,000
------------
TOTAL INVESTMENTS AT VALUE (102.8%) (Cost $262,357,315*) 313,111,619
OTHER LIABILITIES IN EXCESS OF ASSETS (2.8%) (8,438,861)
------------
NET ASSETS (100.0%) (applicable to 10,754,302 Common Shares and 2,903,227 Series 2
Shares) $304,672,758
------------
------------
NET ASSET VALUE, offering and redemption price per Common Share ($240,663,733 [div]
10,754,302) $22.38
------
------
NET ASSET VALUE, offering and redemption price per Series 2 Share ($64,009,025 [div]
2,903,227) $22.05
------
------
</TABLE>
+ Non-income producing security.
# Restricted security.
* Cost For Federal income tax purposes is $262,396,699.
See Accompanying Notes to Financial Statements.
16
- --------------------------------------------------------------------------------
<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 October 31, For the Year Ended
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 EMERGING GROWTH 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 $23.74 $18.28 $16.97 $10.83 $13.58 $23.51 $18.19 $16.99
------ ------ ------ ------ ------ ------ ------ -------
Income from Investment Operations:
Net Investment Income (Loss) .00 (.10) (.03) .05 .13 .00 (.08) (.06)
Net Gain (Loss) on Securities (both
realized and unrealized) .00 5.93 1.71 6.16 (2.32) (.10) 5.77 1.62
------ ------ ------ ------ ------ ------ ------ -------
Total from Investment Operations .00 5.83 1.68 6.21 (2.19) (.10) 5.69 1.56
------ ------ ------ ------ ------ ------ ------ -------
Less Distributions:
Dividends from net investment income .00 .00 (.01) (.07) (.18) .00 .00 .00
Distributions from capital gains (1.36) (.37) (.36) .00 (.38) (1.36) (.37) (.36)
------ ------ ------ ------ ------ ------ ------ -------
Total Distributions (1.36) (.37) (.37) (.07) (.56) (1.36) (.37) (.36)
------ ------ ------ ------ ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $22.38 $23.74 $18.28 $16.97 $10.83 $22.05 $23.51 $18.19
------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ -------
Total Return .16% 32.28% 9.87% 57.57% (16.90%) (.29%) 31.67% 9.02%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $240,664 $165,525 $99,562 $42,061 $23,075 $64,009 $26,029 $5,398
Ratios to average daily net assets:y
Operating expenses 1.22% 1.23% 1.24% 1.25% 1.25% 1.72% 1.73% 1.74%
Net investment income (loss) (.58%) (.60%) (.25%) .32% 1.05% (1.08%) (1.09%) (.87%)
Decrease reflected in above expense
ratios due to waivers/reimbursements .04% .00% .08% .47% .42% .04% .00% .06%
Portfolio Turnover Rate 60.38% 68.35% 63.35% 97.69% 107.30% 60.38% 68.35% 63.38%
<CAPTION>
Series 2 Shares
-------------------------
<S> <C>
April 4, 1991
(Initial
Issuance)
through
October 31, 1991
----------------
NET ASSET VALUE, BEGINNING OF PERIOD $15.18
------
Income from Investment Operations:
Net Investment Income (Loss) .00
Net Gain (Loss) on Securities (both
realized and unrealized) 1.82
------
Total from Investment Operations 1.82
------
Less Distributions:
Dividends from net investment income (.01)
Distributions from capital gains .00
------
Total Distributions (.01)
------
NET ASSET VALUE, END OF PERIOD $16.99
------
------
Total Return 23.43%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $275
Ratios to average daily net assets:
Operating expenses 1.74%*
Net investment income (loss) (.49%)*
Decrease reflected in above expense
ratios due to waivers/reimbursements .42%*
Portfolio Turnover Rate 97.69%
</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 -- $.25 per share; Series 2 Shares -- $.25 per share. Ordinary income
dividends qualifying for the dividends received deduction available to corporate
shareholders: Common Shares -- 28.76%; Series 2 Shares -- 38.49%.
Long-term capital gain dividends in the amount of $1.11 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.
31
- --------------------------------------------------------------------------------
<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>
INTERNATIONAL EQUITY FUND JAPAN OTC FUND
Common Series 2
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 EMERGING GROWTH FUND
STATEMENT OF NET ASSETS
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCK (91.5%)
BASIC INDUSTRIES
Metals & Mining (0.4%)
Pegasus Gold Inc. 120,000 $ 1,455,000
------------
CAPITAL GOODS
Capital Equipment (1.1%)
Applied Power Inc. Class A 157,800 4,161,975
------------
Computers (13.3%)
Auspex Systems, Inc. + 290,000 3,008,750
Cognex Corp. + 215,500 6,465,000
Continuum Co., Inc. 25,500 841,500
Filenet Corp. + 117,400 3,932,900
HBO & Co. 106,400 4,867,800
Network General Corp. + 145,000 3,788,125
Norand Corp. + 110,700 3,376,350
Platinum Technology, Inc. + 418,500 8,370,000
Synopsys, Inc. + 190,000 10,307,500
System Software Associates, Inc. 265,500 6,670,688
------------
51,628,613
------------
Electronics (10.8%)
Altera Corp. + 90,600 7,327,275
Glenayre Technologies, Inc. + 134,250 8,256,375
Maxim Integrated Products, Inc. + 281,600 10,208,000
Mentor Graphics Corp. 255,000 4,303,125
Microchip Technology, Inc. + 161,900 4,573,675
Xilinx, Inc. + 92,250 7,080,188
------------
41,748,638
------------
Office Equipment (0.8%)
Boise Cascade Office Products 136,000 3,179,000
------------
Office Equipment & Supplies (3.1%)
Nu Kote Holdings, Inc. Class A + 151,500 4,166,250
Viking Office Products, Inc. + 287,000 7,892,500
------------
12,058,750
------------
CONSUMER
Business Services (9.0%)
American Management Systems, Inc. 188,000 3,971,500
Catalina Marketing Corp. + 95,500 4,488,500
Checkpoint Systems, Inc. 142,000 2,999,750
GMIS, Inc. + 207,000 4,502,250
Itron, Inc. + 140,000 3,535,000
Norrell Corp. + 149,900 3,597,600
On Assignment, Inc. + 160,500 3,069,563
QuickResponse Services, Inc. + 241,200 4,492,350
Solectron Corp. + 141,200 4,147,750
------------
34,804,263
------------
Consumer Durables (1.0%)
Allen Group, Inc. 172,000 3,891,500
------------
</TABLE>
See Accompanying Notes to Financial Statements.
8
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING GROWTH FUND
STATEMENT OF NET ASSETS (CONT'D)
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCK (CONT'D)
Consumer Non-Durables (1.7%)
Nutramax Products, Inc. + 430,100 $ 3,494,563
Westpoint Stevens Inc. 178,500 3,235,313
------------
6,729,876
------------
Consumer Services (1.9%)
Devry Inc. + 102,800 3,932,100
ITT Education Services 243,700 3,320,413
------------
7,252,513
------------
Leisure & Entertainment (0.8%)
Carmike Cinemas Inc. Class A + 136,900 3,046,025
------------
Pharmaceuticals (2.3%)
AL Pharmaceuticals Inc. Class A 90,700 2,165,463
Gilead Sciences, Inc. + 361,800 5,427,000
Somatix Therapy Corp. + 351,440 1,186,111
------------
8,778,574
------------
Retail (2.1%)
Copart Inc. 35,000 713,125
PetsMart, Inc. + 143,600 4,792,650
Rhodes, Inc. + 277,500 2,740,313
------------
8,246,088
------------
ENERGY AND RELATED
Energy (4.1%)
Barrett Resources Corp. + 178,100 4,185,350
Tesoro Petroleum Corp. + 392,000 3,871,000
Texas Meridian Resources Corp. + 366,500 4,489,625
Tom Brown, Inc. + 227,000 3,206,375
------------
15,752,350
------------
Healthcare (12.1%)
Genzyme Corp. 75,000 3,206,250
Haemonetics Corp. + 193,000 2,991,500
Healthcare Compare Corp. + 250,000 7,515,625
Healthsource, Inc. + 146,000 5,237,750
Incontrol, Inc. + 105,000 958,125
Integrated Health Services, Inc. + 152,850 5,292,431
Lincare Holdings, Inc. + 191,300 5,906,388
Mariner Health Group + 293,500 4,292,438
Ostex International, Inc. 190,000 1,686,250
Quorum Health Group, Inc. 185,000 3,815,625
Sun Healthcare Group Inc. + 240,500 5,802,063
------------
46,704,445
------------
Oil Services (3.1%)
Input/Output, Inc. + 192,900 6,534,488
Petroleum Geo Services 206,500 5,640,031
------------
12,174,519
------------
</TABLE>
See Accompanying Notes to Financial Statements.
