<PAGE>
As filed with the U.S. Securities and Exchange Commission
on June 30, 1995
Securities Act File No. 33-73498
Investment Company Act File No. 811-8252
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. 1 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 2 [x]
(Check appropriate box or boxes)
Warburg, Pincus Emerging Markets Fund, Inc.
(formerly Warburg, Pincus New Growth International 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 Markets Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
.........................................
(Name and Address of Agent for Service)
Copy to:
Rose F. DiMartino, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
Page 1 of Pages
Exhibit Index at Page
<PAGE>
It is proposed that this filing will become effective (check appropriate box):
[x] immediately upon filing pursuant to paragraph (b)
[ ] on March 1, 1995 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
_________________________________
DECLARATION PURSUANT TO RULE 24f-2
Registrant has registered an indefinite number or amount of securities under
the Securities Act of 1933 pursuant to Section (a)(1) of Rule 24f-2 under the
Investment Company Act of 1940, as amended (the "1940 Act").
<PAGE>1
WARBURG, PINCUS EMERGING MARKETS FUND, INC.
FORM N-1A
CROSS REFERENCE SHEET
Part A Common and Series 2 Shares
Item No. Prospectus Heading
-------- --------------------------
1. Cover Page . . . . . . . Cover Page
2. Synopsis . . . . . . . . The Fund's Expenses
3. Condensed Financial
Information . . . . . . Financial Highlights;
Performance
4. General Description of
Registrant . . . . . . . Cover Page; Investment
Objective and Policies;
Investment Guidelines;
General Information
5. Management of the Fund . Management of the Fund
6. Capital Stock and Other
Securities . . . . . . . General Information;
Shareholder Servicing
7. Purchase of Securities
Being Offered . . . . . How to Purchase Shares;
Management of the Fund;
Shareholder Servicing
8. Redemption or Repurchase How to Redeem and Exchange
Shares
9. Legal Proceedings . . . Not applicable
<PAGE>2
Part B Statement of Additional
Item No. Information Heading
-------- -----------------------
10. Cover Page . . . . . . . Cover Page
11. Table of Contents . . . Contents
12. General Information and
History . . . . . . . . Management of the Fund--
Organization of the Fund;
Notes to Financial Statements;
See Prospectuses--"General
Information"
13. Investment Objectives and
Policies . . . . . . . . Investment Objective;
Investment Policies
14. Management of the
Registrant . . . . . . . Management of the Fund; See
Prospectuses--"Management of
the Fund"
15. Control Persons and
Principal Holders of
Securities . . . . . . . Management of the Fund;
Miscellaneous; See
Prospectuses--"Management of
the Fund"
16. Investment Advisory and
Other Services . . . . . Management of the Fund; See
Prospectuses--"Management of
the Fund" and "Shareholder
Servicing"
17. Brokerage Allocation . . Investment Policies--Portfolio
Transactions
18. Capital Stock and Other
Securities . . . . . . . Management of the Fund--
Organization of the Fund and
Shareholder Servicing; See
Prospectuses--"General
Information"
19. Purchase, Redemption and
Pricing of Securities
Being Offered . . . . . Additional Purchase and
Redemption Information; See
Prospectuses--"How to Purchase
Shares," "How to Redeem and
<PAGE>3
Part B Statement of Additional
Item No. Information Heading
-------- -----------------------
Exchange Shares" and "Net
Asset Value"
20. Tax Status . . . . . . . Additional Information
Concerning Taxes; See
Prospectuses--"Dividends,
Distributions and Taxes"
21. Underwriters . . . . . . Management of the Fund; See
Prospectuses--"Management of
the Fund" and "Shareholder
Servicing"
22. Calculation of
Performance Data . . . . Determination of Performance
23. Financial Statements . . Report of Coopers & Lybrand
L.L.P., Independent Auditors;
Financial Statements
Part C
- ------
Information required to be included in Part C is set forth after the
appropriate item, so numbered, in Part C to this registration statement
amendment.
<PAGE>
[Logo]
PROSPECTUS
JUNE 30, 1995
[ ] WARBURG PINCUS EMERGING MARKETS 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
ANY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
Subject to Completion, dated June 30, 1995
WARBURG PINCUS FUNDS
P.O. BOX 9030
BOSTON, MASSACHUSETTS 02205-9030
TELEPHONE NUMBER: (800) 888-6878
June
30, 1995
PROSPECTUS
Warburg Pincus Funds are a family of open-end mutual funds that offer investors
a variety of investment opportunities, one of which is described in this
Prospectus:
WARBURG, PINCUS EMERGING MARKETS FUND (the 'Fund') seeks growth of capital. The
Fund will seek to achieve its investment objective by investing primarily in
equity securities of non-United States issuers consisting of companies in
emerging securities markets.
International investing entails special risk considerations, including currency
fluctuations, lower liquidity, economic instability, political uncertainty and
differences in accounting methods. See 'Risk Factors and Special
Considerations.'
NO LOAD CLASS OF COMMON SHARES
The Fund offers two classes of shares. A class of Common Shares that is 'no
load' is offered by this Prospectus (i) directly from the Fund's distributor,
Counsellors Securities Inc., and (ii) through various brokerage firms including
Charles Schwab & Company, Inc. Mutual Fund OneSourceTM Program and Fidelity
Brokerage Services, Inc. FundsNetworkTM Program. Common Shares of the Fund are
subject to a 12b-1 fee of .25% per annum.
LOW MINIMUM INVESTMENT
The minimum initial investment in the Fund is $2,500 ($500 for an IRA or Uniform
Gift to Minors Act account) and the minimum subsequent investment is $100.
Through the Automatic Monthly Investment Program, subsequent investment minimums
may be as low as $50. See 'How to Purchase Shares.'
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in a Statement of Additional Information, has been filed with
the Securities and Exchange Commission and is available to investors without
charge by calling Warburg Pincus Funds at (800) 257-5614. Information regarding
the status of shareholder accounts may be obtained by calling Warburg Pincus
Funds at (800) 888-6878. The 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
Series 2 Shares. Common Shares of the Fund pay the Fund's distributor a 12b-1
fee. See 'Management of the Funds -- Distributor.' For a description of Series 2
Shares see 'Shareholder Servicing.'
<TABLE>
<CAPTION>
Shareholder Transaction Expenses
<S> <C>
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....................................................................................... 0
12b-1 Fees............................................................................................ .25%
Other Expenses........................................................................................ .75%
----
Total Fund Operating Expenses......................................................................... 1.00%
</TABLE>
<TABLE>
<S> <C>
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..................................................................................................... $10
3 years.................................................................................................... $32
</TABLE>
------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a Common Shareholder of the Fund. 'Other Expenses' are
based upon estimated amounts to be charged in the current fiscal year. Certain
broker-dealers and financial institutions also may charge their clients fees in
connection with investments in the Fund's Common Shares, which fees are not
reflected in the table. Absent the voluntary waiver of a portion of the fees
payable to Warburg, Pincus Counsellors, Inc., the Fund's investment adviser
('Counsellors'), Management Fees would have equalled 1.25%, Other Expenses would
have equalled 20.63% and Total Fund Operating Expenses would have equalled
22.13%. 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 Common Shareholders 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 A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following information regarding the Fund for the fiscal period ending
April 30, 1995 is unaudited. Further information about the performance of the
Fund is contained in the semiannual report, dated April 30, 1995, copies of
which may be obtained without charge by calling Warburg Pincus Funds at (800)
257-5614.
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 30, 1994
(INCEPTION) THROUGH
APRIL 30, 1995
-------------------
<S> <C>
Net Asset Value, Beginning of Period......................................................... $ 10.00
Income from Investment Operations
Net Investment Income................................................................... .09
Net Gains (Losses) from Securities and Foreign Currency Related Items (both realized and
unrealized)............................................................................ .49
-------
Total from Investment Operations........................................................ .58
-------
Less Distributions
Dividends (from net investment income).................................................. .00
Distributions (from capital gains)...................................................... .00
-------
Total Distributions..................................................................... .00
-------
Net Asset Value, End of Period............................................................... $ 10.58
-------
-------
Total Return................................................................................. 18.37%*
Ratios/Supplemental Data
Net Assets, End of Period (000s)............................................................. $1,742
Ratios to average daily net assets:
Operating expenses...................................................................... 1.00%*
Net investment income................................................................... 4.37%*
Decrease reflected in above expense ratios due to waivers/reimbursements................ 21.13%*
Portfolio Turnover Rate...................................................................... 15.10%*
</TABLE>
- ------------
* Annualized.
The Total Return shown above has been annualized; the actual Total Return for
the four-month period from December 30, 1994 (inception) through April 30,
1995 was 5.80% (1.50% without the waiver of certain expenses).
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is growth of capital. The Fund is a
non-diversified management investment company that pursues its investment
objective by investing primarily in equity securities of non-United States
issuers consisting of companies in emerging securities markets. The Fund's
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. An investment in the Fund may involve a
greater degree of risk than investment in other mutual funds that seek capital
appreciation by investing in larger, more developed markets. See 'Certain
Investment Strategies' for descriptions of certain types of investments the Fund
may make.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in equity securities of issuers in Emerging Markets (as defined
below), and the Fund intends to acquire securities of many issuers located in a
number of foreign countries. The Fund will not necessarily seek to diversify
investments on a geographical basis or on the basis of the level of economic
development of any particular country. However, the Fund will at all times,
except during defensive periods, maintain investments in at least three
countries outside the United States. An equity security of an issuer in an
Emerging Market is defined as common stock and preferred stock (including
convertible preferred stock); bonds, notes and debentures convertible into
common or preferred stock; stock purchase warrants and rights; equity interests
in trusts and partnerships; and depositary receipts of an issuer: (i) the
principal securities trading market for which is in an Emerging Market; (ii)
which derives at least 50% of its revenues or earnings, either alone or on a
consolidated basis, from goods produced or sold, investments made or services
performed in an Emerging Market, or which has at least 50% of its total or net
assets situated in one or more Emerging Markets; or (iii) that is organized
under the laws of, and with a principal office in, an Emerging Market.
Determinations as to whether an issuer is an Emerging Markets issuer will be
made by the Fund's investment adviser based on publicly available information
and inquiries made to the issuers.
As used in this Prospectus, an Emerging Market is any country (i) which is
generally considered to be an emerging or developing country by the World Bank
and the International Finance Corporation (the 'IFC') or by the United Nations
Development Programme or (ii) which is included in the IFC Investable Index or
the Morgan Stanley Capital International Emerging Markets Index or (iii) which
has a gross national product ('GNP') per capita of $2,000 or less, in each case
at the time of the Fund's investment. Among the countries which Counsellors
currently considers to be Emerging Markets are the following: Algeria, Angola,
Antigua, Argentina, Armenia, Azerbaijan, Bangladesh, Barbuda, Barbados, Belarus,
Belize, Bhutan, Bolivia, Botswana, Brazil, Bulgaria, Cambodia, Chile, People's
Republic of China, Republic of China (Taiwan), Colombia, Cyprus, Czech Republic,
Dominica, Ecuador, Egypt, Estonia, Georgia, Ghana, Greece, Grenada, Guyana, Hong
Kong, Hungary, India, Indonesia, Ivory Coast, Jamaica, Jordan, Kazakhstan,
Kenya, Republic of Korea (South Korea), Latvia, Lebanon, Lithuania, Malawi,
Malaysia, Mauritius, Mexico, Moldova, Mongolia, Montserrat, Morocco, Mozambique,
Myanmar (Burma), Namibia, Nepal, Nigeria, Pakistan, Panama, Papua New Guinea,
Paraguay, Peru, Philippines, Poland, Portugal, Romania, Russia, Saudi Arabia,
Singapore, Slovakia, Slovenia, South Africa, Sri Lanka, St. Kitts and Nevis, St.
Lucia, St. Vincent and the Grenadines, Swaziland, Tanzania, Thailand, Trinidad
and Tobago, Tunisia, Turkey, Turkmenistan, Uganda, Ukraine, Uruguay, Uzbekistan,
Venezuela, Viet-
4
<PAGE>
nam, Yugoslavia, Zambia and Zimbabwe. Among the countries that will not be
considered Emerging Markets are: Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Ireland, Italy, Japan, Luxembourg, Netherlands, New
Zealand, Norway, Spain, Sweden, Switzerland, United Kingdom and the United
States.
The Fund may invest in securities of companies of any size, whether traded
on or off a national securities exchange. Fund holdings may include emerging
growth companies, which are small- or medium-sized companies that have passed
their start-up phase and that show positive earnings and prospects for achieving
profit and gain in a relatively short period of time.
In appropriate circumstances, such as when a direct investment by the Fund
in the securities of a particular country cannot be made or when the securities
of an investment company are more liquid than the underlying portfolio
securities, the Fund may, consistent with the provisions of the Investment
Company Act of 1940, as amended (the '1940 Act'), invest in the securities of
closed-end investment companies that invest in foreign securities.
When Counsellors believes that a defensive posture is warranted, the Fund
may invest temporarily without limit in investment grade debt obligations, in
securities of U.S. companies and in domestic and foreign money market
obligations, including repurchase agreements as discussed below.
PORTFOLIO INVESTMENTS
DEBT. The Fund may invest up to 35% of its total assets in debt securities
(other than money market instruments) for the purpose of seeking growth of
capital. The types of debt securities in which the Fund may invest include
obligations of U.S. and foreign corporate and governmental issuers. Counsellors
may consider the interest income to be derived as one factor in selecting debt
securities for investment. 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 growth of capital 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.
Among the types of debt securities in which the Fund may invest are Brady
Bonds, loan participations and assignments, asset-backed securities,
mortgage-backed securities and zero coupon securities that are not convertible
into common or preferred stock:
Brady Bonds are collateralized or uncollateralized securities created
through the exchange of existing commercial bank loans to public and private
Latin American entities for new bonds in connection with certain debt
restructurings. Brady Bonds have been issued only recently and therefore do not
have a long payment history. However, in light of the history of commercial bank
loan defaults by Latin American public and private entities, investments in
Brady Bonds may be viewed as speculative.
Loan Participations and Assignments of fixed and floating rate loans
arranged through private negotiations between a foreign government as borrower
and one or more financial institutions as lenders will typically result in the
Fund having a contractual relationship only with the lender, in the case of a
participation, or the borrower, in the case of an assignment. The Fund may not
directly benefit from any collateral supporting a participation, and in the
event of the insolvency of a lender will be treated as a general creditor of the
lender. As a result, the Fund assumes the risk of both the borrower and the
lender of a participation. The Fund's rights
5
<PAGE>
and obligations as the purchaser of an assignment may differ from, and be more
limited than, those held by the assigning lender. The lack of a liquid secondary
market for both participations and assignments will have an adverse impact on
the value of such securities and on the Fund's ability to dispose of
participations or assignments.
Asset-backed securities are collateralized by interests in pools of
consumer loans, with interest and principal payments ultimately depending on
payments in respect of the underlying loans by individuals (or a financial
institution providing credit enhancement). Because market experience in these
securities is limited, the market's ability to sustain liquidity through all
phases of the market cycle has not been tested. In addition, there is no
assurance that the security interest in the collateral can be realized. The Fund
may purchase asset-backed securities that are unrated.
Mortgage-backed securities are collateralized by mortgages or interests in
mortgages and may be issued by government or non-government entities.
Non-government issued mortgage-backed securities may offer higher yields than
those issued by government entities, but may be subject to greater price
fluctuations. The value of mortgage-backed securities may change due to market
shifts in the perceptions of issuers, and regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Prepayment, which
occurs when unscheduled or early payments are made on the underlying mortgages,
may shorten the effective maturities of these securities and may lower their
returns.
The Fund may invest or hold up to 35% of its net assets in fixed-income
securities (including convertible bonds) rated below investment grade (commonly
referred to as 'junk bonds'), and as low as C by Moody's Investors Service, Inc.
('Moody's') or D by Standard & Poor's Ratings Group ('S&P'), or in unrated
securities considered to be of equivalent quality. Securities that are rated C
by Moody's are the lowest rated class and can be regarded as having extremely
poor prospects of ever attaining any real investment standing. Debt rated D by
S&P is in default or is expected to default upon maturity or payment date.
MONEY MARKET OBLIGATIONS. The Fund is authorized to invest, under normal market
conditions, up to 20% of its total assets in short-term money market obligations
(i.e., securities having remaining maturities of less than one year) 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 instrumentalties ('U.S. government
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; commercial paper
rated no lower than A-2 by S&P or Prime-2 by Moody's or the equivalent from
another major rating service or, if unrated, of an issuer having an outstanding,
unsecured debt issue then rated within the three highest rating categories; and
repurchase agreements with respect to the foregoing.
Repurchase Agreements. The Fund may invest in repurchase agreement
transactions 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
6
<PAGE>
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 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 with respect to assets so invested.
U.S. GOVERNMENT SECURITIES. U.S. government securities in which the Fund may
invest include: direct obligations of the U.S. Treasury and obligations issued
by U.S. government agencies and instrumentalities, including instruments that
are supported by the full faith and credit of the United States, instruments
that are supported by the right of the issuer to borrow from the U.S. Treasury
and instruments that are supported by the credit of the instrumentality.
CONVERTIBLE SECURITIES. Convertible securities in which the Fund may invest,
including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than nonconvertible 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.
ZERO COUPON SECURITIES. Zero coupon securities pay no cash income to their
holders until they mature and are issued at substantial discounts from their
value at maturity. When held to maturity, their entire return comes from the
difference between their purchase price and their maturity value. Because
interest on zero coupon securities is not paid on a current basis, the values of
securities of this type are subject to greater fluctuations than are the values
of securities that distribute income regularly and may be more speculative than
such other securities. Accordingly, the values of these securities may be highly
volatile as interest rates rise or fall. Redemption of shares of the Fund that
require it to sell zero coupon securities prior to maturity may result in
capital gains or losses that may be substantial. In addition, the Fund's
investments in zero coupon securities will result in special tax consequences,
which are described below under 'Dividends, Distributions and Taxes -- Taxes'.
RISK FACTORS AND SPECIAL
CONSIDERATIONS
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, the possible imposition of currency
7
<PAGE>
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 regulatory practices
and requirements that are often less rigorous than those applied in the United
States. Moreover, securities of many foreign companies may be less liquid and
their prices more volatile than those of securities of comparable U.S.
companies. Certain foreign countries are known to experience long delays between
the trade and settlement dates of securities purchased or sold. In addition,
with respect to certain foreign countries, there is the possibility of
expropriation, nationalization, confiscatory taxation and limitations on the use
or removal of funds or other assets of the Fund, including the withholding of
dividends. The Fund could be adversely affected by delays in, or a refusal to
grant, any required governmental approval for repatriation of capital, as well
as by the application to the Fund of any restrictions on investments. 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 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, and the expense of maintaining securities with foreign custodians.
The risks associated with investing in securities of non-U.S. issuers are
generally heightened for investments in securities of issuers in Emerging
Markets.
Investing in securities of issuers located in Emerging Markets involves not
only the risks described above with respect to investing in foreign securities,
but also other risks, including exposure to economic structures that are
generally less diverse and mature than, and to political systems that can be
expected to have less stability than, those of developed countries. Other
characteristics of Emerging Markets that may affect investment in their markets
include certain national policies that may restrict investment by foreigners in
issuers or industries deemed sensitive to relevant national interests and the
absence of developed legal structures governing private and foreign investments
and private property. The typically small size of the markets for securities of
issuers located in Emerging Markets and the possibility of a low or nonexistent
volume of trading in those securities may also result in a lack of liquidity and
in price volatility of those securities.
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 a
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. The Fund may invest up to 10% of its assets in
securities of companies in 'special situations,' which include, but are not
limited to, companies involved in an acquisition or consolidation;
reorganization; recapitalization; merger, liquidation or distribution of cash,
securities or other assets;
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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 exclusively in better-known, larger companies. For certain additional
risks relating to the Fund's investments, see 'Portfolio Investments' beginning
at page 5 and 'Certain Investment Strategies' beginning at page 10.
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 securities of a single
issuer. The Fund will, however, comply with diversification requirements imposed
by the Internal Revenue Code of 1986, as amended (the 'Code'), for qualification
as a regulated investment company. As a non-diversified investment company, 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.
Lower-rated and comparable unrated securities (commonly referred to as
'junk bonds') (i) will likely have some quality and protective characteristics
that, in the judgment of the rating organization, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (ii) are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. The market
values of certain of these securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-quality bonds. In addition, medium- and lower-rated securities and
comparable unrated securities generally present a higher degree of credit risk.
The risk of loss due to default by such issuers is significantly greater because
medium- and lower-rated securities and unrated securities generally are
unsecured and frequently are subordinated to the prior payment of senior
indebtedness. The market value of securities in lower rating categories is more
volatile than that of higher quality securities. In addition, the Fund may have
difficulty disposing of certain of these securities because there may be a thin
trading market. The lack of a liquid secondary market for certain securities may
have an adverse impact on the Fund's ability to dispose of particular issues and
may make it more difficult for the Fund to obtain accurate market quotations for
purposes of valuing the Fund and calculating its net asset value.
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. As a result of
the Fund's investment policies, the Fund may engage in a substantial number of
portfolio transactions, and the Fund will not consider portfolio turnover rate a
limiting factor in making investment decisions consistent with its investment
objective and policies. While it is not possible to predict the Fund's portfolio
turnover rate, it is anticipated that the Fund's annual turnover rate should not
exceed 150%. 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,
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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.
Transactions for the Fund may be effected on foreign securities exchanges.
In transactions for securities not actively traded on a foreign securities
exchange, the Fund will deal directly with the dealers who make a market in the
securities involved, except in those circumstances where better prices and
execution are available elsewhere. Such dealers usually are acting as principal
for their own account. On occasion, securities may be purchased directly from
the issuer. Such portfolio securities are generally traded on a net basis and do
not normally involve brokerage commissions. Securities firms may receive
brokerage commissions on certain portfolio transactions, including options,
futures and options on futures transactions and the purchase and sale of
underlying securities upon exercise of options.
CERTAIN INVESTMENT STRATEGIES
In attempting to achieve its investment objective, the Fund may engage in
currency exchange transactions. The Fund may invest up to 5% of its net assets
in stand-by commitments. 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.
The Fund may engage in options or futures transactions 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 strategies and
their related risks is contained below and in the Fund's Statement of Additional
Information.
SHORT SALES AGAINST THE BOX. The Fund may make short sales of its portfolio
holdings if, at all times when a short position is open, the Fund owns the
security sold short or owns debt securities convertible or exchangeable, without
payment of further consideration, into the security sold short. Short sales of
this kind are referred to as short sales 'against the box.' The broker-dealer
that executes a short sale generally invests cash proceeds of the sale until
they are paid to the Fund. Arrangements may be made with the broker-dealer to
obtain a portion of the interest earned by the broker on the investment of short
sale proceeds. The Fund will segregate the security sold short or convertible or
exchangeable debt securities in a special account with its custodian. Not more
than 10% of the Fund's net assets (taken at current value) may be held as
collateral for such sales at any one time. The extent to which the Fund may make
short sales may be limited by the Code.
PURCHASING PUT AND CALL OPTIONS ON SECURITIES. The Fund may utilize up to 10% of
its total assets to purchase put and call options on stocks and debt securities
that are traded on foreign as well as U.S. exchanges, as well as options that
trade over-the-counter ('OTC'), in each case to the extent permitted by the
policies of state securities authorities in states where shares of the Fund are
qualified for offer and sale.
By buying a put, the Fund limits its risk of loss from a decline in the
market value of the
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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 put or call options to increase its return
to investors at a time when the call is expected to increase in value due to
anticipated appreciation (in the case of a call) or depreciation (in the case of
a put) 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.
There are several risks relating to options. The ability to establish and
close out positions on such options will be subject to the existence of a liquid
market. There is no assurance that a liquid secondary market for options will
always exist, particularly with respect to OTC options. 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, which could
prove to be incorrect. Even if Counsellors' expectations are correct, where
options 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. Therefore, an investment in the Fund may involve a greater risk than an
investment in other mutual funds that seek capital appreciation.
STOCK INDEX OPTIONS. In addition to purchasing options on securities, the Fund
may utilize up to 10% of its total assets to purchase exchange-listed and OTC
put and call options on stock indexes, and may write options on such indexes. A
stock index measures the movement of a certain group of stocks by assigning
relative values to the common stocks included in the index. Options on stock
indexes are similar to options on stock except that (i) the expiration cycles of
stock index options are monthly, while those of stock options are currently
quarterly, and (ii) the delivery requirements are different. Instead of giving
the right to take or make delivery of stock at a specified price, an option on a
stock index gives the holder the right to receive a cash 'exercise settlement
amount' equal to (a) the amount, if any, by which the fixed exercise price of
the option exceeds (in the case of a put) or is less than (in the case of a
call) the closing value of the underlying index on the date of exercise
multiplied by (b) a fixed 'index multiplier.' The discussion of options on
securities above, and the related risks, is applicable to options on stock
indexes.
FUTURES CONTRACTS AND OPTIONS. The Fund may enter into foreign currency,
interest rate and stock index futures contracts and purchase and write (sell)
related options that are traded on an exchange designated by the Commodity
Futures Trading Commission (the 'CFTC') or 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.
A foreign currency futures contract provides for the future sale by one
party and the purchase by the other party of a certain amount of a specified
foreign currency at a specified price, date, time and place. 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
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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 currency, interest rate or
stock index underlying the particular futures contract or related option. These
predictions and, thus, the use of future 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 currencies, 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 foreign currencies, interest rates or stock
indexes. Losses incurred in futures transactions and the costs of these
transactions will affect the Fund's performance.
A further risk involves the lack of a liquid secondary market for a futures
contract and the resulting inability to close out a futures contract. Futures
and options contracts may only be closed out by entering into offsetting
transactions on the exchange where the position was entered into (or a linked
exchange), and as a result of daily price fluctuation limits there can be no
assurance that an offsetting transaction could be entered into at an
advantageous price at any particular time. Consequently, the Fund may realize a
loss on a futures contract or option that is not offset by an increase in the
value of the Fund's securities that are being hedged or the Fund may not be able
to close a futures or options position without incurring a loss in the event of
adverse price movements.
CURRENCY EXCHANGE TRANSACTIONS. The Fund may engage in currency exchange
transactions to protect against uncertainty in the level of future exchange
rates and to increase the Fund's income and total return. The Fund will conduct
its currency exchange transactions (i) on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, (ii) through entering into forward
contracts to purchase or sell currency, (iii) by purchasing currency options or
(iv) as described above, through entering into foreign currency futures
contracts or options on such contracts.
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Forward Currency Contracts. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These contracts are entered
into in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. The use of forward
currency contracts as a hedge does not eliminate fluctuations in the underlying
prices of the securities, but it does establish a rate of exchange that can be
achieved in the future. In addition, although forward currency contracts limit
the risk of loss due to a decline in the value of a hedged currency, at the same
time, they also limit any potential gain that might result should the value of
the currency increase.
Currency Options. The Fund may purchase exchange-traded put and call
options on currencies. An option on a foreign currency gives the purchaser, in
return for a premium, the right to sell, in the case of a put, and buy, in the
case of a call, the underlying currency at a specified price during the term of
the option. The benefit to the Fund derived from purchases of foreign currency
options, like the benefit derived from other types of options, will be reduced
by the amount of the premium and related transaction costs. In addition, if
currency exchange rates do not move in the direction or to the extent
anticipated, the Fund could sustain losses on transactions in foreign currency
options that would require it to forgo a portion or all of the benefits of
advantageous changes in the rates.
ASSET COVERAGE FOR FORWARD CONTRACTS, OPTIONS, FUTURES AND OPTIONS ON FUTURES.
The Fund will comply with guidelines established by the Securities and Exchange
Commission designed to eliminate any potential for leverage with respect to
currency forward contracts; options written by the Fund on indexes; currency,
interest rate and index futures contracts and options on these futures
contracts. The use of these strategies may require that the Fund maintain cash
or certain liquid high-grade debt securities 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.
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 15% 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 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.
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Non-publicly traded securities (including Rule 144A Securities) may be less
liquid than publicly traded securities. Although these securities may be resold
in privately negotiated transactions, the prices realized from these sales could
be less than those originally paid by the Fund. In addition, companies whose
securities are not publicly traded are not subject to the disclosure and other
investor protection requirements that would be applicable if their securities
were publicly traded. The Fund's investment in illiquid securities is subject to
the risk that should the 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.
REVERSE REPURCHASE AGREEMENTS. The Fund may also enter into reverse repurchase
agreements with the same parties with whom it may enter into repurchase
agreements. Reverse repurchase agreements involve the sale of securities held by
the Fund pursuant to its agreement to repurchase them at a mutually agreed upon
date, price and rate of interest. At the time the Fund enters into a reverse
repurchase agreement, it will establish and maintain a segregated account with
an approved custodian containing cash or liquid high-grade debt securities
having a value not less than the repurchase price (including accrued interest).
The assets contained in the segregated account will be marked-to-market daily
and additional assets will be placed in such account on any day in which the
assets fall below the repurchase price (plus accrued interest). The Fund's
liquidity and ability to manage its assets might be affected when it sets aside
cash or portfolio securities to cover such commitments. Reverse repurchase
agreements involve the risk that the market value of the securities retained in
lieu of sale may decline below the price of the securities the Fund has sold but
is obligated to repurchase. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, such buyer or
its trustee or receiver may receive an extension of time to determine whether to
enforce the Fund's obligation to repurchase the securities, and the Fund's use
of the proceeds of the reverse repurchase agreement may effectively be
restricted pending such decision. Reverse repurchase agreements are considered
to be borrowings under the 1940 Act.
DOLLAR ROLL TRANSACTIONS. The Fund also may enter into 'dollar rolls,' in which
the Fund sells fixed income securities for delivery in the current month and
simultaneously contracts to repurchase similar but not identical (same type,
coupon and maturity) securities on a specified future date. During the roll
period, the Fund would forgo principal and interest paid on such securities. The
Fund would be compensated by the difference between the current sales price and
the forward price for the future purchase, as well as by the interest earned on
the cash proceeds of the initial sale. At the time that the Fund enters into a
dollar roll transaction, it will place in a segregated account maintained with
an approved custodian cash or other liquid high-grade debt obligations having a
value not less than the repurchase price (including accrued interest) and will
subsequently monitor the account to ensure that its value is maintained. For
financial reporting and tax purposes, the Fund proposes to treat dollar rolls as
two separate transactions: one involving the sale of a security and a separate
transaction involving the purchase of a security. The Fund does not currently
intend to enter into dollar rolls that are accounted for as a financing.
INVESTMENT GUIDELINES
The Fund may invest up to 15% of its net assets in securities with
contractual or other restrictions on resale and other investments that are not
readily marketable (other than Rule 144A Securities determined by the Board to
be liquid) including repurchase agreements with maturities greater than seven
days and time
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deposits maturing in more than seven calendar days. The Fund may invest up to 5%
of its total assets in the securities of issuers that have been in continuous
operation for less than three years. In addition, up to 5% of the Fund's net
assets may be invested in warrants. The Fund may borrow from banks and enter
into reverse repurchase agreements for temporary or emergency purposes, such as
meeting anticipated redemption requests, provided that reverse repurchase
agreements and any other borrowing by the Fund may not exceed 30% of the Fund's
total assets. The Fund may pledge its assets in connection with borrowings.
Whenever borrowings (including reverse repurchase agreements) exceed 5% of the
value of the Fund's total assets, the Fund will not make any investments
(including roll-overs). Except for the limitations on borrowing, the investment
guidelines set forth in this paragraph may be changed at any time without
shareholder consent by vote of the Board, subject to the limitations contained
in the 1940 Act. A complete list of investment restrictions that the Fund has
adopted identifying additional restrictions that cannot be changed without the
approval of the majority of the Fund's outstanding shares is contained in the
Statement of Additional Information.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER. The Fund employs Counsellors as investment adviser to the
Fund. Counsellors, subject to the control of the Fund's officers and the Board,
manages the investment and reinvestment of the assets of the Fund in accordance
with its investment objective and stated investment policies. Counsellors makes
investment decisions for the Fund and places orders to purchase or sell
securities on behalf of the Fund. Counsellors also employs a support staff of
management personnel to provide services to the Fund and furnishes the Fund with
office space, furnishings and equipment.
