<PAGE>1
As filed with the U.S. Securities and Exchange Commission
on September 22, 1995
Securities Act File No. 33-61225
Investment Company Act File No. 811-07327
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. 2 [x]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 2 [x]
(Check appropriate box or boxes)
Warburg, Pincus Post-Venture Capital 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 Post-Venture Capital 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>2
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
Proposed
Title of Securities Amount Being Proposed Maximum Offering Maximum Aggregate Offering Amount of Registration
Being Registered Registered Price per Unit Price Fee
------------------- ------------ ------------------------- -------------------------- ----------------------
<S> <C> <C> <C> <C>
Shares of
beneficial
interest, $.001 par
value per share
Indefinite* Indefinite* Indefinite* $500
</TABLE>
____________________
* An indefinite number of shares of common stock of the Registrant is being
registered by this Registration Statement pursuant to Rule 24f-2 under
the Investment Company Act of 1940, as amended (the "1940 Act").
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended (the "1933 Act"), or
until the Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>3
WARBURG, PINCUS POST-VENTURE CAPITAL FUND, INC.
FORM N-1A
CROSS REFERENCE SHEET
Heading for the Common Shares
Part A and the Advisor Shares
Item No. Prospectuses*
-------- -----------------------------
1. Cover Page . . . . . . . Cover Page
2. Synopsis . . . . . . . . The Funds' Expenses
3. Condensed Financial
Information . . . . . . Financial Highlights
4. General Description of
Registrant . . . . . . . Cover Page; Investment
Objective and Policies;
Investment Guidelines;
General Information
5. Management of the Fund . Management of the Funds
6. Capital Stock and Other
Securities . . . . . . . Dividends, Distributions and
Taxes; Management of the
Funds; General Information
7. Purchase of Securities
Being Offered . . . . . How to Purchase Shares;
Management of the Funds
8. Redemption or Repurchase How to Redeem and Exchange
Shares
9. Legal Proceedings . . . Not applicable
- ------------------------
* With respect to the Advisor Prospectus, all references to "the
Funds" in this cross reference sheet should be read as "the Fund."
<PAGE>4
Part B Statement of Additional
Item No. Information Heading
-------- -----------------------
10. Cover Page . . . . . . . Cover Page
11. Table of Contents . . . Table of Contents
12. General Information and
History . . . . . . . . Management of the Fund;
Notes to Financial Statements;
See Prospectuses--"General
Information"
13. Investment Objectives and
Policies . . . . . . . . Investment Objective;
Investment Policies
14. Management of the
Registrant . . . . . . . Management of the Fund; See
Prospectuses--"Management of
the Fund"
15. Control Persons and
Principal Holders of
Securities . . . . . . . Management of the Fund;
Miscellaneous; See
Prospectuses -- "General
Information"
16. Investment Advisory and
Other Services . . . . . Management of the Fund; See
Prospectuses--"Management of
the Fund" and "Shareholder
Servicing"
17. Brokerage Allocation . . Investment Objective;
Investment Policies
18. Capital Stock and Other
Securities . . . . . . . Management of the Fund-- See
Prospectuses -- "Dividends,
Distributions and Taxes" and
"General Information"
19. Purchase, Redemption and
Pricing of Securities
Being Offered . . . . . Additional Purchase and
Redemption Information; See
Prospectuses--"How to Purchase
Shares," "How to Redeem and
Exchange Shares" and "Net
Asset Value"
<PAGE>5
Part B Statement of Additional
Item No. Information Heading
-------- -----------------------
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 Independent
Auditors; Financial Statement
Part C
Information required to be included in Part C is set forth after the
appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE>
[LOGO]
PROSPECTUS
SEPTEMBER 29, 1995
[ ] WARBURG PINCUS CAPITAL APPRECIATION FUND
[ ] WARBURG PINCUS EMERGING GROWTH FUND
[ ] WARBURG PINCUS POST-VENTURE CAPITAL FUND
[ ] WARBURG PINCUS INTERNATIONAL EQUITY FUND
[ ] WARBURG PINCUS JAPAN OTC FUND
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 22, 1995
WARBURG PINCUS FUNDS
P.O. BOX 9030
BOSTON, MASSACHUSETTS 02205-9030
TELEPHONE NUMBER: (800) 888-6878
September 29, 1995
PROSPECTUS
Warburg Pincus Funds are a family of open-end mutual funds that offer investors
a variety of investment opportunities. Five funds are described in this
Prospectus:
WARBURG, PINCUS CAPITAL APPRECIATION FUND seeks long-term capital appreciation
by investing principally in equity securities of medium-sized domestic
companies.
WARBURG, PINCUS EMERGING GROWTH FUND seeks maximum capital appreciation by
investing in equity securities of small- to medium-sized companies in the United
States with emerging or renewed growth potential.
WARBURG, PINCUS POST-VENTURE CAPITAL FUND seeks long-term growth of capital by
investing principally in equity securities of issuers in their post-venture
capital stage of development and pursues an aggressive investment strategy.
Because of the nature of the Fund's investments and certain strategies it may
use, an investment in the Fund involves certain risks and may not be appropriate
for all investors.
WARBURG, PINCUS INTERNATIONAL EQUITY FUND seeks long-term capital appreciation
by investing in international equity securities that are considered by the
Fund's investment adviser to have above-average potential for appreciation.
WARBURG, PINCUS JAPAN OTC FUND seeks long-term capital appreciation by investing
in a portfolio of securities traded in the Japanese over-the-counter market.
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
Each Fund offers two classes of shares. A class of Common Shares that is 'no
load' is offered by this Prospectus (i) directly from the Funds' distributor,
Counsellors Securities Inc., and (ii) through various brokerage firms including
Charles Schwab & Company, Inc. Mutual Fund OneSourceTM Program; Fidelity
Brokerage Services, Inc. FundsNetworkTM Program; Jack White & Company, Inc. and
Waterhouse Securities, Inc. The availability of the Japan OTC Fund through these
brokerage firms may vary. Common Shares of the Japan OTC Fund and the
Post-Venture Fund are subject to a 12b-1 fee of .25% per annum.
LOW MINIMUM INVESTMENT
The minimum initial investment in each Fund is $2,500 ($500 for an IRA or
Uniform Gifts to Minors Act account) and the minimum subsequent investment is
$100. Through the Automatic Monthly Investment Plan, subsequent investment
minimums may be as low as $50. See 'How to Purchase Shares.'
This Prospectus briefly sets forth certain information about the Funds that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about each
Fund, contained in a Statement of Additional Information, has been filed with
the Securities and Exchange Commission (the 'SEC') and is available to investors
without charge by calling Warburg Pincus Funds at (800) 257-5614. Information
regarding the status of shareholder accounts may be obtained by calling Warburg
Pincus Funds at (800) 888-6878. The Statements of Additional Information bear
the same date as this Prospectus and are incorporated by reference in their
entirety into this Prospectus.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
THE FUNDS' EXPENSES
Each of Warburg, Pincus Capital Appreciation Fund, Emerging Growth Fund,
International Equity Fund, Japan OTC Fund and Post-Venture Capital Fund (the
'Funds') currently offers two separate classes of shares: Common Shares and
Advisor Shares. For a description of Advisor Shares see 'General Information'
and 'Shareholder Servicing.' In addition, Common Shares of the Japan OTC Fund
and the Post-Venture Fund pay the Fund's distributor a 12b-1 fee. See
'Management of the Funds -- Distributor.'
<TABLE>
<CAPTION>
CAPITAL EMERGING INTERNATIONAL JAPAN POST-
APPRECIATION GROWTH EQUITY OTC VENTURE
FUND FUND FUND FUND FUND
------------ -------- ------------- ----- ---------
<S> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a percentage
of offering price).................................... 0 0 0 0 0
Redemption Fee (as a percentage of the value of shares
redeemed)............................................. 0 0 0 1.00 %* 0
Annual Fund Operating Expenses (after fee waivers) (as a
percentage of average net assets)
Management Fees......................................... .69% .86% 1.00% .97 % .69 %
12b-1 Fees.............................................. 0 0 0 .25 % .25 %
Other Expenses.......................................... .36% .36% .44% .53 % .71 %
------ -------- ------ ----- ---------
Total Fund Operating Expenses........................... 1.05% 1.22% 1.44% 1.75 % 1.65 %
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.................................................. $ 11 $ 12 $ 15 $ 18 $ 17
3 years................................................. $ 33 $ 39 $ 46 $ 55 $ 52
5 years................................................. $ 58 $ 67 $ 79 n.a. n.a.
10 years................................................ $128 $148 $ 172 n.a. n.a.
</TABLE>
- ------------
* Redemption fees are charged to shareholders redeeming their shares of the
Japan OTC Fund within six months after the date of purchase and are paid to
the Fund. The redemption fee is currently being waived until such later date
as the Japan OTC Fund may determine. See 'How to Redeem and Exchange Shares.'
2
<PAGE>
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a Common Shareholder of each Fund. With respect to the
Japan OTC Fund and the Post-Venture Fund, 'Other Expenses' are based on
estimated amounts to be charged in the current fiscal year. Absent the
anticipated waiver of fees by the Funds' investment adviser and co-
administrator, estimated Management Fees for the Japan OTC and Post-Venture
Funds would each equal 1.25%, Other Expenses would equal .56% and .75%,
respectively, and Total Fund Operating Expenses would equal 2.06% and 2.25%,
respectively; the investment adviser and co-administrator are under no
obligation to continue these waivers. Certain broker-dealers and financial
institutions also may charge their clients fees in connection with investments
in a Fund's Common Shares, which fees are not reflected in the table. Absent the
voluntary waiver of a portion of the fees payable to the Funds' investment
adviser, the Management Fees for the Capital Appreciation Fund and the Emerging
Growth Fund would have equalled .70% and .90%, respectively, and Total Fund
Operating Expenses for the Capital Appreciation Fund and the Emerging Growth
Fund would have equalled 1.06% and 1.26%, respectively. No fees were waived in
the case of the International Equity Fund. The Example should not be considered
a representation of past or future expenses; actual Fund expenses may be greater
or less than those shown. Moreover, while the Example assumes a 5% annual
return, each Fund's actual performance will vary and may result in a return
greater or less than 5%. Long-term shareholders of the Japan OTC Fund or the
Post-Venture Fund 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').
FINANCIAL HIGHLIGHTS
(FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The information regarding each Fund for the two fiscal years/period ending
October 31, 1994 has been derived from information audited by Coopers & Lybrand
L.L.P., independent auditors, whose report dated December 12, 1994 appears in
the relevant Fund's Statement of
Additional Information. For the Capital Appreciation, Emerging Growth and
International Equity Funds, the information for the prior fiscal years/period
ending October 31, 1992 (up to three such years/period) has been audited by
Ernst & Young LLP, whose report was unqualified. The information for the six
months ended April 30, 1995 is unaudited. Financial information is not presented
for the Post-Venture Fund, which had not commenced operations as of April 30,
1995. Further information about the performance of the Funds (other than the
Post-Venture Fund) is contained in the Funds' annual report, dated October 31,
1994, copies of which may be obtained without charge by calling Warburg Pincus
Funds at (800) 257-5614.
3
<PAGE>
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX AUGUST 17, 1987
MONTHS (COMMENCEMENT
ENDED OF OPERATIONS)
APRIL 30, FOR THE YEAR ENDED OCTOBER 31, THROUGH
1995 ------------------------------------------------------------------- OCTOBER 31,
(UNAUDITED) 1994 1993 1992 1991 1990 1989 1988 1987
----------- ------ ------ ------ ------ ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 14.29 $15.32 $13.30 $12.16 $ 9.78 $11.48 $ 9.47 $7.74 $ 10.00
----------- ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment
Operations
Net Investment Income
(Loss)............... .03 .04 .05 .04 .15 .20 .19 .17 .04
Net Gains (Loss) from
Securities (both
realized and
unrealized).......... .75 .17 2.78 1.21 2.41 (1.28) 2.15 1.70 (2.30)
----------- ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations........... .78 .21 2.83 1.25 2.56 (1.08) 2.34 1.87 (2.26)
----------- ------ ------ ------ ------ ------ ------ ------ ------
Less Distributions
Dividends (from net
investment income)... .00 (.05) (.05) (.06) (.18) (.21) (.19) (.14) .00
Distributions (from
capital gains)....... (.98) (1.19) (.76) (.05) .00 (.41) (.14) .00 .00
----------- ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions.... (.98) (1.24) (.81) (.11) (.18) (.62) (.33) (.14) .00
----------- ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period................. $ 14.09 $14.29 $15.32 $13.30 $12.16 $ 9.78 $11.48 $9.47 $ 7.74
----------- ------ ------ ------ ------ ------ ------ ------ ------
----------- ------ ------ ------ ------ ------ ------ ------ ------
Total Return............. 13.25%* 1.65% 22.19% 10.40% 26.39% (10.11%) 25.42% 24.31% (71.26%)*
Ratios/Supplemental Data
Net Assets, End of Period
(000s)................. $181,109 $159,346 $159,251 $117,900 $115,191 $76,537 $56,952 $29,351 $17,917
Ratios to Average Daily
Net Assets:
Operating expenses..... 1.08%* 1.05% 1.01% 1.06% 1.08% 1.04% 1.10% 1.07% 1.00%*
Net investment
income............... .49%* .26% .30% .41% 1.27% 2.07% 1.90% 2.00% 1.88%*
Decrease reflected in
above expense ratios
due to
waivers/reimbursements... .00% .01% .00% .01% .00% .01% .08% .91% .84%*
Portfolio Turnover
Rate................... 153.53%* 51.87% 48.26% 55.83% 39.50% 37.10% 36.56% 33.16% 20.00%
</TABLE>
- ------------
* Annualized.
EMERGING GROWTH FUND
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX JANUARY 21, 1988
MONTHS (COMMENCEMENT
ENDED OF OPERATIONS)
APRIL 30, FOR THE YEAR ENDED OCTOBER 31, THROUGH
1995 ----------------------------------------------------------------- OCTOBER 31,
(UNAUDITED) 1994 1993 1992 1991 1990 1989 1988
----------- -------- -------- ------- ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $22.38 $23.74 $18.28 $16.97 $10.83 $13.58 $11.21 $10.00
----------- -------- -------- ------- ------- ------- ------- -------
Income from Investment
Operations
Net Investment Income
(Loss)............... (.05) .00 (.10) (.03) .05 .13 .16 .07
Net Gains (Loss) from
Securities (both
realized and
unrealized).......... 1.72 .00 5.93 1.71 6.16 (2.32) 2.51 1.18
----------- -------- -------- ------- ------- ------- ------- -------
Total from Investment
Operations........... 1.67 .00 5.83 1.68 6.21 (2.19) 2.67 1.25
----------- -------- -------- ------- ------- ------- ------- -------
Less Distributions
Dividends (from net
investment income)... .00 .00 .00 (.01) (.07) (.18) (.12) (.04)
Distributions (from
capital gains)....... .00 (1.36) (.37) (.36) .00 (.38) (.18) .00
----------- -------- -------- ------- ------- ------- ------- -------
Total Distributions.... .00 (1.36) (.37) (.37) (.07) (.56) (.30) (.04)
----------- -------- -------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $24.05 $22.38 $23.74 $18.28 $16.97 $10.83 $13.58 $11.21
----------- -------- -------- ------- ------- ------- ------- -------
----------- -------- -------- ------- ------- ------- ------- -------
Total Return............. 15.62%* .16% 32.28% 9.87% 57.57% (16.90%) 24.20% 16.34%*
Ratios/Supplemental Data
Net Assets, End of Period
(000s)................. $ 289,226 $240,664 $165,525 $99,562 $42,061 $23,075 $26,685 $ 10,439
Ratios to Average Daily
Net Assets:
Operating expenses..... 1.25%* 1.22% 1.23% 1.24% 1.25% 1.25% 1.25% 1.25%*
Net investment income
(loss)............... (.52%)* (.58%) (.60%) (.25%) .32% 1.05% 1.38% 1.10%*
Decrease reflected in
above expense ratios
due to
waivers/reimbursements.. .00% .04% .00% .08% .47% .42% .78% 3.36%*
Portfolio Turnover
Rate................... 97.48%* 60.38% 68.35% 63.35% 97.69% 107.30% 100.18% 82.21%
</TABLE>
- ------------
* Annualized.
4
<PAGE>
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX MAY 2, 1989
MONTHS (COMMENCEMENT
ENDED OF OPERATIONS)
APRIL 30, FOR THE YEAR ENDED OCTOBER 31, THROUGH
1995 --------------------------------------------------------- OCTOBER 31,
(UNAUDITED) 1994 1993 1992 1991 1990 1989
----------- ---------- -------- -------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $20.51 $17.00 $12.22 $13.66 $11.81 $11.35 $10.00
----------- ---------- -------- -------- ------- ------- ------------
Income from Investment
Operations
Net Investment Income
(Loss)............... .09 .09 .09 .15 .19 .13 .05
Net Gains (Losses) from
Securities and
Foreign Currency
Related Items (both
realized and
unrealized).......... (1.89) 3.51 4.84 (1.28) 2.03 .55 1.30
----------- ---------- -------- -------- ------- ------- ------------
Total from Investment
Operations........... (1.80) 3.60 4.93 (1.13) 2.22 .68 1.35
----------- ---------- -------- -------- ------- ------- ------------
Less Distributions
Dividends (from net
investment income)... (.07) (.04) (.02) (.16) (.33) (.10) .00
Distributions in excess
of net investment
income............... .00 (.01) .00 .00 .00 .00 .00
Distributions (from
capital gains)....... (.53) (.04) (.13) (.15) (.04) (.12) .00
----------- ---------- -------- -------- ------- ------- ------------
Total Distributions.... (.60) (.09) (.15) (.31) (.37) (.22) .00
----------- ---------- -------- -------- ------- ------- ------------
Net Asset Value, End of
Period................. $18.11 $20.51 $17.00 $12.22 $13.66 $11.81 $11.35
----------- ---------- -------- -------- ------- ------- ------------
----------- ---------- -------- -------- ------- ------- ------------
Total Return............. (17.05%)* 21.22% 40.68% (8.44%) 19.42% 5.92% 28.73%*
Ratios/Supplemental Data
Net Assets, End of Period
(000s)................. $1,796,703 $1,533,872 $378,661 $101,763 $72,553 $38,946 $ 13,260
Ratios to Average Daily
Net Assets:
Operating expenses..... 1.38%* 1.44% 1.48% 1.49% 1.50% 1.46% 1.50%*
Net investment income
(loss)............... .90%* .19% .38% .88% 1.19% 1.58% 1.33%*
Decrease reflected in
above expense ratios
due to
waivers/reimbursements... .00% .00% .00% .07% .17% .38% .89%*
Portfolio Turnover
Rate................... 22.67%* 17.02% 22.60% 53.29% 54.95% 66.12% 27.32%
</TABLE>
- ------------
* Annualized.