9
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING GROWTH FUND
STATEMENT OF NET ASSETS (CONT'D)
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCK (CONT'D)
FINANCE
Banks & Savings & Loans (0.9%)
Roosevelt Financial Group, Inc. 207,000 $ 3,312,000
------------
Financial Services (5.4%)
CMAC Investment Corp. 26,800 991,600
Foothill Group, Inc. DE Class A 339,000 7,373,250
John Nuveen Co. Class A 127,000 2,841,625
Olympic Financial Limited 250,000 3,031,250
United Companies Financial Corp. 75,000 2,859,375
Vesta Insurance 115,000 3,838,125
------------
20,935,225
------------
MEDIA
Communications & Media (2.7%)
Central European Media Ent. + 320,500 3,926,125
Infinity Broadcasting Corp. Class A + 157,450 6,711,306
------------
10,637,431
------------
Publishing (1.8%)
Scholastic Corp. + 103,900 5,818,400
Wiley (John) & Sons Inc. 19,200 1,075,200
------------
6,893,600
------------
Telecommunications & Equipment (7.9%)
Arch Communications Group, Inc. + 195,000 3,412,500
California Microwave, Inc. + 183,000 5,695,875
International Cable Telecommunications, Inc. + 194,200 5,728,900
Methode Electronics, Inc. Class A 208,000 3,588,000
Mobile Telecommunications Technologies Corp. + 262,500 6,201,563
Paging Network, Inc. + 222,400 6,116,000
------------
30,742,838
------------
Transportation (2.3%)
American Freightways Corp. + 234,800 5,488,450
M.S. Carriers, Inc. + 135,200 3,278,600
------------
8,767,050
------------
MISCELLANEOUS
Miscellaneous (2.9%)
Medeva ADR 391,200 6,357,000
Tracor, Inc. + 302,500 3,932,500
Wellington Underwriting PLC ADR + 47,229 749,990
------------
11,039,490
------------
TOTAL COMMON STOCK (Cost $291,505,675) 353,939,763
------------
WARRANTS (0.0%)
Xoma Corp. 06/12/95 + (Cost $102) 102 102
------------
</TABLE>
See Accompanying Notes to Financial Statements.
10
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING GROWTH FUND
STATEMENT OF NET ASSETS (CONT'D)
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
----------- ------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (9.1%)
Repurchase agreement with State Street Bank & Trust Co. dated 04/28/95 at
5.87% to be repurchased at $35,167,194 on 05/01/95. (Collateralized by
$35,590,000 United States Treasury Note at 6.25%, due 08/31/96,
with a market value of $35,788,485.) (Cost $35,150,000) $35,150,000 $ 35,150,000
------------
TOTAL INVESTMENTS AT VALUE (100.6%) (Cost $326,655,777*) 389,089,865
LIABILITIES IN EXCESS OF OTHER ASSETS (0.6%) (2,138,389)
------------
NET ASSETS (100.0%) (applicable to 12,027,678 Common Shares and 4,135,207 Advisor
Shares**) $386,951,476
------------
------------
NET ASSET VALUE, offering and redemption price per Common Share
($289,225,986 [div] 12,027,678) $24.05
------
------
NET ASSET VALUE, offering and redemption price per Advisor Share**
($97,725,490 [div] 4,135,207) $23.63
------
------
</TABLE>
+ Non-income producing security.
* Cost for Federal income tax purposes is $326,695,161.
** Advisor Shares refer to Series 2 Shares herein and in the prospectus.
See Accompanying Notes to Financial Statements.
11
- --------------------------------------------------------------------------------
<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>
<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 EMERGING GROWTH 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 $ 22.38 $23.74 $18.28 $16.97 $10.83 $13.58
----------- ------ ------ ------ ------ ------
Income From Investment Operations:
Net Investment Income (Loss) (.05) .00 (.10) (.03) .05 .13
Net Gain (Loss) from Securities (both
realized and unrealized) 1.72 .00 5.93 1.71 6.16 (2.32)
----------- ------ ------ ------ ------ ------
Total From Investment Operations 1.67 .00 5.83 1.68 6.21 (2.19)
----------- ------ ------ ------ ------ ------
Less Distributions:
Dividends from net investment income .00 .00 .00 (.01) (.07) (.18)
Distributions from capital gains .00 (1.36) (.37) (.36) .00 (.38)
----------- ------ ------ ------ ------ ------
Total Distributions .00 (1.36) (.37) (.37) (.07) (.56)
----------- ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 24.05 $22.38 $23.74 $18.28 $16.97 $10.83
----------- ------ ------ ------ ------ ------
----------- ------ ------ ------ ------ ------
Total Return 15.62%* .16% 32.28% 9.87% 57.57% (16.90%)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $289,226 $240,664 $165,525 $99,562 $42,061 $23,075
Ratios to average daily net assets:
Operating expenses 1.25%* 1.22% 1.23% 1.24% 1.25% 1.25%
Net investment income (loss) (.52%)* (.58%) (.60%) (.25%) .32% 1.05%
Decrease reflected in above expense
ratios due to waivers/reimbursements .00% .04% .00% .08% .47% .42%
Portfolio turnover rate 97.48%* 60.38% 68.35% 63.35% 97.69% 107.30%
<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 $ 22.05 $23.51 $18.19 $16.99 $15.18
------ ------ ------ ------ ------
Income From Investment Operations:
Net Investment Income (Loss) (.09) .00 (.08) (.06) .00
Net Gain (Loss) from Securities (both
realized and unrealized) 1.67 (.10) 5.77 1.62 1.82
------ ------ ------ ------ ------
Total From Investment Operations 1.58 (.10) 5.69 1.56 1.82
------ ------ ------ ------ ------
Less Distributions:
Dividends from net investment income .00 .00 .00 .00 (.01)
Distributions from capital gains .00 (1.36) (.37) (.36) .00
------ ------ ------ ------ ------
Total Distributions .00 (1.36) (.37) (.36) (.01)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $23.63 $22.05 $23.51 $18.19 $16.99
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total Return 14.97%* (.29%) 31.67% 9.02% 23.43%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $97,725 $64,009 $26,029 $5,398 $275
Ratios to average daily net assets:
Operating expenses 1.75%* 1.72% 1.73% 1.74% 1.74%*
Net investment income (loss) (1.01%)* (1.08%) (1.09%) (.87%) (.49%)*
Decrease reflected in above expense
ratios due to waivers/reimbursements .00% .04% .00% .06% .42%*
Portfolio turnover rate 97.48%* 60.38% 68.35% 63.38% 97.69%
</TABLE>
* Annualized
See Accompanying Notes to Financial Statements.
25
- --------------------------------------------------------------------------------
<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>
<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>6
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) as of October 31
of each of the years 1990-1994 (for common shares),
and for the period 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>7
(b) Exhibits:
Exhibit No. Description of Exhibit
1 Articles of Incorporation.
2 Amended and Restated By-Laws.
3 Not applicable.
4 Forms of Stock Certificates.*
5 Investment Advisory Agreement.
6(a) Form of Distribution Agreement between the Fund and Counsellors
Securities Inc.**
(b) Form of Distribution Agreement between the Fund and CIGNA
Securities Inc.**
(c) Form of Selected Dealer Agreement between Counsellors
Securities Inc. and CIGNA Securities, Inc.**
7 Not applicable.
8 Form of Custodian Agreement with PNC Bank, as amended.**
9(a) Form of 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. 2 to the Registration Statement on Form N-1A of Warburg, Pincus Post-
Venture Capital Fund, Inc. filed on September 25, 1995 (Securities Act
File No. 33-61225).
** 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).
*** 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).
<PAGE>9
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) Form of Shareholder Services Plan.**
(b) Form of Distribution Plan.**
(c) Form of 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; 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).
**** Incorporated by reference to Opinion of Willkie Farr & Gallagher filed
with Registrant's Rule 24f-2 Notice, filed on December 29, 1994.
***** Incorporated by reference to Post-Effective Amendment No. 1 to the
Registration Statement of Warburg, Pincus Managed Bond Trust, filed on
February 28, 1995 (Securities Act File No. 33-73672).
<PAGE>10
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 of 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
Common Stock par value
$.001 per share 7,183
Common Stock par value
$.001 per share - Series 1 0
Common Stock par value
$.001 per share - Series 2 5
(Advisor shares)
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
<PAGE>11
relates to Registrant, the coverage is limited in amount and, in certain
circumstances, is subject to a deductible.
Article V of Registrant's By-Laws Limits the liability of the
Directors by providing that any person who was or is a party or is threatened
to be made a party in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such person is a current or former director or officer
of Registrant, or is or was serving while a director or officer of Registrant
at the request of Registrant as a director, officer, partner, trustee,
employee, agent or fiduciary of another corporation, partnership, joint
venture, trust, enterprise or employee benefit plan, shall be indemnified by
Registrant against judgments, penalties, fines, excise taxes, settlements and
reasonable expenses (including attorneys' fees) actually incurred by such
person in connection with such action, suit or proceeding to the full extent
permissible under the Maryland General Corporation Law, the 1933 Act and the
1940 Act, as such statutes are now or hereafter in force, except that such
indemnity shall not protect any such person against any liability to
Registrant or any stockholder thereof to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
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 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
Capital Appreciation Fund; Warburg, Pincus Cash Reserve 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
<PAGE>12
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 Emerging Growth Fund
466 Lexington Avenue
New York, New York 10017-3147
(Fund's Articles of Incorporation, 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)
(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
<PAGE>13
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>14
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.