For the services provided by Counsellors, the Fund will pay a fee
calculated at an annual rate of 1.25% 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 May 31, 1995,
Counsellors managed approximately $10.5 billion of assets, including
approximately $4.9 billion of assets of nineteen 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. Richard H. King, president of the Fund, and Nicholas P.W.
Horsley are the co-portfolio managers of the Fund. Mr. King is also president of
Warburg, Pincus International Equity Fund and Warburg, Pincus Japan OTC Fund and
has been a managing director of EMW since 1989. From 1984 until 1988 he was
chief investment officer and a director at Fiduciary
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Trust Company International S.A. in London, with responsibility for all
international equity management and investment strategy. From 1982 to 1984 he
was a director in charge of Far East equity investment at N.M. Rothschild
International Asset Management, a London merchant bank. Mr. Horsley is a senior
vice president of Counsellors and has been with Counsellors since 1993, before
which time he was a director, portfolio manager and analyst at Barclays deZoete
Wedd in New York City.
Harold W. Ehrlich is an associate portfolio manager and research analyst of
the Fund and has been with Counsellors since February, 1995. Prior to joining
Counsellors, Mr. Ehrlich was a senior vice president, portfolio manager and
analyst at Templeton Investment Counsel Inc. Vincent McBride is also an
associate portfolio manager and research analyst for the Fund and has been with
Counsellors since 1994. Prior to joining Counsellors, Mr. McBride was an
international equity analyst at Smith Barney Inc. from 1993 to 1994 and at
General Electric Investment Corporation from 1992 to 1993. From 1989 to 1992 he
was a portfolio manager/analyst at United Jersey Bank.
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 Board, preparing proxy statements and
annual, semiannual and quarterly reports, assisting in the preparation of tax
returns and monitoring and developing compliance procedures for the Fund. As
compensation, the Fund pays Counsellors Service a fee calculated at an annual
rate of .10% of the Fund's average daily net assets.
Counsellors may, at its own expense, provide promotional incentives to
qualified recipients who support the sale of shares of the Fund. Qualified
recipients are securities dealers who have sold Fund shares or others, including
banks and other financial institutions, under special arrangements. In some
instances, these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Fund shares.
The Fund employs PFPC Inc. ('PFPC'), an indirect, wholly owned subsidiary
of PNC Bank Corp., as a co-administrator. As a co-administrator, PFPC calculates
the Fund's net asset value, provides all accounting services for the Fund and
assists in related aspects of the Fund's operations. As compensation, the Fund
pays to PFPC a fee calculated at a maximum annual rate of .12% of the Fund's
first $250 million in average daily net assets, .10% of the next $250 million in
average daily net assets, .08% of the next $250 million in average daily net
assets and .05% of average daily net assets over $750 million with a minimum
annual fee of $75,000, exclusive of out-of-pocket expenses. PFPC has its
principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.
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. Counsellors
Securities receives a fee at an annual rate equal to .25% of the average daily
net assets of the Fund's Common Shares for distribution services, pursuant to a
shareholder servicing and distribution plan (the '12b-1 Plan') adopted by the
Fund pursuant to Rule 12b-1 under the 1940 Act. Amounts paid to Counsellors
Securities under the 12b-1 Plan may be used by Counsellors Securities to cover
expenses related to (i) ongoing servicing and/or maintenance of the
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accounts of shareholders of Common Shares, (ii) the sale of the Common Shares
and (iii) sub-transfer agency services, subaccounting services or administrative
services related to the sale of the Common Shares, all as set forth in the 12b-1
Plan. Payments under the 12b-1 Plan are not tied exclusively to the distribution
expenses actually incurred by Counsellors Securities and the payments may exceed
distribution expenses actually incurred. The Board will evaluate the
appropriateness of the 12b-1 Plan on a continuing basis and in doing so will
consider all relevant factors, including expenses borne by Counsellors
Securities and amounts received under the 12b-1 Plan.
TRANSFER AGENT AND CUSTODIAN. State Street Bank and Trust Company ('State
Street') acts as shareholder servicing agent, transfer agent and dividend
disbursing agent for the Fund and serves as custodian for the Fund's assets. 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.
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 of the Fund.
HOW TO OPEN AN ACCOUNT
In order to invest in the Fund, an investor must first complete and sign an
account application. To obtain an application, an investor may telephone Warburg
Pincus Funds at (800) 257-5614. An investor may also obtain an account
application by writing to:
Warburg Pincus Funds
P.O. Box 9030
Boston, Massachusetts 02205-9030
Completed and signed account applications should be mailed to Warburg Pincus
Funds at the above address.
RETIREMENT PLANS AND UGMA ACCOUNTS. For information about investing in the Fund
through a tax-deferred retirement plan, such as an Individual Retirement Account
('IRA') or a Simplified Employee Pension IRA ('SEP-IRA'), or about opening a
Uniform Gifts to Minors Act or Uniform Transfer to Minors Act ('UGMA') account,
an investor should telephone Warburg Pincus Funds at (800) 888-6878 or write to
Warburg Pincus Funds at the address set forth above. Investors should consult
their own tax advisers about the establishment of retirement plans and UGMA
accounts.
CHANGES TO ACCOUNT. For information on how to make changes to an account, an
investor should telephone Warburg Pincus Funds at (800) 888-6878.
HOW TO PURCHASE SHARES
Common Shares of the Fund may be purchased by mail or, with special advance
instructions, by wire.
BY MAIL. If the investor desires to purchase Common Shares by mail, a check or
money order made payable to the Fund or Warburg Pincus Funds (in U.S. currency)
should be sent along with the completed account application to Warburg Pincus
Funds through its distributor, Counsellors Securities Inc., at the address set
forth above. Checks payable to the investor and endorsed to the order of the
Fund or Warburg Pincus Funds will not be accepted as payment and will be
returned to sender. If payment is received by check in proper form on or before
4:00 p.m. (Eastern time) on a day that the Fund calculates its net asset value
(a 'business day'), the purchase will be made at the Fund's net asset
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value calculated at the end of that day. If payment is received after 4:00 p.m.,
the purchase will be effected at the Fund's net asset value determined for the
next business day after payment has been received. Checks or money orders that
are not in proper form or that are not accompanied or preceded by a complete
application will be returned to the sender. Shares purchased by check or money
order are entitled to receive dividends and distributions beginning on the day
after payment has been received. Checks or money orders in payment for shares of
more than one Warburg Pincus Fund should be made payable to Warburg Pincus Funds
and should be accompanied by a breakdown of amounts to be invested in each fund.
If a check used for purchase does not clear, the Fund will cancel the purchase
and the investor may be liable for losses or fees incurred. For a description of
the manner of calculating the Fund's net asset value, see 'Net Asset Value'
below.
BY WIRE. Investors may also purchase Common Shares in the Fund by wiring funds
from their banks. Telephone orders will not be accepted until a completed
account application in proper form has been received and an account number has
been established. Investors should place an order with the Fund prior to wiring
funds by telephoning (800) 888-6878. Federal funds may be wired to Counsellors
Securities Inc. using the following wire address:
State Street Bank and Trust Co.
225 Franklin St.
Boston, MA 02101
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
Warburg Pincus Emerging Markets Fund
DDA# 9904-649-2
[Shareowner name]
[Shareowner account number]
If a telephone order is received by the close of regular trading on the New
York Stock Exchange ('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 to the prospective investor after prompt inquiry. If a
telephone order is placed and payment by wire is not received on the same day,
the Fund will cancel the purchase and the investor may be liable for losses or
fees incurred.
The minimum initial investment in the Fund is $2,500 and the minimum
subsequent investment is $100, except that subsequent minimum investments can be
as low as $50 under the Automatic Monthly Investment Program described in the
next section. For a tax-deferred retirement plan, such as an IRA or an UGMA
account, the minimum initial and subsequent investment is $500. The Fund
reserves the right to change the initial and subsequent investment minimum
requirements at any time. In addition, the Fund may, in its sole discretion,
waive the initial investment minimum requirements with respect to investors who
are employees of EMW or its affiliates or persons with whom Counsellors has
entered into investment advisory agreements. Existing investors will be given 15
days' notice by mail of any increase in subsequent investment minimum
requirements.
After an investor has made his initial investment, additional shares may be
purchased at any time by mail or by wire in the manner outlined above. Wire
payments for initial and subsequent investments should be preceded by an order
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placed with the Fund 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 accounts with the organization. These organizations will be responsible for
promptly transmitting client or customer purchase and redemption orders to the
Fund in accordance with their agreements with clients or customers.
Common Shares of the Fund are available through the Charles Schwab &
Company, Inc. Mutual Fund OneSourceTM Program and the Fidelity Brokerage
Services, Inc. FundsNetworkTM Program. In addition, the Common Shares of the
Fund are also available through the brokerage firms Waterhouse Securities, Inc.
and Jack White & Company, Inc. Generally, these programs do not require
customers to pay a transaction fee in connection with purchases. These and other
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.
AUTOMATIC MONTHLY INVESTING. Automatic monthly investing allows shareholders to
authorize the Fund to debit their bank account monthly ($50 minimum) for the
purchase of Fund shares on or about either the tenth or twentieth calendar day
of each month. To establish the automatic monthly investing option, obtain a
separate application or complete the 'Automatic Investment Program' section of
the account applications and include a voided, unsigned check from the bank
account to be debited. Only an account maintained at a domestic financial
institution which is an automated clearing house member may be used.
Shareholders using this service must satisfy the initial investment minimum for
the Fund prior to or concurrent with the start of any Automatic Investment
Program. Please refer to an account application for further information or
contact Warburg Pincus Funds at (800) 888-6878 for information or to modify or
terminate the program. Investors should allow a period of up to 30 days in order
to implement an automatic investment program. The failure to provide complete
information could result in further delays.
HOW TO REDEEM AND EXCHANGE
SHARES
REDEMPTION OF SHARES. An investor in the Fund may redeem (sell) his shares on
any day that the Fund's net asset value is calculated (see 'Net Asset Value'
below).
Common Shares of the Fund may either be redeemed by mail or by telephone.
Investors should realize that in using the telephone redemption and exchange
option, you may be giving up a measure of security that you may have if you were
to redeem or exchange your shares in writing. If an investor desires to redeem
his shares by mail, a written request for redemption should be sent to Warburg
Pincus Funds at
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the address indicated above under 'How to Open an Account.' An investor should
be sure that the redemption request identifies the Fund, the number of shares to
be redeemed and the investor's account number. In order to change the bank
account or address designated to receive the redemption proceeds, the investor
must send a written request (with signature guarantee of all investors listed on
the account when such a change is made in conjunction with a redemption request)
to Warburg Pincus Funds. Each mail redemption request must be signed by the
registered owner(s) (or his legal representative(s)) exactly as the shares are
registered. If an investor has applied for the telephone redemption feature on
his account application, he may redeem his shares by calling Warburg Pincus
Funds at (800) 888-6878 between 9:00 a.m. and 4:00 p.m. (Eastern time) on any
business day. An investor making a telephone withdrawal should state (i) the
name of the Fund, (ii) the account number of the Fund, (iii) the name of the
investor(s) appearing on the Fund's records, (iv) the amount to be withdrawn and
(v) the name of the person requesting the redemption.
After receipt of the redemption request by mail or by telephone, the
redemption proceeds will, at the option of the investor, be paid by check and
mailed to the investor of record or be wired to the investor's bank as indicated
in the account application previously filled out by the investor. 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 Funds by telephone, an investor may
deliver the redemption request to Warburg Pincus Funds by mail at the address
shown above under 'How to Open an Account.' Although the Fund will redeem shares
purchased by check before the check clears, payments of the redemption proceeds
will be delayed until such check has cleared, which may take up to 15 days from
the purchase date. Investors should consider purchasing shares using a certified
or bank check or money order if they anticipate an immediate need for a
redemption.
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 mailed or
wired to an investor on the next business day following the date a redemption
order is effected. If, however, in the judgment of Counsellors, immediate
payment would adversely affect the Fund, it reserves the right to pay the
redemption proceeds within seven days after the redemption order is effected.
Furthermore, the Fund may suspend the right of redemption or postpone the date
of payment upon redemption (as well as suspend or postpone the recordation of an
exchange of shares) for such periods as are permitted under the 1940 Act.
The proceeds paid upon redemption may be more or less than the amount
invested depending upon a share's net asset value at the time of redemption. If
an investor redeems all the shares in his account, all dividends and
distributions declared up to and including the date of redemption are paid along
with the proceeds of the redemption.
If, due to redemptions, the value of an investor's account drops to less
than $2,000 ($250 in the case of an IRA or UGMA account), the Fund reserves the
right to redeem the shares in that account at net asset value. Prior to any
redemption, the Fund will notify an investor in writing that this account has a
value of less than the minimum. The investor will then have 60 days to make an
additional investment before a redemption will be processed by the Fund.
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TELEPHONE TRANSACTIONS. In order to request redemptions by telephone, investors
must have completed and returned to Warburg Pincus Funds an account application
containing a telephone election. Unless contrary instructions are elected, an
investor will be entitled to make exchanges by telephone. Neither the Fund nor
its agents will be liable for following instructions communicated by telephone
that it reasonably believes to be genuine. Reasonable procedures will be
employed on behalf of the Fund to confirm that instructions communicated by
telephone are genuine. Such procedures include providing written confirmation of
telephone transactions, tape recording telephone instructions and requiring
specific personal information prior to acting upon telephone instructions.
AUTOMATIC CASH WITHDRAWAL PLAN. The Fund offers investors an automatic cash
withdrawal plan under which investors may elect to receive periodic cash
payments of at least $250 monthly or quarterly. To establish this service,
complete the 'Automatic Withdrawal Plan' section of the account application and
attach a voided check from the bank account to be credited. For further
information regarding the automatic cash withdrawal plan or to modify or
terminate the Plan, investors should contact Warburg Pincus Funds at (800)
888-6878.
EXCHANGE OF SHARES. An investor may exchange Common Shares of the Fund for
Common Shares of the other mutual funds advised by Counsellors at their
respective net asset values. Exchanges may be effected by mail or by telephone
in the manner described under 'Redemption of Shares' above. If an exchange
request is received by Warburg Pincus Funds prior to 4:00 p.m. (Eastern time)
the exchange will be made at the Fund's net asset value determined at the end of
that business day. Exchanges will be effected without a sales charge but must
satisfy the minimum dollar amount necessary for new purchases. Due to the costs
involved in effecting exchanges, the Fund reserves the right to refuse to honor
more than three exchange requests by a shareholder in any 30-day period. The
exchange privilege may be modified or terminated at any time upon 60 days'
notice to shareholders. Currently, exchanges may be made with the following
other funds:
WARBURG PINCUS CASH RESERVE FUND -- a money market fund investing in
short-term, high quality money market instruments;
WARBURG PINCUS NEW YORK TAX EXEMPT FUND -- a money market fund investing
in short-term, high quality municipal obligations designed for New York
investors seeking income exempt from federal, New York State and New York
City income tax;
WARBURG PINCUS NEW YORK INTERMEDIATE MUNICIPAL FUND -- an
intermediate-term municipal bond fund designed for New York investors
seeking income exempt from federal, New York State and New York City
income tax;
WARBURG, PINCUS TAX-FREE FUND -- a bond fund seeking maximum current
income exempt from federal income taxes, consistent with preservation of
capital;
WARBURG PINCUS INTERMEDIATE MATURITY GOVERNMENT FUND -- an
intermediate-term bond fund investing in obligations issued or guaranteed
by the U.S. government, its agencies or instrumentalities;
WARBURG PINCUS FIXED INCOME FUND -- a bond fund seeking current income
and, secondarily, capital appreciation by investing in a diversified
portfolio of fixed-income securities;
WARBURG PINCUS SHORT-TERM TAX-ADVANTAGED BOND FUND -- a bond fund seeking
maximum income after the effect of federal income taxes as a primary
objective and capital appreciation as a secondary objective through
investments
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<PAGE>
in taxable and tax-exempt debt instruments;
WARBURG PINCUS GLOBAL FIXED INCOME FUND -- a bond fund investing in a
portfolio consisting of investment grade fixed income securities of
governmental and corporate issuers denominated in various currencies,
including U.S. dollars;
WARBURG PINCUS BALANCED FUND -- a fund seeking maximum total return
through a combination of long-term growth of capital and current income
consistent with preservation of capital through diversified investments in
equity and debt securities;
WARBURG PINCUS GROWTH & INCOME FUND -- an equity fund seeking long-term
growth of capital and income and a reasonable current return;
WARBURG PINCUS CAPITAL APPRECIATION FUND -- an equity fund seeking
long-term capital appreciation by investing in domestic equity securities;
WARBURG PINCUS EMERGING GROWTH FUND -- an equity fund seeking maximum
capital appreciation by investing in equity securities of small- to
medium-sized companies in the United States with emerging or renewed
growth potential;
WARBURG PINCUS INTERNATIONAL EQUITY FUND -- an equity fund seeking
long-term capital appreciation by investing in international equity
securities that are considered to have above-average potential for
appreciation; and
WARBURG PINCUS JAPAN OTC FUND -- an equity fund seeking long-term capital
appreciation by investing in a portfolio of securities traded in the
Japanese over-the-counter market.
The exchange privilege is available to shareholders residing in any state
in which the Common Shares being acquired may legally be sold. When an investor
effects an exchange of shares, the exchange is treated for federal income tax
purposes as a redemption. Therefore, the investor may realize a taxable gain or
loss in connection with the exchange. Investors wishing to exchange Common
Shares of the Fund for Common Shares in another Warburg Pincus Fund should
review the prospectus of the other fund prior to making an exchange. For further
information regarding the exchange privilege or to obtain a current prospectus
for another Warburg Pincus Fund, an investor should contact Warburg Pincus Funds
at (800) 257-5614.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. The Fund calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Fund's portfolio securities for the applicable period less
applicable expenses. The Fund declares dividends from its net investment income
semiannually and pays them in the calendar year in which they are declared. Net
investment income earned on weekends and when the NYSE is not open will be
computed as of the next business day. Distributions of net realized long-term
and short-term capital gains are declared annually and, as a general rule, will
be distributed or paid in November or December of each calendar year. Unless an
investor instructs the Fund to pay dividends or distributions in cash, dividends
and distributions will automatically be reinvested in additional Common Shares
of the Fund at net asset value. The election to receive dividends in cash may be
made on the account application or, subsequently, by writing to Warburg Pincus
Funds at the address set forth under 'How to Open an Account' or by calling
Warburg Pincus Funds at (800) 888-6878. Dividends are determined in the same
manner and are paid in the same amount for each Fund share, except that Series 2
Shares bear all the expense of fees paid to certain service organizations. See
'Shareholder Servicing.'
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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.
The investments by the Fund in zero coupon securities may create special
tax consequences. Zero coupon securities do not make interest payments, although
a portion of the difference between a zero coupon security's face value and its
purchase price is imputed as income to the Fund each year even though the Fund
receives no cash distribution until maturity. Under the U.S. federal tax laws,
the Fund will not be subject to tax on this income if it pays dividends to its
shareholders substantially equal to all the income received from, or imputed
with respect to, its investments during the year, including its zero coupon
securities. These dividends ordinarily will constitute taxable income to the
shareholders of the Fund.
Dividends paid from net investment income and distributions of net realized
short-term capital gains are taxable to investors as ordinary income whether
received in cash or reinvested in additional Fund shares. Distributions derived
from net realized long-term capital gains will be taxable to investors as
long-term capital gains, regardless of how long investors have held Fund shares
or whether such distributions are received in cash or reinvested in Fund shares.
As a general rule, an investor's gain or loss on a sale or redemption of his
Fund shares will be a long-term capital gain or loss if he has held his shares
for more than one year and will be a short-term capital gain or loss if he has
held his 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
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.
Dividends and interest received by the Fund may be subject to withholding
and other taxes imposed by foreign countries. However, tax conventions between
certain countries and the U.S. may reduce or eliminate such taxes. If the Fund
qualifies as a regulated investment company, if certain asset and distribution
requirements are satisfied and if more than 50% of the Fund's total assets at
the close of its fiscal year consist of stock or securities of foreign
corporations, the Fund may elect for U.S. income tax purposes to treat foreign
income taxes paid by it as paid by its shareholders. The Fund may qualify for
and make this election in some, but not necessarily all, of its taxable years.
If the Fund were to make an election, shareholders of the Fund would be required
to take into account an amount equal to their pro rata portions of such foreign
taxes in computing their taxable incomes and then treat an amount equal to those
foreign taxes as a U.S. federal income tax deduction or as a foreign tax credit
against their U.S. federal income taxes. Shortly after any year for which it
makes such an election, the Fund
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<PAGE>
will report to its shareholders the amount per share of such foreign tax that
must be included in each shareholder's gross income and the amount which will be
available for the deduction or credit. No deduction for foreign taxes may be
claimed by a shareholder who does not itemize deductions. Certain limitations
will be imposed on the extent to which the credit (but not the deduction) for
foreign taxes may be claimed.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. Each investor will also receive, if
applicable, various written notices after the close of the Fund's prior taxable
year with respect to certain dividends and distributions which were received
from the Fund during the Fund's prior taxable year. Investors should consult
their own tax advisers with specific reference to their own tax situations,
including their state and local tax liabilities.
NET ASSET VALUE
The Fund's net asset value per share is calculated as of the close of
regular trading on the NYSE (currently 4:00 p.m., Eastern time) on each business
day, Monday through Friday, except on days when the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, Washington's Birthday, Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively. The net asset value
per share of the Fund generally changes each day.
The net asset value per Common Share of the Fund is computed by adding the
Common Shares' pro rata share of the value of the Fund's assets, deducting the
Common Shares' pro rata share of the Fund's liabilities and the liabilities
specifically allocated to Common Shares and then dividing the result by the
total number of outstanding Common Shares. 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 the 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. The valuation
of short sales of securities, which are not traded on a national exchange, will
be at the mean of bid and
24
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asked prices. 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 Common Shares separately from Series 2
Shares. From time to time, the Fund may advertise average annual total return of
its Common Shares over various periods of time. These total return figures show
the average percentage change in value of an investment in the Common Shares
from the beginning of the measuring period to the end of the measuring period.
The figures reflect changes in the price of the Common Shares assuming that any
income dividends and/or capital gain distributions made by the Fund during the
period were reinvested in Common Shares of the Fund. Total return will be shown
for recent one-, five- and ten-year periods, and may be shown for other periods
as well (such as from commencement of the Fund's operations or on a
year-by-year, quarterly or current year-to-date basis).
When considering average total return figures for periods longer than one
year, it is important to note that the annual total return for one year in the
period might have been greater or less than the average for the entire period.
When considering total return figures for periods shorter than one year,
investors should bear in mind that the Fund seeks long-term appreciation and
that such return may not be representative of the Fund's return over a longer
market cycle. The Fund may also advertise aggregate total return figures of its
Common Shares for various periods, representing the cumulative change in value
of an investment in the Common Shares for the specific period (again reflecting
changes in share prices and assuming reinvestment of dividends and
distributions). Aggregate and average total returns may be shown by means of
schedules, charts or graphs and may indicate various components of total return
(i.e., change in value of initial investment, income dividends and capital gain
distributions).
Investors should note that total return figures are based on historical
earnings and are not intended to indicate future performance. The Statement of
Additional Information describes the method used to determine total return.
Current total return figures may be obtained by calling Warburg Pincus Funds at
(800) 257-5614.
In reports or other communications to investors or in advertising material,
the Fund may describe general economic and market conditions affecting the Fund
and 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) with the IFC Emerging Market Free Index, the IFC
Investible Index or the Morgan Stanley Capital International Emerging Markets
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 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
25
<PAGE>
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 its Common Shares to that of investment companies
with similar objectives and policies, based on data generated by Lipper
Analytical Services, Inc. or similar investment services that monitor mutual
funds.
GENERAL INFORMATION
The Fund was incorporated on December 23, 1993 under the laws of the State
of Maryland. The Fund's charter authorizes the Board to issue three billion full
and fractional shares of capital stock, $.001 par value per share, of which one
billion shares are designated Series 2 Shares. Common Shares and Series 2 Shares
represent equal pro rata interests in the Fund and accrue dividends in the same
manner, except that Series 2 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.
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.
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.
Each investor will receive a quarterly statement of his account, as well as
a statement of his account after any transaction that affects his share balance
or share registration (other than the reinvestment of dividends or
distributions). 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. John
L. Furth, a director of the Fund, and Lionel I. Pincus may be deemed to be
controlling persons of the Fund as of May 31, 1995 because they may be deemed to
possess or share investment power over shares owned by clients of Counsellors
and certain other entities.
SHAREHOLDER SERVICING
The Fund is authorized to offer Series 2 Shares exclusively to institutions
that enter into account servicing agreements ('Agreements') with the Fund
pursuant to a distribution plan described below. Pursuant to the terms of an
Agreement, the institution will perform certain distribution, shareholder
servicing, administrative and/or accounting services for its clients and
customers ('Customers') who are beneficial owners of Series 2 Shares. Series 2
Shares may not be purchased by individuals directly but financial institutions
and retirements plans may purchase Series 2 Shares for individuals. The Board
has approved a distribution plan pursuant to Rule 12b-1 under the 1940 Act under
which the Fund will pay each participating institution a
26
<PAGE>
negotiated fee on an annual basis not to exceed .75% of the value of the average
daily net assets of its Customers invested in Series 2 Shares.
Common Shares may be sold to or through institutions that will not be paid
by the Fund a distribution fee pursuant to Rule 12b-1 under the 1940 Act for
services to their clients or customers who are beneficial owners of Common
Shares. These institutions may be paid a fee by the Fund for transfer agency,
administrative or other services provided to their customers that invest in the
Fund's Common Shares. These services include maintaining account records,
processing orders to purchase, redeem and exchange Common Shares and responding
to certain customer inquiries. Counsellors and Counsellors Securities may, from
time to time, at their own expense, also provide compensation to these
institutions. To the extent they do so, such compensation does not represent an
additional expense to the Fund or its shareholders, since it will be paid from
the assets of Counsellors, Counsellors Securities or their affiliates.
Counsellors Securities currently receives a fee equal to an annual rate of .25%
of the average daily net assets of the Fund's Common Shares for distribution
services. See 'Management of the Fund -- Distributor.'
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE FUND'S
STATEMENT OF ADDITIONAL INFORMATION OR THE FUND'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE FUND, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
COMMON SHARES IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY
NOT LAWFULLY BE MADE.
27
<PAGE>
TABLE OF CONTENTS
THE FUND'S EXPENSES ...................................................... 2
FINANCIAL HIGHLIGHTS.......................................................3
INVESTMENT OBJECTIVE AND POLICIES ........................................ 4
PORTFOLIO INVESTMENTS .................................................... 5
RISK FACTORS AND SPECIAL
CONSIDERATIONS ........................................................ 7
PORTFOLIO TRANSACTIONS AND TURNOVER
RATE .................................................................. 9
CERTAIN INVESTMENT STRATEGIES ........................................... 10
INVESTMENT GUIDELINES ................................................... 14
MANAGEMENT OF THE FUND .................................................. 15
HOW TO OPEN AN ACCOUNT .................................................. 17
HOW TO PURCHASE SHARES .................................................. 17
HOW TO REDEEM AND EXCHANGE
SHARES ............................................................... 19
DIVIDENDS, DISTRIBUTIONS AND TAXES ...................................... 22
NET ASSET VALUE ......................................................... 24
PERFORMANCE ............................................................. 25
GENERAL INFORMATION ..................................................... 26
SHAREHOLDER SERVICING ................................................... 26
WPEMK-1-0695
[LOGO]
[ ] WARBURG PINCUS
EMERGING MARKETS FUND
PROSPECTUS
JUNE 30, 1995
<PAGE>
[Logo]
PROSPECTUS
JUNE 30, 1995
[ ] WARBURG PINCUS EMERGING MARKETS 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
ANY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
Subject to Completion, dated June 30, 1995
WARBURG PINCUS ADVISOR FUNDS
P.O. BOX 9030
BOSTON, MASSACHUSETTS 02205-9030
TELEPHONE NUMBER: (800) 888-6878
June 30, 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 MARKETS FUND (the 'Fund') seeks growth of capital. The
Fund will seek to achieve its investment objective by investing primarily in
equity securities of non-United States issuers consisting of companies in
emerging securities markets.
International investing entails special risk considerations, including currency
fluctuations, lower liquidity, economic instability, political uncertainty and
differences in accounting methods. See 'Risk Factors and Special
Considerations.'
The Fund currently offers two classes of shares, one of which, the Series 2
Shares, is offered pursuant to this Prospectus. The Series 2 Shares of the Fund,
as well as Series 2 Shares of certain other Warburg Pincus-advised funds, are
sold under the name 'Warburg Pincus Advisor Funds.' The Series 2 Shares may not
be purchased by individuals directly but financial institutions and retirement
plans ('Institutions') may purchase Series 2 Shares for individuals. The Series
2 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 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
Series 2 Shares. The Common Shares are offered pursuant to a separate
prospectus. Shares of each class represent equal pro rata interests in the Fund
and accrue dividends in the same manner, except that each class of shares bears
differing fees payable by the Fund for services provided to the beneficial
owners of such shares and enjoys certain exclusive voting rights on matters
relating to these fees. See 'Shareholder Servicing.' Because of the higher
service fees borne by Series 2 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..................................................................................... 0
12b-1 Fees.......................................................................................... .75%*
Other Expenses...................................................................................... .75%
-----
Total Fund Operating Expenses....................................................................... 1.50%
</TABLE>
<TABLE>
<S> <C>
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................................................................................................... $15
3 years.................................................................................................. $47
</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 a Series 2 Shareholder of the Fund. 'Other Expenses'
are based upon estimated amounts to be charged in the current fiscal year.
Certain broker-dealers and financial institutions also may charge their clients
fees in connection with investments in Series 2 Shares, which fees are not
reflected in the table. Absent the voluntary waiver of a portion of the fees
payable to Warburg, Pincus Counsellors, Inc., the Fund's investment adviser
('Counsellors'), Management Fees would have equalled 1.25%, Other Expenses would
have equalled 20.63% and Total Fund Operating Expenses would have equalled
22.63%. The Example should not be considered a representation of past or future
expenses; actual Fund expenses may be greater or less than those shown.
Moreover, while the Example assumes a 5% annual return, the Fund's actual
performance will vary and may result in a return greater or less than 5%.
Long-term holders of Series 2 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 A SERIES 2 SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following information regarding the Fund for the fiscal period ending
April 30, 1995 is unaudited. Further information about the performance of the
Fund is contained in the semiannual report, dated April 30, 1995, copies of
which may be obtained without charge by calling Warburg Pincus Advisor Funds at
(800) 888-6878.
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 30, 1994
(INCEPTION) THROUGH
APRIL 30, 1995
-------------------
<S> <C>
Net Asset Value, Beginning of Period......................................................... $ 10.00
-------
Income from Investment Operations
Net Investment Income................................................................... .13
Net Gains (Losses) from Securities and Foreign Currency Related Items (both realized and
unrealized)............................................................................ .44
-------
Total from Investment Operations........................................................ .57
-------
Less Distributions
Dividends (from net investment income).................................................. .00
Distributions (from capital gains)...................................................... .00
-------
Total Distributions..................................................................... .00
-------
Net Asset Value, End of Period............................................................... $ 10.57
-------
-------
Total Return................................................................................. 18.04%*
Ratios/Supplemental Data
Net Assets, End of Period (000s)............................................................. $ 1
Ratios to average daily net assets:
Operating expenses...................................................................... 1.25%*
Net investment income................................................................... 3.61%*
Decrease reflected in above expense ratios due to waivers/reimbursements................ 21.13%*
Portfolio Turnover Rate...................................................................... 15.10%*
</TABLE>
- ------------
* Annualized.
The Total Return shown above has been annualized; the actual Total Return for
the four-month period from December 30, 1994 (inception) through April
30, 1995 was 5.70%
( - 1.40% without the waiver of certain expenses).