JAPAN OTC FUND
<TABLE>
<CAPTION>
FOR THE SIX FOR THE PERIOD
MONTHS SEPTEMBER 30, 1994
ENDED (COMMENCEMENT
APRIL 30, OF OPERATIONS)
1995 THROUGH
(UNAUDITED) OCTOBER 31, 1994
----------- ------------------
<S> <C> <C>
Net Asset Value,
Beginning of Period.... $9.85 $10.00
----------- -------
Income from Investment
Operations
Net Investment
Income............... .01 .00
Net Gains (Losses) from
Securities and
Foreign Currency
Related Items (both
realized and
unrealized).......... (2.01) (.15)
----------- -------
Total from Investment
Operations........... (2.00) (.15)
----------- -------
Less Distributions
Dividends (from net
investment income)... .00 .00
Distributions (from
capital gains)....... .00 .00
----------- -------
Total Distributions.... .00 .00
----------- -------
Net Asset Value, End of
Period................. $7.85 $9.85
----------- -------
----------- -------
Total Return............. (36.72%)* (15.84%)*
Ratios/Supplemental Data
Net Assets, End of Period
(000s)................. $26,573 $ 19,878
Ratios to Average Daily
Net Assets:
Operating expenses..... 1.00%* 1.00%*
Net investment
income............... .16%* .49%*
Decrease reflected in
above expense ratios
due to
waivers/reimbursements... 2.28%* 4.96%*
Portfolio Turnover
Rate................... 138.17%* .00%
</TABLE>
- ------------
* Annualized.
The Total Return shown above has been annualized; the actual Total Return
(after the effect of expense waivers) for the one-month period September 30,
1994 (commencement of operations) through October 31, 1994 was
-1.50%, and the actual Total Return (after the effect of expense waivers) for
the six months ended April 30, 1995 was -20.30%.
5
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The CAPITAL APPRECIATION FUND, the INTERNATIONAL EQUITY FUND and the JAPAN
OTC FUND each seek long-term capital appreciation. The EMERGING GROWTH FUND
seeks maximum capital appreciation and the POST-VENTURE FUND seeks long-term
growth of capital.
Each 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
that Fund. Any investment involves risk and, therefore, there can be no
assurance that any Fund will achieve its investment objective. See 'Certain
Investment Strategies' for descriptions of certain types of investments the
Funds may make.
CAPITAL APPRECIATION FUND
The Capital Appreciation Fund is a diversified management investment
company that pursues its investment objective by investing in a broadly
diversified portfolio of equity securities of domestic companies. The Fund will
ordinarily invest substantially all of its total assets -- but no less than 80%
of its total assets -- in common stocks, warrants and securities convertible
into or exchangeable for common stocks. The Fund intends to focus on securities
of medium-sized companies, consisting of companies having stock market
capitalizations of between $500 million and $4.5 billion. (Market capitalization
means the total market value of a company's outstanding common stock.) Under
normal market conditions, except for temporary defensive purposes, the Fund will
invest no less than 80% of its assets in medium-sized companies, with the
remainder invested in companies with smaller or larger market capitalizations.
The prices of securities of medium-sized companies, which are traded on
exchanges or in the over-the-counter market, tend to fluctuate in value more
than the prices of securities of large-sized companies.
Warburg, Pincus Counsellors, Inc., the Funds' investment adviser
('Counsellors'), will attempt to identify sectors of the market and companies
within market sectors that it believes will outperform the overall market.
Counsellors also seeks to identify themes or patterns it believes to be
associated with high growth potential firms, such as significant fundamental
changes (including senior management changes) or generation of a large free cash
flow.
EMERGING GROWTH FUND
The Emerging Growth Fund is a non-diversified management investment company
that pursues its investment objective by investing in a portfolio of equity
securities of domestic companies. The Fund ordinarily will invest at least 65%
of its total assets in common stocks or warrants of emerging growth companies
that represent attractive opportunities for maximum capital appreciation.
Emerging growth companies are small- or medium-sized companies that have passed
their start-up phase and that show positive earnings and prospects of achieving
significant profit and gain in a relatively short period of time.
Although under current market conditions the Fund expects to invest in
companies having stock market capitalizations of up to approximately $500
million, the Fund may invest in emerging growth companies without regard to
their market capitalization. Emerging growth companies generally stand to
benefit from new products or services, technological developments or changes in
management and other factors and include smaller companies experiencing unusual
developments affecting their market value. These 'special situation companies'
include companies that are involved in the following: an acquisition or
consolidation; a reorganization; a recapitalization; a merger, liquidation, or
distribution of cash, securities or other assets; a tender or exchange offer; a
breakup or workout of a holding company; litigation which, if resolved
favorably, would improve the value of the company's stock; or a change in
corporate control.
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INTERNATIONAL EQUITY FUND
The International Equity Fund is a diversified management investment
company that pursues its investment objective by investing primarily in a
broadly diversified portfolio of equity securities of companies, wherever
organized, that in Counsellors' judgment have their principal business
activities and interests outside the United States. The Fund will ordinarily
invest substantially all of its assets -- but no less than 65% of its total
assets -- in common stocks, warrants and securities convertible into or
exchangeable for common stocks. Ordinarily the Fund will hold no less than 65%
of its total assets in at least three countries other than the United States.
The Fund intends to be widely diversified across securities of many corporations
located in a number of foreign countries. Counsellors anticipates, however, that
the Fund may from time to time invest a significant portion of its assets in a
single country such as Japan, which may involve special risks. See 'Risk Factors
and Special Considerations -- Japanese Investments' below. In appropriate
circumstances, such as when a direct investment by the International Equity 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.
The Fund intends to invest principally in the securities of financially
strong companies with opportunities for growth within growing international
economies and markets through increased earning power and improved utilization
or recognition of assets. Investment may be made in equity securities of
companies of any size, whether traded on or off a national securities exchange.
JAPAN OTC FUND
The Japan OTC Fund is a non-diversified management investment company that
pursues its investment objective by investing in a portfolio of securities
traded in the Japanese over-the-counter market. The Fund is designed to provide
an opportunity to participate in the dynamic structural changes in the Japanese
industrial system through investment in less-established, higher growth
companies that can be expected to benefit from these changes. At all times,
except during temporary defensive periods, the Fund will maintain at least 65%
of its total assets in securities of companies traded through JASDAQ, the
primary Japanese over-the-counter market, or the Japanese Second Section OTC
Market (the 'Frontier Market'). The portion of the Fund's assets that is not
invested through JASDAQ or the Frontier Market may be invested in securities of
Japanese issuers that are not traded through JASDAQ or the Frontier Market or
exchange-traded and over-the-counter securities of issuers in other Asian
markets, in addition to the other instruments described below. The Fund may
invest up to 35% of its total assets in securities of other Asian issuers, with
no more than 10% invested in any one country. The Fund will not invest in
securities of non-Asian issuers, except that the Fund may, for defensive
purposes, invest in U.S. debt securities and money market instruments. The Fund
intends its portfolio to consist principally of equity securities (common stock,
warrants and securities convertible into common stock), which may include shares
of closed-end investment companies investing in Asia. The Japan OTC Fund may
also invest up to 5% of the Fund's net assets in each of the following: foreign
debt securities, including foreign government securites and debt obligations of
supranational entities, mortgage-backed securities, asset-backed securities and
zero coupon securities. The Japan OTC Fund may involve a greater degree of risk
than an investment in other mutual funds that seek capital appreciation by
investing in bet-
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ter-known, larger companies. From time to time, the Japan OTC Fund may hedge
part or all of its exposure to the Japanese yen, thereby reducing or
substantially eliminating any favorable or unfavorable impact of changes in the
value of the yen in relation to the U.S. dollar.
At December 31, 1994, 581 issues were traded through JASDAQ, having an
aggregate market capitalization in excess of 14 trillion yen (approximately $134
billion as of September 19, 1995). The entry requirements for JASDAQ generally
require a minimum of 2 million shares outstanding at the time of registration, a
minimum of 200 shareholders, minimum pre-tax profits of 10 yen (approximately
$.10 as of September 19, 1995) per share over the prior fiscal year and net
worth of 200 million yen (approximately $1.92 million as of September 19, 1995).
JASDAQ has generally attracted small growth companies or companies whose major
shareholders wish to sell only a small portion of the company's equity.
The Frontier Market is under the jurisdiction of JASDAQ, which is overseen
by the Japanese Securities and Exchange Commission. The Frontier Market has less
stringent entry requirements than those described above for JASDAQ and is
designed to enable early stage companies access to capital markets. Frontier
Market companies need not have a history of earnings, provided their spending on
research and development equals at least 3% of revenues. In addition, companies
traded through the Frontier Market are not required to have 2 million shares
outstanding at the time of registration. As a result, investments in companies
traded through the Frontier Market may involve a greater degree of risk than
investments in companies traded through JASDAQ. As of the date of this
Prospectus, there were not yet any registrations on the Frontier Market, but the
first registrations are expected to be effective in November 1995.
POST-VENTURE FUND
The Fund is a diversified management investment company that pursues its
investment objective by investing primarily in equity securities of companies
considered by Counsellors to be in their post-venture capital stage of
development. Under normal market conditions, the Fund will invest at least 65%
of its total assets in equity securities of 'post-venture capital companies.' A
post-venture capital company is a company that has received venture capital
financing either (a) during the early stages of the company's existence or the
early stages of the development of a new product or service, or (b) as part of a
restructuring or recapitalization of the company. The investment of venture
capital financing, or distribution of such company's securities, will have been
made within ten years prior to the Fund's purchase of the company's securities.
Counsellors believes that venture capital participation in a company's
capital structure can lead to above average revenue/earnings growth. Venture
capitalists finance start-up companies, companies in the early stages of
developing new products or services and companies undergoing a restructuring or
recapitalization, since these companies may not have access to conventional
forms of financing (such as bank loans or public issuances of stock). Venture
capitalists may be individuals or funds organized by venture capitalists for the
purpose of providing venture capital financing. Interests in venture capital
funds typically are offered to large institutions, such as pension funds and
endowments, as well as high net worth individuals. Venture capital participation
in a company is often reduced when the company does an initial public offering
of its securities or when it is involved in a merger, tender offer or
acquisition. Venture capital funds regularly distribute to their investors
interests in companies they have financed.
Counsellors has experience in researching smaller companies, companies in
the early stages of development and venture capital-financed
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companies. Its team of analysts, led by Elizabeth Dater and Stephen Lurito,
regularly monitors portfolio companies whose securities are held by over 250 of
the larger domestic venture capital funds. Ms. Dater and Mr. Lurito have managed
post-venture equity securities in separate accounts for institutions since 1989
and currently manage over $800 million of such assets for institutions. The Fund
will invest in securities of post-venture capital companies that are traded on a
national securities exchange or in an organized over-the-counter market. The
Fund may also hold non-publicly traded equity securities of companies in the
venture and post-venture stages of development, such as those of closely-held
companies or private placements of public companies. The portion of the Fund's
assets invested in these non-publicly traded securities, which together with the
Fund's other illiquid assets may not exceed 15% of the Fund's assets, will vary
over time depending on investment opportunities and other factors. The Fund may
also invest in securities of companies that do not meet the definition of
post-venture capital companies that are experiencing unusual developments
affecting their capital structure, such as a restructuring or recapitalization;
an acquisition, consolidation, merger or tender offer; or a change in corporate
control.
To attempt to reduce risk, the Fund will diversify its investments over a
broad range of issuers operating in a variety of industries. The Fund may hold
securities of companies of any size, and will not limit capitalization of
companies it selects to invest in. However, due to the nature of the venture
capital to post-venture cycle, the Fund anticipates that the average market
capitalization of companies in which it invests will be less than $1 billion at
the time of investment. Although the Fund will invest primarily in U.S.
companies, up to 20% of the Fund's assets may be invested in securities of
issuers located in any foreign country. Equity securities in which the Fund will
invest are common stock, preferred stock, warrants and securities convertible
into or exchangeable for common stock. The Fund may engage in a variety of
strategies to reduce risk or enhance return, including engaging in short selling
(see 'Certain Investment Strategies').
PORTFOLIO INVESTMENTS
INVESTMENT GRADE DEBT. The International Equity Fund and the Japan OTC Fund each
may invest up to 35% of its total assets, and the Capital Appreciation Fund, the
Emerging Growth Fund and the Post-Venture Fund each may invest up to 20% of its
total assets, in investment grade debt securities (other than money market
instruments) and preferred stocks that are not convertible into common stock for
the purpose of seeking capital appreciation. The interest income to be derived
may be considered as one factor in selecting debt securities for investment by
Counsellors. Because the market value of debt obligations can be expected to
vary inversely to changes in prevailing interest rates, investing in debt
obligations may provide an opportunity for capital appreciation when interest
rates are expected to decline. The success of such a strategy is dependent upon
Counsellors' ability to accurately forecast changes in interest rates. The
market value of debt obligations may also be expected to vary depending upon,
among other factors, the ability of the issuer to repay principal and interest,
any change in investment rating and general economic conditions. A security will
be deemed to be investment grade if it is rated within the four highest grades
by Moody's Investors Service, Inc. ('Moody's') or Standard & Poor's Ratings
Group ('S&P') or, if unrated, is determined to be of comparable quality by
Counsellors. Bonds rated in the fourth highest grade may have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade bonds. Subsequent to its purchase by
a Fund, an issue of
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securities may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Fund. Neither event will require sale of such
securities. Counsellors will consider such event in its determination of whether
the Fund should continue to hold the securities. The Japan OTC Fund does not
currently intend during the coming year to hold more than 5% of its net assets
in securities that have been downgraded below investment grade.
When Counsellors believes that a defensive posture is warranted, each Fund
may invest temporarily without limit in investment grade debt obligations and in
domestic and foreign money market obligations, including repurchase agreements
as discussed below. When such a defensive posture is warranted, the
International Equity Fund and the Japan OTC Fund may also invest temporarily
without limit in securities of U.S. companies.
MONEY MARKET OBLIGATIONS. Each Fund is authorized to invest, under normal market
conditions, up to 20% of its total assets in domestic and foreign money market
obligations having a maturity of one year or less at the time of purchase and
for temporary defensive purposes may invest in these securities without limit.
These short-term instruments consist of obligations issued or guaranteed by the
United States government, its agencies or instrumentalities ('U.S. government
securities') (including, in the case of the Capital Appreciation, Emerging
Growth and International Equity Funds, repurchase agreements with respect to
such securities); bank obligations (including certificates of deposit, time
deposits and bankers' acceptances of domestic or foreign banks, domestic savings
and loans and similar institutions) that are high quality investments or, if
unrated, deemed by Counsellors to be high quality investments; 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,
in the case of the Japan OTC Fund and the Post-Venture Fund, repurchase
agreements with respect to the foregoing.
Repurchase Agreements. The Funds 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, a Fund would acquire any underlying security for a
relatively short period (usually not more than one week) subject to an
obligation of the seller to repurchase, and the Fund to resell, the obligation
at an agreed-upon price and time, thereby determining the yield during the
Fund's holding period. This arrangement results in a fixed rate of return that
is not subject to market fluctuations during the Fund's holding period. The
value of the underlying securities will at all times be at least equal to the
total amount of the purchase obligation, including interest. The Fund bears a
risk of loss in the event that the other party to a repurchase agreement
defaults on its obligations or becomes bankrupt and the Fund is delayed or
prevented from exercising its right to dispose of the collateral securities,
including the risk of a possible decline in the value of the underlying
securities during the period while the Fund seeks to assert this right.
Counsellors, acting under the supervision of the Fund's Board of Directors or
Board of Trustees ('governing Board' or 'Board'), monitors the creditworthiness
of those bank and non-bank dealers with which each 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, each Fund may invest up to 5% of its assets in securities of money
market
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mutual funds that are unaffiliated with the Fund, Counsellors or, in the case of
the Japan OTC Fund, the sub-investment adviser (each investment adviser and
sub-investment adviser referred to individually as an 'Adviser'). As a
shareholder in any mutual fund, a Fund will bear its ratable share of the mutual
fund's expenses, including management fees, and will remain subject to payment
of the Fund's administration fees and other expenses with respect to assets so
invested.
U.S. GOVERNMENT SECURITIES. U.S. government securities in which a 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 a Fund may invest,
including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. The value of convertible securities fluctuates in relation to
changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock. The Japan OTC Fund will invest only in convertible
securities rated investment grade at the time of purchase or deemed to be of
equivalent quality. The Japan OTC Fund does not currently intend during the
coming year to hold more than 5% of its net assets in the aggregate of
investment grade convertible securities and investment grade debt downgraded
below investment grade subsequent to acquisition by the Fund.
RISK FACTORS AND SPECIAL
CONSIDERATIONS
EMERGING GROWTH AND SMALL COMPANIES. Investing in common stocks and securities
convertible into common stocks is subject to the inherent risk of fluctuations
in the prices of such securities. Investing in securities of emerging growth
companies, which may include JASDAQ and Frontier Market securities, 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 small- and
medium-sized 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 small- and
medium-sized companies than for larger, more established ones. Securities of
issuers in 'special situations' also may be more volatile, since the market
value of these securities may decline in value if the anticipated benefits do
not materialize. Companies in 'special situations' include, but are not limited
to, companies involved in an acquisition or consolidation; reorganization;
recapitalization; merger, liquidation or distribution of cash, securities or
other assets; a tender or exchange offer, a breakup or workout of a holding
company; or litigation which, if resolved favorably, would improve the value of
the companies' securities. Although investing in securities of emerging growth
companies or 'special situations' offers potential for above-average returns if
the companies are successful, the risk exists that the companies will not
succeed and the prices of the companies' shares could significantly decline in
value. Therefore, an investment in the Capital Appreciation Fund, the Emerging
Growth Fund, the Japan OTC Fund or the Post-Venture Fund may involve a greater
degree of risk than an
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investment in other mutual funds that seek capital appreciation by investing in
better-known, larger companies. For certain additional risks relating to each
Fund's investments, see 'Portfolio Investments' beginning at page 9 and 'Certain
Investment Strategies' beginning at page 14.
JAPANESE INVESTMENTS. A significant portion of the Japan OTC Fund's assets will
be invested in securities traded through JASDAQ. Trading of equity securities
through the JASDAQ market is conducted by securities firms in Japan, primarily
through an organization which acts as a 'matching agent,' as opposed to a
recognized stock exchange. Consequently, securities traded through JASDAQ may,
from time to time, and especially in falling markets, become illiquid and
experience short-term price volatility and wide spreads between bid and offer
prices. This combination of limited liquidity and price volatility may have an
adverse effect on the investment performance of the Fund. In periods of rapid
price increases, the limited liquidity of JASDAQ restricts the Fund's ability to
adjust its portfolio quickly in order to take full advantage of a significant
market increase, and conversely, during periods of rapid price declines, it
restricts the ability of the Fund to dispose of securities quickly in order to
realize gains previously made or to limit losses on securities held in its
portfolio. In addition, although JASDAQ has generally experienced sustained
growth in aggregate market capitalization and trading volume, there have been
periods in which aggregate market capitalization and trading volume have
declined. The Frontier Market is expected to present greater liquidity,
volatility and trading considerations than JASDAQ.
Investing in Japanese securities may involve the risks described below
associated with investing in foreign securities generally. In addition, because
the Japan OTC Fund invests primarily in Japan and the International Equity Fund
may from time to time have a large position in Japanese securities, these Funds
will be subject to general economic and political conditions in Japan. The Japan
OTC Fund should be considered a vehicle for diversification, but the Fund itself
is not diversified.
Securities in Japan are denominated and quoted in 'yen.' Yen are fully
convertible and transferable based on floating exchange rates into all
currencies, without administrative or legal restrictions for both non-residents
and residents of Japan. In determining the net asset value of shares of each
Fund, assets or liabilities initially expressed in terms of Japanese yen will be
translated into U.S. dollars at the current selling rate of Japanese yen against
U.S. dollars. As a result, in the absence of a successful currency hedge, the
value of each Fund's assets as measured in U.S. dollars may be affected
favorably or unfavorably by fluctuations in the value of Japanese yen relative
to the U.S. dollar.