COUNSELLORS EMERGING
GROWTH FUND, INC.
By:/s/Elizabeth B. Dater
Elizabeth B. Dater
Co-President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment has been signed below by the following persons in the
capacities and on the date indicated:
Signature Title Date
- --------- ----- ----
/s/ John L. Furth Chairman of the September 20, 1995
John L. Furth Board and Director
/s/ Elizabeth B. Dater Co-President September 20, 1995
Elizabeth B. Dater
/s/ Stephen J. Lurito Co-President September 20, 1995
Stephen J. Lurito
/s/ Stephen Distler Vice President and September 20, 1995
Stephen Distler Chief Financial
Officer
/s/ Howard Conroy Vice President, September 20, 1995
Howard Conroy Treasurer and Chief
Accounting Officer
/s/ Richard N. Cooper Director September 20, 1995
Richard N. Cooper
/s/ Donald J. Donahue Director September 20, 1995
Donald J. Donahue
/s/ Jack W. Fritz Director September 20, 1995
Jack W. Fritz
/s/ Thomas A. Melfe Director September 20, 1995
Thomas A. Melfe
/s/ Alexander B. Trowbridge Director September 20, 1995
Alexander B. Trowbridge
<PAGE>15
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
1 Articles of Incorporation.
2 Amended and Restated By-Laws.
3 Not applicable.
4 Forms of Share Certificates.*
5 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 the Fund and CIGNA
Securities, Inc.**
7 Not applicable.
8 Form of Custodian Agreement with PNC Bank, as amended.**
9(a) Form of 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. 2 to the Registration Statement on Form N-1A of Warburg, Pincus Post-
Venture Capital Fund, Inc. filed on September 25, 1995 (Securities Act
File No. 33-61225).
** 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).
*** 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).
<PAGE>17
Exhibit No. Description
- ----------- -----------
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) Form of Shareholder Services Plan.**
(b) Form of Distribution Plan.**
(c) Form of 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; 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).
**** Incorporated by reference to Opinion of Willkie Farr & Gallagher filed
with Registrant's Rule 24f-2 Notice, filed on or about December 30,
1994.
***** Incorporated by reference to Post-Effective Amendment No. 1 to the
Registration Statement of Warburg, Pincus Managed Bond Trust, filed on
February 28, 1995 (Securities Act File No. 33-73672).
<PAGE>1
ARTICLES OF INCORPORATION
OF
COUNSELLORS EMERGING GROWTH FUND, INC.
ARTICLE I
The undersigned, Shirley S. Archer, whose post office address is c/o
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New York,
New York 10022, being at least 18 years of age, does hereby act as an
incorporator and forms a corporation, under and by virtue of the Maryland
General Corporation Law.
ARTICLE II
NAME
The name of the Corporation is Counsellors Emerging Growth Fund,
Inc.
ARTICLE III
PURPOSES AND POWERS
The Corporation is formed for the following purposes:
(1) To conduct and carry on the business of an investment company.
(2) To hold, invest and reinvest its assets in securities and other
investments or to hold part or all of its assets in cash.
(3) To issue and sell shares of its capital stock in such amounts
and on such terms and conditions and for such purposes and for such amount or
kind of consideration as may now or hereafter be permitted by law.
(4) To redeem, purchase or acquire in any other manner, hold,
dispose of, resell, transfer, reissue or cancel (all without the vote or
consent of the stockholders of the Corporation) shares of its capital stock,
in any manner and to the extent now or hereafter permitted by law and by these
Articles of Incorporation.
<PAGE>2
(5) To do any and all additional acts and to exercise any and all
additional powers or rights as may be necessary, incidental, appropriate or
desirable for the accomplishment of all or any of the foregoing purposes.
The Corporation shall be authorized to exercise and enjoy all of the
powers, rights and privileges granted to, or conferred upon, corporations by
the Maryland General Corporation Law now or hereafter in force, and the
enumeration of the foregoing shall not be deemed to exclude any powers, rights
or privileges so granted or conferred.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the Corporation
in the State of Maryland is c/o The Corporation Trust Company Incorporated, 32
South Street, Baltimore, Maryland, 21201. The name and address of the
resident agent of the Corporation in the State of Maryland is The Corporation
Trust Company Incorporated, a Maryland Corporation, 32 South Street,
Baltimore, Maryland 21202.
ARTICLE V
CAPITAL STOCK
(1) The total number of shares of capital stock that the
Corporation shall have authority to issue is three billion (3,000,000,000)
shares, of the par value of one tenth of one cent ($.001) per share and of the
aggregate par value of three million dollars ($3,000,000), all of which three
billion (3,000,000,000) shares are designated Common Stock.
(2) Any fractional share shall carry proportionately the rights of
a whole share including, without limitation, the right to vote and the right
to receive dividends. A fractional share shall not, however, have the right
to receive a certificate evidencing it.
(3) All persons who shall acquire stock in the Corporation shall
acquire the same subject to the provisions of this Charter and the By-Laws of
the Corporation.
(4) No holder of stock of the Corporation by virtue of being such a
holder shall have any right to purchase or subscribe
<PAGE>3
for any shares of the Corporation's capital stock or any other security that
the Corporation may issue or sell (whether out of the number of shares
authorized by this Charter or out of any shares of the Corporation's capital
stock that the Corporation may acquire) other than a right that the Board of
Directors in its discretion may determine to grant.
(5) The Board of Directors shall have authority by resolution to
classify and reclassify any authorized but unissued shares of capital stock
from time to time by setting or changing in any one or more respects the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of
redemption of the capital stock.
(6) Notwithstanding any provision of law requiring any action to be
taken or authorized by the affirmative vote of a greater proportion of the
votes of all classes or of any class of stock of the Corporation, such action
shall be effective and valid if taken or authorized by the affirmative vote of
a majority of the total number of votes entitled to be cast thereon, except as
otherwise provided in this Charter.
ARTICLE VI
REDEMPTION
Each holder of shares of the Corporation's capital stock shall be
entitled to require the Corporation to redeem all or any part of the shares of
capital stock of the Corporation standing in the name of the holder on the
books of the Corporation, and all shares of capital stock issued by the
Corporation shall be subject to redemption by the Corporation, at the
redemption price of the shares as in effect from time to time as may be
determined by or pursuant to the direction of the Board of Directors of the
Corporation in accordance with the provisions of Article VI, subject to the
right of the Board of Directors of the Corporation to suspend the right of
redemption or postpone the date of payment of the redemption price in
accordance with provisions of applicable law. Without limiting the generality
of the foregoing, the Corporation shall, to the extent permitted by applicable
law, have the right at any time to redeem the shares owned by any holder of
capital stock of the Corporation (i) if the redemption is, in the opinion of
the Board of Directors of the Corporation, desirable in order to prevent the
Corporation from being deemed a "personal holding company" within the meaning
of the Internal Revenue Code of 1986 or (ii) if the value of the shares in the
account maintained by the Corporation or its
<PAGE>4
transfer agent for any class of stock for the stockholder is $10,000 (ten
thousand dollars) or less and the stockholder has been given at least 60
(sixty) days' written notice of the redemption and has failed to make
additional purchases of shares in an amount sufficient to bring the value in
his account to $10,000 (ten thousand dollars) or more before the redemption is
effected by the Corporation. Payment of the redemption price shall be made in
cash by the Corporation at the time and in the manner as may be determined
from time to time by the Board of Directors of the Corporation unless, in the
opinion of the Board of Directors, which shall be conclusive, conditions exist
that make payment wholly in cash unwise or undesirable; in such event the
Corporation may make payment wholly or partly by securities or other property
included in the assets belonging or allocable to the class of the shares
redemption of which is being sought, the value of which shall be determined as
provided herein. The Board of Directors may establish procedures for
redemption of shares.
ARTICLE VII
BOARD OF DIRECTORS
(1) The number of directors constituting the Board of Directors
shall be one (1) or such other number as may be set forth in the By-laws or
determined by the Board of Directors pursuant to the By-laws. The number of
Directors shall at no time be less than the minimum number required under the
Maryland General Corporation Law.
(2) In furtherance, and not in limitation, of the powers conferred
by the laws of the State of Maryland, the Board of Directors is expressly
authorized:
(i) To make, alter or repeal the By-Laws of the Corporation,
except where such power is reserved by the By-Laws to the stockholders, and
except as otherwise required by the Investment Company Act of 1940, as
amended.