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is growth of capital. The Fund is a
non-diversified management investment company that pursues its investment
objective by investing primarily in equity securities of non-United States
issuers consisting of companies in emerging securities markets. The Fund's
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. An investment in the Fund may involve a
greater degree of risk than investment in other mutual funds that seek capital
appreciation by investing in larger, more developed markets. See 'Certain
Investment Strategies' for descriptions of certain types of investments the Fund
may make.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in equity securities of issuers in Emerging Markets (as defined
below), and the Fund intends to acquire securities of many issuers located in a
number of foreign countries. The Fund will not necessarily seek to diversify
investments on a geographical basis or on the basis of the level of economic
development of any particular country. However, the Fund will at all times,
except during defensive periods, maintain investments in at least three
countries outside the United States. An equity security of an issuer in an
Emerging Market is defined as common stock and preferred stock (including
convertible preferred stock); bonds, notes and debentures convertible into
common or preferred stock; stock purchase warrants and rights; equity interests
in trusts and partnerships; and depositary receipts of an issuer: (i) the
principal securities trading market for which is in an Emerging Market; (ii)
which derives at least 50% of its revenues or earnings, either alone or on a
consolidated basis, from goods produced or sold, investments made or services
performed in an Emerging Market, or which has at least 50% of its total or net
assets situated in one or more Emerging Markets; or (iii) that is organized
under the laws of, and with a principal office in, an Emerging Market.
Determinations as to whether an issuer is an Emerging Markets issuer will be
made by the Fund's investment adviser based on publicly available information
and inquiries made to the issuers.
As used in this Prospectus, an Emerging Market is any country (i) which is
generally considered to be an emerging or developing country by the World Bank
and the International Finance Corporation (the 'IFC') or by the United Nations
Development Programme or (ii) which is included in the IFC Investable Index or
the Morgan Stanley Capital International Emerging Markets Index or (iii) which
has a gross national product ('GNP') per capita of $2,000 or less, in each case
at the time of the Fund's investment. Among the countries which Counsellors
currently considers to be Emerging Markets are the following: Algeria, Angola,
Antigua, Argentina, Armenia, Azerbaijan, Bangladesh, Barbuda, Barbados, Belarus,
Belize, Bhutan, Bolivia, Botswana, Brazil, Bulgaria, Cambodia, Chile, People's
Republic of China, Republic of China (Taiwan), Colombia, Cyprus, Czech Republic,
Dominica, Ecuador, Egypt, Estonia, Georgia, Ghana, Greece, Grenada, Guyana, Hong
Kong, Hungary, India, Indonesia, Ivory Coast, Jamaica, Jordan, Kazakhstan,
Kenya, Republic of Korea (South Korea), Latvia, Lebanon, Lithuania, Malawi,
Malaysia, Mauritius, Mexico, Moldova, Mongolia, Montserrat, Morocco, Mozambique,
Myanmar (Burma), Namibia, Nepal, Nigeria, Pakistan, Panama, Papua New Guinea,
Paraguay, Peru, Philippines, Poland, Portugal, Romania, Russia, Saudi Arabia,
Singapore, Slovakia, Slovenia, South Africa, Sri Lanka, St. Kitts and Nevis, St.
Lucia, St. Vincent and the Grenadines, Swaziland, Tanzania, Thailand, Trinidad
and Tobago, Tunisia, Turkey, Turkmenistan, Uganda, Ukraine, Uruguay, Uzbekistan,
Venezuela, Viet-
4
<PAGE>
nam, Yugoslavia, Zambia and Zimbabwe. Among the countries that will not be
considered Emerging Markets are: Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Ireland, Italy, Japan, Luxembourg, Netherlands, New
Zealand, Norway, Spain, Sweden, Switzerland, United Kingdom and the United
States.
The Fund may invest in securities of companies of any size, whether traded
on or off a national securities exchange. Fund holdings may include emerging
growth companies, which are small- or medium-sized companies that have passed
their start-up phase and that show positive earnings and prospects for achieving
profit and gain in a relatively short period of time.
In appropriate circumstances, such as when a direct investment by the Fund
in the securities of a particular country cannot be made or when the securities
of an investment company are more liquid than the underlying portfolio
securities, the Fund may, consistent with the provisions of the Investment
Company Act of 1940, as amended (the '1940 Act'), invest in the securities of
closed-end investment companies that invest in foreign securities.
When Counsellors believes that a defensive posture is warranted, the Fund
may invest temporarily without limit in investment grade debt obligations, in
securities of U.S. companies and in domestic and foreign money market
obligations, including repurchase agreements as discussed below.
PORTFOLIO INVESTMENTS
DEBT. The Fund may invest up to 35% of its total assets in debt securities
(other than money market instruments) for the purpose of seeking growth of
capital. The types of debt securities in which the Fund may invest include
obligations of U.S. and foreign corporate and governmental issuers. Counsellors
may consider the interest income to be derived as one factor in selecting debt
securities for investment. 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 growth of capital 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.
Among the types of debt securities in which the Fund may invest are Brady
Bonds, loan participations and assignments, asset-backed securities,
mortgage-backed securities and zero coupon securities that are not convertible
into common or preferred stock:
Brady Bonds are collateralized or uncollateralized securities created
through the exchange of existing commercial bank loans to public and private
Latin American entities for new bonds in connection with certain debt
restructurings. Brady Bonds have been issued only recently and therefore do not
have a long payment history. However, in light of the history of commercial bank
loan defaults by Latin American public and private entities, investments in
Brady Bonds may be viewed as speculative.
Loan Participations and Assignments of fixed and floating rate loans
arranged through private negotiations between a foreign government as borrower
and one or more financial institutions as lenders will typically result in the
Fund having a contractual relationship only with the lender, in the case of a
participation, or the borrower, in the case of an assignment. The Fund may not
directly benefit from any collateral supporting a participation, and in the
event of the insolvency of a lender will be treated as a general creditor of the
lender. As a result, the Fund assumes the risk of both the borrower and the
lender of a participation. The Fund's rights
5
<PAGE>
and obligations as the purchaser of an assignment may differ from, and be more
limited than, those held by the assigning lender. The lack of a liquid secondary
market for both participations and assignments will have an adverse impact on
the value of such securities and on the Fund's ability to dispose of
participations or assignments.
Asset-backed securities are collateralized by interests in pools of
consumer loans, with interest and principal payments ultimately depending on
payments in respect of the underlying loans by individuals (or a financial
institution providing credit enhancement). Because market experience in these
securities is limited, the market's ability to sustain liquidity through all
phases of the market cycle has not been tested. In addition, there is no
assurance that the security interest in the collateral can be realized. The Fund
may purchase asset-backed securities that are unrated.
Mortgage-backed securities are collateralized by mortgages or interests in
mortgages and may be issued by government or non-government entities.
Non-government issued mortgage-backed securities may offer higher yields than
those issued by government entities, but may be subject to greater price
fluctuations. The value of mortgage-backed securities may change due to market
shifts in the perceptions of issuers, and regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Prepayment, which
occurs when unscheduled or early payments are made on the underlying mortgages,
may shorten the effective maturities of these securities and may lower their
returns.
The Fund may invest or hold up to 35% of its net assets in fixed-income
securities (including convertible bonds) rated below investment grade (commonly
referred to as 'junk bonds'), and as low as C by Moody's Investors Service, Inc.
('Moody's') or D by Standard & Poor's Ratings Group ('S&P'), or in unrated
securities considered to be of equivalent quality. Securities that are rated C
by Moody's are the lowest rated class and can be regarded as having extremely
poor prospects of ever attaining any real investment standing. Debt rated D by
S&P is in default or is expected to default upon maturity or payment date.
MONEY MARKET OBLIGATIONS. The Fund is authorized to invest, under normal market
conditions, up to 20% of its total assets in short-term money market obligations
(i.e., securities having remaining maturities of less than one year) 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 instrumentalties ('U.S. government
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; commercial paper
rated no lower than A-2 by S&P or Prime-2 by Moody's or the equivalent from
another major rating service or, if unrated, of an issuer having an outstanding,
unsecured debt issue then rated within the three highest rating categories; and
repurchase agreements with respect to the foregoing.
Repurchase Agreements. The Fund may invest in repurchase agreement
transactions 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
6
<PAGE>
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 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 with respect to assets so invested.
U.S. GOVERNMENT SECURITIES. U.S. government securities in which the Fund may
invest include: direct obligations of the U.S. Treasury and obligations issued
by U.S. government agencies and instrumentalities, including instruments that
are supported by the full faith and credit of the United States, instruments
that are supported by the right of the issuer to borrow from the U.S. Treasury
and instruments that are supported by the credit of the instrumentality.
CONVERTIBLE SECURITIES. Convertible securities in which the Fund may invest,
including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than nonconvertible 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.
ZERO COUPON SECURITIES. Zero coupon securities pay no cash income to their
holders until they mature and are issued at substantial discounts from their
value at maturity. When held to maturity, their entire return comes from the
difference between their purchase price and their maturity value. Because
interest on zero coupon securities is not paid on a current basis, the values of
securities of this type are subject to greater fluctuations than are the values
of securities that distribute income regularly and may be more speculative than
such other securities. Accordingly, the values of these securities may be highly
volatile as interest rates rise or fall. Redemption of shares of the Fund that
require it to sell zero coupon securities prior to maturity may result in
capital gains or losses that may be substantial. In addition, the Fund's
investments in zero coupon securities will result in special tax consequences,
which are described below under 'Dividends, Distributions and Taxes -- Taxes'.
RISK FACTORS AND SPECIAL
CONSIDERATIONS
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, the possible imposition of currency
7
<PAGE>
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 regulatory practices
and requirements that are often less rigorous than those applied in the United
States. Moreover, securities of many foreign companies may be less liquid and
their prices more volatile than those of securities of comparable U.S.
companies. Certain foreign countries are known to experience long delays between
the trade and settlement dates of securities purchased or sold. In addition,
with respect to certain foreign countries, there is the possibility of
expropriation, nationalization, confiscatory taxation and limitations on the use
or removal of funds or other assets of the Fund, including the withholding of
dividends. The Fund could be adversely affected by delays in, or a refusal to
grant, any required governmental approval for repatriation of capital, as well
as by the application to the Fund of any restrictions on investments. 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 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, and the expense of maintaining securities with foreign custodians.
The risks associated with investing in securities of non-U.S. issuers are
generally heightened for investments in securities of issuers in Emerging
Markets.
Investing in securities of issuers located in Emerging Markets involves not
only the risks described above with respect to investing in foreign securities,
but also other risks, including exposure to economic structures that are
generally less diverse and mature than, and to political systems that can be
expected to have less stability than, those of developed countries. Other
characteristics of Emerging Markets that may affect investment in their markets
include certain national policies that may restrict investment by foreigners in
issuers or industries deemed sensitive to relevant national interests and the
absence of developed legal structures governing private and foreign investments
and private property. The typically small size of the markets for securities of
issuers located in Emerging Markets and the possibility of a low or nonexistent
volume of trading in those securities may also result in a lack of liquidity and
in price volatility of those securities.
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 a
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. The Fund may invest up to 10% of its assets in
securities of companies in 'special situations,' which include, but are not
limited to, companies involved in an acquisition or consolidation;
reorganization; recapitalization; merger, liquidation or distribution of cash,
securities or other assets;
8
<PAGE>
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 exclusively in better-known, larger companies. For certain additional
risks relating to the Fund's investments, see 'Portfolio Investments' beginning
at page 5 and 'Certain Investment Strategies' beginning at page 10.
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 securities of a single
issuer. The Fund will, however, comply with diversification requirements imposed
by the Internal Revenue Code of 1986, as amended (the 'Code'), for qualification
as a regulated investment company. As a non-diversified investment company, 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.
Lower-rated and comparable unrated securities (commonly referred to as
'junk bonds') (i) will likely have some quality and protective characteristics
that, in the judgment of the rating organization, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (ii) are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. The market
values of certain of these securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-quality bonds. In addition, medium- and lower-rated securities and
comparable unrated securities generally present a higher degree of credit risk.
The risk of loss due to default by such issuers is significantly greater because
medium- and lower-rated securities and unrated securities generally are
unsecured and frequently are subordinated to the prior payment of senior
indebtedness. The market value of securities in lower rating categories is more
volatile than that of higher quality securities. In addition, the Fund may have
difficulty disposing of certain of these securities because there may be a thin
trading market. The lack of a liquid secondary market for certain securities may
have an adverse impact on the Fund's ability to dispose of particular issues and
may make it more difficult for the Fund to obtain accurate market quotations for
purposes of valuing the Fund and calculating its net asset value.
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. As a result of
the Fund's investment policies, the Fund may engage in a substantial number of
portfolio transactions, and the Fund will not consider portfolio turnover rate a
limiting factor in making investment decisions consistent with its investment
objective and policies. While it is not possible to predict the Fund's portfolio
turnover rate, it is anticipated that the Fund's annual turnover rate should not
exceed 150%. High portfolio turnover rates (100% or more) may result in dealer
mark ups or underwriting commissions as well as other transaction costs,
including correspondingly
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<PAGE>
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.
Transactions for the Fund may be effected on foreign securities exchanges.
In transactions for securities not actively traded on a foreign securities
exchange, the Fund will deal directly with the dealers who make a market in the
securities involved, except in those circumstances where better prices and
execution are available elsewhere. Such dealers usually are acting as principal
for their own account. On occasion, securities may be purchased directly from
the issuer. Such portfolio securities are generally traded on a net basis and do
not normally involve brokerage commissions. Securities firms may receive
brokerage commissions on certain portfolio transactions, including options,
futures and options on futures transactions and the purchase and sale of
underlying securities upon exercise of options.
CERTAIN INVESTMENT STRATEGIES
In attempting to achieve its investment objective, the Fund may engage in
currency exchange transactions. The Fund may invest up to 5% of its net assets
in stand-by commitments. 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.
The Fund may engage in options or futures transactions 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 strategies and
their related risks is contained below and in the Fund's Statement of Additional
Information.
SHORT SALES AGAINST THE BOX. The Fund may make short sales of its portfolio
holdings if, at all times when a short position is open, the Fund owns the
security sold short or owns debt securities convertible or exchangeable, without
payment of further consideration, into the security sold short. Short sales of
this kind are referred to as short sales 'against the box.' The broker-dealer
that executes a short sale generally invests cash proceeds of the sale until
they are paid to the Fund. Arrangements may be made with the broker-dealer to
obtain a portion of the interest earned by the broker on the investment of short
sale proceeds. The Fund will segregate the security sold short or convertible or
exchangeable debt securities in a special account with its custodian. Not more
than 10% of the Fund's net assets (taken at current value) may be held as
collateral for such sales at any one time. The extent to which the Fund may make
short sales may be limited by the Code.
PURCHASING PUT AND CALL OPTIONS ON SECURITIES. The Fund may utilize up to 10% of
its total assets to purchase put and call options on stocks
and debt securities that are traded on foreign as well as U.S. exchanges, as
well as options that trade over-the-counter ('OTC'), in each case to the extent
permitted by the policies of state securities authorities in states where shares
of the Fund are qualified for offer and sale.
By buying a put, the Fund limits its risk of loss from a decline in the
market value of the
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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 put or call options to increase its return
to investors at a time when the call is expected to increase in value due to
anticipated appreciation (in the case of a call) or depreciation (in the case of
a put) 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.
There are several risks relating to options. The ability to establish and
close out positions on such options will be subject to the existence of a liquid
market. There is no assurance that a liquid secondary market for options will
always exist, particularly with respect to OTC options. 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, which could
prove to be incorrect. Even if Counsellors' expectations are correct, where
options 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. Therefore, an investment in the Fund may involve a greater risk than an
investment in other mutual funds that seek capital appreciation.
STOCK INDEX OPTIONS. In addition to purchasing options on securities, the Fund
may utilize up to 10% of its total assets to purchase exchange-listed and OTC
put and call options on stock indexes, and may write options on such indexes. A
stock index measures the movement of a certain group of stocks by assigning
relative values to the common stocks included in the index. Options on stock
indexes are similar to options on stock except that (i) the expiration cycles of
stock index options are monthly, while those of stock options are currently
quarterly, and (ii) the delivery requirements are different. Instead of giving
the right to take or make delivery of stock at a specified price, an option on a
stock index gives the holder the right to receive a cash 'exercise settlement
amount' equal to (a) the amount, if any, by which the fixed exercise price of
the option exceeds (in the case of a put) or is less than (in the case of a
call) the closing value of the underlying index on the date of exercise
multiplied by (b) a fixed 'index multiplier.' The discussion of options on
securities above, and the related risks, is applicable to options on stock
indexes.
FUTURES CONTRACTS AND OPTIONS. The Fund may enter into foreign currency,
interest rate and stock index futures contracts and purchase and write (sell)
related options that are traded on an exchange designated by the Commodity
Futures Trading Commission (the 'CFTC') or 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.
A foreign currency futures contract provides for the future sale by one
party and the purchase by the other party of a certain amount of a specified
foreign currency at a specified price, date, time and place. 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
11
<PAGE>
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 currency, 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 currencies, 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 foreign currencies, interest rates or stock
indexes. Losses incurred in futures transactions and the costs of these
transactions will affect the Fund's performance.
A further risk involves the lack of a liquid secondary market for a futures
contract and the resulting inability to close out a futures contract. Futures
and options contracts may only be closed out by entering into offsetting
transactions on the exchange where the position was entered into (or a linked
exchange), and as a result of daily price fluctuation limits there can be no
assurance that an offsetting transaction could be entered into at an
advantageous price at any particular time. Consequently, the Fund may realize a
loss on a futures contract or option that is not offset by an increase in the
value of the Fund's securities that are being hedged or the Fund may not be able
to close a futures or options position without incurring a loss in the event of
adverse price movements.
CURRENCY EXCHANGE TRANSACTIONS. The Fund may engage in currency exchange
transactions to protect against uncertainty in the level of future exchange
rates and to increase the Fund's income and total return. The Fund will conduct
its currency exchange transactions (i) on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, (ii) through entering into forward
contracts to purchase or sell currency, (iii) by purchasing currency options or
(iv) as described above, through entering into foreign currency futures
contracts or options on such contracts.
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Forward Currency Contracts. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These contracts are entered
into in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. The use of forward
currency contracts as a hedge does not eliminate fluctuations in the underlying
prices of the securities, but it does establish a rate of exchange that can be
achieved in the future. In addition, although forward currency contracts limit
the risk of loss due to a decline in the value of a hedged currency, at the same
time, they also limit any potential gain that might result should the value of
the currency increase.
Currency Options. The Fund may purchase exchange-traded put and call
options on currencies. An option on a foreign currency gives the purchaser, in
return for a premium, the right to sell, in the case of a put, and buy, in the
case of a call, the underlying currency at a specified price during the term of
the option. The benefit to the Fund derived from purchases of foreign currency
options, like the benefit derived from other types of options, will be reduced
by the amount of the premium and related transaction costs. In addition, if
currency exchange rates do not move in the direction or to the extent
anticipated, the Fund could sustain losses on transactions in foreign currency
options that would require it to forgo a portion or all of the benefits of
advantageous changes in the rates.
ASSET COVERAGE FOR FORWARD CONTRACTS, OPTIONS, FUTURES AND OPTIONS ON FUTURES.
The Fund will comply with guidelines established by the Securities and Exchange
Commission designed to eliminate any potential for leverage with respect to
currency forward contracts; options written by the Fund on indexes; currency,
interest rate and index futures contracts and options on these futures
contracts. The use of these strategies may require that the Fund maintain cash
or certain liquid high-grade debt securities 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.
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 15% 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 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.
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Non-publicly traded securities (including Rule 144A Securities) may be less
liquid than publicly traded securities. Although these securities may be resold
in privately negotiated transactions, the prices realized from these sales could
be less than those originally paid by the Fund. In addition, companies whose
securities are not publicly traded are not subject to the disclosure and other
investor protection requirements that would be applicable if their securities
were publicly traded. The Fund's investment in illiquid securities is subject to
the risk that should the 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.
REVERSE REPURCHASE AGREEMENTS. The Fund may also enter into reverse repurchase
agreements with the same parties with whom it may enter into repurchase
agreements. Reverse repurchase agreements involve the sale of securities held by
the Fund pursuant to its agreement to repurchase them at a mutually agreed upon
date, price and rate of interest. At the time the Fund enters into a reverse
repurchase agreement, it will establish and maintain a segregated account with
an approved custodian containing cash or liquid high-grade debt securities
having a value not less than the repurchase price (including accrued interest).
The assets contained in the segregated account will be marked-to-market daily
and additional assets will be placed in such account on any day in which the
assets fall below the repurchase price (plus accrued interest). The Fund's
liquidity and ability to manage its assets might be affected when it sets aside
cash or portfolio securities to cover such commitments. Reverse repurchase
agreements involve the risk that the market value of the securities retained in
lieu of sale may decline below the price of the securities the Fund has sold but
is obligated to repurchase. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, such buyer or
its trustee or receiver may receive an extension of time to determine whether to
enforce the Fund's obligation to repurchase the securities, and the Fund's use
of the proceeds of the reverse repurchase agreement may effectively be
restricted pending such decision. Reverse repurchase agreements are considered
to be borrowings under the 1940 Act.
DOLLAR ROLL TRANSACTIONS. The Fund also may enter into 'dollar rolls,' in which
the Fund sells fixed income securities for delivery in the current month and
simultaneously contracts to repurchase similar but not identical (same type,
coupon and maturity) securities on a specified future date. During the roll
period, the Fund would forgo principal and interest paid on such securities. The
Fund would be compensated by the difference between the current sales price and
the forward price for the future purchase, as well as by the interest earned on
the cash proceeds of the initial sale. At the time that the Fund enters into a
dollar roll transaction, it will place in a segregated account maintained with
an approved custodian cash or other liquid high-grade debt obligations having a
value not less than the repurchase price (including accrued interest) and will
subsequently monitor the account to ensure that its value is maintained. For
financial reporting and tax purposes, the Fund proposes to treat dollar rolls as
two separate transactions: one involving the sale of a security and a separate
transaction involving the purchase of a security. The Fund does not currently
intend to enter into dollar rolls that are accounted for as a financing.
INVESTMENT GUIDELINES
The Fund may invest up to 15% of its net assets in securities with
contractual or other restrictions on resale and other investments that are not
readily marketable (other than Rule 144A Securities determined by the Board to
be liquid) including repurchase agreements with maturities greater than seven
days and time
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deposits maturing in more than seven calendar days. The Fund may invest up to 5%
of its total assets in the securities of issuers that have been in continuous
operation for less than three years. In addition, up to 5% of the Fund's net
assets may be invested in warrants. The Fund may borrow from banks and enter
into reverse repurchase agreements for temporary or emergency purposes, such as
meeting anticipated redemption requests, provided that reverse repurchase
agreements and any other borrowing by the Fund may not exceed 30% of the Fund's
total assets. The Fund may pledge its assets in connection with borrowings.
Whenever borrowings (including reverse repurchase agreements) exceed 5% of the
value of the Fund's total assets, the Fund will not make any investments
(including roll-overs). Except for the limitations on borrowing, the investment
guidelines set forth in this paragraph may be changed at any time without
shareholder consent by vote of the Board, subject to the limitations contained
in the 1940 Act. A complete list of investment restrictions that the Fund has
adopted identifying additional restrictions that cannot be changed without the
approval of the majority of the Fund's outstanding shares is contained in the
Statement of Additional Information.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER. The Fund employs Counsellors as investment adviser to the
Fund. Counsellors, subject to the control of the Fund's officers and the Board,
manages the investment and reinvestment of the assets of the Fund in accordance
with its investment objective and stated investment policies. Counsellors makes
investment decisions for the Fund and places orders to purchase or sell
securities on behalf of the Fund. Counsellors also employs a support staff of
management personnel to provide services to the Fund and furnishes the Fund with
office space, furnishings and equipment.
For the services provided by Counsellors, the Fund will pay a fee
calculated at an annual rate of 1.25% 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 May 31, 1995,
Counsellors managed approximately $10.5 billion of assets, including
approximately $4.9 billion of assets of nineteen 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. Richard H. King, president of the Fund, and Nicholas P.W.
Horsley are the co-portfolio managers of the Fund. Mr. King is also president of
Warburg, Pincus International Equity Fund and Warburg, Pincus Japan OTC Fund and
has been a managing director of EMW since 1989. From 1984 until 1988 he was
chief investment officer and a director at Fiduciary Trust Company International
S.A. in London, with responsibility for all international equity
15
<PAGE>
management and investment strategy. From 1982 to 1984 he was a director in
charge of Far East equity investments at N.M. Rothschild International Asset
Management, a London merchant bank. Mr. Horsley is a senior vice president of
Counsellors and has been with Counsellors since 1993, before which time he was a
director, portfolio manager and analyst at Barclays deZoete Wedd in New York
City.
Harold W. Ehrlich is an associate portfolio manager and research analyst of
the Fund and has been with Counsellors since February, 1995. Prior to joining
Counsellors, Mr. Erhlich was a senior vice president, portfolio manager and
analyst at Templeton Investment Counsel Inc. Vincent McBride is also an
associate portfolio manager and research analyst for the Fund and has been with
Counsellors since 1994. Prior to joining Counsellors, Mr. McBride was an
international equity analyst at Smith Barney Inc. from 1993 to 1994 and at
General Electric Investment Corporation from 1992 to 1993. From 1989 to 1992 he
was a portfolio manager/analyst at United Jersey Bank.
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 Board, preparing proxy statements and
annual, semiannual and quarterly reports, assisting in the preparation of tax
returns and monitoring and developing compliance procedures for the Fund. As
compensation, the Fund pays Counsellors Service a fee calculated at an annual
rate of .10% of the Fund's average daily net assets.
Counsellors may, at its own expense, provide promotional incentives to
qualified recipients who support the sale of shares of the Fund. Qualified
recipients are securities dealers who have sold Fund shares or others, including
banks and other financial institutions, under special arrangements. In some
instances, these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Fund shares.
The Fund employs PFPC Inc. ('PFPC'), an indirect, wholly owned subsidiary
of PNC Bank Corp., as a co-administrator. As a co-administrator, PFPC calculates
the Fund's net asset value, provides all accounting services for the Fund and
assists in related aspects of the Fund's operations. As compensation, the Fund
pays to PFPC a fee calculated at a maximum annual rate of .12% of the Fund's
first $250 million in average daily net assets, .10% of the next $250 million in
average daily net assets, .08% of the next $250 million in average daily net
assets and .05% of average daily net assets over $750 million with a minimum
annual fee of $75,000, exclusive of out-of-pocket expenses. PFPC has its
principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.
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.
TRANSFER AGENT AND CUSTODIAN. State Street Bank and Trust Company ('State
Street') acts as shareholder servicing agent, transfer agent and dividend
disbursing agent for the Fund and serves as custodian for the Fund's assets. 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.
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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 of the Fund.
HOW TO PURCHASE SHARES
Warburg Pincus Advisor Fund shares are only available for investment by
financial 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 Series 2 Shares of the Fund, but may do so only through a
participating Institution. The Fund reserves the right to make Series 2 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 Series 2 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 Series 2 Shares. There is no minimum amount of
initial or subsequent purchases of Series 2 Shares imposed on Institutions,
although the Fund reserves the right to impose minimums in the future.
Orders for the purchase of Series 2 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 Series 2 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 Emerging Markets Fund -- Series 2
DDA# 9904-649-2
[Shareowner name]
[Shareowner account number]
Orders by wire will not be accepted until a completed account application
has been received in proper form, and an account number has been established. If
a telephone order is received by the close of regular trading on the New York
Stock Exchange ('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.
17
<PAGE>
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 of the Fund 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 Series 2 Shares are placed with an
Institution by its customers, which is then responsible for the prompt
transmission of this request to the Fund or its agent.
Institutions may redeem Series 2 Shares by calling Warburg Pincus Advisor
Funds at (800) 888-6878 between 9:00 a.m. and 4:00 p.m. (Eastern time) on any
business day. An investor making a telephone withdrawal should state (i) the
name of the Fund, (ii) the account number of the Fund, (iii) the name of the
investor(s) appearing on the Fund's records, (iv) the amount to be withdrawn and
(v) the name of the person requesting the redemption.
After receipt of the redemption request the redemption proceeds will be
wired to the investor's bank as indicated in the account application previously
filled out by the investor. The Fund does not currently impose a service charge
for effecting wire transfers but reserves the right to do so in the future.
During periods of significant economic or market change, telephone redemptions
may be difficult to implement. If an investor is unable to contact Warburg
Pincus Advisor Funds by telephone, an investor may deliver the redemption
request to Warburg Pincus Advisor Funds by mail at Warburg Pincus Advisor Funds,
P.O. Box 9030, Boston, Massachusetts 02205-9030.
If a redemption order is received prior to the close of regular trading on
the NYSE, the redemption order will be effected at the net asset value per share
as determined on that day. If a redemption order is received after the close of
regular trading on the NYSE, the redemption order will be effected at the net
asset value as next determined. Redemption proceeds will normally be wired to an
investor on the next business day following the date a redemption order is
effected. If, however, in the judgment of Counsellors, immediate payment would
adversely affect the Fund, it 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
18
<PAGE>
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 Series 2 Shares of the Fund for
Series 2 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 Series 2 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 Series 2
Shares of the Fund for shares in another Warburg Pincus Advisor Fund should
review the prospectus of the other fund prior to making an exchange. For further
information regarding the exchange privilege or to obtain a current prospectus
for another Warburg Pincus Advisor Fund, an investor should contact Warburg
Pincus Advisor Funds at (800) 888-6878.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. The Fund calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Fund's portfolio securities for the applicable period less
applicable expenses. The Fund declares dividends from its net investment income
semiannually and pays them in the calendar year in which they are declared. Net
investment income earned on weekends and when the NYSE is not open will be
computed as of the next business day. Distributions of net realized long-term
and short-term capital gains are declared annually and, as a general rule, will
be distributed or paid in November or December of each calendar year. Unless an
investor instructs the Fund to pay dividends or distributions in cash, dividends
and distributions will automatically be reinvested in additional Series 2 Shares
of the Fund at net asset value. The election to receive dividends in cash may be
made on the account application or, subsequently, by writing to Warburg Pincus
Advisor Funds at the address set forth under 'How to Purchase Shares' or by
calling Warburg Pincus Advisor Funds at (800) 888-6878. Dividends are determined
in the same manner and are paid in the same amount for each Fund share, except
that Series 2 Shares bear all the expense of fees paid to certain service
organizations. See 'Shareholder Servicing.' As a result, at any given time, the
average annual total return on Series 2 Shares will be lower than the average
annual total return on Common Shares.
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
19
<PAGE>
as are necessary to avoid the application of this tax.
The investments by the Fund in zero coupon securities may create special
tax consequences. Zero coupon securities do not make interest payments, although
a portion of the difference between a zero coupon security's face value and its
purchase price is imputed as income to the Fund each year even though the Fund
receives no cash distribution until maturity. Under the U.S. federal tax laws,
the Fund will not be subject to tax on this income if it pays dividends to its
shareholders substantially equal to all the income received from, or imputed
with respect to, its investments during the year, including its zero coupon
securities. These dividends ordinarily will constitute taxable income to the
shareholders of the Fund.
Dividends paid from net investment income and distributions of net realized
short-term capital gains are taxable to investors as ordinary income whether
received in cash or reinvested in additional Series 2 Shares. Distributions
derived from net realized long-term capital gains will be taxable to investors
as long-term capital gains, regardless of how long investors have held Fund
shares or whether such distributions are received in cash or reinvested in Fund
shares. As a general rule, an investor's gain or loss on a sale or redemption of
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
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.
Dividends and interest received by the Fund may be subject to withholding
and other taxes imposed by foreign countries. However, tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. If the Fund qualifies as a regulated investment company, if certain asset
and distribution requirements are satisfied and if more than 50% of the Fund's
total assets at the close of its fiscal year consist of stock or securities of
foreign corporations, the Fund may elect for U.S. income tax purposes to treat
foreign income taxes paid by it as paid by its shareholders. The Fund may
qualify for and make this election in some, but not necessarily all, of its
taxable years. If the Fund were to make an election, shareholders of the Fund
would be required to take into account an amount equal to their pro rata
portions of such foreign taxes in computing their taxable income and then treat
an amount equal to those foreign taxes as a U.S. federal income tax deduction or
as a foreign tax credit against their U.S. federal income taxes. Shortly after
any year for which it makes such an election, the Fund will report to its
shareholders the amount per share of such foreign tax that must be included in
each shareholder's gross income and the amount which will be available for the
deduction or credit. No deduction for foreign taxes may be claimed by a
shareholder who does not itemize deductions. Certain limitations will be imposed
on the extent to which the credit (but not the deduction) for foreign taxes may
be claimed.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. Each investor will also receive, if
applicable, various written notices after the close of the Fund's prior taxable
year with respect to certain dividends and distributions which were received
from the Fund during the Fund's prior
20
<PAGE>
taxable year. Investors should consult their own tax advisers with specific
reference to their own tax situations, including their state and local tax
liabilities. Individuals investing in the Fund through Institutions should
consult those Institutions or their own tax advisers regarding the tax
consequences of investing in the Fund.