Japan is largely dependent upon foreign economies for raw materials.
International trade is important to Japan's economy, as exports provide the
means to pay for many of the raw materials it must import. Because of the
concentration of Japanese exports in highly visible products such as
automobiles, machine tools and semiconductors, and the large trade surpluses
ensuing therefrom, Japan has entered a difficult phase in its relations with its
trading partners, particularly with respect to the United States, with whom the
trade imbalance is the greatest.
JASDAQ-traded securities can be volatile, which would result in the Japan
OTC Fund's net asset value fluctuating in response. The decline in the Japanese
securities markets since 1989 has contributed to a weakness in the Japanese
economy, and the impact of a further decline cannot be ascertained. The common
stocks of many Japanese companies continue to trade at high price-earnings
ratios in comparison with those in the United States, even after the recent
market decline. Differences in accounting methods make it difficult to compare
the earnings of Japanese companies with those of companies in other countries,
especially the United States.
12
Japan has a parliamentary form of government. In 1993 a coalition
government was formed which, for the first time since 1955, did not include the
Liberal Democratic Party. Since mid-1993, there have been several changes in
leadership in Japan. What, if any, effect the current political situation will
have on prospective regulatory reforms on the economy in Japan cannot be
predicted. Recent and future developments in Japan and neighboring Asian
countries may lead to changes in policy that might adversely affect the Funds
investing there. For additional information, see 'Japan and its Securities
Markets,' beginning at page 29 of the Statement of Additional Information for
the Japan OTC Fund, and 'Investment Policies -- Japanese Investments,' beginning
at page 4 of the Statement of Additional Information for the International
Equity Fund.
EMERGING MARKETS. The International Equity and Japan OTC Funds may invest in
securities of issuers located in less developed countries considered to be
'emerging markets.' Investing in securities of issuers located in emerging
markets involves not only the risks described below, with respect to investing
in foreign securities, but also other risks, including exposure to economic
structures that are generally less diverse and mature than, and to political
systems that can be expected to have less stability than, those of developed
countries. Other characteristics of emerging markets that may affect investment
there include certain national policies that may restrict investment by
foreigners in issuers or industries deemed sensitive to relevant national
interests and the absence of developed legal structures governing private and
foreign investments and private property. The typically small size of the
markets for securities of issuers located in emerging markets and the
possibility of a low or nonexistent volume of trading in those securities may
also result in a lack of liquidity and in price volatility of those securities.
INVESTMENTS IN NON-PUBLICLY TRADED SECURITIES. Although the Funds expect to
invest primarily in publicly traded equity securities, each Fund may invest up
to 10% of its assets (15% in the case of the Japan OTC Fund and the Post-Venture
Fund) in non-publicly traded equity securities, which may involve a high degree
of business and financial risk and may result in substantial losses. Because of
the absence of any liquid trading market currently for these investments, a Fund
may take longer to liquidate these positions than would be the case for publicly
traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized on such sales could be less than
those originally paid by the Fund. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to companies whose securities are publicly
traded. A Fund's investment in illiquid securities is subject to the risk that
should the Fund desire to sell any of these securities when a ready buyer is not
available at a price that is deemed to be representative of their value, the
value of the Fund's net assets could be adversely affected.
NON-DIVERSIFIED STATUS. Each of the Emerging Growth Fund and the Japan OTC Fund
is classified as a non-diversified investment company under the 1940 Act, which
means that each Fund is not limited by the 1940 Act in the proportion of its
assets that it may invest in the obligations of a single issuer. Each Fund will,
however, comply with diversification requirements imposed by the Internal
Revenue Code of 1986, as amended (the 'Code'), for qualification as a regulated
investment company. As a non-diversified investment company, each Fund may
invest a greater proportion of its assets in the obligations of a small number
of issuers and, as a result, may be subject to greater risk with respect to
portfolio securities. To the extent that a Fund assumes large positions in the
securities of a small number of 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.
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PORTFOLIO TRANSACTIONS AND
TURNOVER RATE
A Fund will attempt to purchase securities with the intent of holding them
for investment but may purchase and sell portfolio securities whenever an
Adviser believes it to be in the best interests of the relevant Fund. A Fund
will not consider portfolio turnover rate a limiting factor in making investment
decisions consistent with its investment objective and policies. It is not
possible to predict the Japan OTC or the Post-Venture Fund's portfolio turnover
rate. However, it is anticipated that each Fund's annual turnover rate should
not exceed 100%. High portfolio turnover rates (100% or more) may result in
dealer mark ups or underwriting commissions as well as other transaction costs,
including correspondingly higher brokerage commissions. In addition, short-term
gains realized from portfolio turnover may be taxable to shareholders as
ordinary income. See 'Dividends, Distributions and Taxes -- Taxes' below and
'Investment Policies -- Portfolio Transactions' in each Fund's Statement of
Additional Information.
All orders for transactions in securities or options on behalf of a Fund
are placed by an Adviser with broker-dealers that it selects, including
Counsellors Securities Inc., the Funds' distributor ('Counsellors Securities').
A 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 governing Board.
CERTAIN INVESTMENT STRATEGIES
Although there is no intention of doing so during the coming year, each
Fund is authorized to engage in the following investment strategies: (i)
purchasing securities on a when-issued basis and purchasing or selling
securities for delayed delivery and (ii) lending portfolio securities. As
described below, the Funds may invest in investments commonly referred to as
'derivative securities,' such as options on securities, stock indexes and
currencies; futures contracts and options on futures contracts; and currency
forward contracts. These strategies may be used for the purpose of hedging
against a decline in value of its portfolio holdings or to generate income to
offset expenses or increase return. SUCH TRANSACTIONS THAT ARE NOT CONSIDERED
HEDGING SHOULD BE CONSIDERED SPECULATIVE AND MAY SERVE TO INCREASE THE FUND'S
INVESTMENT RISK. Detailed information concerning these strategies and their
related risks is contained below and in each Fund's Statement of Additional
Information.
STRATEGIES AVAILABLE TO ALL FUNDS
FOREIGN SECURITIES. The International Equity Fund and the Japan OTC Fund each
will ordinarily hold no less than 65% of its total assets in foreign securities.
The Emerging Growth Fund may invest up to 10% and the Capital Appreciation Fund
and the Post-Venture Fund may each invest up to 20% of its total assets in the
securities of foreign issuers. There are certain risks involved in investing in
securities of companies and governments of foreign nations which are in addition
to the usual risks inherent in domestic investments. These risks include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future adverse political and economic developments and the possible
imposition of currency exchange blockages or other foreign governmental laws or
restrictions, reduced availability of public information concerning issuers, the
lack of uniform accounting, auditing and financial reporting standards and other
regulatory practices and requirements that are often generally less rigorous
than those applied in the United States. Moreover, securities of many foreign
companies may be less liquid and their prices more volatile than those of
securities of comparable U.S. companies. Certain foreign countries
14
<PAGE>
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 Funds, including the withholding of dividends. Foreign securities
may be subject to foreign government taxes that would reduce the net yield on
such securities. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments positions. Investment in foreign securities will also result
in higher operating expenses due to the cost of converting foreign currency into
U.S. dollars, the payment of fixed brokerage commissions on foreign exchanges,
which generally are higher than commissions on U.S. exchanges, higher valuation
and communications costs and the expense of maintaining securities with foreign
custodians.
RULE 144A SECURITIES. The Funds 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 each Fund's limitation on the
purchase of illiquid securities, unless the Fund's governing Board determines on
an ongoing basis that an adequate trading market exists for the security. In the
case of the Japan OTC Fund, Rule 144A Securities will be limited to 10% of the
Fund's net assets, included within the Fund's 15% limit on illiquid securities.
In addition to an adequate trading market, the Board will also consider factors
such as trading activity, availability of reliable price information and other
relevant information in determining whether a Rule 144A Security is liquid. This
investment practice could have the effect of increasing the level of illiquidity
in the Funds to the extent that qualified institutional buyers become
uninterested for a time in purchasing Rule 144A Securities. The governing Board
of each Fund will carefully monitor any investments by the Fund in Rule 144A
Securities. The governing Board may adopt guidelines and delegate to an Adviser
the daily function of determining and monitoring the liquidity of Rule 144A
Securities, although each Board will retain ultimate responsibility for any
determination regarding liquidity.
WRITING OPTIONS ON SECURITIES. Each Fund may write covered call options and, in
the case of the Japan OTC Fund and the Post-Venture Fund, covered put options on
up to 25% of the net asset value of the stock and debt securities in its
portfolio and will realize fees (referred to as 'premiums') for granting the
rights evidenced by the options. A put option embodies the right of its
purchaser to compel the writer of the option to purchase from the option holder
an underlying security at a specified price for a specified time period or at a
specified time. In contrast, a call option embodies the right of its purchaser
to compel the writer of the option to sell to the option holder an underlying
security at a specified price for a specified time period or at a specified
time. Thus, the purchaser of a put option written by a Fund has the right to
compel the purchase by the Fund of the underlying security at an agreed-upon
price for a specified time period or at a specified time, while the purchaser of
a call option written by a Fund has the right to purchase from the Fund the
underlying security owned by the Fund at the agreed-upon price for a specified
time period or at a specified time.
Upon the exercise of a put option written by the Japan OTC Fund or the
Post-Venture Fund, the Fund may suffer an economic loss equal to the excess of
the exercise price of the option over the security's market value at the time of
the option exercise, less the premium received for writing the option. Upon the
exercise of a
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call option written by a Fund, the Fund may suffer an economic loss equal to the
excess of the security's market value at the time of the option exercise over
the Fund's acquisition cost of the security, less the premium received for
writing the option.
A Fund may engage in a closing purchase transaction to realize a profit, to
prevent an underlying security from being called or put or, in the case of a
call option, to unfreeze an underlying security (thereby permitting its sale or
the writing of a new option on the security prior to the outstanding option's
expiration). To effect a closing purchase transaction, a Fund would purchase,
prior to the holder's exercise of an option that the Fund has written, an option
of the same series as that on which the Fund desires to terminate its
obligation. The obligation of a Fund under an option that it has written would
be terminated by a closing purchase transaction, but the Fund would not be
deemed to own an option as the result of the transaction. The ability of a Fund
to engage in closing transactions with respect to options depends on the
existence of a liquid secondary market. While a Fund generally will purchase or
write options only if there appears to be a liquid secondary market for the
options purchased or sold, for some options, no such secondary market may exist
or the market may cease to exist, particularly with respect to options that
trade over-the-counter ('OTC options').
Option writing for each Fund may be limited by position and exercise limits
established by securities exchanges and the NASD. Furthermore, a Fund may, at
times, have to limit its option writing in order to qualify as a regulated
investment company under the Code.
In addition to writing covered options to generate income, each Fund may
enter into options transactions as hedges to reduce investment risk, generally
by making an investment expected to move in the opposite direction of a
portfolio position. A hedge is designed to offset a loss on a portfolio position
with a gain on the hedge position; at the same time, however, a properly
correlated hedge will result in a gain on the portfolio position being offset by
a loss on the hedge position. Each Fund bears the risk that the prices of the
securities being hedged will not move in the same amount as the hedge. A Fund
will engage in hedging transactions only when deemed advisable by an Adviser.
Successful use by a Fund of options for hedging purposes will depend on an
Adviser's ability to correctly predict movements in the direction of the
security underlying the option or, in the case of stock index options (described
below), the underlying securities market, which could prove to be inaccurate.
Losses incurred in options transactions and the costs of these transactions will
affect each Fund's performance. Even if an Adviser's expectations are correct,
where options are used as a hedge 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 Funds may involve a greater risk than an
investment in other mutual funds that seek capital appreciation or growth of
capital.
PURCHASING PUT AND CALL OPTIONS ON SECURITIES. The International Equity Fund,
the Japan OTC Fund and the Post-Venture Fund each may utilize up to 10% of its
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 OTC options. The Capital
Appreciation Fund and the Emerging Growth Fund each may utilize up to 2% of its
assets to purchase U.S. exchange-traded and OTC put and call options on stocks
and debt securities.
By buying a put, a Fund limits its risk of loss from a decline in the
market value of the underlying security until the put expires. Any appreciation
in the value of and yield otherwise available from the underlying security,
however, will be partially offset by the amount of the premium paid for the put
option and any related transaction costs. Call options may be purchased
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by each 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. Each Fund also may purchase call
options to increase its return to investors at a time when the option is
expected to increase in value due to anticipated appreciation of the underlying
security.
Prior to their expirations, put and call options may be sold in closing
sale transactions (sales by a Fund, prior to the exercise of options that it has
purchased, of options of the same series), and profit or loss from the sale will
depend on whether the amount received is more or less than the premium paid for
the option plus the related transaction costs.
STOCK INDEX OPTIONS. In addition to purchasing and writing options on
securities, each Fund may utilize up to 10% of its total assets to purchase
exchange-listed and, in the case of the International Equity Fund, the Japan OTC
Fund and the Post-Venture Fund, OTC put and call options on stock indexes, and
may write put and call options on such indexes. A stock index measures the
movement of a certain group of stocks by assigning relative values to the common
stocks included in the index. Options on stock indexes are similar to options on
stock except that (i) the expiration cycles of stock index options are monthly,
while those of stock options are currently quarterly, and (ii) the delivery
requirements are different. Instead of giving the right to take or make delivery
of stock at a specified price, an option on a stock index gives the holder the
right to receive a cash 'exercise settlement amount' equal to (a) the amount, if
any, by which the fixed exercise price of the option exceeds (in the case of a
put) or is less than (in the case of a call) the closing value of the underlying
index on the date of exercise multiplied by (b) a fixed 'index multiplier.' The
discussion of options on securities above, and the related risks, is applicable
to options on securities indexes.
FUTURES CONTRACTS AND OPTIONS. Each Fund may enter into interest rate, stock
index and, in the case of the International Equity, Japan OTC and Post-Venture
Funds, currency futures contracts and purchase and write (sell) related options
that are traded on an exchange designated by the Commodity Futures Trading
Commission (the 'CFTC') or consistent with CFTC regulations on foreign
exchanges. These transactions may be entered into for 'bona fide hedging' as
defined in CFTC regulations and other permissible purposes including (i)
protecting against anticipated changes in the value of portfolio securities the
Fund intends to purchase and (ii) increasing return.
An interest rate futures contract is a standardized contract for the future
delivery of a specified interest rate sensitive security (such as a U.S.
Treasury Bond or U.S. Treasury Note or its equivalent) at a future date at a
price set at the time of the contract. Stock indexes are capitalization weighted
indexes which reflect the market value of the stock listed on the indexes. A
stock index futures contract is an agreement to be settled by delivery of an
amount of cash equal to a specified multiplier times the difference between the
value of the index at the beginning and at the end of the contract period. An
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract at a specified exercise
price at any time prior to the expiration date of the option. 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.
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
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time as the value of the futures contract fluctuates. The Funds are not
commodity pools 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 each Fund's net
asset value, after taking into account unrealized profits and unrealized losses
on any such contracts. Each 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 the Advisers 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 no
assurance that an offsetting transaction could be entered into at an
advantageous price at any particular time. Consequently, a Fund may realize a
loss on a futures contract or option that is not offset by an increase in the
value of the Fund's securities that are being hedged or the Fund may not be able
to close a futures or options position without incurring a loss in the event of
adverse price movements.
ASSET COVERAGE FOR FORWARD CONTRACTS, OPTIONS, FUTURES AND OPTIONS ON FUTURES.
Each Fund will comply with guidelines established by the SEC designed to
eliminate any potential for leverage with respect to currency forward contracts;
options written by the Fund on currencies, securities and indexes; currency,
interest rate and index futures contracts and options on these futures
contracts. The use of these strategies may require that a Fund maintain cash or
certain liquid high-grade debt securities or other assets that are acceptable as
collateral to the appropriate regulatory authority in a segregated account with
its custodian or a designated sub-custodian to the extent the Fund's obligations
with respect to these strategies are not otherwise 'covered' through ownership
of the underlying security, financial instrument or currency or by other
portfolio positions or by other means consistent with applicable regulatory
policies. Segregated assets cannot be sold or transferred unless equivalent
assets are substituted in their place or it is no longer necessary to segregate
them. As a result, there is a possibility that segregation of a
large percentage of a Fund's assets could impede portfolio management or the
Fund's ability to meet redemption requests or other current obligations.
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STRATEGY AVAILABLE TO THE INTERNATIONAL EQUITY FUND, THE JAPAN OTC FUND AND THE
POST-VENTURE FUND
CURRENCY EXCHANGE TRANSACTIONS. Each 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 (except that the
International Equity Fund may only enter into forward currency contracts for
hedging purposes). Each 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) as described above, through entering into foreign currency
futures contracts or options on such contracts or (iv) in the case of the Japan
OTC Fund and the Post-Venture Fund, by purchasing currency options.
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.
STRATEGIES AVAILABLE TO THE JAPAN OTC FUND
AND THE POST-VENTURE FUND
CURRENCY OPTIONS. Each 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.
REVERSE REPURCHASE AGREEMENTS. Each of the Japan OTC Fund and the Post-Venture
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
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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. Each 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, each 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 Funds do not
currently intend to enter into dollar rolls that are accounted for as a
financing.
STRATEGY AVAILABLE TO THE POST-VENTURE FUND
SHORT SELLING. The Fund may from time to time sell securities short. A short
sale is a transaction in which the Fund sells borrowed securities in
anticipation of a decline in the market price of the securities. Possible losses
from short sales differ from losses that could be incurred from a purchase of a
security, because losses from short sales may be unlimited, whereas losses from
purchases can equal only the total amount invested. The current market value of
the securities sold short will not exceed 10% of the Fund's assets.
When the Fund makes a short sale, the proceeds it receives from the sale
are retained by a broker until the Fund replaces the borrowed securities. To
deliver the securities to the buyer, the Fund must arrange through a broker to
borrow the securities and, in so doing, the Fund becomes obligated to replace
the securities borrowed at their market price at the time of replacement,
whatever that price may be. The Fund may have to pay a premium to borrow the
securities and must pay any dividends or interest payable on the securities
until they are replaced.
The Fund's obligation to replace the securities borrowed in connection with
a short sale will be secured by cash or U.S. government securities deposited as
collateral with the broker. In addition, the Fund will place in a segregated
account with its custodian or a qualified subcustodian an amount of cash or U.S.
government securities equal to the difference, if any, between (i) the market
value of the securities sold at the time they were sold short and (ii) any cash
or U.S. government securities deposited as collateral with the broker in
connection with the short sale (not including the proceeds of the short sale).
Until it replaces the borrowed securities, the Fund will maintain the segregated
account daily at a level so that (a) the amount deposited in the account plus
the amount deposited with the broker (not including the proceeds from the short
sale) will equal the current market value of the securities sold short and (b)
the amount deposited in the account plus the amount deposited with the broker
(not including the proceeds from the short sale) will not be less than the
market value of the securities at the time they were sold short.