(ii) From time to time to determine whether and to what extent
and at what times and places and under what conditions and regulations the
books and accounts of the Corporation, or any of them other than the stock
ledger, shall be open to the inspection of the stockholders. No stockholder
shall have any right to inspect any account or book or document of the
Corporation, except as conferred by law or authorized by resolution of the
Board of Directors or of the stockholders.
<PAGE>5
(iii) Without the assent or vote of the stockholders, to
authorize the issuance from time to time of shares of the stock of any class
of the Corporation, whether now or hereafter authorized, and securities
convertible into shares of stock of the Corporation of any class or classes,
whether now or hereafter authorized, for such consideration as the Board of
Directors may deem advisable.
(iv) Without the assent or vote of the stockholders, to
authorize and issue obligations of the Corporation, secured and unsecured, as
the Board of Directors may determine, and to authorize and cause to be
executed mortgages and liens upon the real or personal property of the
Corporation.
(v) Notwithstanding anything in this Charter to the contrary,
to establish in its absolute discretion the basis or method for determining
the value of the assets belonging to any class, the value of the liabilities
belonging to any class and the net asset value of each share of any class of
the Corporation's stock.
(vi) To determine in accordance with generally accepted
accounting principles and practices what constitutes net profits, earnings,
surplus or net assets in excess of capital, and to determine what accounting
periods shall be used by the Corporation for any purpose; to set apart out of
any funds of the Corporation reserves for such purposes as it shall determine
and to abolish the same; to declare and pay any dividends and distributions in
cash, securities or other property from surplus or any funds legally available
therefor, at such intervals as it shall determine; to declare dividends or
distributions by means of a formula or other method of determination, at
meetings held less frequently than the frequency of the effectiveness of such
declarations; and to establish payment dates for dividends or any other
distributions on any basis, including dates occurring less frequently than the
effectiveness of declarations thereof.
(vii) In addition to the powers and authorities granted herein
and by statute expressly conferred upon it, the Board of Directors is
authorized to exercise all powers and do all acts that may be exercised or
done by the Corporation pursuant to the provisions of the laws of the State of
Maryland, this Charter and the By-Laws of the Corporation.
(3) Any determination made in good faith, and in accordance with
accepted accounting practices, if applicable, by or pursuant to the direction
of the Board of Directors, with respect to the amount of assets, obligations
or liabilities of the Corporation, as to the amount of net income of the
<PAGE>6
Corporation from dividends and interest for any period or amounts at any time
legally available for the payment of dividends, as to the amount of any
reserves or charges set up and the propriety thereof, as to the time of or
purpose for creating reserves or as to the use, alteration or cancellation of
any reserves or charges (whether or not any obligation or liability for which
the reserves or charges have been created has been paid or discharged or is
then or thereafter required to be paid or discharged), as to the value of any
security owned by the Corporation, the determination of the net asset value of
shares of any class of the Corporation's capital stock, or as to any other
matters relating to the issuance, sale or other acquisition or disposition of
securities or shares of capital stock of the Corporation, and any reasonable
determination made in good faith by the Board of Directors whether any
transaction constitutes a purchase of securities on "margin," a sale of
securities "short," or an underwriting of the sale of, or a participation in
any underwriting or selling group in connection with the public distribution
of, any securities, shall be final and conclusive, and shall be binding upon
the Corporation and all holders of its capital stock, past, present and
future, and shares of the capital stock of the Corporation are issued and sold
on the condition and understanding, evidenced by the purchase of shares of
capital stock or acceptance of share certificates, that any and all such
determinations shall be binding as aforesaid. No provision of this Charter of
the Corporation shall be effective to (i) require a waiver of compliance with
any provision of the Securities Act of 1933, as amended, or the Investment
Company Act of 1940 as amended, or of any valid rule, regulation or order of
the Securities and Exchange Commission under those Acts or (ii) protect or
purport to protect any director or officer of the Corporation against any
liability to the Corporation or its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
ARTICLE VIII
AMENDMENTS
The Corporation reserves the right from time to time to make any
amendment to its Charter, now or hereafter authorized by law, including any
amendment that alters the contract rights, as expressly set forth in this
Charter, of any outstanding stock.
* * *
<PAGE>7
IN WITNESS WHEREOF, I have adopted and signed these Articles of
Incorporation and do hereby acknowledge that the adoption and signing are my
act.
By: /s/ Shirley S. Archer
Incorporator
Dated the 10th day of November, 1987
<PAGE>1
AMENDED AND RESTATED
BY-LAWS
OF
COUNSELLORS EMERGING GROWTH FUND, INC.
A Maryland Corporation
ARTICLE I
STOCKHOLDERS
SECTION 1. Annual Meetings. No annual meeting of the stockholders
of the Corporation shall be held in any year in which the election or
directors is not required to be acted upon under the Investment Company Act of
1940, as amended unless otherwise determined by the Board of Directors. An
annual meeting may be held at any place within the United States as may be
determined by the Board of Directors and as shall be designated in the notice
of the meeting, and at the time specified by the Board of Directors. Any
business of the Corporation may be transacted at an annual meeting without
being specifically designated in the notice unless otherwise provided by
statute, the Corporation's Articles of Incorporation or these By-Laws.
SECTION 2. Special Meetings. Special meetings of the stockholders
for any purpose or purposes, unless otherwise prescribed by statute or by the
Corporation's Articles of Incorporation, may be held at any place within the
United States, and may be called at any time by the Board of Directors or by
the President, and shall be called by the President or Secretary at the
request in writing of a majority of the Board of Directors or at the request
in writing of stockholders entitled to cast at least 25 (twenty-five) percent
(at least 10 (ten) percent for the purpose of removing a director) of the
votes entitled to be cast at the meeting upon payment by such stockholders to
the Corporation of the reasonably estimated cost of preparing and mailing a
notice of the meeting (which estimated cost shall be provided to such
stockholders by the Secretary of the Corporation). Notwithstanding the
foregoing, unless requested by stockholders entitled to cast a majority of the
votes entitled to be cast at the meeting, a special meeting of the
stockholders need not be called at the request of stockholders to consider any
matter which is substantially the same as a matter voted on at any special
meeting of the stockholders held during the preceding
<PAGE>2
12 (twelve) months. A written request shall state the purpose or purposes of
the proposed meeting.
SECTION 3. Notice of Meetings. Written or printed notice of the
purpose or purposes and of the time and place of every meeting of the
stockholders shall be given by the Secretary of the Corporation to each
stockholder of record entitled to vote at the meeting, by placing the notice
in the mail at least 10 (ten) days, but not more than 90 (ninety) days, prior
to the date designated for the meeting addressed to each stockholder at his
address appearing on the books of the Corporation or supplied by the
stockholder to the Corporation for the purpose of notice. The notice of any
meeting of stockholders may be accompanied by a form of proxy approved by the
Board of Directors in favor of the actions or persons as the Board of
Directors may select. Notice of any meeting of stockholders shall be deemed
waived by any stockholder who attends the meeting in person or by proxy, or
who before or after the meeting submits a signed waiver of notice that is
filed with the records of the meeting.
SECTION 4. Quorum. Except as otherwise provided by statute or by
the Corporation's Articles of Incorporation, the presence in person or by
proxy of stockholders of the Corporation entitled to cast at least a majority
of the votes to be cast shall constitute a quorum at each meeting of the
stockholders and all questions shall be decided by majority vote of the shares
so represented in person or by proxy at the meeting and entitled to vote. In
the absence of a quorum, the stockholders present in person or by proxy, by
majority vote and without notice other than by announcement, may adjourn the
meeting from time to time as provided in Section 5 of this Article I until a
quorum shall attend. The stockholders present at any duly organized meeting
may continue to do business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum. The absence from any
meeting in person or by proxy of holders of the number of shares of stock of
the Corporation in excess of a majority that may be required by the laws of
the State of Maryland, the Investment Company Act of 1940, as amended, or
other applicable statute, the Corporation's Articles of Incorporation or these
By-Laws, for action upon any given matter shall not prevent action at the
meeting on any other matter or matters that may properly come before the
meeting, so long as there are present, in person or by proxy, holders of the
number of shares of stock of the Corporation required for action upon the
other matter or matters.
SECTION 5. Adjournment. Any meeting of the stockholders may be
adjourned from time to time, without notice other than by announcement at the
meeting at which the
<PAGE>3
adjournment is taken. At any adjourned meeting at which a quorum shall be
present any action may be taken that could have been taken at the meeting
originally called. A meeting of the stockholders may not be adjourned to a
date more than 120 (one hundred twenty) days after the original record date.
SECTION 6. Organization. At every meeting of the stockholders, the
Chairman of the Board, or in his absence or inability to act, the President,
or in his absence or inability to act, a Vice President, or in the absence or
inability to act of the Chairman of the Board, the President and all the vice
Presidents, a chairman chosen by the stockholders, shall act as Chairman of
the meeting. The Secretary, or in his absence or inability to act, a person
appointed by the chairman of the meeting, shall act as secretary of the
meeting and keep the minutes of the meeting.