NET ASSET VALUE
The Fund's net asset value per share is calculated as of the close of
regular trading on the NYSE (currently 4:00 p.m., Eastern time) on each business
day, Monday through Friday, except on days when the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, Washington's Birthday, Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively. The net asset value
per share of the Fund generally changes each day.
The net asset value per Series 2 Share of the Fund is computed by adding
Series 2's pro rata share of the value of the Fund's assets, deducting Series
2's pro rata share of the Fund's liabilities and the liabilities specifically
allocated to Series 2 Shares and then dividing the result by the total number of
outstanding Series 2 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 the 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. The valuation
of short sales of securities, which are not traded on a national exchange, will
be at the mean of bid and asked prices. 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 Series 2 Shares separately from Common
Shares. The net asset value of the Series 2 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
21
<PAGE>
Series 2 Shares over various periods of time. These total return figures show
the average percentage change in value of an investment in the Series 2 Shares
from the beginning of the measuring period to the end of the measuring period.
The figures reflect changes in the price of the Series 2 Shares assuming that
any income dividends and/or capital gain distributions made by the Fund during
the period were reinvested in Series 2 Shares. Total return will be shown for
recent one-, five- and ten-year periods, and may be shown for other periods as
well (such as on a year-by-year, quarterly or current year-to-date basis).
When considering average total return figures for periods longer than one
year, it is important to note that the annual total return for one year in the
period might have been greater or less than the average for the entire period.
When considering total return figures for periods shorter than one year,
investors should bear in mind that the Fund seeks long-term appreciation and
that such return may not be representative of the Fund's return over a longer
market cycle. The Fund may also advertise aggregate total return figures of
Series 2 Shares for various periods, representing the cumulative change in value
of an investment in the Series 2 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 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
and 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) with the IFC Emerging Market Free Index, the IFC
Investible Index or the Morgan Stanley Capital International Emerging Markets
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 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 Series 2 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
The Fund was incorporated on December 23, 1993 under the laws of the State
of
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<PAGE>
Maryland. The Fund's charter authorizes the Board to issue three billion full
and fractional shares of capital stock, $.001 par value per share, of which one
billion shares are designated Series 2 Shares. Under 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.
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.
Each investor will receive a quarterly statement of its account, as well as
a statement of its account after any transaction that affects its share balance
or share registration (other than the reinvestment of dividends or
distributions). The Fund will also send to its investors a semiannual report and
an audited annual report, each of which includes a list of the investment
securities held by the Fund and a statement of the performance of the Fund. Each
Institution that is the record owner of Series 2 Shares on behalf of its
customers will send a statement to those customers periodically showing their
indirect interest in Series 2 Shares, as well as providing other information
about the Fund. See 'Shareholder Servicing.' John L. Furth, a director of the
Fund, and Lionel I. Pincus may be deemed to be controlling persons of the Fund
as of May 31, 1995 because they may be deemed to possess or share investment
power over shares owned by clients of Counsellors and certain other entities.
SHAREHOLDER SERVICING
The Fund is authorized to offer Series 2 Shares exclusively to Institutions
whose clients or customers (or participants in the case of retirement plans)
('Customers') are beneficial owners of Series 2 Shares. Either those
Institutions or companies providing certain services to them (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 perform 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 Series 2 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 Series 2
Shares may include (i) aggregating and processing purchase and redemption
requests from Customers and placing net purchase and redemption orders with the
Fund's transfer agent, (ii) processing dividend payments from the Fund on behalf
of Customers and (iii) providing sub-accounting related to the sale of Series 2
Shares beneficially owned by Customers or the information to the Fund necessary
for sub-accounting. The Board has
23
<PAGE>
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 Series 2 Shares. The Board
evaluates the appropriateness of the Plan on a continuing basis and in doing so
considers all relevant factors.
Common Shares may be sold to or through institutions that will not be paid
by the Fund a distribution fee pursuant to Rule 12b-1 under the 1940 Act for
services to their clients or customers who are beneficial owners of Common
Shares. Counsellors and Counsellors Securities may, from time to time, at their
own expense, provide compensation to these institutions.
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
SERIES 2 SHARES IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY
NOT LAWFULLY BE MADE.
24
<PAGE>
TABLE OF CONTENTS
THE FUND'S EXPENSES ...................................................... 2
FINANCIAL HIGHLIGHTS ..................................................... 3
INVESTMENT OBJECTIVE AND POLICIES ........................................ 4
PORTFOLIO INVESTMENTS .................................................... 5
RISK FACTORS AND SPECIAL
CONSIDERATIONS ........................................................ 7
PORTFOLIO TRANSACTIONS AND TURNOVER
RATE .................................................................. 9
CERTAIN INVESTMENT STRATEGIES ........................................... 10
INVESTMENT GUIDELINES ................................................... 14
MANAGEMENT OF THE FUND .................................................. 15
HOW TO PURCHASE SHARES .................................................. 17
HOW TO REDEEM AND EXCHANGE
SHARES ............................................................... 18
DIVIDENDS, DISTRIBUTIONS AND TAXES ...................................... 19
NET ASSET VALUE ......................................................... 21
PERFORMANCE ............................................................. 21
GENERAL INFORMATION ..................................................... 22
SHAREHOLDER SERVICING ................................................... 23
[LOGO]
[ ] WARBURG PINCUS
EMERGING MARKETS FUND
PROSPECTUS
JUNE 30, 1995
ADEMK-1-0695
<PAGE>1
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
<PAGE>1
Subject to Completion, dated June 30, 1995
STATEMENT OF ADDITIONAL INFORMATION
June 30, 1995
---------------------------
WARBURG PINCUS EMERGING MARKETS 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 . . . . . . . . . . . . . . . . . . . . . . . . . 27
Additional Purchase and Redemption Information . . . . . . . . . . . . . 35
Exchange Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Additional Information Concerning Taxes . . . . . . . . . . . . . . . . . 37
Determination of Performance . . . . . . . . . . . . . . . . . . . . . . 40
Auditors and Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Appendix -- Description of Ratings . . . . . . . . . . . . . . . . . . . A-1
Report of Coopers & Lybrand L.L.P., Independent
Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-4
This Statement of Additional Information is meant to be read in
conjunction with the Prospectus for the Common Shares of Warburg Pincus
Emerging Markets Fund (the "Fund"), and with the Prospectus for the Series 2
Shares of the Fund, each dated June 30, 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 shareholder accounts may be obtained by calling the Fund at
(800) 888-6878 or by writing to the Fund, P.O. Box 9030, Boston, Massachusetts
02205-9030.
<PAGE>2
INVESTMENT OBJECTIVE
The investment objective of the Fund is growth of capital.
INVESTMENT POLICIES
The following policies supplement the descriptions of the Fund's
investment objective and policies in the Prospectus.
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 growth of capital. 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.
Foreign Investments. Investors should recognize that investing in
foreign companies involves certain risks, including those discussed below,
which are not typically associated with investing in U.S. issuers. Since the
Fund will be investing substantially 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
<PAGE>3
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 other
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 securities held by the Fund will not be registered with, nor
the issuers thereof be subject to reporting requirements of, the U.S.
Securities and Exchange Commission (the "SEC"). Accordingly, there may be
less publicly available information about the securities and about the foreign
company or government issuing them than is available about a domestic company
or government entity. Foreign companies are generally not subject to uniform
financial reporting standards, practices and requirements comparable to those
applicable to U.S. companies. In addition, with respect to some foreign
countries, there is the possibility of expropriation or confiscatory taxation,
limitations on the removal of funds or other assets of the Fund, political or
social instability, or domestic developments which could affect U.S.
investments in those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency, and balance of payments positions. The Fund may
invest in securities of foreign governments (or agencies or instrumentalities
thereof), and many, if not all, of the foregoing considerations apply to such
investments as well.
Securities of some foreign companies are less liquid and their prices are
more volatile than securities of comparable U.S. companies. Certain foreign
countries are known to experience long delays between the trade and settlement
dates of securities purchased or sold. Due to the increased exposure to the
Fund of 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.
Additionally, the operating expenses of the Fund can be expected to be
higher than that of an investment company investing exclusively in U.S.
securities, since the expenses of the Fund, such as custodial costs, valuation
costs and communication costs, as well as the rate of the investment advisory
fees, though similar to such expenses of some other international funds, are
higher than those costs incurred by other investment companies.
Foreign Debt Securities. The returns on foreign debt securities reflect
interest rates and other market conditions prevailing in those countries and
the effect of gains and losses in the denominated currencies against the U.S.
dollar, which have had a substantial impact on investment in foreign fixed
income securities. The relative performance of various countries' fixed
income markets historically has reflected wide variations relating to the
unique
<PAGE>4
characteristics of each country's economy. Year-to-year fluctuations in
certain markets have been significant, and negative returns have been
experienced in various markets from time to time.
The foreign government securities in which the Fund may invest generally
consist of obligations issued or backed by national, state or provincial
governments or similar political subdivisions or central banks in foreign
countries. Foreign government securities also include debt obligations of
supranational entities, which include international organizations designated,
or backed by governmental entities to promote economic reconstruction or
development, international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the "World Bank"), the European Coal and Steel Community, the
Asian Development Bank and the InterAmerican Development Bank.
Foreign government securities also include debt securities of
"quasi-governmental agencies" and debt securities denominated in multinational
currency units of an issuer (including supranational issuers). Debt
securities of quasi-governmental agencies are issued by entities owned by
either a national, state or equivalent government or are obligations of a
political unit that is not backed by the national government's full faith and
credit and general taxing powers. An example of a multinational currency unit
is the European Currency Unit ("ECU"). An ECU represents specified amounts of
the currencies of certain member states of the European Economic Community.
The specific amounts of currencies comprising the ECU may be adjusted by the
Council of Ministers of the European Community to reflect changes in relative
values of the underlying currencies.
Brady Bonds. The Fund may invest in so-called "Brady Bonds," which have
been issued by Costa Rica, Mexico, Uruguay and Venezuela and which may be
issued by other Latin American countries. Brady Bonds are issued as part of a
debt restructuring in which the bonds are issued in exchange for cash and
certain of the country's outstanding commercial bank loans. Investors should
recognize that Brady Bonds do not have a long payment history. Brady Bonds
may be collateralized or uncollateralized, are issued in various currencies
(primarily the U.S. dollar) and are actively traded in the over-the-counter
("OTC") secondary market for debt of Latin American issuers.
Loan Participations and Assignments. The Fund may invest in fixed and
floating rate loans ("Loans") arranged through private negotiations between a
foreign government (a "Borrower") and one or more financial institutions
("Lenders"). The majority of the Fund's investments in Loans are expected to
be in the form of participations in Loans ("Participations") and assignments
of portions of Loans from third parties ("Assignments"). Participations
typically will result in the Fund having a contractual relationship only with
the Lender, not with the Borrower. The Fund will have the right to receive
payments of principal, interest and any fees to which it is entitled only from
the Lender selling the Participation and only upon receipt by the Lender of
the payments from the Borrower. In connection with purchasing Participations,
the Fund generally will have no right to enforce
<PAGE>5
compliance by the Borrower with the terms of the loan agreement relating to
the Loan, nor any rights of set-off against the Borrower, and the Fund may not
directly benefit from any collateral supporting the Loan in which it has
purchased the Participation. As a result, the Fund will assume the credit
risk of both the Borrower and the Lender that is selling the Participation.
In the event of the insolvency of the Lender selling a Participation, the Fund
may be treated as a general creditor of the Lender and may not benefit from
any set-off between the Lender and the Borrower. The Fund will acquire
Participations only if the Lender interpositioned between the Fund and the
Borrower is determined by Counsellors to be creditworthy.
When the Fund purchases Assignments from Lenders, the Fund will acquire
direct rights against the Borrower on the Loan. However, since Assignments
are generally arranged through private negotiations between potential
assignees and potential assignors, the rights and obligations acquired by the
Fund as the purchaser of an Assignment may differ from, and be more limited
than, those held by the assigning Lender.
There are risks involved in investing in Participations and Assignments.
The Fund may have difficulty disposing of them because there is no liquid
market for such securities. The lack of a liquid secondary market will have
an adverse impact on the value of such securities and on the Fund's ability to
dispose of particular Participations or Assignments when necessary to meet the
Fund's liquidity needs or in response to a specific economic event, such as a
deterioration in the creditworthiness of the Borrower. The lack of a liquid
market for Participations and Assignments also may make it more difficult for
the Fund to assign a value to these securities for purposes of valuing the
Fund's portfolio and calculating its net asset value.
Mortgage-Backed Securities. The Fund may invest in mortgage-backed
securities, such as those issued by the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association, the Federal
Home Loan Mortgage Corporation or certain foreign issuers. Mortgage-backed
securities represent direct or indirect participations in, or are secured by
and payable from, mortgage loans secured by real property. The mortgages
backing these securities include, among other mortgage instruments,
conventional 30-year fixed-rate mortgages, 15-year fixed rate mortgages,
graduated payment mortgages and adjustable rate mortgages. The government or
the issuing agency typically guarantees the payment of interest and principal
of these securities. However, the guarantees do not extend to the securities'
yield or value, which are likely to vary inversely with fluctuations in
interest rates, nor do the guarantees extend to the yield or value of the
Fund's shares. These securities generally are "pass-through" instruments,
through which the holders receive a share of all interest and principal
payments from the mortgages underlying the securities, net of certain fees.
<PAGE>6
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and
the associated average life assumption. The average life of pass-through
pools varies with the maturities of the underlying mortgage loans. A pool's
term may be shortened by unscheduled or early payments of principal on the
underlying mortgages. The occurrence of mortgage prepayments is affected by
various factors, including the level of interest rates, general economic
conditions, the location, scheduled maturity and age of the mortgage and other
social and demographic conditions. Because prepayment rates of individual
pools vary widely, it is not possible to predict accurately the average life
of a particular pool. For pools of fixed-rate 30-year mortgages, a common
industry practice in the U.S. has been to assume that prepayments will result
in a 12-year average life. At present, pools, particularly those with loans
with other maturities or different characteristics, are priced on an
assumption of average life determined for each pool. In periods of falling
interest rates, the rate of prepayment tends to increase, thereby shortening
the actual average life of a pool of mortgage-related securities. Conversely,
in periods of rising rates the rate of prepayment tends to decrease, thereby
lengthening the actual average life of the pool. However, these effects may
not be present, or may differ in degree, if the mortgage loans in the pools
have adjustable interest rates or other special payment terms, such as a
prepayment charge. Actual prepayment experience may cause the yield of
mortgage-backed securities to differ from the assumed average life yield.
Reinvestment of prepayments may occur at higher or lower interest rates than
the original investment, thus affecting the Fund's yield.
The rate of interest on mortgage-backed securities is lower than the
interest rates paid on the mortgages included in the underlying pool due to
the annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificate holders and to any guarantor, such as GNMA,
and due to any yield retained by the issuer. Actual yield to the holder may
vary from the coupon rate, even if adjustable, if the mortgage-backed
securities are purchased or traded in the secondary market at a premium or
discount. In addition, there is normally some delay between the time the
issuer receives mortgage payments from the servicer and the time the issuer
makes the payments on the mortgage-backed securities, and this delay reduces
the effective yield to the holder of such securities.
Asset-Backed Securities. The Fund may invest in asset-backed securities,
which represent participations in, or are secured by and payable from, assets
such as motor vehicle installment sales, installment loan contracts, leases of
various types of real and personal property and receivables from revolving
credit (credit card) agreements. Such assets are securitized through the use
of trusts and special purpose corporations. Payments or distributions of
principal and interest may be guaranteed up to certain amounts and for a
certain time period by a letter of credit or a pool insurance policy issued by
a financial institution unaffiliated with the trust or corporation.
<PAGE>7
Asset-backed securities present certain risks that are not presented by
other securities in which the Fund may invest. Automobile receivables
generally are secured by automobiles. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations.
If the servicer were to sell these obligations to another party, there is a
risk that the purchaser would acquire an interest superior to that of the
holders of the asset-backed securities. In addition, because of the large
number of vehicles involved in a typical issuance and technical requirements
under state laws, the trustee for the holders of the automobile receivables
may not have a proper security interest in the underlying automobiles.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.
Credit card receivables are generally unsecured, and the debtors are entitled
to the protection of a number of state and federal consumer credit laws, many
of which give such debtors the right to set off certain amounts owed on the
credit cards, thereby reducing the balance due. Because asset-backed
securities are relatively new, the market experience in these securities is
limited, and the market's ability to sustain liquidity through all phases of
the market cycle has not been tested.
Zero Coupon Securities. The Fund may invest in "zero coupon" U.S.
Treasury, foreign government and U.S. and foreign corporate convertible and
nonconvertible debt securities, which are bills, notes and bonds that have
been stripped of their unmatured interest coupons and custodial receipts or
certificates of participation representing interests in such stripped debt
obligations and coupons. A zero coupon security pays no interest to its
holder prior to maturity. Accordingly, such securities usually trade at a
deep discount from their face or par value and will be subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities that make current distributions of
interest. The Fund anticipates that it will not normally hold zero coupon
securities to maturity. Federal tax law requires that a holder of a zero
coupon security accrue a portion of the discount at which the security was
purchased as income each year, even though the holder receives no interest
payment on the security during the year. Such accrued discount will be
includible in determining the amount of dividends the Fund must pay each year
and, in order to generate cash necessary to pay such dividends, the Fund may
liquidate portfolio securities at a time when it would not otherwise have done
so.
Currency Transactions. The value in U.S. dollars of the assets of the
Fund that are invested in foreign securities may be affected favorably or
unfavorably by changes in exchange control regulations, and the Fund may incur
costs in connection with conversion between various currencies. The Fund,
therefore, may engage in currency exchange transactions to protect against
uncertainty in the level of future exchange rates and may also engage in
currency transactions to increase income and total return. Currency exchange
transactions may be from any non-U.S. currency into U.S. dollars or into other
appropriate currencies. The Fund will conduct its currency exchange
transactions (i) on a spot (i.e., cash) basis at the rate prevailing in the
currency exchange market, (ii) through entering into forward contracts to
purchase or sell currency, (iii) by purchasing currency options or (iv)
through entering into foreign currency futures contracts or options on such
contracts. If a
<PAGE>8
devaluation is generally anticipated, the Fund may not be able to contract to
sell the currency at a price above the devaluation level it anticipates. The
cost to the Fund of engaging in currency transactions varies with factors such
as the currency involved, the length of the contract period and the market
conditions then prevailing. Because transactions in currency exchange are
usually conducted on a principal basis, no fees or commissions are generally
involved.
Forward Currency Contracts. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract as agreed upon by
the parties, at a price set at the time of the contract. These contracts are
entered into in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers.
At or before the maturity of a forward contract, the Fund may either sell
a portfolio security and make delivery of the currency, or retain the security
and fully or partially offset its contractual obligation to deliver the
currency by negotiating with its trading partner to purchase a second,
offsetting contract. If the Fund retains the portfolio security and engages
in an offsetting transaction, the Fund, at the time of execution of the
offsetting transaction, will incur a gain or a loss to the extent that
movement has occurred in forward contract prices.
Currency Options. The Fund may purchase put and call options on foreign
currencies. Foreign currency options generally have three, six, nine and
twelve month expiration cycles. Put options convey the right to sell the
underlying currency at a price which is anticipated to be higher than the spot
price of the currency at the time the option is exercised. Call options
convey the right to buy the underlying currency at a price which is expected
to be lower than the spot price of the currency at the time the option is
exercised.
Foreign Currency Futures. As described below under "Futures Activities,"
the Fund may enter into foreign currency futures contracts and related
options.
Currency Hedging. While the values of forward currency contracts,
currency options, currency futures and options on futures may be expected to
correlate with exchange rates, they will not reflect other factors that may
affect the value of the Fund's investments. A currency hedge, for example,
should protect a Yen-denominated bond against a decline in the Yen, but will
not protect the Fund against price decline if the issuer's creditworthiness
deteriorates. Because the value of the Fund's investments denominated in
foreign currency will change in response to many factors other than exchange
rates, a currency hedge may not be entirely successful in mitigating changes
in the value of the Fund's investments denominated in that currency over time.
<PAGE>9
A decline in the dollar value of a foreign currency in which the Fund's
securities are denominated will reduce the dollar value of the securities,
even if their value in the foreign currency remains constant. The use of
currency hedges does not eliminate fluctuations in the underlying prices of
the securities, but it does establish a rate of exchange that can be achieved
in the future. In order to protect against such diminutions in the value of
securities it holds, the Fund may purchase put options on the foreign
currency. If the value of the currency does decline, the Fund will have the
right to sell the currency for a fixed amount in dollars and will thereby
offset, in whole or in part, the adverse effect on its securities that
otherwise would have resulted. Conversely, if a rise in the dollar value of a
currency in which securities to be acquired are denominated is projected,
thereby potentially increasing the cost of the securities, the Fund may
purchase call options on the particular currency. The purchase of these
options could offset, at least partially, the effects of the adverse movements
in exchange rates. Although currency hedges limit the risk of loss due to a
decline in the value of a hedged currency, at the same time, they also limit
any potential gain that might result should the value of the currency
increase.
The Fund's currency hedging will be limited to hedging involving either
specific transactions or portfolio positions. Transaction hedging is the
purchase or sale of forward currency with respect to specific receivables or
payables of the Fund generally accruing in connection with the purchase or
sale of its portfolio securities. Position hedging is the sale of forward
currency with respect to portfolio security positions. The Fund may not
position hedge to an extent greater than the aggregate market value (at the
time of making such sale) of the hedged securities.
Futures Activities. The Fund may enter into foreign currency, 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 increasing return and hedging against changes in the value of
portfolio securities due to anticipated changes in interest rates, currency
values and/or market conditions. 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 the Fund's assets that may be
at risk with respect to futures activities.
<PAGE>10
Futures Contracts. A foreign currency futures contract provides for the
future sale by one party and the purchase by the other party of a certain
amount of a specified non-U.S. currency at a specified price, date, time and
place. Foreign currency futures are similar to forward currency contracts,
except that they are traded on commodities exchanges and are standardized as
to contract size and delivery date. 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 companies listed on the
indexes. A stock index futures contract is an agreement to be settled by
delivery of an amount of cash equal to a specified multiplier times the
difference between the value of the index at the beginning and at the end of
the contract period. In entering into these contracts, the Fund will incur
brokerage costs and be required to make and maintain certain "margin" deposits
on a mark-to-market basis, as described below.
One of the purposes of entering into a futures contract may be to protect
the Fund from fluctuations in value of its portfolio securities without its
necessarily buying or selling the securities. Since the value of portfolio
securities will far exceed the value of the futures contracts sold by the
Fund, an increase in the value of the futures contracts could only
mitigate, but not totally offset, the decline in the value of the Fund's
assets. No consideration is paid or received by the Fund upon entering into a
futures contract. Instead, the Fund will be required to deposit in a
segregated account with its custodian an amount of cash or cash equivalents,
such as U.S. government securities or other liquid high-grade debt obliga-
tions, equal to approximately 1% to 10% of the contract amount (this amount
is subject to change by the exchange on which the contract is traded, and
brokers may charge a higher amount). This amount is known as "initial margin"
and is in the nature of a performance bond or good faith deposit on the
contract which is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied. The
broker will have access to amounts in the margin account if the Fund fails to
meet its contractual obligations. Subsequent payments, known as "variation
margin," to and from the broker, will be made daily as the currency, financial
instrument or 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
<PAGE>11
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 currency
values, interest rates or stock indexes, as the case may be.
Options on Futures Contracts. The Fund may purchase and write put and
call options on foreign currency, interest rate and stock index futures
contracts and may enter into closing transactions with respect to such options
to terminate existing positions. There is no guarantee that such closing
transactions can be effected.
An option on a currency, 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 a
currency, 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, which could prove to be
incorrect. Even if Counsellors' expectations are correct, where options on
futures are
<PAGE>12
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.
Options on Securities. The Fund may purchase put and call options on
stocks and debt securities that are traded on foreign and 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. The Fund may utilize up to 10% of its
assets to purchase such options and, with respect to put options, may do so at
or about the same time that it purchases the underlying security or at a later
time. Options on securities and stock indexes (described below) may be
purchased for hedging purposes and to increase income and total return.
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 in accordance with its terms. 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 in accordance
with its terms.
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 purchased by the Fund
may be sold in closing sale transactions (sales by the Fund, prior to the
exercise of options that it has purchased, of options of the same series) in
which the Fund may realize a profit or loss from the sale. An option position
may be closed out only where there exists a secondary market for an option of
the same series on a recognized securities exchange or in the over-the-counter
market. 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.
Although the Fund will generally purchase 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
<PAGE>13
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,
as discussed below, 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.
Options as a hedge. In addition to entering into options transactions
for other purposes, including generating current 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 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. 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. 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
<PAGE>14
material losses to the Fund. 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 and write exchange-listed and OTC put and call options on stock
indexes to hedge against the effects of market-wide price movements or to
increase income and total return. A stock index measures the movement of a
certain group of stocks by assigning relative values to the common stocks
included in the index, fluctuating with changes in the market values of the
stocks included in the index. Some stock index options are based on a broad
market index such as the New York Stock Exchange Inc. ("NYSE") Composite
index, or a narrower market index such as the Standard & Poor's 100. Indexes
may also be based on a particular industry or market segment.
Options on stock indexes are similar to options on stock except that (i)
the expiration cycles of stock index options are monthly, while those of stock
options are currently quarterly, and (ii) the delivery requirements are
different. Instead of giving the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive a cash "exercise settlement amount" equal to (a) the amount, if any,
by which the fixed exercise price of the option exceeds (in the case of a put)
or is less than (in the case of a call) the closing value of the underlying
index on the date of exercise, multiplied by (b) a fixed "index multiplier."
Receipt of this cash amount will depend upon the closing level of the stock
index upon which the option is based being greater than, in the case of a
call, or less than, in the case of a put, the exercise price of the index and
the exercise price of the option expressed in dollars times a specified
multiple. The writer of the option is obligated, in return for the premium
received, to make delivery of this amount. The writer may offset its position
in stock index options prior to expiration by entering into a closing
transaction on an exchange or it may let the option expire unexercised.
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 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 these portfolio strategies will be successful.
<PAGE>15
Asset Coverage for Forward Contracts, Options, Futures and Options on
Futures. As described in the Prospectus, the Fund will comply with guidelines
established by the SEC designed to eliminate any potential for leverage with
respect to currency forward contracts; options written by the Fund on indexes;
currency, interest rate and index futures contracts and options on these
futures contracts. These guidelines may, in certain instances, require
segregation by the Fund of cash or liquid high-grade debt securities.
For example, a call option written by the Fund on securities may require
the Fund to hold the securities subject to the call (or securities convertible
into the securities without additional consideration) or to segregate cash or
liquid high-grade debt obligations 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 cash or liquid high-grade debt obligations equal to the
excess of the index value over the exercise price on a current basis. A put
option written by the Fund may require the Fund to segregate cash or liquid
high-grade debt obligations equal to the exercise price. 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. The Fund could purchase a put option if the strike price
of that option is the same or higher than the strike price of a put option
sold by the Fund. If the Fund holds a futures or forward contract, the Fund
could purchase a put option on the same futures or forward contract with a
strike price as high or higher than the price of the contract held. Asset
coverage may be achieved by other means when consistent with applicable
regulatory policies.
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, GNMA, General Services
Administration, Central Bank for Cooperatives, Federal Farm Credit Banks,
Federal Home Loan Banks, Federal Home Loan Mortgage Corporation ("FHLMC"),
Federal Intermediate Credit Banks, Federal Land Banks, Federal National
Mortgage Association ("FNMA"), Maritime Administration, Tennessee Valley
Authority, District of Columbia Armory Board and Student Loan Marketing
Association. The Fund may also invest in instruments that are supported by
the right of the issuer to borrow from the U.S. Treasury and instruments that
are supported by the credit of the instrumentality. Because the U.S.
government is not obligated by law to provide support to an instrumentality it
sponsors, the Fund will invest in obligations issued by such an
instrumentality only if Warburg, Pincus Counsellors, Inc., the Fund's
investment adviser ("Counsellors"), determines that the credit risk with
respect to the instrumentality does not make its securities unsuitable for
investment by the Fund.
<PAGE>16
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 the Fund has applied for and received specific authority to do so from
the SEC. Loans of portfolio securities will be collateralized by cash,
letters of credit or U.S. government securities, which are maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. Any gain or loss in the market price of the securities
loaned that might occur during the term of the loan would be for the account
of the Fund. From time to time, the Fund may return a part of the interest
earned from the investment of collateral received for securities loaned to the
borrower and/or a third party that is unaffiliated with the Fund and that is
acting as a "finder."
By lending its securities, the Fund can increase its income by continuing
to receive interest and any dividends on the loaned securities as well as by
either investing the collateral received for securities loaned in short-term
instruments or obtaining yield in the form of interest paid by the borrower
when U.S. government securities are used as collateral. Although the
generation of income is not an investment objective of the Fund, income
received could be used to pay the Fund's expenses and would increase an
investor's total return. The Fund will adhere to the following conditions
whenever its portfolio securities are loaned: (i) the Fund must receive at
least 100% cash collateral or equivalent securities of the type discussed in
the preceding paragraph from the borrower; (ii) the borrower must increase
such collateral whenever the market value of the securities rises above the
level of such collateral; (iii) the Fund must be able to terminate the loan at
any time; (iv) the Fund must receive reasonable interest on the loan, as well
as any dividends, interest or other distributions on the loaned securities and
any increase in market value; (v) the Fund may pay only reasonable custodian
fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower, provided, however, that if a material
event adversely affecting the investment occurs, the Board must terminate the
loan and regain the right to vote the securities. Loan agreements involve
certain risks in the event of default or insolvency of the other party
including possible delays or restrictions upon the Fund's ability to recover
the loaned securities or dispose of the collateral for the loan.
<PAGE>17
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.
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 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.
Short Sales "Against the Box". In a short sale, the Fund sells a
borrowed security and has a corresponding obligation to the lender to return
the identical security. The Fund may engage in short sales if at the time of
the short sale the Fund owns or has the right to obtain without additional
cost an equal amount of the security being sold short. This investment
technique is known as a short sale "against the box."
In a short sale, the seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If the Fund engages in a short sale, the collateral for the short
position will be maintained by the Fund's custodian or qualified
sub-custodian. While the short sale is open, the Fund will maintain in a
segregated account an amount of securities equal in kind and amount to the
securities sold short or securities convertible into or exchangeable for such
equivalent securities. These securities constitute the Fund's long position.
Not more than 10% of the Fund's net assets (taken at current value) may be
held as collateral for such short sales at any one time.
The Fund does not intend to engage in short sales against the box for
investment purposes. The Fund may, however, make a short sale as a hedge,
when it believes that the price of a security may decline, causing a decline
in the value of a security owned by the
<PAGE>18
Fund (or a security convertible or exchangeable for such security), or when
the Fund wants to sell the security at an attractive current price, but also
wishes to defer recognition of gain or loss for U.S. federal income tax
purposes and for purposes of satisfying certain tests applicable to regulated
investment companies under the Code. In such case, any future losses in the
Fund's long position should be offset by a gain in the short position and,
conversely, any gain in the long position should be reduced by a loss in the
short position. The extent to which such gains or losses are reduced will
depend upon the amount of the security sold short relative to the amount the
Fund owns. There will be certain additional transaction costs associated with
short sales against the box, but the Fund will endeavor to offset these costs
with the income from the investment of the cash proceeds of short sales.
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.