Short Sales Against the Box. The Fund may, in addition to engaging in short
sales as described above, enter into a short sale of securities such that when
the short position is open the Fund owns an equal amount of the
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securities sold short or owns preferred stocks or debt securities, convertible
or exchangeable without payment of further consideration, into an equal number
of securities sold short. This kind of short sale, which is referred to as one
'against the box,' will be entered into by the Fund for the purpose of receiving
a portion of the interest earned by the executing broker from the proceeds of
the sale. The proceeds of the sale will generally be held by the broker until
the settlement date when the Fund delivers securities to close out its short
position. Although prior to delivery the Fund will have to pay an amount equal
to any dividends paid on the securities sold short, the Fund will receive the
dividends from the securities sold short or the dividends from the preferred
stock or interest from the debt securities convertible or exchangeable into the
securities sold short, plus a portion of the interest earned from the proceeds
of the short sale. The Fund will deposit, in a segregated account with its
custodian or a qualified subcustodian, the securities sold short or convertible
or exchangeable preferred stocks or debt securities in connection with short
sales against the box. The Fund will endeavor to offset transaction costs
associated with short sales against the box with the income from the investment
of the cash proceeds. Not more than 10% of the Fund's net assets (taken at
current value) may be held as collateral for short sales against the box at any
one time.
The extent to which the Fund may make short sales may be limited by Code
requirements for qualification as a regulated investment company. See
'Dividends, Distributions and Taxes' for other tax considerations applicable to
short sales.
INVESTMENT GUIDELINES
The International Equity Fund, the Capital Appreciation Fund and the
Emerging Growth Fund may each invest up to 10% of its total assets (15% of net
assets, in the case of the Japan OTC Fund and the Post-Venture Fund) in
securities with contractual or other restrictions on resale and other
instruments that are not readily marketable ('illiquid securities'), including
(i) securities issued as part of a privately negotiated transaction between an
issuer and one or more purchasers; (ii) repurchase agreements with maturities
greater than seven days; (iii) time deposits maturing in more than seven
calendar days; and (iv) in the case of the Japan OTC Fund, Rule 144A Securities.
In addition, up to 5% of each Fund's total assets may be invested in the
securities of issuers which have been in continuous operation for less than
three years, and up to an additional 5% of its total assets may be invested in
warrants. Each Fund may borrow from banks 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 10% of
its total assets (30% in the case of the International Equity Fund, the Japan
OTC Fund and the Post-Venture Fund) and may pledge up to 10% of its assets (to
the extent necessary to secure permitted borrowings in the case of the Japan OTC
Fund and the Post-Venture Fund) 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 governing Board of each Fund, subject to the limitations
contained in the 1940 Act. A complete list of investment restrictions that each
Fund has adopted identifying additional restrictions that cannot be changed
without the approval of the majority of the Fund's outstanding shares is
contained in each Fund's Statement of Additional Information.
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISERS. Each Fund employs Counsellors as investment adviser to the
Fund. The
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Japan OTC Fund employs SPARX Investment & Research, USA, Inc. ('SPARX USA') as
its sub-investment adviser. With respect to each Fund other than the Japan OTC
Fund, Counsellors, subject to the control of each Fund's officers and the
governing Board, manages the investment and reinvestment of the assets of the
Funds in accordance with each Fund's investment objective and stated investment
policies. Counsellors makes investment decisions for each such Fund and places
orders to purchase or sell securities on behalf of each such Fund. With respect
to the Japan OTC Fund, Counsellors has general oversight for the day-to-day
management of the Fund, manages the Fund's U.S. investments and investments in
debt securities, determines the country allocation and industry allocation of
Fund assets, monitors Fund expenses and evaluates the services provided by the
sub-investment adviser to the Fund. Counsellors also employs a support staff of
management personnel to provide services to the Funds and furnishes each Fund
with office space, furnishings and equipment. SPARX USA, in accordance with the
investment objective and policies of the Japan OTC Fund and under the
supervision of Counsellors and the Fund's governing Board, makes investment
decisions for the Fund involving Japanese and other Asian equity securities,
places orders to buy and sell such securities on behalf of the Fund and provides
research to the Fund relating to Japanese and other Asian companies and
securities markets.
For the services provided by Counsellors, the Capital Appreciation Fund,
the Emerging Growth Fund, the International Equity Fund and the Post-Venture
Fund will each pay Counsellors a fee calculated at an annual rate of .70%, .90%,
1.00% and 1.25%, respectively, of the Fund's average daily net assets. The Japan
OTC Fund pays Counsellors an advisory fee calculated at an annual rate of 1.25%
of the Fund's average daily net assets, out of which Counsellors pays SPARX USA
a fee of .625%. Although in the case of the Emerging Growth Fund, the
International Equity Fund, the Japan OTC Fund and the Post-Venture Fund, 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 each 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, SPARX USA and each Fund's co-administrators
may voluntarily waive a portion of their fees from time to time and temporarily
limit the expenses to be borne by the Fund.
Counsellors is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of August 31,
1995, Counsellors managed approximately $11.4 billion of assets, including
approximately $5.8 billion of assets of twenty investment companies or
portfolios. Incorporated in 1970, Counsellors is a wholly owned subsidiary of
Warburg, Pincus Counsellors G.P. ('Counsellors G.P.'), a New York general
partnership. E.M. Warburg, Pincus & Co., Inc. ('EMW') controls Counsellors
through its ownership of a class of voting preferred stock of Counsellors.
Counsellors G.P. has no business other than being a holding company of
Counsellors and its subsidiaries. Counsellors' address is 466 Lexington Avenue,
New York, New York 10017-3147.
PORTFOLIO MANAGERS. The portfolio manager of the International Equity Fund is
Richard H. King. Together with Shuhei Abe of SPARX USA, Mr. King, Nicholas P.W.
Horsley and Nicholas Edwards are co-portfolio managers of the Japan OTC Fund.
The president of the International Equity Fund, the Japan OTC Fund and Warburg
Pincus Emerging Markets Fund is Mr. King. Mr. King has been a portfolio manager
of the International Equity Fund since its incep-
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tion on May 2, 1989, and Mr. King, Mr. Horsley and Mr. Abe have been
co-portfolio managers of the Japan OTC Fund since its inception on September 30,
1994. Mr. Edwards has been a co-portfolio manager of the Japan OTC Fund since
October 1995. Mr. King 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 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. Mr. Edwards has been with Counsellors since August 1995, before which time
he was a director at Jardine Fleming Investment Advisers, Tokyo. He was a vice
president of Robert Fleming Inc. in New York City from 1988 to 1991. Mr. Edwards
is also an associate portfolio manager and research analyst for the
International Equity Fund.
Harold W. Ehrlich and Vincent J. McBride are also associate portfolio
managers and research analysts for the International Equity Fund. Mr. Ehrlich is
a senior vice president of Counsellors and has been with Counsellors and the
Fund since February 1995, before which time he was a senior vice president,
portfolio manager and analyst at Templeton Investment Counsel Inc. Mr. McBride
has been with Counsellors and the Fund 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.
Shuhei Abe of SPARX USA, a co-portfolio manager of the Japan OTC Fund, is
the founder and president of SPARX Asset Management Company Ltd. ('SPARX'), the
parent company of SPARX USA. Prior to founding SPARX in 1989 (by assuming
control of a predecessor company), Mr. Abe worked for Soros Fund Management and
Credit Suisse Trust Bank as an independent adviser. Toshikatsu Kimura is an
associate portfolio manager of the Japan OTC Fund. Mr. Kimura has been a
portfolio manager and analyst at SPARX since 1992, before which time he was a
warrant trader and portfolio manager, respectively, at Sanyo Securities and
Sanyo Investment Management from 1986 to 1990, and at Funai Capital from 1990 to
1992.
The co-portfolio managers of the Emerging Growth Fund and the Post-Venture
Fund are Elizabeth B. Dater and Stephen J. Lurito, co-presidents of the Emerging
Growth Fund. Ms. Dater has been portfolio manager of the Emerging Growth Fund
since its inception on January 21, 1988. She is a managing director of EMW and
has been a portfolio manager of Counsellors since 1978. Mr. Lurito has been a
portfolio manager of the Emerging Growth Fund since 1990. He is a managing
director of EMW and has been with Counsellors since 1987, before which time he
was a research analyst at Sanford C. Bernstein & Company, Inc. Robert S. Janis
and Christopher M. Nawn are associate portfolio managers and research analysts
for the Post-Venture Fund. Mr. Janis has been with Counsellors since October
1994, before which time he was a vice president and senior research analyst at
U.S. Trust Company of New York. Mr. Nawn has been with Counsellors since
September 1994, before which time he was a senior sector analyst and portfolio
manager at the Dreyfus Corporation.
George U. Wyper and Susan L. Black have been co-portfolio managers of the
Capital Appreciation Fund since December 1994. Mr. Wyper is a managing director
of EMW, which he joined in August 1994, before which time he was chief
investment officer of White River Corporation and president of Hanover Advisers,
Inc.
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(1993-August 1994), chief investment officer of Fund American Enterprises, Inc.
(1990-1993) and the director of fixed income investments at Fireman's Fund
Insurance Company (1987-1990). Ms. Black is a managing director of EMW and has
been with Counsellors since 1985.
SPARX USA, a Delaware corporation, is a wholly owned subsidiary of SPARX.
SPARX USA, which has not previously acted as adviser to a U.S. investment
company, is registered as an investment adviser under the U.S. Investment
Advisers Act of 1940. SPARX is an independent investment advisory company, which
is owned by Shuhei Abe. The predecessor of SPARX was incorporated in Tokyo in
July 1988 and was registered as an investment adviser under the Investment
Advisory Act of 1986 of Japan. SPARX has no business other than providing
investment advisory services, and as of August 31, 1995 had approximately $554
million in assets under management. SPARX USA's address is 413 Seaside Avenue,
Honolulu, Hawaii 96815.
CO-ADMINISTRATORS. The Funds employ Counsellors Funds Service, Inc.
('Counsellors Service'), a wholly owned subsidiary of Counsellors, as a
co-administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Funds including responding to shareholder inquiries and
providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Funds and their various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the governing Board, preparing proxy
statements and annual, semiannual and quarterly reports, assisting in other
regulatory filings as necessary and monitoring and developing compliance
procedures for the Funds. As compensation, each 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 Funds. Qualified
recipients are securities dealers who have sold Fund shares or others, including
banks and other financial institutions, under special arrangements. In some
instances, these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Fund shares.
Each Fund employs PFPC Inc. ('PFPC'), an indirect, wholly owned subsidiary
of PNC Bank Corp., as a co-administrator. As a co-administrator, PFPC calculates
the Fund's net asset value, provides all accounting services for the Fund and
assists in related aspects of the Fund's operations. As compensation the
Emerging Growth Fund, the Capital Appreciation Fund and the Post-Venture Fund
each pays PFPC a fee calculated at an annual rate of .10% of each Fund's average
daily net assets, and the International Equity Fund and the Japan OTC Fund each
pays PFPC a fee calculated at an annual rate of .12% of each 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, subject in each case to a
minimum annual fee and exclusive of out-of-pocket expenses. PFPC has its
principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.
CUSTODIAN. Fiduciary Trust Company International ('Fiduciary') serves as
custodian of the International Equity Fund's assets and State Street Bank and
Trust Company ('State Street') serves as custodian of the Japan OTC Fund's
assets. Fiduciary's principal business address is Two World Trade Center, New
York, New York 10048. State Street's principal business address is 225 Franklin
Street, Boston, Massachusetts 02110.
PNC Bank, National Association ('PNC'), serves as custodian of the
Post-Venture Fund's U.S. assets, and State Street serves as custodian of the
Fund's non-U.S. assets. PNC also provides
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certain custodial services generally in connection with purchases and sales of
International Equity Fund shares and serves as custodian of the assets of the
Capital Appreciation Fund and the Emerging Growth Fund. Like PFPC, PNC is a
subsidiary of PNC Bank Corp. and its principal business address is Broad and
Chestnut Streets, Philadelphia, Pennsylvania 19101.
TRANSFER AGENT. State Street also serves as shareholder servicing agent,
transfer agent and dividend disbursing agent for the Funds. It has delegated to
Boston Financial Data Services, Inc., a 50% owned subsidiary ('BFDS'),
responsibility for most shareholder servicing functions. BFDS's principal
business address is 2 Heritage Drive, North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves as distributor of the shares of the
Funds. Counsellors Securities is a wholly owned subsidiary of Counsellors and is
located at 466 Lexington Avenue, New York, New York 10017-3147. No compensation
is payable by the International Equity, Emerging Growth or Capital Appreciation
Funds to Counsellors Securities for distribution services. Counsellors
Securities receives a fee at an annual rate equal to .25% of the average daily
net assets of each of the Japan OTC and Post-Venture Fund's Common Shares for
distribution services, pursuant to a shareholder servicing and distribution plan
('12b-1 Plan') adopted by each Fund pursuant to Rule 12b-1 under the 1940 Act.
Amounts paid to Counsellors Securities under a 12b-1 Plan may be used by
Counsellors Securities to cover expenses that are primarily intended to result
in, or that are primarily attributable to, (i) the sale of the Common Shares,
(ii) ongoing servicing and/or maintenance of the accounts of Common Shareholders
of the Fund and (iii) sub-transfer agency services, subaccounting services or
administrative services related to the sale of the Common Shares, all as set
forth in the 12b-1 Plans. Payments under the 12b-1 Plans are not tied
exclusively to the distribution expenses actually incurred by Counsellors
Securities and the payments may exceed distribution expenses actually incurred.
The governing Boards of the Japan OTC Fund and the Post-Venture Fund evaluate
the appropriateness of the 12b-1 Plan on a continuing basis and in doing so
consider all relevant factors, including expenses borne by Counsellors
Securities and amounts received under the 12b-1 Plans.
DIRECTORS AND OFFICERS. The officers of each Fund manage its day-to-day
operations and are directly responsible to its governing Board. The Boards set
broad policies for each Fund and choose its officers. A list of the
Directors/Trustees and officers of each Fund and a brief statement of their
present positions and principal occupations during the past five years is set
forth in the Statement of Additional Information of each Fund.
HOW TO OPEN AN ACCOUNT
In order to invest in a Fund, an investor must first complete and sign an
account application. To obtain an application, an investor may telephone Warburg
Pincus Funds at (800) 257-5614. An investor may also obtain an account
application by writing to:
Warburg Pincus Funds
P.O. Box 9030
Boston, Massachusetts 02205-9030
Completed and signed account applications should be mailed to Warburg
Pincus Funds at the above address.
RETIREMENT PLANS AND UGMA ACCOUNTS. For information about investing in the Funds
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 Transfers to Minors Act
('UGMA') account, an investor should telephone Warburg Pincus Funds at (800)
888-6878 or write to Warburg Pincus Funds at the address set forth above.
Investors should consult their own tax
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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 each Fund may be purchased either 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 the sender. If payment is received in proper form before 4:00 p.m.
(Eastern time) on a day that the Fund calculates its net asset value (a
'business day'), the purchase will be made at the Fund's net asset value
calculated at the end of that day. If payment is received after 4:00 p.m., the
purchase will be effected at the Fund's net asset value determined for the next
business day after payment has been received. Checks or money orders that are
not in proper form or that are not accompanied or preceded by a complete account
application will be returned to the sender. Shares purchased by check or money
order are entitled to receive dividends and distributions beginning on the day
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 a Fund by wiring funds
from their banks. Telephone orders by wire will not be accepted until a
completed account application in proper form has been received and an account
number has been established. Investors should place an order with the Fund prior
to wiring funds by telephoning (800) 888-6878. Federal funds may be wired to
Counsellors Securities Inc. using the following wire address:
State Street Bank and Trust Co.
225 Franklin St.
Boston, MA 02101
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
[Insert Warburg Pincus fund name(s) here]
DDA# 9904-649-2
[Shareowner name]
[Shareowner account number]
If a telephone order is received by the close of regular trading on the New
York Stock Exchange (the 'NYSE') (currently 4:00 p.m., Eastern time) and payment
by wire is received on the same day in proper form in accordance with
instructions set forth above, the shares will be priced according to the net
asset value of the Fund on that day and are entitled to dividends and
distributions beginning on that day. If payment by wire is received in proper
form by the close of the NYSE without a prior telephone order, the purchase will
be priced according to the net asset value of the Fund on that day and is
entitled to dividends and distributions beginning on that day. However, if a
wire in proper form that is not preceded by a telephone order is received after
the close of regular trading on the NYSE, the payment will be held uninvested
until the order is effected at the close of business on the next business day.
Payment for orders that are not accepted will be returned to the prospec-
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<PAGE>
tive 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 each 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 Plan 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
and subsequent investment minimum requirements with respect to investors who are
employees of EMW or its affiliates or persons with whom Counsellors has entered
into an investment advisory agreement. Existing investors will be given 15 days'
notice by mail of any increase in investment minimum requirements.
After an investor has made his initial investment, additional shares may be
purchased at any time by mail or by wire in the manner outlined above. Wire
payments for initial and subsequent investments should be preceded by an order
placed with the Fund and should clearly indicate the investor's account number
and the name of the Fund in which shares are being purchased. In the interest of
economy and convenience, physical certificates representing shares in the Funds
are not normally issued.
The Funds understand that some broker-dealers (other than Counsellors
Securities), financial institutions, securities dealers and other industry
professionals may impose certain conditions on their clients that invest in the
Funds, which are in addition to or different than those described in this
Prospectus, and, to the extent permitted by applicable regulatory authority, may
charge their clients direct fees. Certain features of the Funds, such as the
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
Funds in accordance with their agreements with clients or customers.
Common Shares of each Fund are available through the Charles Schwab &
Company, Inc. Mutual Fund OneSourceTM Program and the Fidelity Brokerage
Services, Inc. Funds-NetworkTM Program. In addition, the Common Shares of each
Fund other than the Japan OTC 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 a Fund or its agent may enter confirmed purchase orders on behalf of
customers, with payment to follow no later than the Funds' pricing on the
following business day. If payment is not received by such time, the
organization could be held liable for resulting fees or losses.
AUTOMATIC MONTHLY INVESTING. Automatic monthly investing allows shareholders to
authorize a Fund to debit their bank account monthly ($50 minimum) for the
purchase of Fund shares on or about either the tenth or twentieth calendar day
of each month. To establish the automatic monthly investing option, obtain a
separate application or complete the 'Automatic Investment Program' section of
the account 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
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member may be used. Shareholders using this service must satisfy the initial
investment minimum for the Fund prior to or concurrent with the start of any
Automatic Investment Program. Please refer to an account application for further
information, or contact Warburg Pincus Funds at (800) 888-6878 for information
or to modify or terminate the program. Investors should allow a period of up to
30 days in order to implement an automatic investment program. The failure to
provide complete information could result in further delays.
HOW TO REDEEM AND EXCHANGE
SHARES
REDEMPTION OF SHARES. An investor in a Fund may redeem (sell) his shares on any
day that the Fund's net asset value is calculated (see 'Net Asset Value' below).
Proceeds from the redemption of shares of the Japan OTC Fund will be reduced by
the amount of any applicable redemption fee (see below).
Common Shares of the Funds 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 the address indicated above under 'How to Open an Account.' An
investor should be sure that the redemption request identifies the Fund, the
number of shares to be redeemed and the investor's account number. In order to
change the bank account or address designated to receive the redemption
proceeds, the investor must send a written request (with signature guarantee of
all investors listed on the account when such a change is made in conjunction
with a redemption request) to Warburg Pincus Funds. Each mail redemption request
must be signed by the registered owner(s) (or his legal representative(s))
exactly as the shares are registered. If an investor has applied for the
telephone redemption feature on his account application, he may redeem his
shares by calling Warburg Pincus Funds at (800) 888-6878 between 9:00 a.m. and
4:00 p.m. (Eastern time) on any business day. An investor making a telephone
withdrawal should state (i) the name of the Fund, (ii) the account number of the
Fund, (iii) the name of the investor(s) appearing on the Fund's records, (iv)
the amount to be withdrawn and (v) the name of the person requesting the
redemption.