SECTION 7. Order of Business. The order of business at all
meetings of the stockholders shall be as determined by the chairman of the
meeting.
SECTION 8. Voting. Except as otherwise provided by statute or the
Corporation's Articles of Incorporation, each holder of record of shares of
stock of the Corporation having voting power shall be entitled at each meeting
of the stockholders to one vote for every full share of stock standing in his
name on the records of the Corporation as of the record date determined
pursuant to Section 9 of this Article I and proportionate, fractional votes
for fractional shares held.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by the
stockholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided
in the proxy. Every proxy shall be revocable at the pleasure of the
stockholder executing it, except in those cases in which the proxy states that
it is irrevocable and in which an irrevocable proxy is permitted by law.
If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute
or these By-Laws, or determined by the chairman of the meeting to be
advisable, any such vote need not be by ballot. On a vote by ballot, each
ballot shall be signed by the stockholder voting, or by his proxy, and shall
state the number of shares voted.
<PAGE>4
SECTION 9. Fixing of Record Date. The Board of Directors may set a
record date for the purpose of determining stockholders entitled to vote at
any meeting of the stockholders. The record date for a particular meeting
shall be not more than 90 (ninety) nor fewer than 10 (ten) days before the
date of the meeting. All persons who were holders of record of shares as of
the record date of a meeting, and no others, shall be entitled to vote at such
meeting and any adjournment thereof.
SECTION 10. Inspectors. The Board of Directors may, in advance of
any meeting of stockholders, appoint one or more inspectors to act at the
meeting or at any adjournment of the meeting. If the inspectors shall not be
so appointed or if any of them shall fail to appear or act, the chairman of
the meeting may, and on the request of any stockholder entitled to vote at the
meeting shall, appoint inspectors. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath to execute faithfully the
duties of inspector at the meeting with strict impartiality and according to
the best of his ability. The inspectors shall determine the number of shares
outstanding and the voting power of each share, the number of shares
represented at the meeting, the existence of a quorum and the validity and
effect of proxies, and shall receive votes, ballots or consents, hear and
determine all challenges and questions arising in connection with the right to
vote, count and tabulate all votes, ballots or consents, determine the result,
and do those acts as are proper to conduct the election or vote with fairness
to all stockholders. On request of the chairman of the meeting or any
stockholder entitled to vote at the meeting, the inspectors shall make a
report in writing of any challenge, request or matter determined by them and
shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as inspector of an election of
directors. Inspectors need not be stockholders of the Corporation.
SECTION 11. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by statute or the Corporation's Articles of Incorporation,
any action required to be taken at any meeting of stockholders, or any action
that may be taken at any meeting of the stockholders, may be taken without a
meeting, without prior notice and without a vote, if the following are filed
with the records of stockholders' meetings: (i) a unanimous written consent
that sets forth the action and is signed by each stockholder entitled to vote
on the matter and (ii) a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote at the
meeting.
<PAGE>5
SECTION 12. Notice of Stockholder Business.
(a) At any Annual or Special Meeting of the Stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an Annual or Special Meeting business
must be (A) (i) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, (ii) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (iii) subject to the provisions of Section 13 of this Article 1,
otherwise properly brought before the meeting by a Stockholder and (B) a
proper subject under applicable law for Stockholder action.
(b) For business to be properly brought before an Annual or Special
Meeting by a Stockholder, the Stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, any
such notice must be delivered to or mailed and received at the principal
executive offices of the Corporation not later than 60 days prior to the date
of the meeting; provided, however, that if less than 70 days' notice or prior
public disclosure of the date of the meeting is given or made to Stockholders,
any such notice by a Stockholder to be timely must be so received not later
than the close of business on the 10th day following the day on which notice
of the date of the Annual or Special Meeting was given or such public
disclosure was made.
(c) Any such notice by a Stockholder shall set forth as to each
matter the Stockholder proposes to bring before the Annual or Special Meeting
(i) a brief description of the business desired to be brought before the
Annual or Special Meeting and the reasons for conducting such business at the
Annual or Special Meeting, (ii) the name and address, as they appear on the
Corporation's books, of the Stockholder proposing such business, (iii) the
class and number of shares of the capital stock of the Corporation which are
beneficially owned by the Stockholder, and (iv) any material interest of the
Stockholder in such business.
(d) Notwithstanding anything in the By-Laws to the contrary, no
business shall be conducted at any Annual or Special Meeting except in
accordance with the procedures set forth in this Section 12. The Chairman of
the Annual or Special Meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the
meeting and in accordance with the provisions of this Section 12, and if he
should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be considered or transacted.
<PAGE>6
SECTION 13. Stockholder Business not Eligible for Consideration.
(a) Notwithstanding anything in these By-Laws to the contrary, any
proposal that is otherwise properly brought before an Annual or Special
Meeting by a Stockholder will not be eligible for consideration by the
Stockholders at such Annual or Special Meeting if such proposal is
substantially the same as a matter properly brought before such Annual or
Special Meeting by or at the direction of the Board of Directors of the
Corporation. The Chairman of such Annual or Special Meeting shall, if the
facts warrant, determine and declare that a Stockholder proposal is
substantially the same as a matter properly brought before the meeting by or
at the direction of the Board of Directors, and, if he should so determine, he
shall so declare to the meeting and any such Stockholder proposal shall not be
considered at the meeting.
(b) This Section 13 shall not be construed or applied to make
ineligible for consideration by the Stockholders at any Annual or Special
Meeting any Stockholder proposal required to be included in the Corporation's
proxy statement relating to such meeting pursuant to Rule 14a-8 under the
Securities Exchange Act of 1934, or any successor rule thereto.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. General Powers. Except as otherwise provided in the
Corporation's Articles of Incorporation, the business and affairs of the
Corporation shall be managed under the direction of the Board of Directors.
All powers of the Corporation may be exercised by or under authority of the
Board of Directors except as conferred on or reserved to the stockholders by
law, by the Corporation's Articles of Incorporation or by these By-Laws.
SECTION 2. Number of Directors. The number of directors shall he
fixed from time to time by resolution of the Board of Directors adopted by a
majority of the Directors then in office; provided, however, that the number
of directors shall in no event be fewer than one nor more than fifteen. Any
vacancy created by an increase in Directors may be filled in accordance with
Section 6 of this Article II. No reduction in the number of directors shall
have the effect of removing any director from office prior to the expiration
of his term unless the director is specifically removed pursuant to Section 5
of this Article II at
<PAGE>7
the time of the decrease. A director need not be a stockholder of the
Corporation, a citizen of the United States or a resident of the State of
Maryland.
SECTION 3. Election and Term of Directors. The term of office of
each director shall be from the time of his election and qualification until
his successor shall have been elected and shall have qualified, or until his
death, or until he shall have resigned or have been removed as provided in
these By-laws, or as otherwise provided by statute or the Corporation's
Articles of Incorporation.
SECTION 3.1 Director Nominations.
(a) Only persons who are nominated in accordance with the
procedures set forth in this Section 3.1 shall be eligible for election or re-
election as Directors. Nominations of persons for election or re-election to
the Board of Directors of the Corporation may be made at a meeting of
Stockholders by or at the direction of the Board of Directors or by any
Stockholder of the Corporation who is entitled to vote for the election of
such nominee at the meeting and who complies with the notice procedures set
forth in this Section 3.1.
(b) Such nominations, other than those made by or at the direction
of the Board of Directors, shall be made pursuant to timely notice delivered
in writing to the Secretary of the Corporation. To be timely, any such notice
by a Stockholder must be delivered to or mailed and received at the principal
executive offices of the Corporation not later than 60 days prior to the
meeting; provided, however, that if less than 70 days' notice or prior public
disclosure of the date of the meeting is given or made to Stockholders, any
such notice by a Stockholder to be timely must be so received not later than
the close of business on the 10th day following the day on which notice of the
date of the meeting was given or such public disclosure was made.
(c) Any such notice by a Stockholder shall set forth (i) as to each
person whom the Stockholder proposes to nominate for election or re-election
as a Director, (A) the name, age, business address and residence address of
such person, (B) the principal occupation or employment of such person, (C)
the class and number of shares of the capital stock of the Corporation which
are beneficially owned by such person and (D) any other information relating
to such person that is required to be disclosed in solicitations of proxies
for the election of Directors pursuant to Regulation 14A under the Securities
Exchange Act of 1934 or any successor regulation thereto (including without
limitation such persons' written consent to
<PAGE>8
being named in the proxy statement as a nominee and to serving as a Director
if elected and whether any person intends to seek reimbursement from the
Corporation of the expenses of any solicitation of proxies should such person
be elected a Director of the Corporation); and (ii) as to the Stockholder
giving the notice (A) the name and address, as they appear on the
Corporation's books, of such Stockholder and (B) the class and number of
shares of the capital stock of the Corporation which are beneficially owned by
such Stockholder. At the request of the Board of Directors any person
nominated by the Board of Directors for election as a Director shall furnish
to the Secretary of the Corporation that information required to be set forth
in a Stockholder's notice of nomination which pertains to the nominee.