Because a warrant does not carry with it the right to dividends or voting
rights with respect to the securities which it entitles a holder to purchase,
and because it does not represent any rights in the assets of the issuer,
warrants may be considered more speculative than certain other types of
investments. Also, the value of a warrant does not necessarily change with
the value of the underlying securities and a warrant ceases to have value if
it is not exercised prior to its expiration date.
Stand-By Commitments. The Fund may acquire "stand-by commitments" with
respect to securities held in its portfolio. Under a stand-by commitment, a
dealer agrees to purchase at the Fund's option specified securities at a
specified price. The Fund's right to exercise stand-by commitments is
unconditional and unqualified. Stand-by commitments acquired by
<PAGE>19
the Fund may also be referred to as "put" options. A stand-by commitment is
not transferable by the Fund, although the Fund can sell the underlying
securities to a third party at any time.
The principal risk of stand-by commitments is that the writer of a
commitment may default on its obligation to repurchase the securities acquired
with it. The Fund intends to enter into stand-by commitments only with
brokers, dealers and banks that, in the opinion of Counsellors, present
minimal credit risks. In evaluating the creditworthiness of the issuer of a
stand-by commitment, Counsellors will periodically review relevant financial
information concerning the issuer's assets, liabilities and contingent claims.
The Fund will acquire stand-by commitments only in order to facilitate
portfolio liquidity and does not intend to exercise its rights under stand-by
commitments for trading purposes.
The amount payable to the Fund upon its exercise of a stand-by commitment
is normally (i) the Fund's acquisition cost of the securities (excluding any
accrued interest which the Fund paid on their acquisition), less any amortized
market premium or plus any amortized market or original issue discount during
the period the Fund owned the securities, plus (ii) all interest accrued on
the securities since the last interest payment date during that period.
The Fund expects that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held in the Fund's portfolio will
not exceed 1/2 of 1% of the value of the Fund's total assets calculated
immediately after each stand-by commitment is acquired.
The Fund would acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition of a stand-by commitment would not affect
the valuation or assumed maturity of the underlying securities. Stand-by
commitments acquired by the Fund would be valued at zero in determining net
asset value. Where the Fund paid any consideration directly or indirectly for
a stand-by commitment, its cost would be reflected as unrealized depreciation
for the period during which the commitment was held by the Fund. Stand-by
commitments would not affect the average weighted maturity of the Fund's
portfolio. The Fund currently anticipates that it will not invest more than
5% of its net assets in stand-by commitments.
Non-Publicly Traded and Illiquid Securities. The Fund may not invest
more than 15% of its net assets in illiquid securities, including securities
that are illiquid by virtue of the absence of a readily available market or
legal or contractual restrictions on resale and repurchase agreements which
have a maturity of longer than seven days. Securities that have legal or
contractual restrictions on resale but have a readily available market are not
<PAGE>20
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 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).
<PAGE>21
Borrowing. The Fund may borrow up to 30% of its total assets for
temporary or emergency purposes, including to meet portfolio redemption
requests so as to permit the orderly disposition of portfolio securities or to
facilitate settlement transactions on portfolio securities. Investments
(including roll-overs) will not be made when borrowings exceed 5% of the
Fund's net assets. Although the principal of such borrowings will be fixed,
the Fund's assets may change in value during the time the borrowing is
outstanding. The Fund expects that some of its borrowings may be made on a
secured basis. In such situations, either the custodian will segregate the
pledged assets for the benefit of the lender or arrangements will be made with
a suitable subcustodian, which may include the lender.
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 (i) not more than 25% of the market value of its
total assets will be invested in the securities of a single issuer, and (ii)
with respect to 50% of the market value of its total assets, not more than 5%
of the market value of its total assets will be invested in the securities of
a single issuer and the Fund will not own more than 10% of the outstanding
voting securities of a single issuer.
Other Investment Limitations
The investment limitations numbered 1 through 9 may not be changed
without the affirmative vote of the holders of a majority of the Fund's
outstanding shares. Such majority is defined as the lesser of (i) 67% or more
of the shares present at 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 16
may be changed by a vote of the Board at any time.
The Fund may not:
1. Borrow money except that the Fund may (a) borrow from banks for
temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by the Fund may not exceed 30% of the value of the
Fund's total assets at the time of such borrowing. For purposes of this
restriction, short sales, the entry into currency transactions, options,
futures contracts, options on futures contracts, forward commitment
transactions and dollar roll transactions that are not accounted for as
financings (and the segregation of assets in connection with any of the
foregoing) shall not constitute borrowing.
<PAGE>22
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 fixed-income
securities, including loan participations, assignments and structured
securities, lend portfolio securities and enter into repurchase agreements.
4. Underwrite any securities issued by others except to the extent that
the investment in restricted securities and the sale of securities in
accordance with the Fund's investment objective, policies and limitations may
be deemed to be underwriting.
5. Purchase or sell real estate or invest in oil, gas or mineral
exploration or development programs, except that the Fund may invest in (a)
securities secured by real estate, mortgages or interests therein and (b)
securities of companies that invest in or sponsor oil, gas or mineral
exploration or development programs.
6. Make short sales of securities or maintain a short position, except
that the Fund may maintain short positions in forward currency contracts,
options, futures contracts and options on futures contracts and may enter into
short sales "against the box".
7. Purchase securities on margin, except that the Fund may obtain any
short-term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with transactions in currencies,
options, futures contracts or related options will not be deemed to be a
purchase of securities on margin.
8. Invest in commodities, except that the Fund may purchase and sell
futures contracts, including those relating to securities, currencies and
indexes, and options on futures contracts, securities, currencies or indexes,
purchase and sell currencies on a forward commitment or delayed-delivery basis
and enter into stand-by commitments.
9. Issue any senior security except as permitted in the Fund's
investment limitations.
10. Purchase securities of other investment companies except in
connection with a merger, consolidation, acquisition, reorganization or offer
of exchange, or as otherwise permitted under the 1940 Act.
11. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the purchase of securities on a
forward commitment or delayed-delivery basis and collateral and initial or
variation margin arrangements with respect to currency transactions, options,
futures contracts, and options on futures contracts.
<PAGE>23
12. Invest more than 15% of the Fund's net assets in securities which
may be illiquid because of legal or contractual restrictions on resale or
securities for which there are no readily available market quotations. For
purposes of this limitation, repurchase agreements with maturities greater
than seven days shall be considered illiquid securities.
13. Purchase any security if as a result the Fund would then have more
than 5% of its total assets invested in securities of companies (including
predecessors) that have been in continuous operation for fewer than three
years.
14. Purchase or retain securities of any company if, to the knowledge of
the Fund, any of the Fund's officers or 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.
15. Invest in warrants (other than warrants acquired by the Fund as part
of a unit or attached to securities at the time of purchase) if, as a result,
the investments (valued at the lower of cost or market) would exceed 5% of the
value of the Fund's net assets.
16. Make additional investments (including roll-overs) if the Fund's
borrowings exceed 5% of its net assets.
The Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of Fund shares in certain states.
Should the Fund determine that any such commitment is no longer in the best
interest of the Fund and its shareholders, the Fund will revoke the commitment
by terminating the sale of Fund shares in the state involved. If a percentage
restriction is adhered to at the time of an investment, a later increase or
decrease in the percentage of assets resulting from a change in the values of
portfolio securities or in the amount of the Fund's assets will not constitute
a violation of such restriction.
Portfolio Valuation
The Prospectus discusses the time at which the net asset value of the
Fund is determined for purposes of sales and redemptions. The following is a
description of the procedures used by the Fund in valuing its assets.
Securities listed on a U.S. securities exchange (including securities
traded through the NASDAQ National Market System) or 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
<PAGE>24
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. The valuation of short sales of securities, which are not traded on
a national exchange, will be at the mean of bid and asked prices. 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 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. Because of the need to
obtain prices as of the close of trading on various exchanges throughout the
world, calculation of the Fund's net asset value may not take place
contemporaneously with the determination of the prices of certain portfolio
securities used in such calculation. All assets and liabilities initially
expressed in foreign currency values will be converted into U.S. dollar values
at the prevailing rate as quoted by a Pricing Service. If such quotations are
not available, the rate of exchange will be determined in good faith pursuant
to consistently applied procedures established by the Board. Events affecting
the values of portfolio securities that occur between the time their prices
are determined and the close of regular trading on the NYSE will not be
reflected in the Fund's calculation of net asset value unless the Board or its
delegates deems that the particular event would materially affect net asset
value, in which case an adjustment may be made.
Portfolio Transactions
Counsellors is responsible for establishing, reviewing and, where
necessary, modifying the Fund's investment program to achieve its investment
objective. Purchases and sales of newly issued portfolio securities are
usually principal transactions without brokerage commissions effected directly
with the issuer or with an underwriter acting as principal. Other purchases
and sales may be effected on a securities exchange or over-the-counter,
depending on where it appears that the best price or execution will be
obtained. The
<PAGE>25
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 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.
<PAGE>26
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.
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 service agreements ("Agreements") concerning
the provision of services to customers ("Customers") who beneficially own the
Fund's Common Stock, par value $.001 per share, designated Common Stock -
Series 1 Shares (the "Series 1 Shares") or Common Stock - Series 2 (the
"Series 2 Shares"). See the Prospectus, "Shareholder Servicing."
The Fund may participate, if and when practicable, in bidding for the
purchase of securities for the Fund's portfolio directly from an issuer in
order to take advantage of the lower purchase price available to members of
such a group. The Fund will engage in this practice, however, only when
Counsellors, in its sole discretion, believes such practice to be otherwise in
the Fund's interest.
Portfolio Turnover
The Fund does not intend to seek profits through short-term trading, but
the rate of turnover will not be a limiting factor when the Fund deems it
desirable to sell or purchase securities. The Fund's portfolio turnover rate
is calculated by dividing the lesser of purchases or sales of its portfolio
securities for the year by the monthly average value of the portfolio
securities. Securities with remaining maturities of one year or less at the
date of acquisition are excluded from the calculation.
Certain practices that may be employed by the Fund could result in high
portfolio turnover. For example, options on securities may be sold in
anticipation of a decline in the price of the underlying security (market
decline) or purchased in anticipation of a rise in the price of the underlying
security (market rise) and later sold.
<PAGE>27
MANAGEMENT OF THE FUND
Officers and Board of Directors
The names (and ages) of the Fund's Directors and officers, their
addresses, present positions and principal occupations during the past five
years and other affiliations are set forth below.
Richard N. Cooper* + (60) . . . Director
Harvard University Professor at Harvard University;
1737 Cambridge Street Director or Trustee of CNA Financial
Cambridge, Massachusetts 02138 Corporation, Circuit City Stores, Inc.
(retail electronics and appliances) and
Phoenix Home Life Insurance Co.
Donald J. Donahue (70) . . . . Director
99 Indian Field Road Chairman of Magma Copper
Greenwich, Connecticut 06830 Company since January 1987; Director of
Northeast Utilities, GEV Corporation and
Signet Star Reinsurance Company; Chairman
and Director of NAC Holdings from September
1990-June 1993.
Jack W. Fritz (68) . . . . . . Director
2425 North Fish Creek Road Private investor; Consultant
P.O. Box 483 and Director of Fritz Broadcasting, Inc.
Wilson, Wyoming 83014 and Fritz Communications (developers and
operators of radio stations); Director of
Advo, Inc. (direct mail advertising).
John L. Furth* (64) . . . . . . Chief Executive Officer and
466 Lexington Avenue Director
New York, New York 10017-3147 Vice Chairman and Director of EMW;
Associated with EMW since 1970; Chief
Executive Officer of 11 other investment
companies advised by Counsellors.
- -------------------------------
* Indicates a Director who is an "interested person" of the Fund as defined
in the 1940 Act.
+ Mr. Cooper has consulting arrangements with Counsellors and an affiliate
of Counsellors. Although these relationships do not appear to require
designation of Mr. Cooper as an interested person, the Fund is currently
making such a designation in order to avoid the possibility that Mr.
Cooper's independence would be questioned.
<PAGE>28
Thomas A. Melfe (63) . . . . . Director
30 Rockefeller Plaza Partner in the law firm of Donovan
New York, New York 10112 Leisure Newton & Irvine; Director of
Municipal Fund for New York Investors, Inc.
Alexander B. Trowbridge (65) . Director
1155 Connecticut Avenue, N.W. President of Trowbridge
Suite 700 Partners, Inc. (business
Washington, DC 20036 consulting) from January 1990-January 1994;
President of the National Association of
Manufacturers from 1980-1990; Director or
Trustee of New England Mutual Life Insurance
Co., ICOS Corporation (biopharmaceuticals),
P.H.H. Corporation (fleet auto management;
housing and plant relocation service), WMX
Technologies Inc. (solid and hazardous waste
collection and disposal), The Rouse Company
(real estate development), SunResorts
International Ltd. (hotel and real estate
management), Harris Corp. (electronics and
communications equipment), The Gillette Co.
(personal care products) and Sun Company
Inc. (petroleum refining and marketing).
Richard H. King (50) . . . . . President and Co-Portfolio Manager
466 Lexington Avenue Portfolio Manager or Co-Portfolio Manager
New York, New York 10019-3147 of other Warburg Pincus Funds; Managing
Director of EMW since 1989; Associated with
EMW since 1989; Senior Vice President of
Fiduciary Trust Company International from
1984 through 1989; President of 3 other
investment companies advised by Counsellors.
Arnold M. Reichman (47) . . . . Executive Vice President
466 Lexington Avenue Managing Director and Assistant
New York, New York 10017-3147 Secretary of EMW; Associated with EMW since
1984; Senior Vice President, Secretary and
Chief Operating Officer of Counsellors
Securities; President or Executive Vice
President of 14 other investment companies
advised by Counsellors.
<PAGE>29
Eugene L. Podsiadlo (38) . . . Senior Vice President
466 Lexington Avenue Managing Director of EMW; Associated
New York 10017-3147 with EMW since 1991; Vice President of
Citibank, N.A. from 1987-1991; Senior Vice
President of Counsellors Securities and 14
other investment companies advised by
Counsellors.
Eugene P. Grace (43) . . . . . Vice President and Secretary
466 Lexington Avenue Associated with EMW since April 1994;
New York, New York 10017-3147 Attorney-at-law from September 1989 - April
1994; life insurance agent, New York Life
Insurance Company from 1993-1994; General
Counsel and Secretary, Home Unity Savings
Bank from 1991-1992; Vice President and
Chief Compliance Officer of Counsellors
Securities; Vice President and Secretary of
14 other investment companies advised by
Counsellors.
Stephen Distler (41) . . . . . Vice President and Chief Financial Officer
466 Lexington Avenue Managing Director, Controller and Assistant
New York, New York 10017-3147 Secretary of EMW; Associated with EMW since
1984; Treasurer of Counsellors Securities;
Vice President, Treasurer and Chief
Accounting Officer or Treasurer and Chief
Financial Officer of 14 other investment
companies advised by Counsellors.
Howard Conroy (41) . . . . . . Vice President, Treasurer and Chief
466 Lexington Avenue Accounting Officer
New York, New York 10017-3147 Associated with EMW since 1992; Associated
with Martin Geller, C.P.A. from 1990-1992;
Vice President, Finance with
Gabelli/Rosenthal & Partners, L.P. until
1990; Vice President, Treasurer and Chief
Accounting Officer of 13 other investment
companies advised by Counsellors.
Karen Amato (31) . . . . . . . Assistant Secretary
466 Lexington Avenue Associated with EMW since 1987;
New York, New York 10017-3147 Assistant Secretary of 14 other investment
companies advised by Counsellors.
<PAGE>30
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 $500, 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.
Director's Compensation
<TABLE>
<CAPTION>
Total Total Annual Compensation from
Compensation from all Investment Companies
Name of Director* Fund+ Managed by Counsellors
----------------- ----------------- ------------------------------
<S> <C> <C>
John L. Furth None** None**
Richard N. Cooper $1,500 $39,500
Donald J. Donahue $1,500 $39,500
Jack W. Fritz $1,500 $39,500
Thomas A. Melfe $1,500 $39,500
Alexander B. Trowbridge $1,500 $39,500
</TABLE>
____________________
+ Since the Fund has not completed its first full fiscal year, amounts
shown are estimates of future payments to be made pursuant to existing
arrangements.
* Each Director also serves as a Director or Trustee of 14 other investment
companies advised by Counsellors.
** Mr. Furth is considered to be an interested person of the Fund and
Counsellors, as defined under Section 2(a)(19) of the 1940 Act, and,
accordingly, receives no compensation from the Fund or any other
investment company managed by Counsellors.
As of May 31, 1995, Directors and officers of the Fund as a group owned
of record 17,487 shares of the Fund's outstanding Common Shares (as defined
below) and no shares of the Fund's outstanding Series 2 Shares. As of the
same date, Mr. Furth may be deemed to have beneficially owned 61.35% of Common
Shares outstanding, including shares owned by clients for which Counsellors
has investment discretion. Mr. Furth disclaims ownership of these shares and
does not intend to exercise voting rights with respect to these shares.
<PAGE>31
Richard H. King, president and co-portfolio manager of the Fund, earned a
B.A. degree from Durham University in England. Mr. King is also portfolio
manager of Warburg, Pincus International Equity Fund and the International
Equity Portfolios of Warburg, Pincus Institutional Fund, Inc. and Warburg,
Pincus Trust and a co-portfolio manager of Warburg, Pincus Japan OTC Fund.
From 1968 to 1982, he worked at W.I. Carr Sons & Company (Overseas), a leading
international brokerage firm. He resided in the Far East as an Investment
Analyst from 1970 to 1977, became director, and later relocated to the U.S.
where he became founder and president of W.I. Carr (America), based in New
York. From 1982 to 1984 Mr. King was a director in charge of the Far East
equity investments at N.M. Rothschild International Asset Management, a London
merchant bank. In 1984 Mr. King became chief investment officer and Director
for all international investment strategy with Fiduciary Trust Company
International S.A., in London. He managed EAFE mutual fund (FTIT) 1985-1986
which grew from $3 million to over $100 million during this two-year period.
Nicholas P.W. Horsley, co-portfolio manager of the Fund, is also a co-
portfolio manager of Warburg, Pincus Japan OTC Fund and a research analyst and
associate portfolios manager of Warburg, Pincus International Equity Fund and
the International Equity Portfolios of Warburg, Pincus Institutional Fund,
Inc. and Warburg, Pincus Trust. He joined Counsellors in 1993. From 1981 to
1984 he was a securities analyst at Barclays Merchant Bank in London, UK and
Johannesburg, RSA. From 1984 to 1986 he was a senior analyst with BZW
Investment Management in London. From 1986 to 1993 he was a director,
portfolio manager and analyst at Barclays deZoete Wedd in New York City. Mr.
Horsley earned B.A. and M.A. degrees with honors from University College,
Oxford.
Harold W. Ehrlich, an associate portfolio manager and research analyst of
the Fund, is also an associate portfolio manager and research analyst of
Warburg, Pincus International Equity Fund and the International Equity
Portfolios of Warburg, Pincus Institutional Fund, Inc. and Warburg, Pincus
Trust. Prior to joining Counsellors in February 1995, Mr. Ehrlich was a
senior vice president, portfolio manager and analyst at Templeton Investment
Counsel Inc. from 1987 to 1995. He was a research analyst and assistant
portfolio manager at Fundamental Management Corporation from 1985 to 1986 and
a research analyst at First Equity Corporation of Florida from 1983 to 1985.
Mr. Ehrlich earned a B.S.B.A. degree from the University of Florida and earned
his Chartered Financial Analyst designation in 1990.
Vincent McBride, associate portfolio manager and research analyst of the
Fund, is also an associate portfolio manager of Warburg, Pincus International
Equity Fund and the International Equity Portfolios of Warburg, Pincus
Institutional Fund, Inc. and Warburg, Pincus Trust. Prior to joining
Counsellors in 1994, Mr. McBride was an international equity analyst at Smith
Barney Inc. from 1993 to 1994 and at General Electric Investment Corp. from
1992 to 1993. He was also a portfolio manager/analyst at United Jersey Bank
from 1989 to 1992 and a portfolio manager at First Fidelity Bank from 1987 to
1989. Mr.
<PAGE>32
McBride earned a B.S. degree from the University of Delaware and an M.B.A.
degree from Rutgers University.
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 Prospectus. 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.
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.
Organization of the Fund
The Fund was incorporated on December 23, 1993 under the laws of the
State of Maryland, and it is registered as a non-diversified open-end
management investment company under the 1940 Act. 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 Shares and Common Stock -- Series 2 Shares have been
authorized by the Fund's Charter, although only shares of Common Stock and
Series 2 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
meeting 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
<PAGE>33
Directors will call a meeting for any purpose upon the written request of
shareholders holding at least 10% of the Fund's outstanding shares.
All shareholders of the Fund, upon liquidation, will participate ratably
in the Fund's net assets. Shares do not have cumulative voting rights, which
means that holders of more than 50% of the shares voting for the election of
Directors can elect all Directors. Shares are transferable but have no
preemptive, conversion or subscription rights.
Custodian and Transfer Agent
State Street Bank and Trust Company ("State Street") is custodian of the
Fund's assets pursuant to a custodian agreement (the "Custodian Agreement").
Under the Custodian Agreement, State Street (i) maintains a separate account
or accounts in the name of the Fund, (ii) holds and transfers portfolio
securities on account of the Fund, (iii) makes receipts and disbursements of
money on behalf of the Fund, (iv) collects and receives all income and other
payments and distributions on account of the Fund's portfolio securities and
(v) makes periodic reports to the Board concerning the Fund's operations.
State Street is authorized to select one or more foreign or domestic banks or
trust companies to serve as sub-custodian on behalf of the Fund, provided that
State Street 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 in accordance with the Custodian Agreement.
The principal business address of State Street is 225 Franklin Street, Boston,
Massachusetts 02110.
State Street has also agreed to serve as the Fund's shareholder
servicing, transfer and dividend disbursing agent pursuant to a Transfer
Agency and Service Agreement, under which State Street (i) issues and redeems
shares of the Fund, (ii) addresses and mails all communications by the Fund to
record owners of Fund shares, including reports to shareholders, dividend and
distribution notices and proxy material for its meetings of shareholders,
(iii) maintains shareholder accounts and, if requested, sub-accounts and
(iv) makes periodic reports to the Board concerning the transfer agent's
operations with respect to the Fund. State Street has delegated to Boston
Financial Data Services, Inc., a 50% owned subsidiary ("BFDS"), responsibility
for most shareholder servicing functions. BFDS's principal business address
is 2 Heritage Drive, Boston, Massachusetts 02171.
Distribution and Shareholder Servicing
Common Shares. The Fund has entered into a Shareholder Servicing and
Distribution Plan (the "12b-1 Plan"), pursuant to Rule 12b-1 under the 1940
Act, pursuant to which the Fund will pay Counsellors Securities, in
consideration for Services (as defined below), a fee calculated at an annual
rate of .25% of the average daily net assets of the Common Shares of the Fund.
Services performed by Counsellors Securities include (i) the sale of the
Common Shares, as set forth in the 12b-1 Plan ("Selling Services"), (ii)
ongoing servicing and/or maintenance of the accounts of Common Shareholders of
the Fund, as set forth in the 12b-1 Plan ("Shareholder Services"), and (iii)
sub-transfer agency services, subaccounting services
<PAGE>34
or administrative services related to the sale of the Common Shares, as set
forth in the 12b-1 Plan ("Administrative Services" and collectively with
Selling Services and Administrative Services, "Services") including, without
limitation, (a) payments reflecting an allocation of overhead and other office
expenses of Counsellors Securities related to providing Services; (b) payments
made to, and reimbursement of expenses of, persons who provide support
services in connection with the distribution of the Common Shares including,
but not limited to, office space and equipment, telephone facilities,
answering routine inquiries regarding the Fund, and providing any other
Shareholder Services; (c) payments made to compensate selected dealers or
other authorized persons for providing any Services; (d) costs relating to the
formulation and implementation of marketing and promotional activities for the
Common Shares, including, but not limited to, direct mail promotions and
television, radio, newspaper, magazine and other mass media advertising, and
related travel and entertainment expenses; (e) costs of printing and
distributing prospectuses, statements of additional information and reports of
the Fund to prospective shareholders of the Fund; and (f) costs involved in
obtaining whatever information, analyses and reports with respect to marketing
and promotional activities that the Fund may, from time to time, deem
advisable.
Pursuant to the 12b-1 Plan, Counsellors Securities provides the Board
with periodic reports of amounts expended under the 12b-1 Plan and the purpose
for which the expenditures were made.
Series 2 Shares. The Fund may, in the future, enter into Agreements with
institutions ("Institutions") to perform certain distribution, shareholder
servicing, administrative and accounting services for their Customers who are
beneficial owners of Series 2 Shares. See the Series 2 Shares Prospectus,
"Shareholder Servicing." The Fund's agreements with Institutions with respect
to Series 2 Shares will be governed by a Distribution Plan. The Distribution
Plan would require the Board, at least quarterly, to receive and review
written reports of amounts expended under the Distribution Plan and the
purposes for which such expenditures were made.
General. An Institution with which the Fund has entered into an
Agreement with respect to either its Common Shares or Series 2 Shares may
charge a Customer one or more of the following types of fees, as agreed upon
by the Institution and the Customer, with respect to the cash management or
other services provided by the Service Organization: (i) account fees (a fixed
amount per month or per year); (ii) transaction fees (a fixed amount per
transaction processed); (iii) compensation balance requirements (a minimum
dollar amount a Customer must maintain in order to obtain the services
offered); or (iv) account maintenance fees (a periodic charge based upon the
percentage of assets in the account or of the dividend paid on those assets).
Services provided by an Institution to Customers are in addition to, and not
duplicative of, the services to be provided under the Fund's co-administration
and distribution and shareholder servicing arrangements. A Customer of an
Institution should read the 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 an Institution to
its Customers prior to any purchase of Fund shares.
<PAGE>35
Prospectuses are available from the Fund's distributor upon request. No
preference will be shown in the selection of Fund portfolio investments for
the instruments of Institutions.
The Distribution Plan and 12b-1 Plan will continue in effect for so long
as their continuance is specifically approved at least annually by the Board,
including a majority of the Directors who are not interested persons of the
Fund and who have no direct or indirect financial interest in the operation of
the Service Plans ("Independent Directors"). Any material amendment of the
Distribution Plan or the 12b-1 Plan would require the approval of the Board in
the manner described above. The Distribution Plan may be amended to increase
materially the amount to be spent under the Plan without shareholder approval
of the relevant class of shares. The Distribution Plan or the 12b-1 Plan may
be terminated at any time, without penalty, by vote of a majority of the
Independent Directors or by a vote of a majority of the outstanding voting
securities of the relevant class of shares of the Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of the Fund's shares is equal to the per share net
asset value of the relevant class of shares of the Fund. Information on how
to purchase and redeem Fund shares and how such shares are priced is included
in the Prospectus.
Under 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.
Automatic Cash Withdrawal Plan. An automatic cash withdrawal plan (the
"Plan") is available to shareholders who wish to receive specific amounts of
cash periodically. Withdrawals may be made under the Plan by redeeming as
many shares of the Fund as may be necessary to cover the stipulated withdrawal
payment. To the extent that withdrawals exceed dividends, distributions and
appreciation of a shareholder's investment in the Fund, there will be a
reduction in the value of the shareholder's investment and continued
withdrawal payments may reduce the shareholder's investment and ultimately
exhaust it. Withdrawal payments should not be considered as income from
investment in the Fund. All
<PAGE>36
dividends and distributions on shares in the Plan are automatically reinvested
at net asset value in additional shares of the Fund.
EXCHANGE PRIVILEGE
An exchange privilege with certain other funds advised by Counsellors is
available to investors in the Fund. The funds into which exchanges can be
made currently are 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 Tax-Free Fund, Warburg Pincus Intermediate
Maturity Government Fund, Warburg Pincus Fixed Income Fund, Warburg Pincus
Short-Term Tax-Advantaged Bond Fund, Warburg Pincus Global Fixed Income Fund,
Warburg Pincus Balanced Fund, Warburg Pincus Growth & Income Fund, Warburg
Pincus Capital Appreciation Fund, Warburg Pincus Emerging Growth Fund, Warburg
Pincus International Equity Fund and Warburg Pincus Japan OTC Fund.
Shareholders of the Fund may exchange all or part of their shares for common
shares of these funds or other mutual funds organized by Counsellors in the
future on the basis of their relative net asset values per share at the time
of exchange. Exchanges of Series 2 Shares may currently be made with Series 2
Shares of Warburg Pincus International Equity Fund, Warburg Pincus Emerging
Growth Fund, Warburg Pincus Capital Appreciation Fund and Warburg Pincus Japan
OTC 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 Series 2
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 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. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the
Fund.
<PAGE>37
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 intends to qualify as a "regulated investment company" under
Subchapter M of the Code. If it qualifies as a regulated investment company,
the Fund will pay no federal income taxes on its taxable net investment income
(that is, taxable income other than net realized capital gains) and its net
realized capital gains that are distributed to shareholders. To qualify under
Subchapter M, the Fund must, among other things: (i) distribute to its
shareholders at least 90% of its taxable net investment income (for this
purpose consisting of taxable net investment income and net realized
short-term capital gains); (ii) derive at least 90% of its gross income from
dividends, interest, payments with respect to loans of securities, gains from
the sale or other disposition of securities, or other income (including, but
not limited to, gains from options, futures, and forward contracts) derived
with respect to the Fund's business of investing in securities; (iii) derive
less than 30% of its annual gross income from the sale or other disposition of
securities, options, futures or forward contracts held for less than three
months; and (iv) diversify its holdings so that, at the end of each fiscal
quarter of the Fund (a) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. government securities and other securities, with
those other securities limited, with respect to any one issuer, to an amount
no greater in value than 5% of the Fund's total assets and to not more than
10% of the outstanding voting securities of the issuer, and (b) not more than
25% of the market value of the Fund's assets is invested in the securities of
any one issuer (other than U.S. government securities or securities of other
regulated investment companies) or of two or more issuers that the Fund
controls and that are determined to be in the same or similar trades or
businesses or related trades or businesses. In meeting these requirements,
the Fund may be restricted in the selling of securities held by the Fund for
less than three months and in the utilization of certain of the investment
techniques described above and in the Fund's prospectus. As a regulated
investment company, the Fund will be subject to a 4% non-deductible excise tax
measured with respect to certain undistributed amounts of ordinary 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>38
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 (i) 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, (ii) the
Fund will be able to use substantially all of its losses for the fiscal years
in which the losses actually occur and (iii) the Fund will continue to qualify
as a regulated investment company.
Dividends paid from the Fund's net investment income and distributions of
the Fund's net realized short-term capital gains are taxable to shareholders
of the Fund as ordinary income, regardless of the length of time shareholders
have held shares of the Fund and whether the dividends or distributions are
received in cash or reinvested in additional shares. Distributions of net
long-term capital gains, if any, will be taxable as long-term capital gains,
whether received in cash or reinvested in shares and regardless of how long
the shareholder has held the Fund shares. As a general rule, a shareholder's
gain or loss on a sale of his Fund shares will be a long-term capital gain or
loss if he has held his shares for more than one year and will be a short-term
capital gain or loss if he has held his shares for one year or less. The
Fund's dividends, to the extent not derived from dividends attributable to
certain types of stock issued by U.S. corporations, will not qualify for the
dividends received deduction for corporations.
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,
<PAGE>39
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 reinvesting of dividends and capital gains
distributions in the Fund, within a period of 61 days beginning 30 days before
and ending 30 days after the disposition of the shares. In such a case, the
basis of the shares acquired will be increased to reflect the disallowed loss.
Any loss realized by a shareholder on the sale of a Fund share held by the
shareholder for six months or less will be treated for federal income tax
purposes as a long-term capital loss to the extent of any distributions or
deemed distributions of long-term capital gains received by the shareholder
with respect to such share.
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.
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
<PAGE>40
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 that would have effects similar to the proposed
legislation. 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, break 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 Series 2 Shares in advertisements or in reports and other
communications to shareholders. With respect to the Fund's Common Shares, the
Fund's average annual total return for the period commencing December 30, 1994
(commencement of operations) and ending April 30, 1995 was 18.37% (4.56%
without waivers). The actual total return for the same period was 5.80%
(1.50% without waivers). Investors should note that this performance may not
be representative of the Fund's total return in longer market cycles. 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] = 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 Series 2 Shares
average annual total return for the period commencing December 30, 1994
(commencement of operations) and ending April 30, 1995 was 18.04%
(-4.13% without waivers). The actual total return for the same period was
5.70% (-1.40% without waivers).