After receipt of the redemption request by mail or by telephone, the
redemption proceeds will, at the option of the investor, be paid by check and
mailed to the investor of record or be wired to the investor's bank as indicated
in the account application previously filled out by the investor. No Fund
currently imposes a service charge for effecting wire transfers but each Fund
reserves the right to do so in the future. During periods of significant
economic or market change, telephone redemptions may be difficult to implement.
If an investor is unable to contact Warburg Pincus Funds by telephone, an
investor may deliver the redemption request to Warburg Pincus Funds by mail at
the address shown above under 'How to Open an Account.' Although each Fund will
redeem shares purchased by check before the check clears, payments of the
redemption proceeds will be delayed until such check has cleared, which may take
up to 15 days from the purchase date. Investors should consider purchasing
shares using a certified or bank check or money order if they anticipate an
immediate need for a redemption.
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
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<PAGE>
next business day following the date a redemption order is effected. If,
however, in the judgment of Counsellors, immediate payment would adversely
affect a Fund, each Fund reserves the right to pay the redemption proceeds
within seven days after the redemption order is effected. Furthermore, each 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), each Fund reserves the
right to redeem the shares in that account at net asset value. Prior to any
redemption, the Fund will notify an investor in writing that this account has a
value of less than the minimum. The investor will then have 60 days to make an
additional investment before a redemption will be processed by the Fund.
The Japan OTC Fund imposes a redemption charge on any redemption of shares
(which includes an exchange of shares of the Japan OTC Fund into another Warburg
Pincus Fund) made within six months from the date of purchase. The charge, which
is deducted from the redemption proceeds and retained by the Fund, is equal to
1.00% of the current value of shares redeemed that were held for less than six
months, including any appreciation in value of the redeemed shares. If shares
being redeemed were not all held for the same length of time, those shares held
longest will be redeemed first for purposes of determining whether the charge
applies. The redemption charge will not be imposed on redemptions (or exchanges)
of shares acquired through the reinvestment of dividends, and these shares will
be redeemed before any shares to which the redemption charge applies. The
redemption fee is currently being waived until such later date as the Fund may
determine.
TELEPHONE TRANSACTIONS. In order to request redemptions by telephone, investors
must have completed and returned to Warburg Pincus Funds an account application
containing a telephone election. Unless contrary instructions are elected, an
investor will be entitled to make exchanges by telephone. Neither a Fund nor its
agents will be liable for following instructions communicated by telephone that
it reasonably believes to be genuine. Reasonable procedures will be employed on
behalf of each Fund to confirm that instructions communicated by telephone are
genuine. Such procedures include providing written confirmation of telephone
transactions, tape recording telephone instructions and requiring specific
personal information prior to acting upon telephone instructions.
AUTOMATIC CASH WITHDRAWAL PLAN. Each Fund offers investors an automatic cash
withdrawal plan under which investors may elect to receive periodic cash
payments of at least $250 monthly or quarterly. To establish this service,
complete the 'Automatic Withdrawal Plan' section of the account application and
attach a voided check from the bank account to be credited. For further
information regarding the automatic cash withdrawal plan or to modify or
terminate the Plan, investors should contact Warburg Pincus Funds at (800)
888-6878.
EXCHANGE OF SHARES. An investor may exchange Common Shares of a Fund for Common
Shares of another Fund or 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
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<PAGE>
made at each Fund's net asset value determined at the end of that business day.
Exchanges may be effected without a sales charge but must satisfy the minimum
dollar amount necessary for new purchases and may, in the case of exchanges from
the Japan OTC Fund, be subject to a redemption fee. Due to the costs involved in
effecting exchanges, each 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 among the Funds and 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 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; and
WARBURG PINCUS EMERGING MARKETS FUND -- an equity fund seeking growth of
capital by investing primarily in securities of non-United States issuers
consisting of companies in emerging securities markets.
The exchange privilege is available to shareholders residing in any state
in which the Common Shares being acquired may legally be sold. When an investor
effects an exchange of shares, the exchange is treated for federal income tax
purposes as a redemption. Therefore, the investor may realize a taxable gain or
loss in connection with the exchange. Investors wishing to exchange Common
Shares of a Fund for Common Shares in another Warburg Pincus Fund should review
the prospectus of the other fund prior to making an exchange. For further
information regarding the exchange privilege or
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<PAGE>
to obtain a current prospectus for another Warburg Pincus Fund, an investor
should contact Warburg Pincus Funds at (800) 257-5614.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. Each Fund calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Fund's portfolio securities for the applicable period less
applicable expenses. Each 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 a Fund to pay dividends or distributions in cash, dividends
and distributions will automatically be reinvested in additional Common Shares
of the relevant Fund at net asset value. The election to receive dividends in
cash may be made on the account application or, subsequently, by writing to
Warburg Pincus Funds at the address set forth under 'How to Open an Account' or
by calling Warburg Pincus Funds at (800) 888-6878.
A Fund may be required to withhold for U.S. federal income taxes 31% of all
distributions payable to shareholders who fail to provide the Fund with their
correct taxpayer identification number or to make required certifications, or
who have been notified by the U.S. Internal Revenue Service that they are
subject to backup withholding.
TAXES. Each Fund intends to qualify each year as a 'regulated investment
company' within the meaning of the Code. Each Fund, if it qualifies as a
regulated investment company, will be subject to a 4% non-deductible excise tax
measured with respect to certain undistributed amounts of ordinary income and
capital gain. Each Fund expects to pay such additional dividends and to make
such additional distributions as are necessary to avoid the application of this
tax.
Dividends paid from net investment income and distributions of net realized
short-term capital gains are taxable to investors as ordinary income, regardless
of the length of time shareholders have held shares of the Fund or 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, whether received in cash or reinvested in Fund shares
and regardless of how long the shareholder has held 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
Funds, but investors not subject to tax on their income will not be required to
pay tax on amounts distributed to them. The Fund's investment activities,
including short sales of securities, will not result in unrelated business
taxable income to a tax-exempt investor. A 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.
Special Tax Matters Relating to the International Equity Fund and the Japan
OTC Fund. Dividends and interest received by the International Equity Fund and
the Japan OTC Fund may be subject to withholding and other taxes imposed by
foreign countries. However, tax conventions between certain countries and the
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United States may reduce or eliminate such taxes. If the International Equity
Fund or the Japan OTC 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 International Equity Fund or the Japan
OTC Fund, as the case may be, may elect for U.S. income tax purposes to treat
foreign income taxes paid by it as paid by its shareholders. A Fund may qualify
for and make this election in some, but not necessarily all, of its taxable
years. If a Fund were to make an election, shareholders of the Fund would be
required to take into account an amount equal to their pro rata portions of such
foreign taxes in computing their taxable income and then treat an amount equal
to those foreign taxes as a U.S. federal income tax deduction or as a foreign
tax credit against their U.S. federal income taxes. Shortly after any year for
which it makes such an election, the International Equity Fund or the Japan OTC
Fund will report to its shareholders the amount per share of such foreign income
tax that must be included in each shareholder's gross income and the amount
which will be available for the deduction or credit. No deduction for foreign
taxes may be claimed by a shareholder who does not itemize deductions. Certain
limitations will be imposed on the extent to which the credit (but not the
deduction) for foreign taxes may be claimed.
Special Tax Matters Relating to the Japan OTC Fund. In the opinion of
Japanese counsel for the Fund, the operations of the Fund will not subject the
Fund to any Japanese income, capital gains or other taxes except for withholding
taxes on interest and dividends paid to the Fund by Japanese corporations and
securities transaction taxes payable in the event of sales of portfolio
securities in Japan. In the opinion of such counsel, under the tax convention
between the United States and Japan (the 'Convention') as currently in force, a
Japanese withholding tax at a rate of 15% is, with certain exceptions, imposed
upon dividends paid by Japanese corporations to the Fund. Pursuant to the
present terms of the Convention, interest received by the Fund from sources
within Japan is subject to a Japanese withholding tax at a rate of 10%.
Special Tax Matters Relating to the Post-Venture Fund. Certain provisions
of the Code may require that a gain recognized by the Fund upon the closing of a
short sale be treated as a short-term capital gain, and that a loss recognized
by the Fund upon the closing of a short sale be treated as a long-term capital
loss, regardless of the amount of time that the Fund held the securities used to
close the short sale. The Fund's use of short sales may also affect the holding
periods of certain securities held by the Fund if such securities are
'substantially identical' to securities used by the Fund to close the short
sale. The Fund's short selling activities will not result in unrelated business
taxable income to a tax-exempt investor.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. Each investor will also receive, if
applicable, various written notices after the close of a Fund's prior taxable
year with respect to certain dividends and distributions which were received
from the Fund during the Fund's prior taxable year. Investors should consult
their own tax advisers with specific reference to their own tax situations,
including their state and local tax liabilities.
NET ASSET VALUE
Each Fund's net asset value per share is calculated as of the close of
regular trading on the NYSE (currently 4:00 p.m., Eastern time) on each business
day, Monday through Friday, except on days when the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, 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
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<PAGE>
falls on a Saturday or Sunday, respectively. The net asset value per share of
each Fund generally changes each day.
The net asset value per Common Share of each Fund is computed by adding the
Common Shares' pro rata share of the value of the Fund's assets, deducting the
Common Shares' pro rata share of the Fund's liabilities and the liabilities
specifically allocated to Common Shares and then dividing the result by the
total number of outstanding Common Shares. Generally, the Funds' 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 governing 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 a 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
governing Board or its delegates.
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 governing 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 each Fund's Statement of Additional Information.
PERFORMANCE
The Funds quote the performance of Common Shares separately from Advisor
Shares. The net asset value of Common Shares is listed in The Wall Street
Journal each business day under the heading 'Warburg Pincus Funds.' From time to
time, each Fund may advertise the average annual total return of its Common
Shares over various periods of time. These total return figures show the average
percentage change in value of an investment in the Common Shares from the
beginning of the measuring period to the end of the measuring period. The
figures reflect changes in the price of the Common Shares assuming that any
income dividends and/or capital gain distributions made by 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
33
<PAGE>
one year in the period might have been greater or less than the average for the
entire period. When considering total return figures for periods shorter than
one year, investors should bear in mind that each Fund seeks long-term
appreciation and that such return may not be representative of any Fund's return
over a longer market cycle. Each Fund may also advertise aggregate total return
figures of its Common Shares for various periods, representing the cumulative
change in value of an investment in the Common Shares for the specific period
(again reflecting changes in share prices and assuming reinvestment of dividends
and distributions). Aggregate and average total returns may be shown by means of
schedules, charts or graphs and may indicate various components of total return
(i.e., change in value of initial investment, income dividends and capital gain
distributions).
Investors should note that total return figures are based on historical
earnings and are not intended to indicate future performance. Each Fund's
Statement of Additional Information describes the method used to determine the
total return. Current total return figures may be obtained by calling Warburg
Pincus Funds at (800) 257-5614.
In reports or other communications to investors or in advertising material,
a Fund may describe general economic and market conditions affecting the Fund.
The Fund may compare its performance with (i) that of other mutual funds as
listed in the rankings prepared by Lipper Analytical Services, Inc. or similar
investment services that monitor the performance of mutual funds or as set forth
in the publications listed below; (ii) in the case of the Capital Appreciation
Fund, with the Russell Midcap Index, the S&P Midcap 400 Index and the S&P 500
Index; in the case of the Emerging Growth Fund, with the Russell 2000 Small
Stock Index, the T. Rowe Price New Horizons Fund Index and the S&P 500 Index; in
the case of the International Equity Fund, the Morgan Stanley Capital
International Europe, Australia and Far East ('EAFE') Index, the Salomon Russell
Global Equity Index, the FT-Actuaries World Indices (jointly compiled by The
Financial Times, Ltd., Goldman, Sachs & Co. and NatWest Securities Ltd.) and the
S&P 500 Index; in the case of the Japan OTC Fund, the indexes noted above for
the International Equity Fund, as well as the Nikkei over-the-counter average,
the JASDAQ Index, the Nikkei 225 and 300 Stock Indexes and the Topix Index; in
the case of the Post-Venture Fund, with the Venture Capital 100 Index (compiled
by Venture Capital Journal), the Russell 2000 Small Stock Index and the S&P 500
Index; all of which are unmanaged indexes of common stocks; or (iii) other
appropriate indexes of investment securities or with data developed by
Counsellors derived from such indexes. The Post-Venture Fund may also make
comparisons using data and indexes compiled by the National Venture Capital
Association, VentureOne and Private Equity Analysts Newsletter and similar
organizations and publications. A Fund may include evaluations of the Fund
published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as The Wall Street Journal,
Investor's Daily, Money, Inc., Institutional Investor, Barron's, Fortune,
Forbes, Business Week, Morningstar, Inc. and Financial Times.
In reports or other communications to investors or in advertising, each
Fund may also describe the general biography or work experience of the portfolio
managers of the Fund and may include quotations attributable to the portfolio
managers describing approaches taken in managing the Fund's investments,
research methodology underlying stock selection or the Fund's investment
objective. The Post-Venture Fund may discuss characteristics of venture capital
financed companies and the benefits expected to be achieved from investing in
these companies. Each 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, each Fund
may from time to time compare the expense ratio of its Common
34
<PAGE>
Shares to that of investment companies with similar objectives and policies,
based on data generated by Lipper Analytical Services, Inc. or similar
investment services that monitor mutual funds.
GENERAL INFORMATION
ORGANIZATION. The International Equity Fund was incorporated on February 9, 1989
under the laws of the State of Maryland. Although the Fund's name as set forth
in its charter is 'Counsellors International Equity Fund, Inc.,' it does
business under the name 'Warburg, Pincus International Equity Fund.' The
Emerging Growth Fund was incorporated on November 12, 1987 under the laws of the
State of Maryland. Although the Fund's name as set forth in its charter is
'Counsellors Emerging Growth Fund, Inc.,' it does business under the name
'Warburg, Pincus Emerging Growth Fund.' The Capital Appreciation Fund was
organized on January 20, 1987 under the laws of The Commonwealth of
Massachusetts and is a business entity commonly known as 'Massachusetts business
trust.' On February 26, 1992, the Fund amended the Agreement and Declaration of
Trust to change the name of the Fund from 'Counsellors Capital Appreciation
Fund' to 'Warburg, Pincus Capital Appreciation Fund.' The Japan OTC Fund and the
Post-Venture Fund were incorporated on July 26, 1994 and July 12, 1995,
respectively, under the laws of the State of Maryland.
The charter of each of the Emerging Growth Fund, the International Equity
Fund, the Japan OTC Fund and the Post-Venture Fund 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 (the Advisor
Shares). The Capital Appreciation Fund's Agreement and Declaration of Trust
authorizes the Board to issue an unlimited number of full and fractional shares
of beneficial interest, $.001 par value per share, of which one billion shares
are classified as Series 2 Shares (the Advisor Shares). Under each Fund's
charter documents, the governing 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 governing Board of a Fund may similarly classify
or reclassify any class of its shares into one or more series and, without
shareholder approval, may increase the number of authorized shares of the Fund.
MULTI-CLASS STRUCTURE. Each Fund offers a separate class of shares, the Advisor
Shares, pursuant to a separate prospectus. Advisor Shares may not be purchased
by individuals directly but institutions and retirement plans may purchase
Advisor Shares for individuals. Advisor Shares of each class represent equal pro
rata interests in the respective Fund and accrue dividends and calculate net
asset value and performance quotations in the same manner, as described
elsewhere in this Prospectus. Because of the higher fees borne by the Advisor
Shares, the total return on such shares can be expected to be lower than the
total return on Common Shares. Investors may obtain information concerning the
Advisor Shares by calling Counsellors Securities at (800) 888-6878.
VOTING RIGHTS. Investors in a Fund are entitled to one vote for each full share
held and fractional votes for fractional shares held. Shareholders of a Fund
will vote in the aggregate except where otherwise required by law and except
that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the governing Board
unless and until such time as less than a majority of the
members holding office have been elected by investors. Any Director of the
International Equity Fund, the Emerging Growth Fund, the Japan OTC Fund or the
Post-Venture Fund may be removed from office upon the vote of shareholders
holding at least a majority of the relevant Fund's outstanding shares, at a
meeting called for that purpose. Investors of record of no less than two-thirds
of the outstanding shares of the
35
<PAGE>
Capital Appreciation Fund may remove a Trustee through a declaration in writing
or by vote cast in person or by proxy 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 a
Fund. John L. Furth, a Director and Trustee of the Funds, and Lionel I. Pincus,
Chairman of the Board and Chief Executive Officer of EMW, may be deemed to be
controlling persons of each Fund other than the Post-Venture Fund as of August
31, 1995 because they may be deemed to possess or share investment power over
shares owned by clients of Counsellors and certain other entities.
SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement of
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). Each Fund will also send to its investors a
semiannual report and an audited annual report, each of which includes a list of
the investment securities held by the Fund and a statement of the performance of
the Fund.
The prospectuses of the Funds are combined in this Prospectus. Each Fund
offers only its own shares, yet it is possible that a Fund might become liable
for a misstatement, inaccuracy or omission in this Prospectus with regard to
another Fund.
SHAREHOLDER SERVICING
Common Shares may be sold to or through institutions, including insurance
companies, 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 may be
deemed to be 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 Funds' Common Shares. These services
include maintaining account records, processing orders to purchase, redeem and
exchange Common Shares and responding to certain customer inquiries.
Organizations that provide recordkeeping or other services to certain employee
benefit plans and qualified and other retirement plans that include a Fund as an
investment alternative may also be paid a fee by the Fund for these services.
Each Fund is authorized to offer Advisor Shares exclusively to institutions
that enter into account servicing agreements ('Agreements') with the Fund
pursuant to a distribution plan approved by each Fund's governing Board pursuant
to Rule 12b-1 under the 1940 Act. Pursuant to the terms of an Agreement, the
institution will provide certain distribution, shareholder servicing,
administrative and/or accounting services for its clients and customers who may
be deemed to be beneficial owners of Advisor Shares.
Counsellors and Counsellors Securities may, from time to time, at their own
expense, also provide compensation to these institutions and organizations. To
the extent they do so, such compensation does not represent an additional
expense to a Fund or its shareholders, since it will be paid from the assets of
Counsellors, Counsellors Service or their affiliates. Counsellors Securities
currently receives a fee equal to an annual rate of .25% of the average daily
net assets of each of the Japan OTC and Post-Venture Fund's Common Shares. See
'Management of the Funds -- Distributor.'
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, EACH FUNDS'
STATEMENT OF ADDITIONAL INFORMATION OR THE FUNDS' OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE FUNDS, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY EACH FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
COMMON SHARES OF THE FUNDS IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFER MAY NOT LAWFULLY BE MADE.