(d) If a notice by a Stockholder is required to be given pursuant
to this Section 3.1, no person shall be entitled to receive reimbursement from
the Corporation of the expenses of a solicitation of proxies for the election
as a Director of a person named in such notice unless such notice states that
such reimbursement will be sought from the Corporation. No person shall be
eligible for election as a Director of the Corporation unless nominated in
accordance with the procedures set forth in this Section 3.1. The Chairman of
the meeting shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the procedures prescribed by
the By-Laws, and if he should so determine, he shall so declare to the meeting
and the defective nomination shall be disregarded for all purposes.
SECTION 4. Resignation. A director of the Corporation may resign
at any time by giving written notice of his resignation to the Board of
Directors or the Chairman of the Board or to the President or the Secretary of
the Corporation. Any resignation shall take effect at the time specified in
it or, should the time when it is to become effective not be specified in it,
immediately upon its receipt. Acceptance of a resignation shall not be
necessary to make it effective unless the resignation states otherwise.
SECTION 5. Removal of Directors. Any director of the Corporation
may be removed by the stockholders with or without cause at any time by a vote
of a majority of the votes entitled to be cast for the election of directors.
SECTION 6. Vacancies. Subject to the provisions of the Investment
Company Act of 1940, as amended, any vacancies in the Board of Directors,
whether arising from death, resignation, removal or any other cause except an
increase in the number of
<PAGE>9
directors, shall be filled by a vote of the majority of the Board of Directors
then in office even though that majority is less than a quorum, provided that
no vacancy or vacancies shall be filled by action of the remaining directors
if, after the filling of the vacancy or vacancies, fewer than two-thirds of
the directors then holding office shall have been elected by the stockholders
of the Corporation. A majority of the entire Board may fill a vacancy which
results from an increase in the number of directors. In the event that at any
time a vacancy exists in any office of a director that may not be filled by
the remaining directors, a special meeting of the stockholders shall be held
as promptly as possible and in any event within 60 (sixty) days, for the
purpose of filling the vacancy or vacancies. Any director elected or
appointed to fill a vacancy shall hold office until a successor has been
chosen and qualifies or until his earlier resignation or removal.
SECTION 7. Place of Meetings. Meetings of the Board may be held at
any place that the Board of Directors may from time to time determine or that
is specified in the notice of the meeting.
SECTION 8. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at the time and place determined by the
Board of Directors.
SECTION 9. Special Meetings. Special meetings of the Board of
Directors may be called by two or more directors of the Corporation or by the
Chairman of the Board or the President.
SECTION 10. Notice of Special Meetings. Notice of each special
meeting of the Board of Directors shall be given by the Secretary as
hereinafter provided. Each notice shall state the time and place of the
meeting and shall be delivered to each director, either personally or by
telephone or other standard form of telecommunication, at least 24 (twenty-
four) hours before the time at which the meeting is to be held, or by first-
class mail, postage prepaid, addressed to the director at his residence or
usual place of business, and mailed at least 3 (three) days before the day on
which the meeting is to be held.
SECTION 11. Waiver of Notice of Meetings. Notice of any special
meeting need not be given to any director who shall, either before or after
the meeting, sign a written waiver of notice that is filed with the records of
the meeting or who shall attend the meeting.
SECTION 12. Quorum and Voting. One-third (but not fewer than 1
(one)) of the members of the entire Board of
<PAGE>10
Directors shall be present in person at any meeting of the Board in order to
constitute a quorum for the transaction of business at the meeting, and except
as otherwise expressly required by statute, the Corporation's Articles of
Incorporation, these By-Laws, the Investment Company Act of 1940, as amended,
or any other applicable statute, the act of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board. In the absence of a quorum at any meeting of the Board, a majority of
the directors present may adjourn the meeting to another time and place until
a quorum shall be present. Notice of the time and place of any adjourned
meeting shall be given to the directors who were not present at the time of
the adjournment and, unless the time and place were announced at the meeting
at which the adjournment was taken, to the other directors. At any adjourned
meeting at which a quorum is present, any business may be transacted that
might have been transacted at the meeting as originally called.
SECTION 13. Organization. The Board of Directors may, by
resolution adopted by a majority of the entire Board, designate a Chairman of
the Board, who shall preside at each meeting of the Board. In the absence or
inability of the Chairman of the Board to act, the President, or, in his
absence or inability to act, another director chosen by a majority of the
directors present, shall act as chairman of the meeting and preside at the
meeting. The Secretary, or, in his absence or inability to act, any person
appointed by the chairman, shall act as secretary of the meeting and keep the
minutes thereof.
SECTION 14. Committees. The Board of Directors may designate one
or more committees of the Board of Directors, each consisting of 2 (two) or
more directors. To the extent provided in the resolution, and permitted by
law, the committee or committees shall have and may exercise the powers of the
Board of Directors in the management of the business and affairs of the
Corporation and may authorize the seal of the Corporation to be affixed to all
papers that may require it. Any committee or committees shall have the name
or names determined from time to time by resolution adopted by the Board of
Directors. Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required. The members of a
committee present at any meeting, whether or not they constitute a quorum, may
appoint a director to act in the place of an absent member.
SECTION 15. Written Consent of Directors in Lieu of a Meeting.
Subject to the provisions of the Investment Company Act of 1940, as amended,
any action required or permitted to be taken at any meeting of the Board of
Directors or of any committee of
<PAGE>11
the Board may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of the Board or
committee.
SECTION 16. Telephone Conference. Members of the Board of
Directors or any committee of the Board may participate in any Board or
committee meeting by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other at the same time. Participation by such means shall constitute
presence in person at the meeting.
SECTION 17. Compensation. Each director shall be entitled to
receive compensation, if any, as may from time to time be fixed by the Board
of Directors, including a fee for each meeting of the Board or any committee
thereof, regular or special, he attends. Directors may also be reimbursed by
the Corporation for all reasonable expenses incurred in traveling to and from
the place of a Board or committee meeting.
ARTICLE III
OFFICERS, AGENTS AND EMPLOYEES
SECTION 1. Number and Qualifications. The officers of the
Corporation shall be a President, a Secretary and a Treasurer, each of whom
shall be elected by the Board of Directors. The Board of Directors may elect
or appoint one or more Vice Presidents and may also appoint any other
officers, agents and employees it deems necessary or proper. Any two or more
offices may be held by the same person, except the offices of President and
Vice President, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity. Officers shall be elected by the Board
of Directors each year at its first meeting held after the annual meeting of
stockholders, each to hold office until the meeting of the Board following the
next annual meeting of the stockholders and until his successor shall have
been duly elected and shall have qualified, or until his death, or until he
shall have resigned or have been removed, as provided in these By-Laws. The
Board of Directors may from time to time elect, or designate to the President
the power to appoint, such officers (including one or more Assistant Vice
Presidents, one or more Assistant Treasurers and one or more Assistant
Secretaries) and such agents as may be necessary or desirable for the business
of the Corporation. Such other officers and agents shall have such duties and
shall hold their
<PAGE>12
offices for such terms as may be prescribed by the Board or by the appointing
authority.
SECTION 2. Resignations. Any officer of the Corporation may resign
at any time by giving written notice of his resignation to the Board of
Directors, the Chairman of the Board, the President or the Secretary. Any
resignation shall take effect at the time specified therein or, if the time
when it shall become effective is not specified therein, immediately upon its
receipt. Acceptance of a resignation shall not be necessary to make it
effective unless the resignation states otherwise.
SECTION 3. Removal of Officer, Agent or Employee. Any officer,
agent or employee of the Corporation may be removed by the Board of Directors
with or without cause at any time, and the Board may delegate the power of
removal as to agents and employees not elected or appointed by the Board of
Directors. Removal shall be without prejudice to the person's contract
rights, if any, but the appointment of any person as an officer, agent or
employee of the Corporation shall not of itself create contract rights.
SECTION 4. Vacancies. A vacancy in any office whether arising from
death, resignation, removal or any other cause, may be filled for the
unexpired portion of the term of the office that shall be vacant, in the
manner prescribed in these By-Laws for the regular election or appointment to
the office.
SECTION 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer with respect to other officers under his control.
SECTION 6. Bonds or other Security. If required by the Board, any
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in an amount and with any
surety or sureties as the Board may require.
SECTION 7. President. The President shall be the chief executive
officer of the Corporation. In the absence or inability of the Chairman of
the Board (or if there is none) to act, the President shall preside at all
meetings of the stockholders and of the Board of Directors. The President
shall have, subject to the control of the Board of Directors, general charge
of the business and affairs of the Corporation, and may employ and discharge
employees and agents of the Corporation, except those elected or appointed by
the Board, and he may delegate these powers.