The Fund may advertise, from time to time, comparisons of the performance
of its Common Shares and/or Series 2 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
- -----------------------------
* - This expression is being raised to the power of n.
<PAGE>41
months that have elapsed in the current calendar year or most recent three
months, as the case may be.
The performance of a class of Fund shares will vary from time to time
depending upon market conditions, the composition of the Fund's portfolio and
operating expenses allocable to it. As described above, total return is based
on historical earnings and is not intended to indicate future performance.
Consequently, any given performance quotation should not be considered as
representative of performance for any specified period in the future.
Performance information may be useful as a basis for comparison with other
investment alternatives. However, the Fund's performance will fluctuate,
unlike certain bank deposits or other investments which pay a fixed yield for
a stated period of time. Any fees charged by Institutions or other
institutional investors directly to their customers in connection with
investments in Fund shares are not reflected in the Fund's total return, and
such fees, if charged, will reduce the actual return received by customers on
their investments.
The Fund intends to diversify its assets among countries, and in doing
so, would expect to be able to reduce the risk arising from economic problems
affecting a single country. Counsellors thus believes that, by spreading risk
throughout many diverse markets outside the United States, the Fund will
reduce its exposure to country-specific economic problems. Counsellors also
believes that a diversified portfolio of international equity securities, when
combined with a similarly diversified portfolio of domestic equity securities,
tends to have a lower volatility than a portfolio composed entirely of
domestic securities. Furthermore, international equities have been shown to
reduce volatility in single asset portfolios regardless of whether the
investments are in all domestic equities or all domestic fixed-income
instruments.
From time to time, the Fund may advertise evaluations of a class of Fund
shares published by nationally recognized financial publications, such as
Morningstar Inc. or Lipper Analytical Services, Inc. Morningstar, Inc. rates
funds in broad categories based on risk/reward analyses over various time
periods. In addition, advertising or supplemental sales literature relating
to the Fund may describe the percentage decline from all-time high levels for
certain foreign stock markets.
AUDITORS AND COUNSEL
Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), with principal offices at
2400 Penn Center, Philadelphia, Pennsylvania 19103, serves as independent
auditors for the Fund. The financial statement, dated October 17, 1994, that
appears in this Statement of Additional Information has been audited by
Coopers & Lybrand, whose report thereon appears elsewhere herein and has been
included herein in reliance upon the report of such firm of independent
auditors given upon their authority as experts in accounting and auditing.
<PAGE>42
Willkie Farr & Gallagher serves as counsel for the Fund as well as
counsel to Counsellors, Counsellors Service and Counsellors Securities.
MISCELLANEOUS
As of May 31, 1995, the name, address and percentage of ownership of
other persons (other than Mr. Furth, see "Management of the Fund") that
control the Fund (within the meaning of the rules and regulations under the
1940 Act) or own of record 5% or more of the Fund's outstanding shares were as
follows: State Street Bank and Trust, FBO Norman L. Cannon, 22870 Canterbury
Lane, Shaker Heights, OH 44122-3912 (Common Shares) -- 11.22% and
Counsellors, 466 Lexington Avenue, New York, NY 10017-3140 (Series 2 Shares)
- -- 100%. Mr. Lionel I. Pincus may be deemed to have beneficially owned 58.20%
of the Fund's 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.
FINANCIAL STATEMENTS
The Fund's audited financial statement, dated October 17, 1995, and the
Fund's unaudited financial statements for the period ending April 30, 1995
follow the Report of Independent Auditors.
<PAGE>A-1
APPENDIX
DESCRIPTION OF RATINGS
Commercial Paper Ratings
Commercial paper rated A-1 by Standard and Poor's Ratings Group ("S&P")
indicates that the degree of safety regarding timely payment is strong. Those
issues determined to possess extremely strong safety characteristics are
denoted with a plus sign designation. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety
is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Services, Inc. ("Moody's"). Issuers rated Prime-1 (or
related supporting institutions) are considered to have a superior capacity
for repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics of issuers rated Prime-1 but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
Corporate Bond Ratings
The following summarizes the ratings used by S&P for corporate bonds:
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB - This is the lowest investment grade. Debt rated BBB is regarded as
having an adequate capacity to pay interest and repay principal. Although it
normally exhibits adequate protection parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to
pay interest and repay principal for bonds in this category than for bonds in
higher rated categories.
<PAGE>A-2
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.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
represents a lower degree of speculation than B and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
D - Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
The following summarizes the ratings used by Moody's for corporate bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred
to as "gilt edged." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. 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.
<PAGE>A-3
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to the
bonds rated "Aa" through "B". The modifier 1 indicates that the bond being
rated ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the bond
ranks in the lower end of its generic rating category.
Caa - Bonds that are rated Caa are of poor standing. These issues may be
in default or present elements of danger may exist with respect to principal
or interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospect of ever
attaining any real investment standing.
<PAGE>1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors
of Warburg, Pincus Emerging Markets Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Warburg, Pincus Emerging Markets Fund, Inc. ("the Fund") as of October 17,
1994. This financial statement is the responsibility of the Fund's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit 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 statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Warburg, Pincus Emerging
Markets Fund, Inc. as of October 17, 1994 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 17, 1994
<PAGE>2
WARBURG, PINCUS EMERGING MARKETS FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
as of October 17, 1994
Assets:
Cash $101,000
Deferred Organizational Costs 131,416
Total Assets $232,416
Liabilities:
Payable to Adviser 131,416
Net Assets $101,000
Net Asset Value, Redemption and Offering
Price Per Share (three billion shares
authorized - $.001 Par Value)
applicable to 10,000 common shares and
100 series 2 shares outstanding $10.00
The accompanying notes are an integral part of the financial statements.
<PAGE>3
WARBURG, PINCUS EMERGING MARKETS FUND, INC.
Notes to Financial Statements
October 17, 1994
1. Organization:
Warburg, Pincus Emerging Markets Fund, Inc. (the "Fund") was incorporated
on December 23, 1993 under the laws of the state of Maryland. The Fund
is registered under the Investment Company Act of 1940, as amended, as a
nondiversified, open-end management investment company consisting of two
classes of shares: Common shares and Series 2 shares. The assets of
each class are segregated, and a shareholder's interest is limited to the
class in which shares are held. The Fund has not commenced operations
except those related to organizational matters and the sale of 10,100
shares ("initial shares") of beneficial interest to Warburg, Pincus
Counsellors, Inc. (the "Adviser") on October 17, 1994.
2. Organizational Costs and Transaction with Affiliates:
Organizational costs have been capitalized by the Fund and are being
amortized over sixty months commencing with operations. In the event any
of the initial shares of the Fund are redeemed by any holder thereof
during the period that the Fund is amortizing its organizational costs,
the redemption proceeds payable to the holder thereof by the Fund will be
reduced by unamortized organizational costs in the same ratio as the
number of initial shares being redeemed bears to the number of initial
shares outstanding at the time of redemption.
Certain directors and officers of the Fund are also officers of the
Fund's Adviser. Such directors and officers are paid no fees by the Fund
for serving as directors or officers of the Fund.
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
-------- ----------
<S> <C> <C>
COMMON STOCK (68.8%)
Argentina (7.0%)
Banco Frances del Rio de la Plata SA ADR 2,800 $ 51,450
YPF SA ADR 4,000 81,000
----------
132,450
----------
Australia (4.0%)
BTR Nylex Ltd. 38,400 74,858
----------
Austria (4.8%)
V.A. Technologie AG + 819 90,452
----------
Hong Kong (15.9%)
Guanghou Shipyard 46,000 18,130
Hong Kong Electric 16,000 49,105
HSBC Holdings PLC 8,400 97,422
Jardine Matheson Holdings 13,500 107,325
Shanghai Haixing + 150,000 27,912
----------
299,894
----------
India (4.4%)
Hindalco Industries Ltd. GDR 300 7,950
Reliance Industries Ltd. GDS 4,685 74,960
----------
82,910
----------
Indonesia (3.5%)
PT Dynaplast Ltd. 23,000 24,742
PT Semen Gresik 9,000 41,148
----------
65,890
----------
Israel (6.1%)
Ampal-American Israel Corp. Class A + 4,200 26,775
Clal Electronics + 581 62,112
ECI Telecommunications Ltd. 1,600 27,000
----------
115,887
----------
</TABLE>
See Accompanying Notes to Financial Statements.
2
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS (CONT'D)
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
-------- ----------
COMMON STOCK (CONT'D)
<S> <C> <C>
Korea (10.0%)
Daewoo Heavy Industries 1,640 $ 20,223
Hana Bank 1,000 17,972
Hanil Bank 8,030 101,389
Korea Long Term Credit Bank 1,600 48,705
----------
188,289
----------
Malaysia (3.1%)
Arab-Malaysian Merchant Bank BHD 2,000 19,768
Westmont BHD 9,000 39,008
----------
58,776
----------
Mexico (1.3%)
Cemex SA de CV ADR 4,000 25,000
----------
Norway (3.1%)
Helikopter Service 5,000 57,713
----------
Taiwan (2.1%)
Tuntex Distinct Corp. GDS + 3,500 40,250
----------
Thailand (3.5%)
Industrial Finance Corp. of Thailand 31,100 66,588
----------
TOTAL COMMON STOCK (Cost $1,243,391) 1,298,957
----------
PREFERRED STOCK (3.8%)
Korea (3.8%)
Keyang Electric + 3,500 56,933
Samsung Electronics Co., Ltd. 155 13,957
----------
TOTAL PREFERRED STOCK (Cost $66,766) 70,890
----------
OPTIONS (0.0%) CONTRACTS
--------
Mexico (0.0%)
Mexican Index, 09/95 +
(Cost $2,010) 4 100
----------
</TABLE>
See Accompanying Notes to Financial Statements.
3
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS (CONT'D)
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
BONDS (11.0%) PAR VALUE
-------- ----------
Argentina (3.7%)
Banco De Galicia 7.00%, 08/01/02 $101,000 $ 70,700
----------
Taiwan (7.3%)
United Microelectronics Corp. 1.25%, 06/08/04 48,000 75,480
Yang Ming Marine Transport Corp. 2.00%, 10/06/01 61,000 62,525
----------
138,005
----------
TOTAL BONDS (Cost $203,475) 208,705
----------
<CAPTION>
SHORT-TERM INVESTMENTS (16.4%)
<S> <C> <C>
Repurchase agreement with State Street Bank & Trust Co. dated 04/28/95 at 5.87%
to be repurchased at $310,152 on 05/01/95.
(Collateralized by $315,000 U.S. Treasury Note 6.50%, due 09/30/96, with a
market value of $311,733.) (Cost $310,000) 310,000 310,000
----------
TOTAL INVESTMENTS AT VALUE (100.0%) (Cost $1,825,642*) $1,888,652
----------
----------
</TABLE>
+ Non-income producing security.
* Also cost for Federal income tax purposes.
See Accompanying Notes to Financial Statements.
4
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING MARKETS FUND
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at value (Cost $1,825,642) $1,888,652
Deferred organizational costs 122,953
Dividends and interest receivable (Cost $10,984) 10,984
Other assets 9,093
----------
Total assets 2,031,682
----------
LIABILITIES
Payable for investments purchased (Cost $203,718) 202,789
Deferred organizational costs payable 64,741
Accrued expenses 21,386
----------
Total liabilities 288,916
----------
NET ASSETS applicable to 164,613 Common Shares outstanding and
100 Series 2 Shares outstanding $1,742,766
----------
----------
NET ASSET VALUE, offering and redemption price per Common Share ($1,741,709[div]164,613) $10.58
------
------
NET ASSET VALUE, offering and redemption price per Series 2 Share
($1,057[div]100) $10.57
------
------
</TABLE>
See Accompanying Notes to Financial Statements.
5
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING MARKETS FUND
STATEMENT OF OPERATIONS
For the Period December 30, 1994 through April 30, 1995
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $94) $ 7,959
Interest 10,160
--------
Total investment income 18,119
--------
EXPENSES:
Investment advisory 4,143
Administrative services 729
Audit 7,966
Custodian 8,382
Directors 3,377
Distribution 829
Insurance 1,657
Legal 7,226
Organizational 8,463
Printing 4,271
Registration 14,145
Transfer agent 10,182
Miscellaneous 3,162
--------
74,532
Less fees waived and expenses reimbursed (71,216)
--------
Total expenses 3,316
--------
Net investment income 14,803
--------
NET REALIZED AND UNREALIZED GAIN FROM INVESTMENTS AND
FOREIGN CURRENCY RELATED ITEMS:
Net realized loss from security transactions (1,223)
Net realized loss from foreign currency related items (943)
Net change in unrealized appreciation from investments
and foreign currency related items 63,939
--------
Net realized and unrealized gain from investments and
foreign currency related items 61,773
--------
Net increase in net assets resulting from operations $ 76,576
--------
--------
</TABLE>
See Accompanying Notes to Financial Statements.
6
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING MARKETS FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 30, 1994
Through
April 30, 1995
(Unaudited)
-----------------
<S> <C>
FROM OPERATIONS:
Net investment income $ 14,803
Net realized loss from security transactions (1,223)
Net realized loss from foreign currency related items (943)
Net change in unrealized appreciation from investments and foreign currency related items 63,939
-----------------
Net increase in net assets resulting from operations 76,576
-----------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 1,617,465
Net asset value of shares redeemed (52,275)
-----------------
Net increase in net assets from capital share transactions 1,565,190
-----------------
Net increase in net assets 1,641,766
NET ASSETS:
Beginning of period 101,000
-----------------
End of period $ 1,742,766
-----------------
-----------------
</TABLE>
See Accompanying Notes to Financial Statements.
7
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING MARKETS FUND
FINANCIAL HIGHLIGHTS
(For a Share of the Fund Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Shares Series 2 Shares
----------------- -----------------
December 30, 1994 December 30, 1994
through through
April 30, 1995 April 30, 1995
(Unaudited) (Unaudited)
----------------- -----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.00
------- -------
Income from Investment Operations:
Net Investment Income .09 .13
Net Gain from Securities and Foreign Currency Related Items (both
realized and unrealized) .49 .44
------- -------
Total From Investment Operations .58 .57
------- -------
NET ASSET VALUE, END OF PERIOD $ 10.58 $ 10.57
------- -------
------- -------
Total Return 18.37%* 18.04%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $ 1,742 $ 1
Ratios to average daily net assets:
Operating expenses 1.00%* 1.25%*
Net investment income 4.37%* 3.61%*
Decrease reflected in above expense ratios due to
waivers/reimbursements 21.13%* 21.13%*
Portfolio turnover rate 15.10%* 15.10%*
</TABLE>
* Annualized
See Accompanying Notes to Financial Statements.
8
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING MARKETS FUND
NOTES TO FINANCIAL STATEMENTS
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Warburg Pincus Emerging Markets Fund (the 'Fund') is registered under the
Investment Company Act of 1940, as amended, as a non-diversified, open-end
management investment company. The Fund seeks growth of capital by investing
primarily in equity securities of companies in emerging securities markets.
The net asset value of the Fund is determined daily as of the close of
regular trading on the New York Stock Exchange. The 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 generally 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 Board of Directors. 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 Fund 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 Fund does not isolate that portion of gains and losses on
investments in equity securities which is 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 indentification method for both financial
reporting and income tax purposes.
Dividends from net investment income are declared and paid semiannually.
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.
The Fund intends 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 Fund in connection with its organization have been
deferred and are being amortized over a period of five years from the date the
Fund commenced its operations.
9
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING MARKETS FUND
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
The Fund may enter into repurchase agreement transactions. Under the terms
of a typical repurchase agreement, the 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
the Fund's investment adviser. The Fund pays Counsellors an investment advisory
fee calculated at an annual rate of 1.25% of the Fund's average daily net
assets. For the period ended April 30, 1995, Counsellors earned $4,143 in
investment advisory fees of which $4,143 was voluntarily waived. Counsellors
also voluntarily reimbursed the Fund for $66,675 in expenses.
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 the Fund's co-administrators. For its
administrative services, CFSI receives a fee calculated at an annual rate of
.10% of the Fund's average daily net assets. For the period ended April 30,
1995, CFSI earned $331 in administrative services fees. For the period ended
April 30, 1995, PFPC earned and waived $398 in administrative services fees.
Counsellors Securities Inc. ('CSI'), also a wholly owned subsidiary of
Counsellors, serves as the Fund's distributor. For distribution services with
respect to the Common Shares, CSI receives a fee at the annual rate of .25% of
the 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 April 30, 1995, CSI earned $829 in distribution fees.
3. INVESTMENTS IN SECURITIES
The Fund's purchases and sales of investment securities for the period
ended April 30, 1995 (excluding short-term investments) were $1,542,093 and
$24,972, respectively.
At April 30, 1995, the net unrealized appreciation from investments of
$63,010 was comprised of appreciation of $95,026 for those securities having an
excess of value over cost, and depreciation of $32,016 for those securities
having an excess of cost over value (based on cost for Federal income tax
purposes).
4. FOREIGN FORWARD CURRENCY CONTRACTS
The 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
10
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING MARKETS FUND
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
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. The 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, there were no open foreign forward currency
contracts.
5. SERIES 2 SHARES; CAPITAL SHARE TRANSACTIONS
The Fund is 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. 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 the 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.
Transactions in shares of the Fund were as follows:
<TABLE>
<CAPTION>
For the Period December 30, 1994
Through April 30, 1995
--------------------------------------
Common Shares Series 2 Shares
------------------ ------------------
<S> <C> <C>
Shares sold 159,583 0
Shares issued to shareholders on reinvestment of dividends 0 0
Shares redeemed (4,970) 0
---------- ----------
Net increase in shares outstanding 154,613 0
---------- ----------
---------- ----------
</TABLE>
6. NET ASSETS
Net assets at April 30, 1995, consisted of the following:
<TABLE>
<CAPTION>
Common Shares Series 2 Shares Total
------------- --------------- ----------
<S> <C> <C> <C>
Capital contributed, net $ 1,665,190 $ 1,000 $1,666,190
Accumulated net investment income 13,848 12 13,860
Accumulated net realized loss from security
transactions (1,222) (1) (1,223)
Net unrealized appreciation from investments and
foreign currency related items 63,893 46 63,939
------------- ------- ----------
Net assets $ 1,741,709 $ 1,057 $1,742,766
------------- ------- ----------
------------- ------- ----------
</TABLE>
11
- --------------------------------------------------------------------------------
<PAGE>C-1
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements included in Part B:
(1) Report of Coopers & Lybrand L.L.P.,
Independent Auditors.
(2) Statement of Assets and Liabilities at October 17, 1994.
(3) Schedule of Investments at April 30, 1995.
(4) Statement of Assets and Liabilities at April 30, 1995.
(5) Statement of Operations for the Period December 30, 1994
through April 30, 1995.
(6) Statement of Changes in Net Assets.
(7) Financial Highlights.
(8) Notes to Financial Statements.
(b) Exhibits:
Exhibit No. Description of Exhibit
- ----------- ----------------------
1(a) Articles of Incorporation.
1(b) Articles of Amendment.
2 By-Laws.
3 Not applicable.
4 Form of Share Certificates.
5 Investment Advisory Agreement.
6 Distribution Agreement.*
7 Not applicable.
* Contained in Exhibit No. 15 hereto.
<PAGE>C-2
Exhibit No. Description of Exhibit
- ----------- ----------------------
8(a) Custodian Agreement.**
8(b) Form of Amendment to Custodian Agreement.
9(a) Form of Transfer Agency Agreement.***
9(b) Form of Counsellors Service Co-Administration Agreement.***
9(c) Form of PFPC Co-Administration Agreement.***
10(a) Opinion of Willkie Farr & Gallagher.**
10(b) Consent of Willkie Farr & Gallagher.
10(c) Opinion of Venable Baetjer & Howard.**
11 Consent of Coopers & Lybrand L.L.P.
12 Not applicable.
13 Form of Purchase Agreement.
14 Form of Retirement Plans.****
15(a) Shareholder Services and Distribution Plan.**
15(b) Distribution Agreement.
15(c) Form of Shareholder Services Plan.*****
15(d) Distribution Plan.
16 Computation of Performance Quotations.
17 Financial Data Schedule.
- -----------------------------
** Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement of Registrant, filed on December 15, 1994.
*** 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).
**** Incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement on Form N-1A for Warburg, Pincus Capital
Appreciation Fund filed on May 16, 1988 (Securities Act File No. 33-
12344).
***** Incorporated by reference; material provisions of this exhibit
substantially similar to those of this exhibit in Post-Effective
Amendment No. 12 to the Registration Statement on Form N-1A of
Counsellors Cash Reserve Fund, Inc. filed on June 28, 1995 (Securities
Act File No. 2-94840).
<PAGE>C-3
Item 25. Persons Controlled by or Under Common Control with
Registrant
Warburg, Pincus Counsellors, Inc. ("Counsellors"), Registrant's
investment adviser, may be deemed a controlling person of Registrant because
it possesses or shares investment or voting power with respect to more than
25% of the outstanding securities of Registrant. E.M. Warburg, Pincus & Co.,
Inc. controls Counsellors through its ownership of a class of voting preferred
stock of Counsellors. John L. Furth, director of the Fund, and Lionel
I. Pincus may be deemed to be controlling persons of the Fund because they may
be deemed to possess or share investment power over shares owned by clients of
Counsellors and certain other entities.
Item 26. Number of Holders of Securities
As of May 31, 1995:
Number of
Title of Class Record Holders
-------------- --------------
Common Stock 280
Series 2 Shares 1
Item 27. Indemnification
Registrant, officers and directors or trustees of Counsellors, of
Counsellors Securities Inc. ("Counsellors Securities") and of Registrant are
covered by insurance policies indemnifying them for liability incurred in
connection with the operation of Registrant. Discussion of this coverage is
incorporated by reference to Item 27 of Part C of the Registration Statement
of Warburg, Pincus Trust (Securities Act File No. 33-58125), filed on March
17, 1995.
Item 28. Business and Other Connections of
Investment Adviser
Warburg, Pincus Counsellors, Inc. ("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).
<PAGE>C-4
Item 29. Principal Underwriter
(a) Counsellors Securities will act as distributor for Registrant.
Counsellors Securities currently acts as distributor for Warburg, Pincus
Balanced Fund; Warburg, Pincus Capital Appreciation Fund; Warburg, Pincus Cash
Reserve Fund; Warburg, Pincus Emerging Growth Fund; Warburg, Pincus Fixed
Income Fund; Warburg, Pincus Global Fixed Income Fund; Warburg, Pincus Growth
& Income Fund; Warburg, Pincus Institutional Fund, Inc.; Warburg, Pincus
Intermediate Maturity Government Fund; Warburg, Pincus International Equity
Fund; Warburg, Pincus Japan OTC Fund; Warburg, Pincus New York Intermediate
Municipal Fund; Warburg, Pincus New York Tax Exempt Fund; Warburg, Pincus
Short-Term Tax- Advantaged Bond Fund and Warburg, Pincus Tax-Free Fund.
(b) For information relating to each director and officer of
Counsellors Securities, reference is made to Form BD (SEC File No. 15-654)
filed by Counsellors Securities under the Securities Exchange Act of 1934, as
amended.
(c) None.
Item 30. Location of Accounts and Records
(1) Warburg, Pincus Emerging Markets Fund
466 Lexington Avenue
New York, New York 10017-3147
(Fund's Articles of Incorporation, By-laws and minute books)
(2) Counsellors Funds Service, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as co-administrator)
(3) PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as co-administrator)
(4) Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as distributor)
(5) Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as investment adviser)
<PAGE>C-5
(6) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(records relating to its functions as shareholder servicing
agent, transfer agent, dividend disbursing agent and custodian)
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Registrant hereby undertakes to call a meeting of its
shareholders for the purpose of voting upon the question of removal of a
director or directors of Registrant when requested in writing to do so by the
holders of at least 10% of Registrant's outstanding shares. Registrant
undertakes further, in connection with the meeting, to comply with the
provisions of Section 16(c) of the 1940 Act relating to communications with
the shareholders of certain common-law trusts.
(b) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE>C-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 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 30th day of June, 1995.
WARBURG, PINCUS EMERGING MARKETS FUND, INC.
By:/s/ Richard H. King
Richard H. King
President
ATTEST:
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:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John L. Furth Chief Executive Officer and June 30, 1995
John L. Furth Director
/s/ Richard H. King President June 30, 1995
Richard H. King
/s/ Stephen Distler Vice President and Chief June 30, 1995
Stephen Distler Financial Officer
/s/ Howard Conroy Vice President, Treasurer and June 30, 1995
Howard Conroy Chief Accounting Officer
/s/ Richard N. Cooper Director June 30, 1995
Richard N. Cooper
/s/ Donald J. Donahue Director June 30, 1995
Donald J. Donahue
</TABLE>
<PAGE>C-7
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jack W. Fritz Director June 30, 1995
Jack W. Fritz
/s/ Thomas A. Melfe Director June 30, 1995
Thomas A. Melfe
/s/ Alexander B. Trowbridge Director June 30, 1995
Alexander B. Trowbridge
</TABLE>
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
1(a) Articles of Incorporation.
1(b) Articles of Amendment.
2 By-Laws.
3 Not applicable.
4 Form of Share Certificates.
5 Investment Advisory Agreement.
6 Distribution Agreement.*
7 Not applicable.
8(a) Custodian Agreement.**
8(b) Form of Amendment to Custodian Agreement.
9(a) Form of Transfer Agency Agreement.***
9(b) Form of Counsellors Service Co-Administration Agreement.***
9(c) Form of PFPC Co-Administration Agreement.***
10(a) Opinion of Willkie Farr & Gallagher.**
10(b) Consent of Willkie Farr & Gallagher.
10(c) Opinion of Venable Baetjer & Howard.**
11 Consent of Coopers & Lybrand L.L.P.
- ---------------------------------
* Contained in Exhibit No. 15 hereto.
** Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement of Registrant, filed on December 15, 1994.
*** 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).
<PAGE>16
Exhibit No. Description of Exhibit
- ----------- ----------------------
12 Not applicable.
13 Form of Purchase Agreement.
14 Form of Retirement Plans.****
15(a) Shareholder Services and
Distribution Plan.**
15(b) Distribution Agreement.
15(c) Form of Shareholder Services Plan.*****
15(d) Distribution Plan.
16 Computation of Performance
Quotations.
17 Financial Data Schedule.
- ----------------------------
**** Incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement on Form N-1A for Warburg, Pincus Capital
Appreciation Fund filed on May 16, 1988 (Securities Act File No. 33-
12344).
***** Incorporated by reference; material provisions of this exhibit
substantially similar to those of this exhibit in Post-Effective
Amendment No. 12 to the Registration Statement on Form N-1A of
Counsellors Cash Reserve Fund, Inc. filed on June 28, 1995 (Securities
Act File No. 2-94840).
<PAGE>1
ARTICLES OF INCORPORATION
OF
WARBURG, PINCUS NEW GROWTH INTERNATIONAL FUND
ARTICLE I
The undersigned, Maryann Canfield, 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 Warburg, Pincus New Growth
International Fund.
ARTICLE III
PURPOSES AND POWERS
The Corporation is formed for the following purposes:
(1) To conduct and carry on the business of an investment company.
(2) To hold, invest and reinvest its assets in securities and other
investments or to hold part or all of its assets in cash.
(3) To issue and sell shares of its capital stock in such amounts
and on such terms and conditions and for such purposes and for such
amount or kind of consideration as may now or hereafter be permitted by
law.
(4) To redeem, purchase or acquire in any other manner, hold,
dispose of, resell, transfer, reissue or cancel (all without the vote or
consent of the stockholders of the Corporation) shares of its capital
stock, in any manner and to the extent now or hereafter permitted by law
and by these Articles of Incorporation.
(5) To do any and all additional acts and to exercise any and all
additional powers or rights as may be necessary, incidental, appropriate
or desirable for the accomplishment of all or any of the foregoing
purposes.
<PAGE>2
The Corporation shall be authorized to exercise and enjoy all of the
powers, rights and privileges granted to, or conferred upon, corporations by
the Maryland General Corporation Law now or hereafter in force, and the
enumeration of the foregoing shall not be deemed to exclude any powers, rights
or privileges so granted or conferred.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the Corporation
in the State of Maryland is c/o The Corporation Trust Company Incorporated, 32
South Street, Baltimore, Maryland, 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) (A) The total number of shares of capital stock that the
Corporation shall have authority to issue is three billion
(3,000,000,000) shares, of the par value of one tenth of one cent ($.001)
per share and of the aggregate par value of three million dollars
($3,000,000), all of which three billion (3,000,000,000) shares are
designated Common Stock.
(B) One billion (1,000,000,000) shares of Common Stock have been
divided into and classified initially as a series of Common Stock,
designated Common Stock - Series 1 ("Series 1 Shares").
(C) Each Series 1 Share will have the same preferences, conversion
and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption as every
other share of Common Stock, except that:
<PAGE>3
(i) Series 1 Shares will share equally with Common Stock other
than Series 1 Shares ("Other Shares") in the income, earnings and
profits derived from investment and reinvestment of the assets
belonging to the Corporation and will be charged equally with Other
Shares with the liabilities and expenses of the Corporation, except
that Series 1 Shares will bear the expense of payments made pursuant
to any shareholder services plan and/or distribution plan adopted by
the Corporation, to institutions or other entities under any
agreements entered into between the Corporation and institutions or
other entities providing for services by the institutions or other
entities to their customers who beneficially own Series 1 Shares;
(ii) On any matter submitted to a vote of shareholders of the
Corporation that pertains to the agreements or expenses described in
clause (i) above (or to any plan adopted by the Corporation relating
to said agreements or expenses), only Series 1 Shares will be
entitled to vote, except that: (A) if said matter affects Other
Shares, Other Shares will also be entitled to vote, and in such case
Series 1 Shares will be voted in the aggregate together with such
Other Shares and not by series except where otherwise required by
law; and (B) if said matter does not affect Series 1 Shares, said
Shares will not be entitled to vote (except where otherwise required
by law) even though the matter is submitted to a vote of the holders
of Other Shares; and
(iii) The Board of Directors of the Corporation in its sole
discretion may determine whether a matter affects a particular class
or series of Corporation shares.
(2) Any fractional share shall carry proportionately the rights of
a whole share including, without limitation, the right to vote and the right
to receive dividends. A fractional share shall not, however, have the right
to receive a certificate evidencing it.
(3) All persons who shall acquire stock in the Corporation shall
acquire the same subject to the provisions of this Charter and the By-Laws of
the Corporation.
(4) No holder of stock of the Corporation by virtue of being such a
holder shall have any right to purchase or subscribe
<PAGE>4
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.
(7) The presence in person or by proxy of the holders of one-third
of the shares of stock of the Corporation entitled to vote (without regard to
class) shall constitute a quorum at any meeting of the stockholders, except
with respect to any matter which, under applicable statutes or regulatory
requirements, requires approval by a separate vote of one or more classes of
stock, in which case the presence in person or by proxy of the holders of one-
third of the shares of stock of each class required to vote as a class on the
matter shall constitute a quorum.
ARTICLE VI
REDEMPTION
Each holder of shares of the Corporation's capital stock shall be
entitled to require the Corporation to redeem all or any part of the shares of
capital stock of the Corporation standing in the name of the holder on the
books of the Corporation, and all shares of capital stock issued by the
Corporation shall be subject to redemption by the Corporation, at the
redemption price of the shares as in effect from time to time as may be
determined by or pursuant to the direction of the Board of Directors of the
Corporation in accordance with the provisions of Article VI, subject to the
right of the Board of Directors of
<PAGE>5
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 transfer agent for any class of stock for the stockholder
is below an amount determined from time to time by the Board of Directors of
the Corporation 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. Arnold M. Reichman has been appointed
director of the Corporation to hold office until the first annual meeting of
stockholders or until his successor is elected and qualified.
(2) In furtherance, and not in limitation, of the powers conferred
by the laws of the State of Maryland, the Board of Directors is expressly
authorized:
<PAGE>6
(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.