36
<PAGE>
TABLE OF CONTENTS
THE FUNDS' EXPENSES ...................................................... 2
FINANCIAL HIGHLIGHTS ..................................................... 3
INVESTMENT OBJECTIVES AND POLICIES ....................................... 6
PORTFOLIO INVESTMENTS .................................................... 9
RISK FACTORS AND SPECIAL
CONSIDERATIONS ....................................................... 11
PORTFOLIO TRANSACTIONS AND TURNOVER
RATE ................................................................. 14
CERTAIN INVESTMENT STRATEGIES ........................................... 14
INVESTMENT GUIDELINES ................................................... 21
MANAGEMENT OF THE FUNDS ................................................. 21
HOW TO OPEN AN ACCOUNT .................................................. 25
HOW TO PURCHASE SHARES .................................................. 26
HOW TO REDEEM AND EXCHANGE
SHARES ............................................................... 28
DIVIDENDS, DISTRIBUTIONS AND TAXES ...................................... 31
NET ASSET VALUE ......................................................... 32
PERFORMANCE ............................................................. 33
GENERAL INFORMATION ..................................................... 35
SHAREHOLDER SERVICING ................................................... 36
[LOGO]
[ ] WARBURG PINCUS
CAPITAL APPRECIATION FUND
[ ] WARBURG PINCUS
EMERGING GROWTH FUND
[ ] WARBURG PINCUS
POST-VENTURE CAPITAL FUND
[ ] WARBURG PINCUS
INTERNATIONAL EQUITY FUND
[ ] WARBURG PINCUS
JAPAN OTC FUND
PROSPECTUS
SEPTEMBER 29, 1995
WPEQF-1-0995
<PAGE>
[Logo]
PROSPECTUS
SEPTEMBER 29, 1995
[ ] WARBURG PINCUS POST-VENTURE CAPITAL FUND
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 22, 1995
WARBURG PINCUS ADVISOR FUNDS
P.O. BOX 9030
BOSTON, MASSACHUSETTS 02205-9030
TELEPHONE NUMBER: (800) 888-6878
September 29, 1995
PROSPECTUS
Warburg Pincus Advisor Funds are a family of open-end mutual funds that are
offered to financial institutions investing on behalf of their customers and to
retirement plans that elect to make one or more Advisor Funds an investment
option for participants in the plans. One Advisor Fund is described in this
Prospectus:
WARBURG, PINCUS POST-VENTURE CAPITAL FUND seeks long-term growth of capital by
investing principally in equity securities of issuers
in their post-venture capital stage of development and pursues an aggressive
investment strategy. Because of the nature of the Fund's investments and certain
strategies it may use, an investment in the Fund involves certain risks and may
not be appropriate for all investors.
The Fund currently offers two classes of shares, one of which, the Series 2
Shares (referred to as the Advisor Shares), is offered pursuant to this
Prospectus. The Series 2 (Advisor) Shares of the Fund, as well as Advisor Shares
of certain other Warburg Pincus-advised funds, are sold under the name 'Warburg
Pincus Advisor Funds.' The Advisor Shares may not be purchased by individuals
directly but institutions and retirement plans ('Institutions') may purchase
Advisor Shares for individuals. The Advisor Shares impose a 12b-1 fee of up to
.75% per annum, which is the economic equivalent of a sales charge. Common
Shares of the Fund, which impose a 12b-1 fee of .25% per annum, are available
for purchase by individuals directly. Because of the higher fees borne by the
Advisor Shares, the total return on such shares can be expected to be lower than
the total return on Common Shares. Investors may obtain information concerning
the Common Shares by calling Counsellors Securities Inc. at (800) 888-6878.
NO MINIMUM INVESTMENT
There is no minimum amount of initial or subsequent purchases of shares imposed
on Institutions. See 'How to Purchase Shares.'
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in a Statement of Additional Information, has been filed with
the Securities and Exchange Commission (the 'SEC') and is available to investors
without charge by calling Warburg Pincus Advisor Funds at (800) 888-6878.
Information regarding the status of shareholder accounts may also be obtained by
calling Warburg Pincus Advisor Funds at (800) 888-6878. The Statement of
Additional Information bears the same date as this Prospectus and is
incorporated by reference in its entirety into this Prospectus.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
THE FUND'S EXPENSES
The Fund currently offers two separate classes of shares: Common Shares and
Advisor Shares. See 'General Information' and 'Shareholder Servicing.' Because
of the higher fees borne by Advisor Shares, the total return on such shares can
be expected, at any time, to be lower than the total return on Common Shares.
<TABLE>
<S> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a percentage of offering price).................... 0
Annual Fund Operating Expenses (as a percentage of average net assets) (after fee waivers)
Management Fees................................................................................ .69%
12b-1 Fees..................................................................................... .75%*
Other Expenses................................................................................. .71%
---------
Total Fund Operating Expenses.................................................................. 2.15%
</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...................................................................................................... $22
3 years..................................................................................................... $67
</TABLE>
- ------------
* At least a portion of these fees should be considered by the investor to be
the economic equivalent of a sales charge.
------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as an Advisor Shareholder of the
Fund. 'Other Expenses' are based upon estimated amounts to be charged in the
current fiscal year. Institutions also may charge their clients fees in
connection with investments in Advisor Shares, which fees are not reflected in
the table. Absent the anticipated waiver of fees by the Fund's investment
adviser and co-administrator, estimated Management Fees would equal 1.25%, Other
Expenses would equal .75% and Total Fund Operating Expenses would equal 2.75%;
the investment adviser and co-administrator are under no obligation to continue
these waivers. The Example should not be considered a representation of past or
future expenses; actual Fund expenses may be greater or less than those shown.
Moreover, while the Example assumes a 5% annual return, the Fund's actual
performance will vary and may result in a return greater or less than 5%.
Long-term holders of Advisor Shares may pay more than the economic equivalent of
the maximum front-end sales charges permitted by the National Association of
Securities Dealers, Inc. (the 'NASD').
2
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is long-term growth of capital. This
objective is a fundamental policy and may not be amended without first obtaining
the approval of a majority of the outstanding shares of the Fund. Any investment
involves risk and, therefore, there can be no assurance that the Fund will
achieve its investment objective. See 'Certain Investment Strategies' for
descriptions of certain types of investments the Fund may make.
The Fund is a diversified management investment company that pursues its
investment objective by investing primarily in equity securities of companies
considered by Counsellors to be in their post-venture capital stage of
development. Under normal market conditions, the Fund will invest at least 65%
of its total assets in equity securities of 'post-venture capital companies.' A
post-venture capital company is a company that has received venture capital
financing either (a) during the early stages of the company's existence or the
early stages of the development of a new product or service, or (b) as part of a
restructuring or recapitalization of the company. The investment of venture
capital financing, or distribution of such company's securities, will have been
made within ten years prior to the Fund's purchase of the company's securities.
Counsellors believes that venture capital participation in a company's
capital structure can lead to above average revenue/earnings growth. Venture
capitalists finance start-up companies, companies in the early stages of
developing new products or services and companies undergoing a restructuring or
recapitalization, since these companies may not have access to conventional
forms of financing (such as bank loans or public issuances of stock). Venture
capitalists may be individuals or funds organized by venture capitalists for the
purpose of providing venture capital financing. Interests in venture capital
funds typically are offered to large institutions, such as pension funds and
endowments, as well as high net worth individuals. Venture capital participation
in a company is often reduced when the company does an initial public offering
of its securities or when it is involved in a merger, tender offer or
acquisition. Venture capital funds regularly distribute to their investors
interests in companies they have financed.
Counsellors has experience in researching smaller companies, companies in
the early stages of development and venture capital-financed companies. Its team
of analysts, led by Elizabeth Dater and Stephen Lurito, regularly monitors
portfolio companies whose securities are held by over 250 of the larger domestic
venture capital funds. Ms. Dater and Mr. Lurito have managed post-venture equity
securities in separate accounts for institutions since 1989 and currently manage
over $800 million of such assets for institutions. The Fund will invest in
securities of post venture capital companies that are traded on a national
securities exchange or in an organized over-the-counter market. The Fund may
also hold non-publicly traded equity securities of companies in the venture and
post venture stages of development, such as those of closely-held companies or
private placements of public companies. The portion of the Fund's assets
invested in these non-publicly traded securities, which together with the Fund's
other illiquid assets may not exceed 15% of the Fund's assets, will vary over
time depending on investment opportunities and other factors. The Fund may also
invest in securities of companies that do not meet the definition of
post-venture capital companies that are experiencing unusual developments
affecting their capital structure, such as a restructuring or recapitalization;
an acquisition, consolidation, merger or tender offer; or a change in corporate
control.
To attempt to reduce risk, the Fund will diversify its investments over a
broad range of issuers operating in a variety of industries. The Fund may hold
securities of companies of any size, and will not limit capitalization of
companies it selects to invest in. However, due to the
3
<PAGE>
nature of the venture capital to post-venture cycle, the Fund anticipates that
the average market capitalization of companies in which it invests will be less
than $1 billion at the time of investment. Although the Fund will invest
primarily in U.S. companies, up to 20% of the Fund's assets may be invested in
securities of issuers located in any foreign country. Equity securities in which
the Fund will invest are common stock, preferred stock, warrants and securities
convertible into or exchangeable for common stock. The Fund may engage in a
variety of strategies to reduce risk or enhance return, including engaging in
short selling (see 'Certain Investment Strategies').
PORTFOLIO INVESTMENTS
INVESTMENT GRADE DEBT. The Fund may invest up to 20% of its total assets in
investment grade debt securities (other than money market instruments) and
preferred stocks that are not convertible into common stock for the purpose of
seeking capital appreciation. The interest income to be derived may be
considered as one factor in selecting debt securities for investment by
Counsellors. Because the market value of debt obligations can be expected to
vary inversely to changes in prevailing interest rates, investing in debt
obligations may provide an opportunity for 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. A security will
be deemed to be investment grade if it is rated within the four highest grades
by Moody's Investors Service, Inc. ('Moody's') or Standard & Poor's Ratings
Group ('S&P') or, if unrated, is determined to be of comparable quality by
Counsellors. Bonds rated in the fourth highest grade may have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade bonds. Subsequent to its purchase by
the Fund, an issue of securities may cease to be rated or its rating may be
reduced below the minimum required for purchase by the Fund. Neither event will
require sale of such securities. Counsellors will consider such event in its
determination of whether the Fund should continue to hold the securities.
When Counsellors believes that a defensive posture is warranted, the Fund
may invest temporarily without limit in investment grade debt obligations and in
domestic and foreign money market obligations, including repurchase agreements
as discussed below.
MONEY MARKET OBLIGATIONS. The Fund is authorized to invest, under normal market
conditions, up to 20% of its total assets in domestic and foreign money market
obligations having a maturity of one year or less at the time of purchase and
for temporary defensive purposes may invest in these securities without limit.
These short-term instruments consist of obligations issued or guaranteed by the
United States government, its agencies or instrumentalities ('U.S. government
securities'); 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
4
<PAGE>
Federal Reserve System and certain non-bank dealers. Repurchase agreements are
contracts under which the buyer of a security simultaneously commits to resell
the security to the seller at an agreed-upon price and date. Under the terms of
a typical repurchase agreement, the Fund would acquire any underlying security
for a relatively short period (usually not more than one week) subject to an
obligation of the seller to repurchase, and the Fund to resell, the obligation
at an agreed-upon price and time, thereby determining the yield during the
Fund's holding period. This arrangement results in a fixed rate of return that
is not subject to market fluctuations during the Fund's holding period. The
value of the underlying securities will at all times be at least equal to the
total amount of the purchase obligation, including interest. The Fund bears a
risk of loss in the event that the other party to a repurchase agreement
defaults on its obligations or becomes bankrupt and the Fund is delayed or
prevented from exercising its right to dispose of the collateral securities,
including the risk of a possible decline in the value of the underlying
securities during the period while the Fund seeks to assert this right.
Counsellors, acting under the supervision of the Fund's Board of Directors (the
'Board'), monitors the creditworthiness of those bank and non-bank dealers with
which the Fund enters into repurchase agreements to evaluate this risk. A
repurchase agreement is considered to be a loan under the 1940 Act.
Money Market Mutual Funds. Where Counsellors believes that it would be
beneficial to the Fund and appropriate considering the factors of return and
liquidity, the Fund may invest up to 5% of its assets in securities of money
market mutual funds that are unaffiliated with the Fund or Counsellors. As a
shareholder in any mutual fund, the Fund will bear its ratable share of the
mutual fund's expenses, including management fees, and will remain subject to
payment of the Fund's administration fees and other expenses with respect to
assets so invested.
U.S. GOVERNMENT SECURITIES. U.S. government securities in which the Fund may
invest include: direct obligations of the U.S. Treasury and obligations issued
by U.S. government agencies and instrumentalities, including instruments that
are supported by the full faith and credit of the United States, instruments
that are supported by the right of the issuer to borrow from the U.S. Treasury
and instruments that are supported by the credit of the instrumentality.
CONVERTIBLE SECURITIES. Convertible securities in which the Fund may invest,
including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common 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.
RISK FACTORS AND SPECIAL
CONSIDERATIONS
EMERGING GROWTH AND SMALL COMPANIES. Investing in common stocks and securities
convertible into common stocks is subject to the inherent risk of fluctuations
in the prices of such securities. Investing in securities of emerging growth
companies may involve greater risks since these securities may have limited
marketability and, thus, may be more volatile. In addition, small-and
medium-sized companies are typically subject to a greater degree of changes in
earnings and business prospects than are larger, more established companies.
Because smaller companies normally have fewer shares outstanding than larger
companies, it may be more difficult for the Fund to buy or sell significant
amounts of such shares without an unfavorable impact on prevailing prices. There
is typically less publicly avail-
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able information concerning smaller companies than for larger, more established
ones. Securities of issuers in 'special situations' also may be more volatile,
since the market value of these securities may decline in value if the
anticipated benefits do not materialize. Companies in 'special situations'
include, but are not limited to, companies involved in an acquisition or
consolidation; reorganization; recapitalization; merger, liquidation or
distribution of cash, securities or other assets; a tender or exchange offer; a
breakup or workout of a holding company; or litigation which, if resolved
favorably, would improve the value of the companies' securities. Although
investing in securities of emerging growth companies or 'special situations'
offers potential for above-average returns if the companies are successful, the
risk exists that the companies will not succeed and the prices of the companies'
shares could significantly decline in value. Therefore, an investment in the
Fund may involve a greater degree of risk than an investment in other mutual
funds that seek capital appreciation by investing exclusively in better-known,
larger companies. For certain additional risks relating to the Fund's
investments, see 'Portfolio Investments' beginning at page 3 and 'Certain
Investment Strategies' below.
INVESTMENTS IN NON-PUBLICLY TRADED SECURITIES. Although the Fund expects to
invest primarily in publicly traded equity securities, it may invest up to 15%
of its assets in non-publicly traded equity securities, which may involve a high
degree of business and financial risk and may result in substantial losses.
Because of the absence of any liquid trading market currently for these
investments, the Fund may take longer to liquidate these positions than would be
the case for publicly traded securities. Although these securities may be resold
in privately negotiated transactions, the prices realized on such sales could be
less than those originally paid by the Fund. Further, companies whose securities
are not publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to companies whose securities are publicly
traded. The Fund's investment in illiquid securities is subject to the risk that
should the Fund desire to sell any of these securities when a ready buyer is not
available at a price that is deemed to be representative of their value, the
value of the Fund's net assets could be adversely affected.
PORTFOLIO TRANSACTIONS AND
TURNOVER RATE
The Fund will attempt to purchase securities with the intent of holding
them for investment but may purchase and sell portfolio securities whenever
Counsellors believes it to be in the best interests of the Fund. The Fund will
not consider portfolio turnover rate a limiting factor in making investment
decisions consistent with its investment objective and policies. It is not
possible to predict the Fund's portfolio turnover rate. However, it is
anticipated that the Fund's annual turnover rate should not exceed 100%. Higher
portfolio turnover rates (100% or more) may result in dealer mark ups or
underwriting commissions as well as other transaction costs, including
correspondingly higher brokerage commissions. In addition, short-term gains
realized from portfolio turnover may be taxable to shareholders as ordinary
income. See 'Dividends, Distributions and Taxes -- Taxes' below and 'Investment
Policies -- Portfolio Transactions' in the Statement of Additional Information.
All orders for transactions in securities or options on behalf of the Fund
are placed by Counsellors with broker-dealers that it selects, including
Counsellors Securities Inc., the Fund's distributor ('Counsellors Securities').
The Fund may utilize Counsellors Securities in connection with a purchase or
sale of securities when Counsellors believes that the charge for the transaction
does not exceed usual and customary levels and when doing so is consistent with
guidelines adopted by the Board.
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CERTAIN INVESTMENT STRATEGIES
Although there is no intention of doing so during the coming year, the Fund
is authorized to engage in the following investment strategies: (i) purchasing
securities on a when-issued basis and purchasing or selling securities for
delayed-delivery and (ii) lending portfolio securities. As described below, the
Fund may invest in instruments commonly referred to as 'derivative securities,'
such as options on securities, stock indexes and currencies; futures contracts
and options on futures contracts; and currency forward contracts. These
strategies may be used for the purpose of hedging against a decline in value of
its portfolio holdings or to generate income to offset expenses or increase
return. SUCH TRANSACTIONS THAT ARE NOT CONSIDERED HEDGING SHOULD BE CONSIDERED
SPECULATIVE AND MAY SERVE TO INCREASE THE FUND'S INVESTMENT RISK. Detailed
information concerning these strategies and their related risks is contained
below and in the Statement of Additional Information.
FOREIGN SECURITIES. The Fund may invest up to 20% of its total assets in the
securities of foreign issuers. There are certain risks involved in investing in
securities of companies and governments of foreign nations which are in addition
to the usual risks inherent in domestic investments. These risks include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future adverse political and economic developments and the possible
imposition of currency exchange blockages or other foreign governmental laws or
restrictions, reduced availability of public information concerning issuers, the
lack of uniform accounting, auditing and financial reporting standards and other
regulatory practices and requirements that are often generally less rigorous
than those applied in the United States. Moreover, securities of many foreign
companies may be less liquid and their prices more volatile than those of
securities of comparable U.S. companies. Certain foreign countries are known to
experience long delays between the trade and settlement dates of securities
purchased or sold. In addition, with respect to certain foreign countries, there
is the possibility of expropriation, nationalization, confiscatory taxation and
limitations on the use or removal of funds or other assets of the Fund,
including the withholding of dividends. Foreign securities may be subject to
foreign government taxes that would reduce the net yield on such securities.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments positions. Investment in foreign securities will also result in higher
operating expenses due to the cost of converting foreign currency into U.S.
dollars, the payment of fixed brokerage commissions on foreign exchanges, which
generally are higher than commissions on U.S. exchanges, higher valuation and
communications costs and the expense of maintaining securities with foreign
custodians.
RULE 144A SECURITIES. The Fund may purchase securities that are not registered
under the Securities Act of 1933, as amended (the '1933 Act'), but that can be
sold to 'qualified institutional buyers' in accordance with Rule 144A under the
1933 Act ('Rule 144A Securities'). An investment in Rule 144A Securities will be
considered illiquid and therefore subject to the Fund's limitation on the
purchase of illiquid securities, unless the Board determines on an ongoing basis
that an adequate trading market exists for the security. In addition to an
adequate trading market, the Board will 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
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function of determining and monitoring the liquidity of Rule 144A Securities,
although the Board will retain ultimate responsibility for any determination
regarding liquidity.