<PAGE>13
SECTION 8. Vice President. Each Vice President shall have the
powers and perform the duties that the Board of Directors or the President may
from time to time prescribe.
SECTION 9. Treasurer. Subject to the provisions of any contract
that may be entered into with any custodian pursuant to authority granted by
the Board of Directors, the Treasurer shall have charge of all receipts and
disbursements of the Corporation and shall have or provide for the custody of
the Corporation's funds and securities; he shall have full authority to
receive and give receipts for all money due and payable to the Corporation,
and to endorse checks, drafts and warrants, in its name and on its behalf and
to give full discharge for the same; he shall deposit all funds of the
Corporation, except those that may be required for current use, in such banks
or other places of deposit as the Board of Directors may from time to time
designate; and, in general, he shall perform all duties incident to the office
of Treasurer and such other duties as may from time to time be assigned to him
by the Board of Directors or the President.
SECTION 10. Secretary. The Secretary shall
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board of Directors, the committees
of the Board and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation (unless
the seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to
be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept
and filed; and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board of Directors or the President.
<PAGE>14
SECTION 11. Delegation of Duties. In case of the absence of any
officer of the Corporation, or for any other reason that the Board of
Directors may deem sufficient, the Board may confer for the time being the
powers or duties, or any of them, of such officer upon any other officer or
upon any director.
ARTICLE IV
STOCK
SECTION 1. Stock Certificates. Each holder of stock of the
Corporation shall be entitled upon specific written request to such person as
may be designated by the Corporation to have a certificate or certificates, in
a form approved by the Board, representing the number of shares of stock of
the Corporation owned by him; provided, however, that certificates for
fractional shares will not be delivered in any case. The certificates
representing shares of stock shall be signed by or in the name of the
Corporation by the President or a Vice President and by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed with
the seal of the Corporation. Any or all of the signatures or the seal on the
certificate may be facsimiles. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate shall be issued, it may be issued by the Corporation
with the same effect as if such officer, transfer agent or registrar were
still in office at the date of issue.
SECTION 2. Books of Account and Record of Stockholders. There
shall be kept at the principal executive office of the Corporation correct and
complete books and records of account of all the business and transactions of
the Corporation. There shall be made available upon request of any
stockholder, in accordance with Maryland law, a record containing the number
of shares of stock issued during a specified period not to exceed 12 (twelve)
months and the consideration received by the Corporation for each such share.
SECTION 3. Transfers of Shares. Transfers of shares of stock of
the Corporation shall be made on the stock records of the Corporation only by
the registered holder thereof, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary or with a
transfer agent or transfer clerk, and on surrender of the certificate or
certificates, if issued, for the shares properly endorsed or accompanied by a
duly executed stock transfer power and the payment of all taxes
<PAGE>15
thereon. Except as otherwise provided by law, the Corporation shall be
entitled to recognize the exclusive right of a person in whose name any share
or shares stand on the record of stockholders as the owner of the share or
shares for all purposes, including, without limitation, the rights to receive
dividends or other distributions and to vote as the owner, and the Corporation
shall not be bound to recognize any equitable or legal claim to or interest in
any such share or shares on the part of any other person.
SECTION 4. Regulations. The Board of Directors may make any
additional rules and regulations, not inconsistent with these By-Laws, as it
may deem expedient concerning the issue, transfer and registration of
certificates for shares of stock of the Corporation. It may appoint, or
authorize any officer or officers to appoint, one or more transfer agents or
one or more transfer clerks and one or more registrars and may require all
certificates for shares of stock to bear the signature or signatures of any of
them.
SECTION 5. Stolen, Lost, Destroyed or Mutilated Certificates. The
holder of any certificate representing shares of stock of the Corporation
shall immediately notify the Corporation of its theft, loss, destruction or
mutilation and the Corporation may issue a new certificate of stock in the
place of any certificate issued by it that has been alleged to have been
stolen, lost or destroyed or that shall have been mutilated. The Board may,
in its discretion, require the owner (or his legal representative) of a
stolen, lost, destroyed or mutilated certificate: to give to the Corporation
a bond in a sum, limited or unlimited, and in a form and with any surety or
sureties, as the Board in its absolute discretion shall determine, to
indemnify the Corporation against any claim that may be made against it on
account of the alleged theft, loss or destruction of any such certificate, or
issuance of a new certificate. Anything herein to the contrary
notwithstanding, the Board of Directors, in its absolute discretion, may
refuse to issue any such new certificate, except pursuant to legal proceedings
under the laws of the State of Maryland.
SECTION 6. Fixing of Record Date for Dividends, Distributions, etc.
The Board may fix, in advance, a date not more than 90 (ninety) days preceding
the date fixed for the payment of any dividend or the making of any
distribution or the allotment of rights to subscribe for securities of the
Corporation, or for the delivery of evidences of rights or evidences of
interests arising out of any change, conversion or exchange of common stock or
other securities, as the record date for the determination of the stockholders
entitled to receive any
<PAGE>16
such dividend, distribution, allotment, rights or interests, and in such case
only the stockholders of record at the time so fixed shall be entitled to
receive such dividend, distribution, allotment, rights or interests.
SECTION 7. Information to Stockholders and Others. Any stockholder
of the Corporation or his agent may inspect and copy during the Corporation's
usual business hours the Corporation's By-Laws, minutes of the proceedings of
its stockholders, annual statements of its affairs and voting trust agreements
on file at its principal office.
ARTICLE V
INDEMNIFICATION AND INSURANCE
SECTION 1. Indemnification of Directors and Officers. Any person
who was or is a party or is threatened to be made a party in any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person is a
current or former director or officer of the Corporation, or is or was serving
while a director or officer of the Corporation at the request of the
Corporation as a director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust,
enterprise or employee benefit plan, shall be indemnified by the Corporation
against judgments, penalties, fines, excise taxes, settlements and reasonable
expenses (including attorneys' fees) actually incurred by such person in
connection with such action, suit or proceeding to the full extent permissible
under the Maryland General Corporation Law, the Securities Act of 1933 and the
Investment Company Act of 1940, as such statutes are now or hereafter in
force, except that such indemnity shall not protect any such person against
any liability to the Corporation or any stockholder thereof to which such
person would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct
of his office ("disabling conduct").
SECTION 2. Advances. Any current or former director or officer of
the Corporation claiming indemnification within the scope of this Article V
shall be entitled to advances from the Corporation for payment of the
reasonable expenses incurred by him in connection with proceedings to which he
is a party in the manner and to the full extent permissible under the Maryland
General Corporation Law, the Securities Act of 1933 and the Investment Company
Act of 1940, as such statutes are now or
<PAGE>17
hereafter in force; provided however, that the person seeking indemnification
shall provide to the Corporation a written affirmation of his good faith
belief that the standard of conduct necessary for indemnification by the
Corporation has been met and a written undertaking to repay any such advance
unless it is ultimately determined that he is entitled to indemnification, and
provided further that at least one of the following additional conditions is
met: (1) the person seeking indemnification shall provide a security in form
and amount acceptable to the Corporation for his undertaking; (2) the
Corporation is insured against losses arising by reason of the advance; or (3)
a majority of a quorum of directors of the Corporation who are neither
"interested persons" as defined in Section 2(a)(19) of the Investment Company
Act of 1940, as amended, nor parties to the proceeding ("disinterested non-
party directors"), or independent legal counsel, in a written opinion, shall
determine, based on a review of facts readily available to the Corporation at
the time the advance is proposed to be made, that there is reason to believe
that the person seeking indemnification will ultimately be found to be
entitled to indemnification.
SECTION 3. Procedure. At the request of any current or former
director or officer, or any employee or agent whom the Corporation proposes to
indemnify, the Board of Directors shall determine, or cause to be determined,
in a manner consistent with the Maryland General Corporation Law, the
Securities Act of 1933 and the Investment Company Act of 1940, as such
statutes are now or hereafter in force, whether the standards required by this
Article V have been met; provided, however, that indemnification shall be made
only following: (1) a final decision on the merits by a court or other body
before whom the proceeding was brought that the person to be indemnified was
not liable by reason of disabling conduct or (2) in the absence of such a
decision, a reasonable determination, based upon a review of the facts, that
the person to be indemnified was not liable by reason of disabling conduct, by
(a) the vote of a majority of a quorum of disinterested non-party directors or
(b) an independent legal counsel in a written opinion.
SECTION 4. Indemnification of Employees and Agents. Employees and
agents who are not officers or directors of the Corporation may be
indemnified, and reasonable expenses may be advanced to such employees or
agents, in accordance with the procedures set forth in this Article V to the
extent permissible under the Investment Company Act of 1940, the Securities
Act of 1933 and the Maryland General Corporation Law, as such statutes are now
or hereafter in force, and to such further extent, consistent with the
foregoing, as may be provided by action of the Board of Directors or by
contract.