(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
<PAGE>7
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
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
<PAGE>8
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
(1) To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General Corporation Law,
no director or officer of the Corporation shall have any liability to the
Corporation or its stockholders for damages. This limitation on liability
applies to events occurring at the time a person serves as a director or
officer of the Corporation whether or not such person is a director or officer
at the time of any proceeding in which liability is asserted.
(2) The Corporation shall indemnify and advance expenses to its
currently acting and its former directors to the fullest extent that
indemnification of directors is permitted by the Maryland General Corporation
Law. The Corporation shall indemnify and advance expenses to its officers to
the same extent as its directors and to such further extent as is consistent
with law. The board of directors may, through a by-law, resolution or
agreement, make further provisions for indemnification of directors, officers,
employees and agents to the fullest extent permitted by the Maryland General
Corporation Law.
(3) No provision of this Article VIII shall be effective to protect
or purport to protect any director or officer of the Corporation against any
liability to the Corporation or its stockholders to which he would otherwise
be subject by reason of willful misfeasance, bad faith, gross negliglence or
reckless disregard of the duties involved in the conduct of his office.
(4) References to the Maryland General Corporation Law in this
Article VIII are to the law as from time to time amended. No amendment to the
Articles of Incorporation of the Corporation shall affect any right of any
person under this Article VIII based on any event, omission or proceeding
prior to such amendment.
<PAGE>9
ARTICLE IX
AMENDMENTS
The Corporation reserves the right from time to time to make any
amendment to its Charter, now or hereafter authorized by law, including any
amendment that alters the contract rights, as expressly set forth in this
Charter, of any outstanding stock.
* * *
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: Maryann Canfield
Incorporator
Dated the 22nd day of December, 1993
<PAGE>1
ARTICLES OF AMENDMENT
OF
WARBURG, PINCUS EMERGING MARKETS FUND, INC.
WARBURG, PINCUS EMERGING MARKETS FUND, INC., a Maryland corporation
with its principal corporate offices in the State of Maryland, in Baltimore
City, Maryland (hereinafter called the "Corporation"), certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended by:
(1) striking Article V of the Articles of Incorporation and
inserting in lieu thereof the following:
"ARTICLE V
CAPITAL STOCK
(1) (A) The total number of shares of capital stock that the
Corporation shall have authority to issue is three billion (3,000,000,000)
shares, of the par value of one tenth of one cent ($.001) per share and of the
aggregate par value of three million dollars ($3,000,000), all of which three
billion (3,000,000,000) shares are designated Common Stock.
(B) (i) One billion (1,000,000,000) shares of Common Stock
have been divided into and classified initially as a series of
Common Stock, designated Common Stock - Series 1 ("Series 1
Shares").
(ii) One billion (1,000,000,000) shares of Common Stock
have been divided into and classified initially as a series of
Common Stock, designated Common Stock - Series 2 ("Series 2
Shares").
(C) Each Series 1 Share will have the same preferences,
conversion and other rights, voting powers, restrictions, limitations as
to dividends, qualifications and terms and conditions of redemption as
every other share of Common Stock, except that, subject to the provisions
of any governing order, rule or regulation issued pursuant to the
Investment Company Act of 1940, as amended (the "1940 Act"):
(i) Series 1 Shares will share equally with Common Stock
other than Series 1 Shares ("Non-Series 1 Shares") in the income,
earnings and profits derived from investment and reinvestment of the
assets
<PAGE>2
belonging to the Corporation and will be charged equally with Non-Series 1
Shares with the liabilities and expenses of the Corporation, except that
Series 1 Shares will bear the expense of payments made pursuant to any
shareholder services plan and/or distribution plan adopted by the Corporation
to institutions or other entities under any agreements entered into between
the Corporation and institutions or other entities providing for services by
the institutions or other entities to their customers who beneficially own
Series 1 Shares;
(ii) On any mater submitted to a vote of shareholders of the
Corporation that pertains to the agreements or expenses described in
clause (C)(i) above (or to any plan adopted by the Corporation
relating to said agreements or expenses), only Series 1 Shares will
be entitled to vote, except that if said matter affects Non-Series 1
Shares, Non-Series 1 Shares will also be entitled to vote, and in
such case Series 1 Shares will be voted in the aggregate together
with such Non-Series 1 Shares and not by series except where
otherwise required by law. Series 1 Shares will not be entitled to
vote on any matter that does not affect Series 1 Shares (except
where otherwise required by law) even though the matter is submitted
to a vote of the holders of Non-Series 1 Shares; and
(iii) The Board of Directors of the Corporation in its sole
discretion may determine whether a matter affects a particular class
or series of Corporation shares.
(D) Each Series 2 Share will have the same preferences,
conversion and other rights, voting powers, restrictions, limitations as
to dividends, qualifications and terms and conditions of redemption as
every other share of Common Stock, except that, subject to the provisions
of any governing order, rule or regulation issued pursuant to the 1940
Act:
(i) Series 2 Shares will share equally with Common Stock
other than Series 2 Shares ("Non-Series 2 Shares") in the income,
earnings and profits derived from investment and reinvestment of the
assets belonging to the Corporation and will be charged equally with
Non-Series 2 Shares with the liabilities and expenses of the
Corporation, except that Series 2 Shares will bear the expense of
payments made pursuant to any shareholder services plan and/or
distribution plan adopted by the Corporation to institutions or
<PAGE>3
other entities under any agreements entered into between the Corporation and
institutions or other entities providing for services by the institutions or
other entities to their customers who beneficially own Series 2 Shares;
(ii) On any mater submitted to a vote of shareholders of the
Corporation that pertains to the agreements or expenses described in
clause (D)(i) above (or to any plan adopted by the Corporation
relating to said agreements or expenses), only Series 2 Shares will
be entitled to vote, except that if said matter affects Non-Series 2
Shares, Non-Series 2 Shares will also be entitled to vote, and in
such case Series 2 Shares will be voted in the aggregate together
with such Non-Series 2 Shares and not by series except where
otherwise required by law. Series 2 Shares will not be entitled to
vote on any matter that does not affect Series 2 Shares (except
where otherwise required by law) even though the matter is submitted
to a vote of the holders of Non-Series 2 Shares; and
(iii) The Board of Directors of the Corporation in its sole
discretion may determine whether a matter affects a particular class
or series of Corporation shares.
(2) Any fractional share shall carry proportionately the rights of
a whole share including, without limitation, the right to vote and the right
to receive dividends. A fractional share shall not, however, have the right
to receive a certificate evidencing it.
(3) All persons who shall acquire stock in the Corporation shall
acquire the same subject to the provisions of these Articles of Incorporation
and the By-Laws of the Corporation.
(4) No holder of stock of the Corporation by virtue of being such a
holder shall have any right to purchase or subscribe for any shares of the
Corporation's capital stock or any other security that the Corporation may
issue or sell (whether out of the number of shares authorized by these
Articles of Incorporation or out of any shares of the Corporation's capital
stock that the Corporation may acquire) other than a right that the Board of
Directors in its discretion may determine to grant.
(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
<PAGE>4
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 these Articles of Incorporation.
(7) The presence in person or by proxy of the holders of one-third
of the shares of stock of the Corporation entitled to vote (without regard to
class) shall constitute a quorum at any meeting of the stockholders, except
with respect to any matter which, under applicable statutes or regulatory
requirements, requires approval by a separate vote of one or more classes of
stock, in which case the presence in person or by proxy of the holders of one-
third of the shares of stock of each class required to vote as a class on the
matter shall constitute a quorum."
SECOND: The foregoing amendment to the Charter of the Corporation
has been authorized by the entire Board of Directors of the Corporation and
approved by the Corporation's sole shareholder.
The Senior Vice President of the Corporation acknowledges these
Articles of Amendment to be the corporate act of the Corporation and states
that to the best of his knowledge, information and belief the matters and
facts set forth in these Articles of Amendment with respect to the
authorization and approval of the amendment of the Corporations Charter are
true in all material respect, and that this statement is made under the
penalties of perjury.
<PAGE>5
IN WITNESS WHEREOF, Warburg, Pincus Emerging Markets Fund, Inc. has
caused this instrument to be filed in its name and on its behalf by its Senior
Vice President, Eugene L. Podsiadlo, and witnessed by its Secretary, Arnold M.
Reichman, on the 25th day of October, 1994.
WARBURG, PINCUS EMERGING
MARKETS FUND, INC.
By: /s/ Eugene L. Podsiadlo
Eugene L. Podsiadlo
Senior Vice President
ATTEST:
/s/ Arnold M. Reichman
Arnold M. Reichman
Secretary
<PAGE>1
ARTICLES OF AMENDMENT
OF
WARBURG, PINCUS NEW GROWTH INTERNATIONAL FUND, INC.
WARBURG, PINCUS NEW GROWTH INTERNATIONAL FUND, INC., a Maryland
corporation with its principal corporate offices in the State of Maryland, in
Baltimore City, Maryland (hereinafter called the "Corporation"), certifies to
the State Department of Assessments and Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended by:
(1) striking Article II of the Articles of Incorporation and
inserting in lieu thereof the following:
"Article II
NAME
The name of the corporation (hereinafter called the Corporation) is
"Warburg, Pincus Emerging Markets Fund, Inc.", and
SECOND: The Board of Directors of the Corporation approved the
foregoing amendments to the charter as set forth in Article FIRST hereto, and
declared that said amendments were advisable. The Corporation has no
stockholders.
The Executive Vice President acknowledges this Articles of Amendment
to be the corporate act of the Corporation and states that to the best of his
knowledge, information and belief the matters and facts set forth in this
Articles of Amendment with respect to the authorization and approval of the
amendment of the Corporation's charter are true in all material respects, and
that this statement is made under the penalties of perjury.
<PAGE>2
IN WITNESS WHEREOF, Warburg, Pincus Emerging Markets Fund, Inc. has
caused this instrument to be filed in its name and on its behalf by its
Executive Vice President, Arnold M. Reichman, and witnessed by its Assistant
Secretary, Karen Amato, on the 30th day of June, 1994.
Dated: June 30, 1994 WARBURG, PINCUS EMERGING
MARKETS FUND, INC.
By: /s/ Arnold M. Reichman
Arnold M. Reichman
Secretary
ATTEST:
/s/ Karen Amato
Karen Amato
Assistant Secretary
<PAGE>1
ARTICLES OF AMENDMENT
OF
WARBURG, PINCUS NEW GROWTH INTERNATIONAL FUND
WARBURG, PINCUS NEW GROWTH INTERNATIONAL FUND, a Maryland
corporation with its principal corporate offices in the State of Maryland,
in Baltimore City, Maryland (hereinafter called the "Corporation"), certifies
to the State Department of Assessments and Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended by:
(1) striking Article II of the Articles of Incorporation and
inserting in lieu thereof the following:
"Article II
NAME
The name of the corporation (hereinafter called the Corporation) is
Warburg, Pincus New Growth International Fund, Inc.", and
(2) striking Article V, Section (1) and inserting in lieu thereof
the following:
"ARTICLE V
CAPITAL STOCK
(1) (A) The total number of shares of capital stock
that the Corporation shall have authority to issue is three
billion (3,000,000,000) shares, of the par value of one
tenth of one cent ($.001) per share and of the aggregate par
value of three million dollars ($3,000,000), all of which
three billion (3,000,000,000) shares are designated Common
Stock.
(B) One billion (1,000,000,000) shares of Common
Stock have been divided into and classified initially as a
series of Common Stock, designated Common Stock - Series 1
("Series 1 Shares").
(C) Each Series 1 Share will have the same
preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption as every other share
of Common Stock, except that, subject to the provisions of
any governing order, rule or regulation issued pursuant to
the Investment Company Act of 1940, as amended:
<PAGE>2
(i) Series 1 Shares will share equally with
Common Stock other than Series 1 Shares ("Other
Shares") in the income, earnings and profits derived
from investment and reinvestment of the assets
belonging to the Corporation and will be charged
equally with Other Shares with the liabilities and
expenses of the Corporation, except that Series 1
Shares will bear the expense of payments made pursuant
to any shareholder services plan and/or distribution
plan adopted by the Corporation, to institutions or
other entities under any agreements entered into
between the Corporation and institutions or other
entities providing for services by the institutions or
other entities to their customers who beneficially own
Series 1 Shares;
(ii) On any matter submitted to a vote of
shareholders of the Corporation that pertains to the
agreements or expenses described in clause (i) above
(or to any plan adopted by the Corporation relating to
said agreements or expenses), only Series 1 Shares will
be entitled to vote, except that if said matter affects
Other Shares, Other Shares will also be entitled to
vote, and in such case Series 1 Shares will be voted in
the aggregate together with such Other Shares and not
by series except where otherwise required by law.
Series 1 Shares will not be entitled to vote on any
matter that does not affect Series 1 Shares (except
where otherwise required by law) even though the matter
is submitted to a vote of the holders of Other Shares;
and
(iii) The Board of Directors of the
Corporation in its sole discretion may determine
whether a matter affects a particular class or series
of Corporation shares."
SECOND: The sole Director of the Corporation approved the
foregoing amendments to the charter as set forth in Article FIRST hereto, and
declared that said amendments were advisable. The Corporation has no
stockholders.
THIRD: The sole Director of the Corporation authorized the
Treasurer of the Corporation to attest the Articles of Amendment setting forth
the amendments to the charter as set forth in Article FIRST hereto.
The President acknowledges these Articles of Amendment to be the
corporate act of the Corporation and states that to the
<PAGE>3
best of his knowledge, information and belief the matters and facts set forth
in these Articles with respect to the authorization and approval of the
amendment of the Corporation's charter are true in all material respects, and
that this statement is made under the penalties of perjury.
IN WITNESS WHEREOF, Warburg, Pincus New Growth International Fund,
Inc. has caused this instrument to be filed in its name and on its behalf by
its President, Arnold M. Reichman, and witnessed by its Treasurer, Stephen
Distler, on the 10th day of January, 1994.
Dated: January 10, 1994 WARBURG, PINCUS NEW GROWTH
INTERNATIONAL FUND
By: /s/ Arnold M. Reichman
Arnold M. Reichman
President
ATTEST:
/s/ Stephen Distler
Stephen Distler
Treasurer
<PAGE>1
BY-LAWS
OF
WARBURG, PINCUS NEW GROWTH INTERNATIONAL 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 10 (ten) percent of the
votes entitled to be cast at the meeting upon payment by such stockholders to
the Corporation of the reasonably estimated cost of preparing and mailing a
notice of the meeting (which estimated cost shall be provided to such
stockholders by the Secretary of the Corporation). Notwithstanding the
foregoing, unless requested by stockholders entitled to cast a majority of
the votes entitled to be cast at the meeting, a special meeting of the
stockholders need not be called at the request of stockholders to consider any
matter which is substantially the same as a matter voted on at any special
meeting of the stockholders held during the preceding 12 (twelve) months. A
written request shall state the purpose or purposes of the proposed meeting.
<PAGE>2
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 one-third
of the votes to be cast shall constitute a quorum at each meeting of the
stockholders and all questions shall be decided by majority of the votes cast
(except with respect to the election of directors, which shall be by a
plurality of votes cast). In the absence of a quorum, the stockholders
present in person or by proxy, by majority vote and without notice other than
by announcement, may adjourn the meeting from time to time as provided in
Section 5 of this Article I until a quorum shall attend. The stockholders
present at any duly organized meeting may continue to do business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave
less than a quorum. The absence from any meeting in person or by proxy of
holders of the number of shares of stock of the Corporation in excess of a
majority that may be required by 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 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
<PAGE>3
stockholders may not be adjourned without further notice to a date more than
120 (one hundred twenty) days after the original record date.
SECTION 6. Organization. At every meeting of the stockholders, the
Chairman of the Board, or in his absence or inability to act, the President,
or in his absence or inability to act, a Vice President, or in the absence or
inability to act of the Chairman of the Board, the President and all the Vice
Presidents, a chairman chosen by the stockholders, shall act as Chairman of
the meeting. The Secretary, or in his absence or inability to act, a person
appointed by the chairman of the meeting, shall act as secretary of the
meeting and keep the minutes of the meeting.
SECTION 7. Order of Business. The order of business at all meetings
of the stockholders shall be as determined by the chairman of the meeting.
SECTION 8. Voting. Except as otherwise provided by statute or the
Corporation's Articles of Incorporation, each holder of record of shares of
stock of the Corporation having voting power shall be entitled at each meeting
of the stockholders to one vote for every share of stock standing in his name
on the records of the Corporation as of the record date determined pursuant to
Section 9 of this Article I.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by the
stockholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided
in the proxy. Every proxy shall be revocable at the pleasure of the
stockholder executing it, except in those cases in which the proxy states that
it is irrevocable and in which an irrevocable proxy is permitted by law.
If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute
or these By-Laws, or determined by the chairman of the meeting to be
advisable, any such vote need not be by ballot. On a vote by ballot, each
ballot shall be signed by the stockholder voting, or by his proxy, and shall
state the number of shares voted.
SECTION 9. Fixing of Record Date. The Board of Directors may set a
record date for the purpose of determining stockholders entitled to vote at
any meeting of the stockholders. The record date for a particular meeting
shall be not more than
<PAGE>4
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.
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
<PAGE>5
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 I, otherwise properly brought before the meeting by
a Stockholder and (B) a proper subject under applicable law for Stockholder
action.
(b) For business to be properly brought before an Annual or Special
Meeting by a Stockholder, the Stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, any
such notice must be delivered to or mailed and received at the principal
executive offices of the Corporation not later than 60 days prior to the date
of the meeting; provided, however, that if less than 70 days' notice or prior
public disclosure of the date of the meeting is given or made to Stockholders,
any such notice by a Stockholder to be timely must be so received not later
than the close of business on the 10th day following the day on which notice
of the date of the Annual or Special Meeting was given or such public
disclosure was made.
(c) Any such notice by a Stockholder shall set forth as to each
matter the Stockholder proposes to bring before the Annual or Special Meeting
(i) a brief description of the business desired to be brought before the
Annual or Special Meeting and the reasons for conducting such business at the
Annual or Special Meeting, (ii) the name and address, as they appear on the
Corporation's books, of the Stockholder proposing such business, (iii) the
class and number of shares of the capital stock of the Corporation which are
beneficially owned by the Stockholder, and (iv) any material interest of the
Stockholder in such business.
(d) Notwithstanding anything in the By-Laws to the contrary, no
business shall be conducted at any Annual or Special Meeting except in
accordance with the procedures set forth in this Section 12. The Chairman of
the Annual or Special Meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the
meeting and in accordance with the provisions of this Section 12, and if he
should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be considered or transacted.
<PAGE>6
SECTION 13. Stockholder Business not Eligible for Consideration.
(a) Notwithstanding anything in these By-Laws to the contrary, any
proposal that is otherwise properly brought before an Annual or Special
Meeting by a Stockholder will not be eligible for consideration by the
Stockholders at such Annual or Special Meeting if such proposal is
substantially the same as a matter properly brought before such Annual or
Special Meeting by or at the direction of the Board of Directors of the
Corporation. The Chairman of such Annual or Special Meeting shall, if the
facts warrant, determine and declare that a Stockholder proposal is
substantially the same as a matter properly brought before the meeting by or
at the direction of the Board of Directors, and, if he should so determine, he
shall so declare to the meeting and any such Stockholder proposal shall not be
considered at the meeting.
(b) This Section 13 shall not be construed or applied to make
ineligible for consideration by the Stockholders at any Annual or Special
Meeting any Stockholder proposal required to be included in the Corporation's
proxy statement relating to such meeting pursuant to Rule 14a-8 under the
Securities Exchange Act of 1934, or any successor rule thereto.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. General Powers. Except as otherwise provided in the
Corporation's Articles of Incorporation, the business and affairs of the
Corporation shall be managed under the direction of the Board of Directors.
All powers of the Corporation may be exercised by or under authority of the
Board of Directors except as conferred on or reserved to the stockholders by
law, by the Corporation's Articles of Incorporation or by these By-Laws.
SECTION 2. Number of Directors. The number of directors shall he
fixed from time to time by resolution of the Board of Directors adopted by a
majority of the entire Board of Directors; provided, however, that the number
of directors shall in no event be fewer than one nor more than fifteen. Any
vacancy created by an increase in Directors may be filled in accordance with
Section 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 then in office 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 2
(two) unless there be only one director) of the
<PAGE>10
members of the entire Board of Directors shall be present in person at any
meeting of the Board in order to constitute a quorum for the transaction of
business at the meeting, and except as otherwise expressly required by
statute, the Corporation's 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
<PAGE>11
at any meeting of the Board of Directors or of any committee of the Board may
be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the 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 to hold office 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
<PAGE>12
Corporation. Such other officers and agents shall have such duties and shall
hold their offices for such terms as may be prescribed by the Board or by the
appointing authority.
SECTION 2. Resignations. Any officer of the Corporation may resign
at any time by giving written notice of his resignation to the Board of
Directors, the Chairman of the 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
<PAGE>13
employ and discharge employees and agents of the Corporation, except those
elected or appointed by the Board, and he may delegate these powers.
SECTION 8. Vice President. Each Vice President shall have the
powers and perform the duties that the Board of Directors or the President may
from time to time prescribe.
SECTION 9. Treasurer. Subject to the provisions of any contract
that may be entered into with any custodian pursuant to authority granted by
the Board of Directors, the Treasurer shall have charge of all receipts and
disbursements of the Corporation and shall have or provide for the custody of
the Corporation's funds and securities; he shall have full 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
<PAGE>14
may be assigned to him by the Board of Directors or the President.
SECTION 11. Delegation of Duties. In case of the absence of any
officer of the Corporation, or for any other reason that the Board of
Directors may deem sufficient, the Board may confer for the time being the
powers or duties, or any of them, of such officer upon any other officer or
upon any director.
ARTICLE IV
STOCK
SECTION 1. Stock Certificates. Each holder of stock of the
Corporation shall be entitled upon specific written request to such person as
may be designated by the Corporation to have a certificate or certificates, in
a form approved by the Board, representing the number of shares of stock of
the Corporation owned by him; provided, however, that certificates for
fractional shares will not be delivered in any case. The certificates
representing shares of stock shall be signed by or in the name of the
Corporation by the Chairman of the Board, President or a Vice President and by
the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer and sealed with the seal of the Corporation. Any or all of the
signatures or the seal on the certificate may be facsimiles. In case any
officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate shall be issued,
it may be issued by the Corporation with the same effect as if such officer,
transfer agent or registrar were still in office at the date of issue.
SECTION 2. Books of Account and Record of Stockholders. There shall
be kept at the principal executive office of the Corporation correct and
complete books and records of account of all the business and transactions of
the Corporation. There shall be made available upon request of any
stockholder, in accordance with Maryland law, a record containing the number
of shares of stock issued during a specified period not to exceed 12 (twelve)
months and the consideration received by the Corporation for each such share.
SECTION 3. Transfers of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed
<PAGE>15
and filed with the Secretary or with a transfer agent or transfer clerk, and
on surrender of the certificate or certificates, if issued, for the shares
properly endorsed or accompanied by a duly executed stock transfer power and
the payment of all taxes thereon. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of stockholders as the
owner of the share or shares for all purposes, including, without limitation,
the rights to receive dividends or other distributions and to vote as the
owner, and the Corporation shall not be bound to recognize any equitable or
legal claim to or interest in any such share or shares on the part of any
other person.
SECTION 4. Regulations. The Board of Directors may make any
additional rules and regulations, not inconsistent with 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
<PAGE>16
Corporation, or for the delivery of evidences of rights or evidences of
interests arising out of any change, conversion or exchange of common stock or
other securities, as the record date for the determination of the stockholders
entitled to receive any such dividend, distribution, allotment, rights or
interests, and in such case only the stockholders of record at the time so
fixed shall be entitled to receive such dividend, distribution, allotment,
rights or interests.
SECTION 7. Information to Stockholders and Others. Any stockholder
of the Corporation or his agent may inspect and copy during the Corporation's
usual business hours the Corporation's By-Laws, minutes of the proceedings of
its stockholders, annual statements of its affairs and voting trust agreements
on file at its principal office.
ARTICLE V
INDEMNIFICATION AND INSURANCE
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
<PAGE>17
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 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
<PAGE>18
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.
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.
<PAGE>19
ARTICLE VI
SEAL
The seal of the Corporation shall be circular in form and shall bear
the name of the Corporation, the year of its incorporation, the words
"Corporate Seal" and "Maryland" and any emblem or device approved by the Board
of Directors. The seal may be used by causing it or a facsimile to be
impressed or affixed or in any other manner reproduced, or by placing the word
"(seal)" adjacent to the signature of the authorized officer of the
Corporation.
ARTICLE VII
FISCAL YEAR
The Corporation's fiscal year shall be fixed by the Board of
Directors.
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, December 27, 1993
<PAGE>1
[FRONT OF SHARE CERTIFICATE]
Number
001 SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
WARBURG, PINCUS EMERGING
MARKETS FUND, INC.
The Corporation Is Authorized To Issue
Three Billion Shares Par Value $.001
This Certifies that WARBURG, PINCUS COUNSELLORS, INC. is the owner of
fully paid and non-assessable Shares of the above
Corporation transferable only on the books of the Corporation by the holder
hereof in person or by duly authorized Attorney upon surrender of this
Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated______________________
___________________________ ____________________________
Assistant Secretary President
<PAGE>2
[BACK OF SHARE CERTIFICATE]
The Corporation is authorized to issue two or more classes of stock. The
Corporation will furnish to any stockholder on request and without charge a
full statement of the designation and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the stock of each
class which the Corporation is authorized to issue and, if the Corporation is
authorized to issue any preferred or special class in series, of the
differences in the relative rights and preferences between the shares of each
series to the extent they have been set and the authority of the Board of
Directors to set the relative rights and preferences of subsequent series.
The following abbreviations, when used in the inscription on the face of
the certificate shall be construed as though they were written out in full
according to applicable laws or regulations. Additional abbreviations may
also be used though not in the list.
TEN COM - as tenants UNIF GIFT MIN ACT - Custodian
in common _______________________ (Minor)
TEN ENT - as tenants by under Uniform Gifts to Minor
the entireties Act__________________ (State)
JT TEN - as joint tenant with
right of survivorship
and not as tenant in
common
For value received, the undersigned hereby sells, assigns and transfers unto
__________________________ ___________________________
Print or Typewrite Name Please insert social
and Address of Assignee security or other
_______________________________________________________ Shares represented by
the within Certificate and hereby irrevocably constitutes and
appoints_______________________________________________ Attorneys to transfer
the said shares on the books of the within-named Corporation with full power
of substitution in the premises.
Dated_____________________ __________________________
In presence of
<PAGE>3
NOTICE: The signature to the assignment must correspond with the name as
written upon the face of the certificate in every particular without
alteration or enlargement, or any change whatever.
<PAGE>1
INVESTMENT ADVISORY AGREEMENT
December 30, 1994
Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
Warburg, Pincus Emerging Markets 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
<PAGE>2
reinvestment of the Fund's assets. In addition, the Adviser will furnish the
Fund with whatever statistical information the Fund may reasonably request
with respect to the securities that the Fund may hold or contemplate
purchasing.
3. Brokerage
In executing transactions for the Fund and selecting brokers or
dealers, the Adviser will use its best efforts to seek the best overall terms
available. In assessing the best overall terms available for any portfolio
transaction, the Adviser will consider all factors it deems relevant
including, but not limited to, breadth of the market in the security, the
price of the security, the financial condition and execution capability of the
broker or dealer and the reasonableness of any commission for the specific
transaction and for transactions executed through the broker or dealer in the
aggregate. In selecting brokers or dealers to execute a particular
transaction and in evaluating the best overall terms available, the Adviser
may consider the brokerage and research services (as those terms are defined
in Section 28(e) of the Securities Exchange Act of 1934) 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
<PAGE>3
calculated at an annual rate of 1.25% of the Fund's average daily net assets.
The fee for the period from the date the Fund's initial registration statement
is declared effective by the Securities and Exchange Commission to the end of
the year during which the initial registration statement is declared effective
shall be prorated according to the proportion that such period bears to the
full yearly period. Upon any termination of this Agreement before the end of
a year, the fee for such part of that year shall be prorated according to the
proportion that such period bears to the full yearly period and shall be
payable upon the date of termination of this Agreement. For the purpose of
determining fees payable to the Adviser, the value of the Fund's net assets
shall be computed at the times and in the manner specified in the Fund's
Prospectus or Statement of Additional Information as from time to time in
effect.
7. Expenses
The Adviser will bear all expenses in connection with the
performance of its services under this Agreement. The Fund will bear certain
other expenses to be incurred in its operation, including: investment
advisory and administration fees; taxes, interest, brokerage fees and
commissions, if any; fees of Directors of the Fund who are not officers,
directors, or employees of the Adviser or any of its affiliates; fees of any
pricing service employed to value shares of the Fund; Securities and Exchange
Commission fees and state Blue Sky qualification fees; charges of custodians
and transfer and dividend disbursing agents; the Fund's proportionate share of
insurance premiums; outside auditing and legal expenses; costs of maintenance
of the Fund's existence; costs attributable to investor services, including,
without limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for regulatory
purposes and for distribution to existing shareholders; costs of shareholders'
reports and meetings of the shareholders of the Fund and of the officers or
Board of Directors of the Fund; and any extraordinary expenses.
The Fund will be responsible for nonrecurring expenses which may
arise, including costs of litigation to which the Fund is a party and of
indemnifying officers and Directors of the Fund with respect to such
litigation and other expenses as determined by the Directors.
8. 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 agreements, but
excluding interest, taxes, brokerage
<PAGE>4
and, if permitted by state securities commissions, extraordinary expenses)
exceed the expense limitation of any state having jurisdiction over the Fund,
the Adviser will reimburse the Fund for such excess expense. The Adviser's
expense reimbursement obligation will be limited to the amount of its fees
received pursuant to this Agreement. Such expense reimbursement, if any, will
be estimated, reconciled and paid on an annual basis.
9. Services to Other Companies or Accounts
The Fund understands that the Adviser now acts, will continue to act
and may act in the future as investment adviser to fiduciary and other managed
accounts and to one or more other investment companies or series of investment
companies, and the Fund has no objection to the Adviser so acting, provided
that whenever the Fund and one or more other accounts or investment companies
or portfolios advised by the Adviser have available funds for investment,
investments suitable and appropriate for each will be allocated in accordance
with a formula believed to be equitable to each entity. The Fund recognizes
that in some cases this procedure may adversely affect the size of the
position obtainable for the Fund. In addition, the Fund understands that the
persons employed by the Adviser to assist in the performance of the Adviser's
duties hereunder will not devote their full time to such service and nothing
contained herein shall be deemed to limit or restrict the right of the Adviser
or any affiliate of the Adviser to engage in and devote time and attention to
other businesses or to render services of whatever kind or nature.
10. Term of Agreement
This Agreement shall continue until April 17, 1995 and thereafter
shall continue automatically for successive annual periods, provided such
continuance is specifically approved at least annually by (a) the Board of
Directors of the Fund or (b) a vote of a "majority" (as defined in the
Investment Company Act of 1940) 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,
filed on December 23, 1993, together with all amendments thereto, is on file
in the Department of Assessments and Taxation 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
"Warburg, Pincus" as part of their names, and that the Adviser or its
affiliates may enter into advisory or other agreements with such other
corporations and trusts. If the Adviser ceases to act as the investment
adviser of the Fund's shares, the Fund agrees that, at the Adviser's request,
the Fund's license to use the words "Warburg, Pincus" will terminate and that
the Fund will take all necessary action to change the name of the Fund to a
name not including the words "Warburg, Pincus."
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below
indicated, whereupon it shall become a binding agreement between us.
Very truly yours,
WARBURG, PINCUS EMERGING
MARKETS FUND, INC.
By: /s/ Richard H. King
President
Richard H. King
Accepted:
WARBURG, PINCUS COUNSELLORS, INC.
By: /s/ Arnold M. Reichman
Authorized Officer
Arnold M. Reichman
<PAGE>1
AMENDMENT TO CUSTODIAN CONTRACTS
This Amendment is made as of June __, 1995 by and between STATE STREET
BANK AND TRUST COMPANY, a Massachusetts trust company ("State Street"), and
each of WARBURG, PINCUS JAPAN OTC FUND, INC. and WARBURG, PINCUS EMERGING
MARKETS FUND, INC. (together the "Funds" and each a "Fund") to amend the
Custodian Contract between State Street and each Fund dated September 27, 1994
and December 30, 1994, respectively (each a "Custodian Contract").