WRITING OPTIONS ON SECURITIES. The Fund may write covered call options and
covered put options on up to 25% of the net asset value of the stock and debt
securities in its portfolio and will realize fees (referred to as 'premiums')
for granting the rights evidenced by the options. A put option embodies the
right of its purchaser to compel the writer of the option to purchase from the
option holder an underlying security at a specified price for a specified time
period or at a specified time. In contrast, a call option embodies the right of
its purchaser to compel the writer of the option to sell to the option holder an
underlying security at a specified price for a specified time period or at a
specified price. Thus, the purchaser of a put option written by the Fund has the
right to compel the purchase by the Fund of the underlying security at an
agreed-upon price for a specified time period or at a specified time, while the
purchaser of a call option written by the Fund has the right to purchase from
the Fund the underlying security owned by the Fund at the agreed-upon price for
a specified time period or at a specified time.
Upon the exercise of a put option written by the Fund, the Fund may suffer
an economic loss equal to the excess of the exercise price of the option over
the security's market value at the time of the option exercise, less the premium
received for writing the option. Upon the exercise of a call option written by
the Fund, the Fund may suffer an economic loss equal to the excess of the
security's market value at the time of the option exercise over the Fund's
acquisition cost of the security, less the premium received for writing the
option.
The Fund may engage in a closing purchase transaction to realize a profit,
to prevent an underlying security from being called or put or, in the case of a
call option, to unfreeze an underlying security (thereby permitting its sale or
the writing of a new option on the security prior to the outstanding option's
expiration). To effect a closing purchase transaction, the Fund would purchase,
prior to the holder's exercise of an option that the Fund has written, an option
of the same series as that on which the Fund desires to terminate its
obligation. The obligation of the Fund under an option that it has written would
be terminated by a closing purchase transaction, but the Fund would not be
deemed to own an option as the result of the transaction. The ability of the
Fund to engage in closing transactions with respect to options depends on the
existence of a liquid secondary market. While the Fund generally will purchase
or write options only if there appears to be a liquid secondary market for the
options purchased or sold, for some options, no such secondary market may exist
or the market may cease to exist, particularly with respect to options that
trade over-the-counter ('OTC options').
Option writing for the Fund may be limited by position and exercise limits
established by securities exchanges and the NASD. Furthermore, the Fund may, at
times, have to limit its option writing in order to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
'Code').
In addition to writing covered options to generate income, the Fund may
enter into options transactions as hedges to reduce investment risk, generally
by making an investment expected to move in the opposite direction of a
portfolio position. A hedge is designed to offset a loss on a portfolio position
with a gain on the hedge position; at the same time, however, a properly
correlated hedge will result in a gain on the portfolio position being offset by
a loss on the hedge position. The Fund bears the risk that the prices of the
securities being hedged will not move in the same amount as the hedge. The Fund
will engage in hedging transactions only when deemed advisable by Counsellors.
Successful use by the Fund of options for hedging purposes will depend on
Counsellor's ability to
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correctly predict movements in the direction of the security underlying the
option or, in the case of stock index options (described below), the underlying
securities market, which could prove to be inaccurate. Losses incurred in
options transactions and the costs of these transactions will affect the Fund's
performance. Even if Counsellor's expectations are correct, where options are
used as a hedge 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 growth of capital.
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 OTC options.
By buying a put, the Fund limits its risk of loss from a decline in the
market value of the security until the put expires. Any appreciation in the
value of and yield otherwise available from the underlying security, however,
will be partially offset by the amount of the premium paid for the put option
and any related transaction costs. Call options may be purchased by the Fund in
order to acquire the underlying securities for the Fund at a price that avoids
any additional cost that would result from a substantial increase in the market
value of a security. The Fund also may purchase call options to increase its
return to investors at a time when the call is expected to increase in value due
to anticipated appreciation of the underlying security.
Prior to their expirations, put and call options may be sold in closing
sale transactions (sales by the Fund, prior to the exercise of options that it
has purchased, of options of the same series), and profit or loss from the sale
will depend on whether the amount received is more or less than the premium paid
for the option plus the related transaction costs.
STOCK INDEX OPTIONS. In addition to purchasing 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 put and call options on
such indexes. A stock index measures the movement of a certain group of stocks
by assigning relative values to the common stocks included in the index. Options
on stock indexes are similar to options on stock except that (i) the expiration
cycles of stock index options are monthly, while those of stock options are
currently quarterly, and (ii) the delivery requirements are different. Instead
of giving the right to take or make delivery of stock at a specified price, an
option on a stock index gives the holder the right to receive a cash 'exercise
settlement amount' equal to (a) the amount, if any, by which the fixed exercise
price of the option exceeds (in the case of a put) or is less than (in the case
of a call) the closing value of the underlying index on the date of exercise
multiplied by (b) a fixed 'index multiplier.' The discussion of options on
securities above, and the related risks, is applicable to options on 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
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security (such as a U.S. Treasury Bond or U.S. Treasury Note or its equivalent)
at a future date at a price set at the time of the contract. Stock indexes are
capitalization weighted indexes which reflect the market value of the stock
listed on the indexes. A stock index futures contract is an agreement to be
settled by delivery of an amount of cash equal to a specified multiplier times
the difference between the value of the index at the beginning and at the end of
the contract period. An option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract at a specified exercise price at any time prior to the expiration date
of the option.
Parties to a futures contract must make 'initial margin' deposits to secure
performance of the contract. There are also requirements to make 'variation
margin' deposits from time to time as the value of the futures contract
fluctuates. The Fund is not a commodity pool and, in compliance with CFTC
regulations currently in effect, may enter into any futures contracts and
related options for 'bona fide hedging' purposes and, in addition, for other
purposes, provided that aggregate initial margin and premiums required to
establish positions other than those considered by the CFTC to be 'bona fide
hedging' will not exceed 5% of the Fund's net asset value, after taking into
account unrealized profits and unrealized losses on any such contracts. The Fund
reserves the right to engage in transactions involving futures and options
thereon to the extent allowed by CFTC regulations in effect from time to time
and in accordance with the Fund's policies. Certain provisions of the Code may
limit the extent to which the Fund may enter into futures contracts or engage in
options transactions.
There are several risks in connection with the use of futures contracts.
Successful use of futures contracts is subject to the ability of Counsellors to
predict correctly movements in the direction of the 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) as described above,
through entering into foreign currency futures contracts or options on such
contracts or (iv) by purchasing currency options.
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<PAGE>
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 SEC designed to
eliminate any potential for leverage with respect to currency forward contracts;
options written by the Fund on currencies, securities and indexes; currency,
interest rate and index futures contracts and options on these futures
contracts. The use of these strategies may require that the Fund maintain cash
or certain liquid high-grade debt securities or other assets that are acceptable
as collateral to the appropriate regulatory authority in a segregated account
with its custodian or a designated sub-custodian to the extent the Fund's
obligations with respect to these strategies are not otherwise 'covered' through
ownership of the underlying security, financial instrument or currency or by
other portfolio positions or by other means consistent with applicable
regulatory policies. Segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer necessary to
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.
SHORT SELLING. The Fund may from time to time sell securities short. A short
sale is a transaction in which the Fund sells borrowed securities in
anticipation of a decline in the market price of the securities. Possible losses
from short sales differ from losses that could be incurred from a purchase of a
security, because losses from short sales may be unlimited, whereas losses from
purchases can equal only the total amount invested. The current market value of
the securities sold short will not exceed 10% of the Fund's assets.
When the Fund makes a short sale, the proceeds it receives from the sale
are retained by a broker until the Fund replaces the borrowed securities. To
deliver the securities to the buyer, the Fund must arrange through a broker to
borrow the securities and, in so doing, the Fund becomes obligated to replace
the securities borrowed at their market price at the time of replacement,
whatever that price may be. The Fund may have to pay a premium to borrow the
securities and must pay any dividends or interest payable on the securities
until they are replaced.
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The Fund's obligation to replace the securities borrowed in connection with
a short sale will be secured by cash or U.S. government securities deposited as
collateral with the broker. In addition, the Fund will place in a segregated
account with its custodian or a qualified subcustodian an amount of cash or U.S.
government securities equal to the difference, if any, between (i) the market
value of the securities sold at the time they were sold short and (ii) any cash
or U.S. government securities deposited as collateral with the broker in
connection with the short sale (not including the proceeds of the sort sale).
Until it replaces the borrowed securities, the Fund will maintain the segregated
account daily at a level so that (a) the amount deposited in the account plus
the amount deposited with the broker (not including the proceeds from the short
sale) will equal the current market value of the securities sold short and (b)
the amount deposited in the account plus the amount deposited with the broker
(not including the proceeds from the short sale) will not be less than the
market value of the securities at the time they were sold short.
Short Sales Against the Box. The Fund may, in addition to engaging in short
sales as described above, enter into a short sale of securities such that when
the short position is open the Fund owns an equal amount of the
securities sold short or owns preferred stocks or debt securities, convertible
or exchangeable without payment of further consideration, into an equal number
of securities sold short. This kind of short sale, which is referred to as one
'against the box,' will be entered into by the Fund for the purpose of receiving
a portion of the interest earned by the executing broker from the proceeds of
the sale. The proceeds of the sale will generally be held by the broker until
the settlement date when the Fund delivers securities to close out its short
position. Although prior to delivery the Fund will have to pay an amount equal
to any dividends paid on the securities sold short, the Fund will receive the
dividends from the securities sold short or the dividends from the preferred
stock or interest from the debt securities convertible or exchangeable into the
securities sold short, plus a portion of the interest earned from the proceeds
of the short sale. The Fund will deposit, in a segregated account with its
custodian or a qualified subcustodian, the securities sold short or convertible
or exchangeable preferred stocks or debt securities in connection with short
sales against the box. The Fund will endeavor to offset transaction costs
associated with short sales against the box with the income from the investment
of the cash proceeds. Not more than 10% of the Fund's net assets (taken at
current value) may be held as collateral for short sales against the box at any
one time.
The extent to which the Fund may make short sales may be limited by Code
requirements for qualification as a regulated investment company. See
'Dividends, Distributions and Taxes' for other tax considerations applicable to
short sales.
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
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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, including (i) securities issued as part of a privately
negotiated transaction between an issuer and one or more purchasers and (ii)
repurchase agreements with maturities greater than seven days. In addition, up
to 5% of the Fund's total assets may be invested in the securities of issuers
that have been in continuous operation for less than three years, and an
additional 5% of its total 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 to the
extent necessary to secure permitted 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
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staff of management personnel to provide services to the Fund and furnishes the
Fund with office space, furnishings and equipment.
For the services provided by Counsellors, the Fund pays Counsellors a fee
calculated at an annual rate of 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 August 31,
1995, Counsellors managed approximately $11.4 billion of assets, including
approximately $5.8 billion of assets of twenty investment companies or
portfolios. Incorporated in 1970, Counsellors is a wholly owned subsidiary of
Warburg, Pincus Counsellors G.P. ('Counsellors G.P.'), a New York general
partnership. E.M. Warburg, Pincus & Co., Inc. ('EMW') controls Counsellors
through its ownership of a class of voting preferred stock of Counsellors.
Counsellors G.P. has no business other than being a holding company of
Counsellors and its subsidiaries. Counsellors' address is 466 Lexington Avenue,
New York, New York 10017-3147.
PORTFOLIO MANAGERS. The co-portfolio managers of the Fund are Elizabeth B. Dater
and Stephen J. Lurito. Ms. Dater is a managing director of EMW and has been a
portfolio manager of Counsellors since 1978. Mr. Lurito is a managing director
of EMW and has been with Counsellors since 1987, before which time he was a
research analyst at Sanford C. Bernstein & Company, Inc.
Robert S. Janis and Christopher M. Nawn are associate portfolio managers
and research analysts for the Fund. Mr. Janis has been with Counsellors since
October 1994, before which time he was a vice president and senior research
analyst at U.S. Trust Company of New York. Mr. Nawn has been with Counsellors
since September 1994, before which time he was a senior sector analyst and
portfolio manager at the Dreyfus Corporation.
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.
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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 PFPC a fee calculated at a maximum annual rate of .10% of the Fund's
average daily net assets, subject to a minimum annual fee and exclusive of
out-of-pocket expenses. PFPC has its principal offices at 400 Bellevue Parkway,
Wilmington, Delaware 19809.
DISTRIBUTOR. Counsellors Securities Inc. ('Counsellors Securities') serves as
distributor of the shares of the Fund. Counsellors Securities is a wholly owned
subsidiary of Counsellors and is located at 466 Lexington Avenue, New York, New
York 10017-3147. No compensation is payable by the Advisor Shares to Counsellors
Securities for distribution services.
CUSTODIAN. PNC Bank, National Association ('PNC') serves as custodian of the
Fund's U.S. assets and State Street Bank and Trust Company ('State Street')
serves as custodian of the Fund's non-U.S. assets. State Street's principal
business address is 225 Franklin Street, Boston, Massachusetts 02110. Like PFPC,
PNC is a subsidiary of PNC Bank Corp. and its principal business address is
Broad and Chestnut Streets, Philadelphia, Pennsylvania 19101.
TRANSFER AGENT. State Street also serves as shareholder servicing agent,
transfer agent and dividend disbursing agent for the Fund. It has delegated to
Boston Financial Data Services, Inc., a 50% owned subsidiary ('BFDS'),
responsibility for most shareholder servicing functions. 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.
HOW TO PURCHASE SHARES
Warburg Pincus Advisor Fund shares are only available for investment by
Institutions on behalf of their customers and through retirement plans that
elect to make one or more Advisor Funds an option for participants in the plans.
Individuals, including participants in retirement plans, cannot invest directly
in Advisor Shares of the Fund, but may do so only through a participating
Institution. The Fund reserves the right to make Advisor Shares available to
other investors in the future. References in this Prospectus to shareholders or
investors are generally to Institutions as the record holders of the Advisor
Shares.
Each Institution separately determines the rules applicable to its
customers investing in the Fund, including minimum initial and subsequent
investment requirements and the procedures to be followed to effect purchases,
redemptions and exchanges of Advisor Shares. There is no minimum amount of
initial or subsequent purchases of Advisor Shares imposed on Institutions,
although the Fund reserves the right to impose minimums in the future.
Orders for the purchase of Advisor Shares are placed with an Institution by
its customers. The Institution is responsible for the prompt transmission of the
order to the Fund or its agent.
Institutions may purchase Advisor Shares by telephoning the Fund and
sending payment by wire. After telephoning (800) 888-6878 for
instructions, an Institution should then wire federal funds to Counsellors
Securities Inc. using the following wire address:
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State Street Bank and Trust Co.
225 Franklin St.
Boston, MA 02101
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
Warburg Pincus Advisor Post-Venture Capital Fund
DDA# 9904-649-2
[Shareowner name]
[Shareowner account number]
Orders by wire will not be accepted until a completed account application
has been received in proper form, and an account number has been established. If
a telephone order is received by the close of regular trading on the New York
Stock Exchange ('NYSE') (currently 4:00 p.m., Eastern time) and payment by wire
is received on the same day in proper form in accordance with instructions set
forth above, the shares will be priced according to the net asset value of the
Fund on that day and are entitled to dividends and distributions beginning on
that day. If payment by wire is received in proper form by the close of the NYSE
without a prior telephone order, the purchase will be priced according to the
net asset value of the Fund on that day and is entitled to dividends and
distributions beginning on that day. However, if a wire in proper form that is
not preceded by a telephone order is received after the close of regular trading
on the NYSE, the payment will be held uninvested until the order is effected at
the close of business on the next business day. Payment for orders that are not
accepted will be returned after prompt inquiry. Certain organizations that have
entered into agreements with the Fund or its agent may enter confirmed purchase
orders on behalf of customers, with payment to follow no later than the Fund's
pricing on the following business day. If payment is not received by such time,
the organization could be held liable for resulting fees or losses.
After an investor has made his initial investment, additional shares may be
purchased at any time by mail or by wire in the manner outlined above. Wire
payments for initial and subsequent investments should be preceded by an order
placed with the Fund or its agent and should clearly indicate the investor's
account number. In the interest of economy and convenience, physical
certificates representing shares in the Fund are not normally issued.
The Fund understands that some broker-dealers (other than Counsellors
Securities), financial institutions, securities dealers and other industry
professionals may impose certain conditions on their clients that invest in the
Fund, which are in addition to or different than those described in this
Prospectus, and, to the extent permitted by applicable regulatory authority, may
charge their clients direct fees. Certain features of the Fund, such as the
initial and subsequent investment minimums, may be modified in these programs,
and administrative charges may be imposed for the services rendered. Therefore,
a client or customer should contact the organization acting on his behalf
concerning the fees (if any) charged in connection with a purchase or redemption
of Fund shares and should read this Prospectus in light of the terms governing
his account with the organization.
HOW TO REDEEM AND EXCHANGE
SHARES
REDEMPTION OF SHARES. An investor 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 Advisor 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 Advisor Shares by calling Warburg Pincus Advisor
Funds at (800) 888-6878 between 9:00 a.m. and 4:00 p.m. (Eastern time) on any
business day. An investor making a telephone withdrawal should state (i) the
name of the Fund, (ii) the account number of
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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 upon a share's net asset value at the time of redemption. If
an investor redeems all the shares in his account, all dividends and
distributions declared up to and including the date of redemption are paid along
with the proceeds of the redemption.
EXCHANGE OF SHARES. An Institution may exchange Advisor Shares of the Fund for
Advisor Shares of the other Warburg Pincus Advisor Funds at their respective net
asset values. Exchanges may be effected in the manner described under
'Redemption of Shares' above. If an exchange request is received by Warburg
Pincus Advisor Funds prior to 4:00 p.m. (Eastern time) the exchange will be made
at each fund's net asset value determined at the end of that business day.
Exchanges may be effected without a sales charge. The exchange privilege may be
modified or terminated at any time upon 60 days' notice to shareholders.
The exchange privilege is available to shareholders residing in any state
in which Advisor Shares being acquired may legally be sold. When an investor
effects an exchange of shares, the exchange is treated for federal income tax
purposes as a redemption. Therefore, the investor may realize a taxable gain or
loss in connection with the exchange. Investors wishing to exchange Advisor
Shares of the Fund for Advisor Shares in another Warburg Pincus Advisor Fund
should review the prospectus of the other fund prior to making an exchange. For
further information regarding the exchange privilege or to obtain a current
prospectus for another Warburg Pincus Advisor Fund, an investor should contact
Warburg Pincus Advisor Funds at (800) 888-6878.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. The Fund calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Fund's portfolio securities for the applicable period less
applicable expenses. The Fund declares dividends from its net investment income
semiannually and pays them in the calendar year in which they are
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declared. Net investment income earned on weekends and when the NYSE is not open
will be computed as of the next business day. Distributions of net realized
long-term and short-term capital gains are declared annually and, as a general
rule, will be distributed or paid in November or December of each calendar year.
Unless an investor instructs the Fund to pay dividends or distributions in cash,
dividends and distributions will automatically be reinvested in additional
Advisor Shares of the Fund at net asset value. The election to receive dividends
in cash may be made on the account application or, subsequently, by writing to
Warburg Pincus Advisor Funds at the address set forth under 'How to Purchase
Shares' or by calling Warburg Pincus Advisor Funds at (800) 888-6878.
The Fund may be required to withhold for U.S. federal income taxes 31% of
all distributions payable to shareholders who fail to provide the Fund with
their correct taxpayer identification number or to make required certifications,
or who have been notified by the U.S. Internal Revenue Service that they are
subject to backup withholding.