<PAGE>18
SECTION 5. Other Rights. The indemnification provided by this
Article V shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may
be entitled under any insurance or other agreement, vote of stockholders or
disinterested directors or otherwise, both as to action by a director or
officer of the Corporation in his official capacity and as to action by such
person in another capacity while holding such office or position, and shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
SECTION 6. Insurance. The Corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or who, while a
director, officer, employee or agent of the Corporation, is or was serving at
the request of the Corporation as a director, officer, partner, trustee,
employee, agent or fiduciary of another corporation, partnership, joint
venture, trust, enterprise or employee benefit plan, against any liability
asserted against and incurred by him in any such capacity, or arising out of
his status as such, provided that no insurance may be obtained by the
Corporation for liabilities against which it would not have the power to
indemnify him under this Article V or applicable law.
SECTION 7. Constituent, Resulting or Surviving Corporations. For
the purposes of this Article V, references to the "Corporation" shall include
all constituent corporations absorbed in a consolidation or merger as well the
resulting or surviving corporation so that any person who is or was a
director, officer, employee or agent of a constituent corporation or is or was
serving at the request of a constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise shall stand in the same position under this Article V with
respect to the resulting or surviving corporation as he would if he had served
the resulting or surviving corporation in the same capacity.
ARTICLE VI
SEAL
The seal of the Corporation shall be circular in form and shall bear
the name of the Corporation, the year of its incorporation, the words
"Corporate Seal" and "Maryland" and any emblem or device approved by the Board
of Directors. The seal may be used by causing it or a facsimile to be
impressed or
<PAGE>19
affixed or in any other manner reproduced, or by placing the word "(seal)"
adjacent to the signature of the authorized officer of the Corporation.
ARTICLE VII
FISCAL YEAR
The Corporation's fiscal year shall be fixed by the Board of
Directors.
ARTICLE VIII
AMENDMENTS
These By-Laws may be amended or repealed by the affirmative vote of
a majority of the Board of Directors at any regular or special meeting of the
Board of Directors, subject to the requirements of the Investment Company Act
of 1940, as amended.
As adopted, February 7, 1990
<PAGE>1
INVESTMENT ADVISORY AGREEMENT
January 21, 1988
Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
Counsellors Emerging Growth Fund, Inc. (the "Fund"), a corporation
organized under the laws of the State of Maryland, herewith confirms its
agreement with Warburg, Pincus Counsellors, Inc. (the "Adviser") as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and reinvesting
in investments of the kind and in accordance with the limitations specified in
its Articles of Incorporation as may be amended from time to time, and in its
Prospectus and Statement of Additional Information as from time to time in
effect, and in such manner and to such extent as may from time to time be
approved by the Board of Directors of the Fund. Copies of the Fund's
Prospectus, Statement of Additional Information and Articles of Incorporation,
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
its investment adviser. The Adviser accepts the appointment and agrees to
furnish the services for the compensation set forth below.
2. Services as Investment Adviser
Subject to the supervision and direction of the Board of Directors
of the Fund, the Adviser will (a) act in strict conformity with the Fund's
Articles of Incorporation, the Investment Company Act of 1940 and the
Investment Advisers Act of 1940, as the same may from time to time be amended,
(b) manage the Fund in accordance with the Fund's investment objective and
policies as stated in the Fund's Prospectus and Statement of Additional
Information as from time to time in effect, (c) make investment decisions for
the Fund and (d) place purchase and sale orders for securities on behalf of
the Fund. In providing those services, the Adviser will provide investment
research and supervision of the Fund's investments and conduct a continual
program of investment, evaluation and, if appropriate, sale and reinvestment
of the Fund's assets. In addition, the Adviser will furnish the Fund with
whatever statistical information the Fund may reasonably request with respect
to the securities that the Fund may hold or contemplate purchasing.
<PAGE>2
3. Brokerage
In executing transactions for the Fund and selecting brokers or
dealers, the Adviser will use its best efforts to seek the best overall terms
available. In assessing the best overall terms available for any portfolio
transaction, the Adviser will consider all factors it deems relevant
including, but not limited to, breadth of the market in the security, the
price of the security, the financial condition and execution capability of the
broker or dealer and the reasonableness of any commission for the specific
transaction and for transactions executed through the broker or dealer in the
aggregate. In selecting brokers or dealers to execute a particular
transaction and in evaluating the best overall terms available, the Adviser
may consider the brokerage and research services (as those terms are defined
in Section 28(e) of the Securities Exchange Act of 1934) provided to the Fund
and/or other accounts over which the Adviser or an affiliate exercises
investment discretion.
4. Information Provided to the Fund
The Adviser will keep the Fund informed of developments materially
affecting the Fund, and will, on its own initiative, furnish the Fund from
time to time with whatever information the Adviser believes is appropriate for
this purpose.
5. Standard of Care
The Adviser shall exercise its best judgment in rendering the
services listed in paragraphs 2, 3 and 4 above. The Adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters to which this Agreement relates,
provided that nothing herein shall be deemed to protect or purport to protect
the Adviser against any liability to the Fund or to shareholders of the Fund
to which the Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence on its part in the performance of
its duties or by reason of the Adviser's reckless disregard of its obligations
and duties under this Agreement.
6. Compensation
In consideration of the services rendered pursuant to this
Agreement, the Fund will pay the Adviser an annual fee calculated at an annual
rate of .90% 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
<PAGE>3
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 directors 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 Directors of the
Fund; and any extraordinary expenses.
The Fund, will be responsible for nonrecurring expenses which may
arise, including costs of litigation to which the Fund is a party and of
indemnifying officers and Directors of the Fund with respect to such
litigation and other expenses as determined by the Directors.
8. 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
<PAGE>4
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
17th of each year, provided such continuance is specifically approved at least
annually by (a) the Board of Directors of the Fund or (b) a vote of a
"majority" (as defined in the Investment Company Act of 1940) of the Fund's
outstanding voting securities, provided that in either event the continuance
is also approved by a majority of the Board of Directors who are not
"interested persons" (as defined in said Act) of any party to this Agreement,
by vote cast in person at a meeting called for the purpose of voting on such
approval. This Agreement is terminable, without penalty, on 60 days'
written notice, by the Board of Directors of the Fund or by vote of holders
of a majority of the Fund's shares, or upon 90 days' written notice, by
the Adviser. This Agreement will also terminate automatically in the event
of its assignment (as defined in said Act).
<PAGE>5
11. Representation by the Fund
The Fund represents that a copy of its Articles of Incorporation,
dated November 10, 1987, together with all amendments thereto, is on file in
the office of the Secretary of State of the State of Maryland.
12. 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."
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 EMERGING GROWTH
FUND, INC.
By: /s/ Elizabeth B. Dater
President
Accepted:
WARBURG, PINCUS COUNSELLORS, INC.
By: /s/ Arnold M. Reichman
Authorized Officer
<PAGE>1
CONSENT OF COUNSEL
Counsellors Emerging Growth Fund, Inc.
We hereby consent to being named in the Statement of Additional
Information included in Post-Effective Amendment No. 11 (the "Amendment") to
the Registration Statement on Form N-1A (Securities Act File No. 33-18632,
Investment Company Act File No. 811-5396) of Counsellors Emerging Growth Fund,
Inc. (the "Fund") under the caption "Auditors and Counsel" and to the Fund's
filing a copy of this Consent as an exhibit to the Amendment.
Willkie Farr & Gallagher
September 20, 1995
New York, New York
<PAGE>1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Post-Effective Amendment No. 11 to the
Registration Statement under the Securities Act of 1933 on Form N-1A (File No.
33-18632) of our report dated December 12, 1994 on our audit of the financial
statements and financial highlights of Counsellors Emerging Growth Fund, Inc.
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>1
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-
18632) of Counsellors Emerging Growth Fund, Inc.
ERNST & YOUNG LLP
New York, New York
September 20, 1995
<PAGE>
Warburg Pincus Emerging Growth Fund
For the Period November 1, 1995 to April 30, 1995
Common Shares
Annualized Total Return With Waivers:
((10,746/10,000)[*OMITTED GRAPHIC-SEE FOOTNOTE BELOW] -1) = 15.62%
Annualized Total Return Without Waivers:
((10,746/10,000)[*OMITTED GRAPHIC-SEE FOOTNOTE BELOW] -1) = 15.62%
Series 2 Shares
Annualized Total Return With Waivers:
((10,717/10,000)[*OMITTED GRAPHIC-SEE FOOTNOTE BELOW] -1) = 14.98%
Annualized Total Return Without Waivers:
((10,717/10,000)[*OMITTED GRAPHIC-SEE FOOTNOTE BELOW] -1) = 14.98%
The Schedule for Calculation of Performance Quotations for the
periods ended 10/31/94 is incorporated herein by reference to Post-Effective
Amendment No. 10 to Registrant's Registration Statement.
- --------------------------
* - The graphic omitted above is the exponent 1/.49589
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