WITNESSETH:
WHEREAS, each Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended; and
WHEREAS, State Street serves as custodian of each Fund's assets pursuant
to a Custodian Contract;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. The first sentence of Section 5 of each Custodian Contract is hereby
replaced with the following:
Proper Instructions as used herein means a writing signed or
initialled by two or more persons as the Board of Directors shall have
from time to time authorized.
2. Except as specifically modified herein, the terms of each Custodian
Contract remain in full force and effect.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment
to be executed in its name and on its behalf by its duly authorized
representative as of the date first above written.
WARBURG, PINCUS JAPAN OTC
FUND, INC.
By:
Name:
Title:
WARBURG, PINCUS EMERGING
MARKETS FUND, INC.
By:
Name:
Title:
<PAGE>2
STATE STREET BANK AND TRUST
COMPANY
By:
Name:
Title:
<PAGE>1
CONSENT OF COUNSEL
Warburg, Pincus Emerging Markets Fund, Inc.
We hereby consent to being named in the Statement of Additional
Information included in the Registration Statement on Form N-1A (Securities
Act File No. 33-73498, Investment Company Act File No. 811-8252) (the
"Registration Statement") of Warburg, Pincus Emerging Markets 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 Registration Statement.
Willkie Farr & Gallagher
New York, New York
June 30, 1995
<PAGE>1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Post-Effective Amendment
No. 1 to the registration statement under the Securities Act of 1933 on Form
N-1A (No. 33-73498) of our report dated October 17, 1994 on our audit of the
Statement of Assets and Liabilities of Warburg, Pincus Emerging Markets Fund,
Inc. We also consent to the reference to our Firm under the heading "Auditors
and Counsel" in the Statement of Additional Information.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
June 26, 1995
<PAGE>1
PURCHASE AGREEMENT
Warburg, Pincus Emerging Markets Fund, Inc. (the "Fund"), a
corporation organized under the laws of the State of Maryland, and Warburg,
Pincus Counsellors, Inc. ("Counsellors") hereby agree as follows:
1. The Fund offers Counsellors and Counsellors hereby purchases
10,100 shares of common stock of the Fund, including 100 shares designated
"Common Stock - Series 2," each having a par value $.001 per share (the
"Shares") at a price of $10.00 per Share (the "Initial Shares"). Counsellors
hereby acknowledges receipt of certificates representing the Initial Shares
and the Fund hereby acknowledges receipt from Counsellors of $101,000.00 in
full payment for the Initial Shares.
2. Counsellors represents and warrants to the Fund that the
Initial Shares are being acquired for investment purposes and not for the
purpose of distributing them.
3. Counsellors agrees that if any holder of the Initial Shares
redeems any Initial Share in the Fund before five years after the date upon
which the Fund commences its investment activities, the redemption proceeds
will be reduced by the amount of unamortized organizational expenses, in the
same proportion as the number of Initial Shares being redeemed bears to the
number of Initial Shares outstanding at the time of redemption. The parties
hereby acknowledge that any Shares acquired by Counsellors other
<PAGE>2
than the Initial Shares have not been acquired to fulfill the requirements of
Section 14 of the Investment Company Act of 1940 and, if redeemed, their
redemption proceeds will not be subject to reduction based on the unamortized
organizational expenses of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the 30th day of December, 1994.
WARBURG, PINCUS EMERGING
MARKETS FUND, INC.
By: /s/ Richard H. King
Richard H. King, President
ATTEST:
/s/ Myrta Santiago-Smith
WARBURG, PINCUS COUNSELLORS, INC.
By: /s/ Arnold M. Reichman
Arnold M. Reichman, Managing Director
ATTEST:
/s/ Myrta Santiago-Smith
<PAGE>1
DISTRIBUTION AGREEMENT
December 30, 1994
Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
Ladies and Gentlemen:
This is to confirm that, in consideration of the agreements
hereinafter contained, the undersigned, Warburg, Pincus Emerging Markets Fund,
Inc. (the "Fund"), an open-end, non-diversified, management investment company
organized as a corporation under the laws of the State of Maryland, has agreed
that Counsellors Securities Inc. ("Counsellors Securities") shall be, for the
period of this Agreement, the distributor of shares of common stock of the
Fund, par value $.001 per share other than those designated Common Stock -
Series 1. The common stock not designated Common Stock - Series 1 or Common
Stock - Series 2 shall be referred to as the "Common Shares", and the common
stock designated Common Stock - Series 2 shall be referred to as the "Series 2
Shares."
1. Services as Distributor
1.1 Counsellors Securities will act as agent for the distribution
of the Common Shares and Series 2 Shares covered by the Fund's Registration
Statement on Form N-1A, under the Securities Act of 1933, as amended (the
"1933 Act"), and the Investment Company Act of 1940, as amended (the "1940
Act") (the Registration Statement, together with the prospectus (the
"Prospectus") and statement of additional information (the "SAI") included as
part of the Registration Statement, any amendments to the Registration
Statement, and any supplements to, or material incorporated by reference into
the Prospectus or SAI, being referred to collectively in this Agreement as the
"Registration Statement").
1.2 Counsellors Securities agrees to use appropriate efforts to
solicit orders for the sale of the Common Shares and Series 2 Shares at such
prices and on the terms and conditions set forth in the Registration Statement
and will undertake such advertising and promotion as it believes is reasonable
in connection with such solicitation.
1.3 All activities by Counsellors Securities as distributor of the
Common Shares and Series 2 Shares shall comply
<PAGE>2
with all applicable laws, rules and regulations, including, without
limitation, all rules and regulations made or adopted by the Securities and
Exchange Commission (the "SEC") or by any securities association registered
under the Securities Exchange Act of 1934, as amended.
1.4 Counsellors Securities agrees to (a) provide one or more
persons during normal business hours to respond to telephone questions
concerning the Fund and its performance, (b) provide prospectuses of other
funds advised by Warburg, Pincus Counsellors, Inc. to shareholders considering
exercising the exchange privilege and (c) perform such other services as are
described in the Registration Statement and in the 12b-1 Plan (as defined
below) to be performed by Counsellors Securities, including, without
limitation, distributing and receiving subscription order forms and receiving
written redemption requests.
1.5 Pursuant to the Shareholder Servicing and Distribution Plan
(the "12b-1 Plan") adopted by the Fund pursuant to Rule 12b-1 under the 1940
Act ("Rule 12b-1"), the Fund will pay Counsellors Securities on the first
business day of each quarter a fee for the previous quarter calculated at an
annual rate of .25% of the average daily net assets of the Common Shares of
the Fund as compensation for the services provided by Counsellors Securities
to the Common Shares pursuant to this Agreement. Counsellors Securities
serves without compensation as distributor for the Series 2 Shares pursuant to
this Agreement. Amounts paid to Counsellors Securities under the 12b-1 Plan
may be used by Counsellors Securities to cover expenses that are primarily
intended to result in, or that are primarily attributable to, (a) the sale of
the Common Shares, as set forth in the 12b-1 Plan ("Selling Services"), (b)
ongoing servicing and/or maintenance of the accounts of holders of Common
Shares, as set forth in the 12b-1 Plan ("Shareholder Services"), and (c) sub-
transfer agency services, subaccounting services or administrative services
with respect to the Common Shares, as set forth in the 12b-1 Plan
("Administrative Services" and collectively with Selling Services and
Administrative Services, "Services") including, without limitation, (i)
payments reflecting an allocation of overhead and other office expenses of
Counsellors Securities related to providing Services; (ii) payments made to,
and reimbursement of expenses of, persons who provide support services in
connection with the distribution of the Common Shares including, but not
limited to, office space and equipment, telephone facilities, answering
routine inquiries regarding the Fund, and providing any other Shareholder
Services; (iii) payments made to compensate selected dealers or other
authorized persons for providing any Services; (iv) costs relating to the
formulation and implementation of marketing and promotional activities for the
Common Shares, including, but not limited to, direct mail promotions and
television, radio,
<PAGE>3
newspaper, magazine and other mass media advertising, and related travel and
entertainment expenses; (v) costs of printing and distributing prospectuses,
statements of additional information and reports of the Fund to prospective
holders of Common Shares; and (vi) costs involved in obtaining whatever
information, analyses and reports with respect to marketing and promotional
activities for the Common Shares that the Fund may, from time to time, deem
advisable.
1.6 Counsellors Securities acknowledges that, whenever in the
judgment of the Fund's officers such action is warranted for any reason,
including, without limitation, market, economic or political conditions, those
officers may decline to accept any orders for, or make any sales of, the
Common Shares or Series 2 Shares until such time as those officers deem it
advisable to accept such orders and to make such sales.
1.7 Counsellors Securities will act only on its own behalf as
principal should it choose to enter into selling agreements with selected
dealers or others.
1.8 Counsellors Securities will transmit any orders received by it
for purchase or redemption of the Common Shares and Series 2 Shares to State
Street Bank and Trust Company ("State Street"), the Fund's transfer and
dividend disbursing agent, or its successor of which Counsellors Securities is
notified in writing. The Fund will promptly advise Counsellors Securities of
the determination to cease accepting orders or selling Common Shares or Series
2 Shares or to recommence accepting orders or selling Common Shares or Series
2 Shares. The Fund (or its agent) will confirm orders for Common Shares and
Series 2 Shares placed through Counsellors Securities upon their receipt, or
in accordance with any exemptive order of the SEC, and will make appropriate
book entries pursuant to the instructions of Counsellors Securities.
Counsellors Securities agrees to cause payment for Common Shares and Series 2
Shares and instructions as to book entries to be delivered promptly to the
Fund (or its agent).
1.9 The outstanding Common Shares and Series 2 Shares are subject
to redemption as set forth in the Prospectus. The price to be paid to redeem
the Common Shares and Series 2 Shares will be determined as set forth in the
Prospectus.
1.10 Counsellors Securities will prepare and deliver reports to the
Treasurer of the Fund on a regular, at least quarterly, basis, showing the
distribution expenses incurred pursuant to this Agreement, the 12b-1 Plan and
the Distribution Plan adopted by the Fund pursuant to Rule 12b-1 and the
purposes therefor, as well as any supplemental reports as the Directors from
time to time may reasonably request.
<PAGE>4
2. Duties of the Fund
2.1 The Fund agrees at its own expense to execute any and all
documents, to furnish any and all information and to take any other actions
that may be reasonably necessary in connection with the qualification of the
Common Shares and Series 2 Shares for sale in those states that Counsellors
Securities may designate.
2.2 The Fund shall furnish from time to time, for use in connection
with the sale of the Common Shares and Series 2 Shares, such informational
reports with respect to the Fund and the Common Shares and Series 2 Shares as
Counsellors Securities may reasonably request, all of which shall be signed by
one or more of the Fund's duly authorized officers; and the Fund warrants that
the statements contained in any such reports, when so signed by one or more of
the Fund's officers, shall be true and correct. The Fund shall also furnish
Counsellors Securities upon request with: (a) annual audits of the Fund's
books and accounts made by independent public accountants regularly retained
by the Fund, (b) semiannual unaudited financial statements pertaining to the
Fund, (c) quarterly earnings statements prepared by the Fund, (d) a monthly
itemized list of the securities held by the Fund, (e) monthly balance sheets
as soon as practicable after the end of each month and (f) from time to time
such additional information regarding the Fund's financial condition as
Counsellors Securities may reasonably request.
3. Representations and Warranties
The Fund represents to Counsellors Securities that all registration
statements, prospectuses and statements of additional information filed by the
Fund with the SEC under the 1933 Act and the 1940 Act with respect to the
Common Shares and/or Series 2 Shares have been carefully prepared in
conformity with the requirements of the 1933 Act, the 1940 Act and the rules
and regulations of the SEC thereunder. As used in this Agreement the terms
"registration statement", "prospectus" and "statement of additional
information" shall mean any registration statement, prospectus and statement
of additional information filed by the Fund with respect to the Common Shares
and/or Series 2 Shares with the SEC and any amendments and supplements thereto
which at any time shall have been filed with the SEC. The Fund represents and
warrants to Counsellors Securities that any registration statement with
respect to the Common Shares and/or Series 2 Shares, or prospectus and
statement of additional information contained therein, when such registration
statement becomes effective, will include all statements required to be
contained therein in conformity with the 1933 Act, the 1940 Act and the rules
and regulations of the SEC; that all statements of fact contained in any
registration statement with respect to the
<PAGE>5
Common Shares and/or Series 2 Shares, prospectus or statement of additional
information will be true and correct when such registration statement becomes
effective; and that neither any registration statement nor any prospectus or
statement of additional information with respect to the Common Shares and/or
Series 2 Shares when such registration statement becomes effective will
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading to a purchaser of the Common Shares and/or Series 2 Shares.
Counsellors Securities may, but shall not be obligated to, propose from time
to time such amendment or amendments to any registration statement and such
supplement or supplements to any prospectus or statement of additional
information as, in the light of future developments, may, in the opinion of
Counsellors Securities' counsel, be necessary or advisable. If the Fund shall
not propose such amendment or amendments and/or supplement or supplements
within fifteen (15) days after receipt by the Fund of a written request from
Counsellors Securities to do so, Counsellors Securities may, at its option,
terminate this Agreement. The Fund shall not file any amendment to any
registration statement or supplement to any prospectus or statement of
additional information without giving Counsellors Securities reasonable notice
thereof in advance; provided, however, that nothing contained in this
Agreement shall in any way limit the Fund's right to file at any time such
amendments to any registration statement and/or supplements to any prospectus
or statement of additional information with respect to the Common Shares
and/or Series 2 Shares, of whatever character, as the Fund may deem advisable,
such right being in all respects absolute and unconditional.
4. Indemnification
4.1 The Fund agrees to indemnify, defend and hold Counsellors
Securities, its several officers and directors, and any person who controls
Counsellors Securities within the meaning of Section 15 of the 1933 Act, free
and harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims,
demands or liabilities and any counsel fees incurred in connection therewith)
which Counsellors Securities, its officers and directors, or any such
controlling person, may incur under the 1933 Act, the 1940 Act or common law
or otherwise, arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any registration statement,
any prospectus or any statement of additional information with respect to the
Common Shares and/or Series 2 Shares, or arising out of or based upon any
omission or alleged omission to state a material fact required to be stated in
any registration statement, any prospectus or any statement of additional
information with respect to the Common Shares and/or Series 2
<PAGE>6
Shares, or necessary to make the statements in any of them not misleading;
provided, however, that the Fund's agreement to indemnify Counsellors
Securities, its officers or directors, and any such controlling person shall
not be deemed to cover any claims, demands, liabilities or expenses arising
out of or based upon any statements or representations made by Counsellors
Securities or its representatives or agents other than such statements and
representations as are contained in any registration statement, prospectus or
statement of additional information with respect to the Common Shares and/or
Series 2 Shares and in such financial and other statements as are furnished to
Counsellors Securities pursuant to paragraph 2.2 hereof; and further provided
that the Fund's agreement to indemnify Counsellors Securities and the Fund's
representations and warranties hereinbefore set forth in paragraph 3 shall not
be deemed to cover any liability to the Fund or its shareholders to which
Counsellors Securities would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties,
or by reason of Counsellors Securities' reckless disregard of its obligations
and duties under this Agreement. The Fund's agreement to indemnify
Counsellors Securities, its officers and directors, and any such controlling
person, as aforesaid, is expressly conditioned upon the Fund's being notified
of any action brought against Counsellors Securities, its officers or
directors, or any such controlling person, such notification to be given by
letter or by telegram addressed to the Fund at its principal office in New
York, New York and sent to the Fund by the person against whom such action is
brought, within ten (10) days after the summons or other first legal process
shall have been served. The failure to so notify the Fund of any such action
shall not relieve the Fund from any liability that the Fund may have to the
person against whom such action is brought by reason of any such untrue or
alleged untrue statement or omission or alleged omission otherwise than on
account of the Fund's indemnity agreement contained in this paragraph 4.1.
The Fund's indemnification agreement contained in this paragraph 4.1 and the
Fund's representations and warranties in this Agreement shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of Counsellors Securities, its officers and directors, or any
controlling person, and shall survive the delivery of any of the Fund's
shares. This agreement of indemnity will inure exclusively to Counsellors
Securities' benefit, to the benefit of its several officers and directors, and
their respective estates, and to the benefit of the controlling persons and
their successors. The Fund agrees to notify Counsellors Securities promptly
of the commencement of any litigation or proceedings against the Fund or any
of its officers or directors in connection with the issuance and sale of any
of the Common Shares and/or Series 2 Shares.
<PAGE>7
4.2 Counsellors Securities agrees to indemnify, defend and hold the
Fund, its several officers and directors, and any person who controls the Fund
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
costs of investigating or defending such claims, demands or liabilities and
any counsel fees incurred in connection therewith) that the Fund, its officers
or directors or any such controlling person may incur under the 1933 Act, the
1940 Act or common law or otherwise, but only to the extent that such
liability or expense incurred by the Fund, its officers or directors or such
controlling person resulting from such claims or demands shall arise out of or
be based upon (a) any unauthorized sales literature, advertisements,
information, statements or representations or (b) any untrue or alleged untrue
statement of a material fact contained in information furnished in writing by
Counsellors Securities to the Fund specifically for use in the Registration
Statement and used in the answers to any of the items of the registration
statement or in the corresponding statements made in the prospectus or
statement of additional information, or shall arise out of or be based upon
any omission or alleged omission to state a material fact in connection with
such information furnished in writing by Counsellors Securities to the Fund
and required to be stated in such answers or necessary to make such
information not misleading. Counsellors Securities' agreement to indemnify
the Fund, its officers and directors, and any such controlling person, as
aforesaid, is expressly conditioned upon Counsellors Securities' being
notified of any action brought against the Fund, its officers or directors, or
any such controlling person, such notification to be given by letter or
telegram addressed to Counsellors Securities at its principal office in New
York, New York and sent to Counsellors Securities by the person against whom
such action is brought, within ten (10) days after the summons or other first
legal process shall have been served. The failure to so notify Counsellors
Securities of any such action shall not relieve Counsellors Securities from
any liability that Counsellors Securities may have to the Fund, its officers
or directors, or to such controlling person by reason of any such untrue or
alleged untrue statement or omission or alleged omission otherwise than on
account of Counsellors Securities' indemnity agreement contained in this
paragraph 4.2. Counsellors Securities agrees to notify the Fund promptly of
the commencement of any litigation or proceedings against Counsellors
Securities or any of its officers or directors in connection with the issuance
and sale of any of the Common Shares and/or Series 2 Shares.
4.3 In case any action shall be brought against any indemnified
party under paragraph 4.1 or 4.2, and it shall timely notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish to do so, to assume the
defense
<PAGE>8
thereof with counsel satisfactory to such indemnified party. If the
indemnifying party opts to assume the defense of such action, the indemnifying
party will not be liable to the indemnified party for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than (a) reasonable costs of investigation or the
furnishing of documents or witnesses and (b) all reasonable fees and expenses
of separate counsel to such indemnified party if (i) the indemnifying party
and the indemnified party shall have agreed to the retention of such counsel
or (ii) the indemnified party shall have concluded reasonably that
representation of the indemnifying party and the indemnified party by the same
counsel would be inappropriate due to actual or potential differing interests
between them in the conduct of the defense of such action.
5. Effectiveness of Registration
None of the Common Shares or Series 2 Shares shall be offered by
either Counsellors Securities or the Fund under any of the provisions of this
Agreement and no orders for the purchase or sale of the Common Shares or
Series 2 Shares shall be accepted by the Fund if and so long as the
effectiveness of the registration statement shall be suspended under any of
the provisions of the 1933 Act or if and so long as the prospectus is not on
file with the SEC; provided, however, that nothing contained in this paragraph
5 shall in any way restrict or have an application to or bearing upon the
Fund's obligation to repurchase its shares from any shareholder in accordance
with the provisions of the prospectus or statement of additional information.
6. Notice to Counsellors Securities
The Fund agrees to advise Counsellors Securities immediately in
writing:
(a) of any request by the SEC for amendments to the registration
statement, prospectus or statement of additional information then in
effect with respect to the Common Shares and/or Series 2 Shares or for
additional information;
(b) in the event of the issuance by the SEC of any stop order
suspending the effectiveness of the registration statement, prospectus or
statement of additional information then in effect with respect to the
Common Shares and/or Series 2 Shares or the initiation of any proceeding
for that purpose;
(c) of the happening of any event that makes untrue any statement
of a material fact made in the registration
<PAGE>9
statement, prospectus or statement of additional information then in effect
with respect to the Common Shares and/or Series 2 Shares or that requires the
making of a change in such registration statement, prospectus or statement of
additional information in order to make the statements therein not misleading;
and
(d) of all actions of the SEC with respect to any amendment to any
registration statement, prospectus or statement of additional information
with respect to the Common Shares or Series 2 Shares which may from time
to time be filed with the SEC.
7. Term of Agreement
This Agreement shall continue until April 17, 1996 with respect to
each of the Common Shares and Series 2 Shares, and thereafter shall continue
automatically for successive annual periods ending on April 17th of each year,
provided such continuance is specifically approved at least annually by (a) a
vote of a majority of the Fund's Board of Directors or (b) a vote of a
majority (as defined in the 1940 Act) of each of the outstanding Common Shares
and Series 2 Shares, respectively, provided that the continuance is also
approved by a vote of a majority of the Fund's Directors who are not
interested persons (as defined in the 1940 Act) of the Fund and who have no
direct or indirect financial interest in the operation of the 12b-1 Plan or
the Distribution Plan, in this Agreement or in any agreement related to the
12b-1 Plan or Distribution Plan ("Qualified Directors"), by vote cast in
person at a meeting called for the purpose of voting on such approval. This
Agreement is terminable with respect to the Common Shares or the Series 2
Shares without penalty (a) on sixty (60) days' written notice, by a vote of a
majority of the Fund's Qualified Directors or by vote of a majority (as
defined in the 1940 Act) of the outstanding Common Shares or Series 2 Shares,
as applicable, or (b) on ninety (90) days' written notice by Counsellors
Securities. This Agreement will also terminate automatically in the event of
its assignment (as defined in the 1940 Act).
8. Amendments
This Agreement may not be amended to increase materially the amount
of the fee with respect to the Common Shares described in Section 1.5 above
without approval of at least a majority (as defined in the 1940 Act) of the
outstanding Common Shares. In addition, all material amendments to this
Agreement must be approved by vote of the Fund's Board of Directors, and by a
vote of a majority of the Qualified Directors, cast in person at a meeting
called for the purpose of voting on the approval.
<PAGE>10
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below
indicated, whereupon it shall become a binding agreement between us.
Very truly yours,
WARBURG, PINCUS EMERGING MARKETS
FUND, INC.
By: /s/ Richard H. King
Richard H. King, President
Accepted:
COUNSELLORS SECURITIES INC.
By: /s/ Arnold M. Reichman
Authorized Officer
Arnold M. Reichman
Senior Vice President
<PAGE>1
DISTRIBUTION PLAN
This Distribution Plan (the "Plan") is adopted in accordance with
Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940
Act"), by Warburg, Pincus Emerging Markets Fund, Inc., a corporation organized
under the laws of the State of Maryland (the "Fund"), subject to the following
terms and conditions:
Section 1. Distribution Agreements; Annual Fee.
Any officer of the Fund is authorized to execute and deliver, in the
name and on behalf of the Fund, written agreements in substantially the form
attached hereto or in any form duly approved by the Board of Directors of the
Fund (the "Distribution Agreements") with institutional shareholders of record
("Service Organizations") of shares of the Fund's common stock, par value
$.001 per share, designated Common Stock - Series 2 (the "Series 2 Shares").
Pursuant to the Distribution Agreement, Service Organizations will be paid an
annual fee for providing (a) services primarily intended to result in the sale
of Series 2 Shares ("Distribution Services"), (b) shareholder servicing to
their customers or clients who beneficially own the Series 2 Shares
("Customers") ("Shareholder Services") and (c) administrative and accounting
services to Customers ("Administrative Services"). A Service Organization
will be paid an annual service fee under the Plan calculated daily and paid
<PAGE>2
monthly at an annual rate of up to .25% of the average daily net assets of the
Series 2 Shares held by the Service Organization on behalf of its Customers
("Customers' Shares") with respect to Shareholder Services and an annual
distribution fee of up to .50% of the average daily net assets of Customers'
Shares with respect to Distribution Services and Administrative Services.
Section 2. Services.
The annual fee paid to Service Organizations under Section 1 of the
Plan with respect to Distribution Services will compensate Service
Organizations to cover certain expenses primarily intended to result in the
sale of Series 2 Shares, including, but not limited to: (a) costs of payments
made to employees that engage in the distribution of Series 2 Shares; (b)
payments made to, and expenses of, persons who provide support services in
connection with the distribution of Series 2 Shares, including, but not
limited to, office space and equipment, telephone facilities, processing
shareholder transactions and providing any other shareholder services not
otherwise provided by the Fund's transfer agent; (c) costs relating to the
formulation and implementation of marketing and promotional activities,
including, but not limited to, direct mail promotions and television, radio,
newspaper, magazine and other mass media advertising; (d) costs of printing
and distributing prospectuses, statements of additional information and
reports of the Fund to prospective holders of Series 2 Shares; (e) costs
involved in preparing, printing and distributing sales literature pertaining
<PAGE>3
to the Fund and (f) costs involved in obtaining whatever information, analyses
and reports with respect to marketing and promotional activities that the Fund
may, from time to time, deem advisable.
The annual fee paid to Service Organizations under Section 1 of the
Plan with respect to Shareholder Services will compensate Service
Organizations for personal service and/or the maintenance of Customer
accounts, including but not limited to (a) responding to Customer inquiries,
(b) providing information on Customer investments and (c) providing other
shareholder liaison services.
The annual fee paid to Service Organizations under Section 1 of the
Plan with respect to Administrative Services will compensate Service
Organizations for administrative and accounting services to their Customers,
including, but not limited to: (a) aggregating and processing purchase and
redemption requests from Customers and placing net purchase and redemption
orders with the Fund's distributor or transfer agent; (b) providing Customers
with a service that invests the assets of their accounts in Series 2 Shares;
(c) processing dividend payments from the Fund on behalf of Customers; (d)
providing information periodically to Customers showing their positions in
Series 2 Shares; (e) arranging for bank wires; (f) providing sub-accounting
with respect to Series 2 Shares beneficially owned by Customers or the
information to the Fund necessary for sub-accounting; (g) forwarding
shareholder communications from the
<PAGE>4
Fund (for example, proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to Customers,
if required by law and (h) providing other similar services to the extent
permitted under applicable statutes, rules and regulations.
Payments under this Plan are not tied exclusively to the expenses
for shareholder servicing, administration and distribution expenses actually
incurred by any Service Organization, and the payments may exceed expenses
actually incurred by any Service Organization.
Section 3. Monitoring.
Counsellors Securities Inc., the Fund's distributor, shall monitor
the arrangements pertaining to the Fund's Distribution Agreements with Service
Organizations.
Section 4. Approval by Shareholders.
The Plan will not take effect, and no fee will be payable in
accordance with Section 1 of the Plan until the Plan has been approved by a
vote of at least a majority of the outstanding voting Series 2 Shares.
Section 5. Approval by Directors.
The Plan will not take effect and payments under any related
agreement will not be made until the Plan and such agreement are approved by a
majority vote of both (a) the full Board of Directors of the Fund and (b)
those Directors who are not interested persons of the Fund and who have no
direct or indirect financial interest in the operation of the Plan or in
<PAGE>5
any agreements related to it (the "Qualified Directors"), cast in person at a
meeting called for the purpose of voting on the Plan and the related
agreements.
Section 6. Continuance of the Plan.
The Plan will continue in effect for so long as its continuance is
specifically approved at least annually by the Fund's Board of Directors in
the manner described in Section 5 above.
Section 7. Termination.
The Plan may be terminated at any time by a majority vote of the
Qualified Directors or by a majority of the outstanding voting Series 2
Shares.
Section 8. Amendments.
The Plan may not be amended to increase materially the amount of the
fees described in Section 1 above with respect to the Series 2 Shares without
approval of at least a majority of the outstanding voting Series 2 Shares. In
addition, all material amendments to the Plan must be approved by the Fund's
Board of Directors in the manner described in Section 5 above.
Section 9. Selection of Certain Directors.
While the Plan is in effect, the selection and nomination of the
Fund's Directors who are not interested persons of the Fund will be committed
to the discretion of the Directors then in office who are not interested
persons of the Fund.
<PAGE>6
Section 10. Written Reports.
In each year during which the Plan remains in effect, Counsellors
Securities Inc. will furnish to the Fund's Board of Directors, and the Board
will review, at least quarterly, written reports, which set out the amounts
expended under the Plan and the purposes for which those expenditures were
made.
Section 11. Preservation of Materials.
The Fund will preserve copies of the Plan, any agreement relating to
the Plan and any report made pursuant to Section 10 above, for a period of not
less than six years (the first two years in an easily accessible place) from
the date of the Plan, agreement or report.
Section 12. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and "majority of
the outstanding voting securities" will be deemed to have the same meanings
that those terms have under the 1940 Act and the rules and regulations
thereunder, subject to any exemption that may be granted to the Fund under the
1940 Act by the Securities and Exchange Commission.
<PAGE>7
IN WITNESS WHEREOF, the Fund has executed the Plan as of
December 30, 1994.
WARBURG, PINCUS EMERGING MARKETS
FUND, INC.
By: /s/ Richard H. King
Richard H. King, President
Acknowledged this
30th day of December, 1994
COUNSELLORS SECURITIES INC.
By: /s/ Arnold M. Reichman
Title: Senior Vice President
Arnold M. Reichman
Warburg Pincus Emerging Markets Fund
For the Period December 30, 1994 to April 30, 1995
Aggregate Total Return With Waivers:
(10,580 - 10,000)
Common Shares ----------------- = 5.80%
10,000
(10,570 - 10,000)
Series 2 Shares ----------------- = 5.70%
10,000
Aggergate Total Return Without Waivers:
(1,015 - 1,000)
Common Shares ------------- = 1.50%
1,000
(986 - 1,000)
Series 2 Shares ------------- = -1.40%
1,000
Annualized Total Return With Waivers:
Common Shares ((10,580/10,000)[*GRAPHIC OMITTED-SEE FOOTNOTE] -1) = 18.37%
Series 2 Shares ((10,570/10,000)[*GRAPHIC OMITTED-SEE FOOTNOTE] -1) = 18.04%
Annualized Total Return Without Waivers:
Common Shares ((1,015/1,000)[*GRAPHIC OMITTED-SEE FOOTNOTE] -1) = 4.56%
Series 2 Shares ((986/1,000)[*GRAPHIC OMITTED-SEE FOOTNOTE] -1) = -4.13%
- ------------------------------
* - This expression is being raised to the power of 1/.33425.
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<CIK> 0000933582
<NAME> WARBURG PINCUS EMERGING MARKETS FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> APR-30-1995
<INVESTMENTS-AT-COST> 1825642
<INVESTMENTS-AT-VALUE> 1888652
<RECEIVABLES> 108081
<ASSETS-OTHER> 134217
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2130950
<PAYABLE-FOR-SECURITIES> 202789
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 185395
<TOTAL-LIABILITIES> 388184
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1666191
<SHARES-COMMON-STOCK> 164713
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 14803
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1238)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 63010
<NET-ASSETS> 1742766
<DIVIDEND-INCOME> 7977
<INTEREST-INCOME> 10142
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<EXPENSES-NET> 3316
<NET-INVESTMENT-INCOME> 14803
<REALIZED-GAINS-CURRENT> (2166)
<APPREC-INCREASE-CURRENT> 63938
<NET-CHANGE-FROM-OPS> 76575
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1617466
<NUMBER-OF-SHARES-REDEEMED> 52275
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1641766
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4143
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 74532
<AVERAGE-NET-ASSETS> 1008401
<PER-SHARE-NAV-BEGIN> 10.0
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> .49
<PER-SHARE-DIVIDEND> 0
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<PER-SHARE-NAV-END> 10.6
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
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