TAXES. The Fund intends to qualify each year as a 'regulated investment company'
within the meaning of the Code. The Fund, if it qualifies as a regulated
investment company, will be subject to a 4% non-deductible excise tax measured
with respect to certain undistributed amounts of ordinary income and capital
gain. The Fund expects to pay such additional dividends and to make such
additional distributions as are necessary to avoid the application of this tax.
Dividends paid from net investment income and distributions of net realized
short-term capital gains are taxable to investors as ordinary income, and
distributions derived from net realized long-term capital gains are taxable to
investors as long-term capital gains, in each case regardless of the length of
time shareholders have held the Advisor Shares or whether received in cash or
reinvested in additional Advisor Shares. As a general rule, an investor's gain
or loss on a sale or redemption of its Fund shares will be a long-term capital
gain or loss if it has held its shares for more than one year and will be a
short-term capital gain or loss if it has held its shares for one year or less.
However, any loss realized upon the sale or redemption of shares within six
months from the date of their purchase will be treated as a long-term capital
loss to the extent of any amounts treated as distributions of long-term capital
gain during such six-month period with respect to such shares. Investors may be
proportionately liable for taxes on income and gains of the Fund, but investors
not subject to tax on their income will not be required to pay tax on amounts
distributed to them. The Fund's investment activities, including short sales of
securities, will not result in unrelated business taxable income to a tax-exempt
investor. The Fund's dividends, to the extent not derived from dividends
attributable to certain types of stock issued by U.S. domestic corporations,
will not qualify for the dividends received deduction for corporations.
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
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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.
Certain provisions of the Code may require that a gain recognized by the
Fund upon the closing of a short sale be treated as a short-term capital gain,
and that a loss recognized by the Fund upon the closing of a short sale be
treated as a long-term capital loss, regardless of the amount of time that the
Fund held the securities used to close the short sale. The Fund's use of short
sales may also affect the holding periods of certain securities held by the Fund
if such securities are 'substantially identical' to securities used by the Fund
to close the short sale. The Fund's short selling activities will not result in
unrelated business taxable income to a tax-exempt investor.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. Each investor will also receive, if
applicable, various written notices after the close of the Fund's prior taxable
year with respect to certain dividends and distributions which were received
from the Fund during the Fund's prior taxable year. Investors should consult
their own tax advisers with specific reference to their own tax situations,
including their state and local tax liabilities. Individuals investing in the
Fund through Institutions should consult those Institutions or their own tax
advisers regarding the tax consequences of investing in the Fund.
NET ASSET VALUE
The Fund's net asset value per share is calculated as of the close of
regular trading on the NYSE (currently 4:00 p.m., Eastern time) on each business
day, Monday through Friday, except on days when the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, Washington's Birthday, Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively. The net asset value
per share of the Fund generally changes each day.
The net asset value per Advisor Share of the Fund is computed by adding the
Advisor Shares' pro rata share of the value of the Fund's assets, deducting the
Advisor Shares' pro rata share of the Fund's liabilities and the liabilities
specifically allocated to Advisor Shares and then dividing the result by the
total number of outstanding Advisor Shares. Generally, the Fund's investments
are valued at market value or, in the absence of a quoted market value with
respect to any portfolio securities, at fair value as determined by or under the
direction of the Board.
Portfolio securities that are primarily traded on foreign exchanges are
generally valued at the closing values of such securities on their respective
exchanges preceding the calculation of the Fund's net asset value, except that
when an occurrence subsequent to the time a value was so established is likely
to have changed such value, then the fair market value of those securities will
be determined by consideration of other factors by or under the direction of the
Board.
Securities listed on a U.S. securities exchange (including securities
traded through the NASDAQ National Market System) or foreign securities exchange
will be valued on the basis of the closing value on the date on which the
valuation is made. Other U.S. over-the-counter securities, foreign
over-the-counter securities and securities listed or traded on certain foreign
stock exchanges whose operations are similar to the U.S. over-the-counter market
are valued on the basis of the bid price at the close of business
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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 Advisor Shares separately from Common
Shares. The net asset value of the Advisor Shares is listed in The Wall Street
Journal each business day under the heading Warburg Pincus Advisor Funds. From
time to time, the Fund may advertise the average annual total return of Advisor
Shares over various periods of time. These total return figures show the average
percentage change in value of an investment in the Advisor Shares from the
beginning of the measuring period to the end of the measuring period. The
figures reflect changes in the price of the Advisor Shares assuming that any
income dividends and/or capital gain distributions made by the Fund during the
period were reinvested in Advisor Shares. Total return will be shown for recent
one-, five- and ten-year periods, and may be shown for other periods as well
(such as on a year-by-year, quarterly or current year-to-date basis).
When considering average total return figures for periods longer than one
year, it is important to note that the annual total return for one year in the
period might have been greater or less than the average for the entire period.
When considering total return figures for periods shorter than one year,
investors should bear in mind that the Fund seeks long-term appreciation and
that such return may not be representative of the Fund's return over a longer
market cycle. The Fund may also advertise aggregate total return figures of
Advisor Shares for various periods, representing the cumulative change in value
of an investment in the Advisor Shares for the specific period (again reflecting
changes in share prices and assuming reinvestment of dividends and
distributions). Aggregate and average total returns may be shown by means of
schedules, charts or graphs and may indicate various components of total return
(i.e., change in value of initial investment, income dividends and capital gain
distributions).
Investors should note that total return figures are based on historical
earnings and are not intended to indicate future performance. The Statement of
Additional Information describes the method used to determine 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 Venture Capital 100 Index (compiled by
Venture Capital Journal), the Russell 2000 Small Stock Index and the S&P 500
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Index, which are unmanaged indexes of common stocks; or (iii) other appropriate
indexes of investment securities or with data developed by Counsellors derived
from such indexes. The Fund may also make comparisons using data and indexes
compiled by the National Venture Capital Association, VentureOne and Private
Equity Analysts Newsletter and similar organizations and publications. 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 discuss characteristics of venture capital financed companies and the
benefits expected to be achieved from investing in these companies. The Fund may
also describe the general biography or work experience of the portfolio managers
of the Fund and may include quotations attributable to the portfolio managers
describing approaches taken in managing the Fund's investments, research
methodology underlying stock selection or the Fund's investment objective. The
Fund may also discuss the continuum of risk and return relating to different
investments and the potential impact of foreign stocks on a portfolio otherwise
composed of domestic securities. In addition, the Fund may from time to time
compare the expense ratio of Advisor Shares to that of investment companies with
similar objectives and policies, based on data generated by Lipper Analytical
Services, Inc. or similar investment services that monitor mutual funds.
GENERAL INFORMATION
ORGANIZATION. The Fund was incorporated on July 12, 1995 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 (the Advisor Shares).
Under the Fund's charter documents, the Board has the power to classify or
reclassify any unissued shares of the Fund into one or more additional classes
by setting or changing in any one or more respects their relative rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption. The Board may similarly classify or reclassify any
class of its shares into one or more series and, without shareholder approval,
may increase the number of authorized shares of the Fund.
MULTI-CLASS STRUCTURE. The Fund offers a separate class of shares, the Common
Shares, directly to individuals pursuant to a separate prospectus. Shares of
each class represent equal pro rata interests in the Fund and accrue dividends
and calculate net asset value and performance quotations in the same manner, as
described elsewhere in this Prospectus, except that Advisor Shares bear fees
payable by the Fund to service organizations for services they provide to the
beneficial owners of such shares and enjoy certain exclusive voting rights on
matters relating to these fees. Because of the higher fees borne by the Advisor
Shares, the total return on such shares can be expected to be lower than the
total return on Common Shares. Investors may obtain information concerning the
Common Shares by calling Counsellors Securities at (800) 888-6878.
VOTING RIGHTS. Investors in the Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of the
Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the Board unless
and until such time as less than a majority of the members holding office have
been elected by investors. Any member of the Board may be removed from office
upon the vote of shareholders holding at least a majority of the Fund's
outstanding shares,
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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.
SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement of
its account, as well as a statement of its account after any transaction that
affects its share balance or share registration (other than the reinvestment of
dividends or distributions). The Fund will also send to its investors a
semiannual report and an audited annual report, each of which includes a list of
the investment securities held by the Fund and a statement of the performance of
the Fund. Each Institution that is the record owner of Advisor Shares on behalf
of its customers will send a statement to those customers periodically showing
their indirect interest in Advisor Shares, as well as providing other
information about the Fund. See 'Shareholder Servicing.'
SHAREHOLDER SERVICING
The Fund is authorized to offer Advisor Shares exclusively to Institutions
whose clients or customers (or participants in the case of retirement plans)
('Customers') are beneficial owners of Advisor Shares. Either those Institutions
or companies providing certain services to Customers (together, 'Service
Organizations') will enter into account servicing agreements ('Agreements') with
the Fund pursuant to a Distribution Plan as described below. Pursuant to the
terms of an Agreement, the Service Organization agrees to provide certain
distribution, shareholder servicing, administrative and/or accounting services
for its Customers. Distribution services would be marketing or other services in
connection with the promotion and sale of Advisor Shares. Shareholder services
that may be provided include responding to Customer inquiries, providing
information on Customer investments and providing other shareholder liaison
services. Administrative and accounting services related to the sale of Advisor
Shares may include (i) aggregating and processing purchase and redemption
requests from Customers and placing net purchase and redemption orders with the
Fund's transfer agent, (ii) processing dividend payments from the Fund on behalf
of Customers and (iii) providing sub-accounting related to the sale of Advisor
Shares beneficially owned by Customers or the information to the Fund necessary
for sub-accounting. The Board has approved a Distribution Plan (the 'Plan')
pursuant to Rule 12b-1 under the 1940 Act under which the Fund will pay each
participating Service Organization a negotiated fee on an annual basis not to
exceed .75% (up to a .25% annual service fee and a .50% annual distribution fee)
of the value of the average daily net assets of its Customers invested in
Advisor Shares. The Board evaluates the appropriateness of the Plan on a
continuing basis and in doing so considers all relevant factors.
Counsellors and Counsellors Securities may, from time to time, at their own
expense, provide compensation to these institutions. To the extent they do so,
such compensation does not represent an additional expense to the Fund or its
shareholders since it will be paid from the assets of Counsellors, Counsellors
Service or their affiliates.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE FUND'S
STATEMENT OF ADDITIONAL INFORMATION OR THE FUND'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE FUND, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
ADVISOR SHARES IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY
NOT LAWFULLY BE MADE.
22
<PAGE>
TABLE OF CONTENTS
THE FUND'S EXPENSES ...................................................... 2
INVESTMENT OBJECTIVE AND POLICIES ........................................ 3
PORTFOLIO INVESTMENTS .................................................... 4
RISK FACTORS AND SPECIAL
CONSIDERATIONS ........................................................ 5
PORTFOLIO TRANSACTIONS AND TURNOVER
RATE .................................................................. 6
CERTAIN INVESTMENT STRATEGIES ............................................ 7
INVESTMENT GUIDELINES ................................................... 13
MANAGEMENT OF THE FUND .................................................. 13
HOW TO PURCHASE SHARES .................................................. 15
HOW TO REDEEM AND EXCHANGE
SHARES ............................................................... 16
DIVIDENDS, DISTRIBUTIONS AND TAXES ...................................... 17
NET ASSET VALUE ......................................................... 19
PERFORMANCE ............................................................. 20
GENERAL INFORMATION ..................................................... 21
SHAREHOLDER SERVICING ................................................... 22
[LOGO]
[ ] WARBURG PINCUS
POST-VENTURE CAPITAL FUND
PROSPECTUS
SEPTEMBER 29, 1995
ADPVC-1-0995
<PAGE>1
Subject to Completion, dated September 22, 1995
STATEMENT OF ADDITIONAL INFORMATION
September 29, 1995
WARBURG PINCUS POST-VENTURE CAPITAL 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 . . . . . . . . . . . . . . . 23
Additional Purchase and Redemption Information . . . 30
Exchange Privilege . . . . . . . . . . . . . . . . . 31
Additional Information Concerning Taxes . . . . . . . 32
Determination of Performance . . . . . . . . . . . . 35
Auditors and Counsel . . . . . . . . . . . . . . . . 36
Financial Statement . . . . . . . . . . . . . . . . . 36
Appendix -- Description of Ratings . . . . . . . . . A-1
Report of Coopers & Lybrand L.L.P.,
Independent Auditors . . . . . . . . . . . . . . . A-3
This Statement of Additional Information is meant to be read in
conjunction with the combined Prospectus for the Common Shares of Warburg
Pincus Post-Venture Capital Fund (the "Fund"), Warburg Pincus Capital
Appreciation Fund, Warburg Pincus Emerging Growth Fund, Warburg Pincus
International Equity Fund and Warburg Pincus Japan OTC Fund, and with the
Prospectus for the Advisor Shares of the Fund, each dated September 29, 1995,
and is incorporated by reference in its entirety into those Prospectuses.
Because this Statement of Additional Information is not itself a prospectus,
no investment in shares of the Fund should be made solely upon the information
contained herein. Copies of the Fund's Prospectuses and information regarding
the Fund's current performance may be obtained by calling the Fund at
(800) 257-5614. Information regarding the status of shareholder accounts may
be obtained by calling the Fund at (800) 888-6878 or by writing to the Fund,
P.O. Box 9030, Boston, Massachusetts 02205-9030.
<PAGE>2
INVESTMENT OBJECTIVE
The investment objective of the Fund is long-term growth of capital.
INVESTMENT POLICIES
The following policies supplement the descriptions of the Fund's
investment objective and policies in the Prospectuses.
Additional Information on Investment Practices
Special Situation Companies. The Fund may invest in the securities
of "special situation companies" involved in an actual or prospective
acquisition or consolidation; reorganization; recapitalization; merger,
liquidation or distribution of cash, securities or other assets; a tender or
exchange offer; a breakup or workout of a holding company; or litigation
which, if resolved favorably, would improve the value of the company's stock.
If the actual or prospective situation does not materialize as anticipated,
the market price of the securities of a "special situation company" may
decline significantly. The Fund believes, however, that if Warburg, Pincus
Counsellors, Inc., the Fund's investment adviser ("Counsellors"), analyzes
"special situation companies" carefully and invests in the securities of these
companies at the appropriate time, the Fund may achieve capital growth. There
can be no assurance, however, that a special situation that exists at the time
the Fund makes its investment will be consummated under the terms and within
the time period contemplated.
U.S. Government Securities. The Fund may invest in debt obligations
of varying maturities issued or guaranteed by the United States government,
its agencies or instrumentalities ("U.S. government securities"). Direct
obligations of the U.S. Treasury include a variety of securities that differ
in their interest rates, maturities and dates of issuance. U.S. government
securities also include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Loan Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association ("GNMA"), General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home
Loan Mortgage Corporation ("FHLMC"), Federal Intermediate Credit Banks,
Federal Land Banks, Federal National Mortgage Association ("FNMA"), Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board
and Student Loan Marketing Association. The Fund may also invest in
instruments that are supported by the right of the issuer to borrow from the
U.S. Treasury and instruments that are supported by the credit of the
instrumentality. Because the U.S. government is not obligated by law to
provide support to an instrumentality it sponsors, the Fund will invest in
obligations issued by such an instrumentality only if Counsellors determines
that the credit risk with respect to the instrumentality does not make its
securities unsuitable for investment by the Fund.
<PAGE>3
Securities of Other Investment Companies. The Fund may invest in
securities of other investment companies to the extent permitted under the
Investment Company Act of 1940, as amended (the "1940 Act"). Presently, under
the 1940 Act, the Fund may hold securities of another investment company in
amounts which (i) do not exceed 3% of the total outstanding voting stock of
such company, (ii) do not exceed 5% of the value of the Fund's total assets
and (iii) when added to all other investment company securities held by the
Fund, do not exceed 10% of the value of the Fund's total assets.
Lending of Portfolio Securities. The Fund may lend portfolio
securities to brokers, dealers and other financial organizations that meet
capital and other credit requirements or other criteria established by the
Fund's Board of Directors (the "Board"). These loans, if and when made, may
not exceed 20% of the Fund's total assets taken at value. The Fund will not
lend portfolio securities to E.M. Warburg, Pincus & Co., Inc. ("EMW") or its
affiliates unless it has applied for and received specific authority to do so
from the Securities and Exchange Commission (the "SEC"). Loans of portfolio
securities will be collateralized by cash, letters of credit or U.S.
government securities, which are maintained at all times in an amount equal to
at least 100% of the current market value of the loaned securities. Any gain
or loss in the market price of the securities loaned that might occur during
the term of the loan would be for the account of the Fund. From time to time,
the Fund may return a part of the interest earned from the investment of
collateral received for securities loaned to the borrower and/or a third party
that is unaffiliated with the Fund and that is acting as a "finder."
By lending its securities, the Fund can increase its income by
continuing to receive interest and any dividends on the loaned securities as
well as by either investing the collateral received for securities loaned
in short-term instruments or obtaining yield in the form of interest paid by
the borrower when U.S. government securities are used as collateral. Although
the generation of income is not an investment objective of the Fund, income
received could be used to pay the Fund's expenses and would increase an
investor's total return. The Fund will adhere to the following conditions
whenever its portfolio securities are loaned: (i) the Fund must receive at
least 100% cash collateral or equivalent securities of the type discussed in
the preceding paragraph from the borrower; (ii) the borrower must increase
such collateral whenever the market value of the securities rises above the
level of such collateral; (iii) the Fund must be able to terminate the loan at
any time; (iv) the Fund must receive reasonable interest on the loan, as well
as any dividends, interest or other distributions on the loaned securities and
any increase in market value; (v) the Fund may pay only reasonable custodian
fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower, provided, however, that if a material
event adversely affecting the investment occurs, the Board must terminate the
loan 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>4
Foreign Investments. The Fund may invest up to 20% of its total
assets in the securities of foreign issuers. Investors should recognize that
investing in foreign companies involves certain risks, including those
discussed below, which are not typically associated with investing in U.S.
issuers.
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's
assets denominated in that foreign currency. Changes in foreign currency
exchange rates may also affect the value of dividends and interest earned,
gains and losses realized on the sale of securities and net investment income
and gains, if any, to be distributed to shareholders by the Fund.
The rate of exchange between the U.S. dollar and other currencies is
determined by the forces of supply and demand in the foreign exchange markets.
Changes in the exchange rate may result over time from the interaction of many
factors directly or indirectly affecting economic and political conditions in
the United States and a particular foreign country, including economic and
political developments in other countries. Of particular importance are rates
of inflation, interest rate levels, the balance of payments and the extent of
government surpluses or deficits in the United States and the particular
foreign country, all of which are in turn sensitive to the monetary, fiscal
and trade policies pursued by the governments of the United States and foreign
countries important to international trade and finance. Governmental
intervention may also play a significant role. National governments rarely
voluntarily allow their currencies to float freely in response to economic
forces. Sovereign governments use a variety of techniques, such as
intervention by a country's central bank or imposition of regulatory controls
or taxes, to affect the exchange rates of their currencies.
Many of the foreign securities held by the Fund will not be
registered with, nor the issuers thereof be subject to reporting requirements
of, the SEC. Accordingly, there may be less publicly available information
about the securities and about the foreign company or government issuing them
than is available about a domestic company or government entity. Foreign
companies are generally not subject to uniform financial reporting standards,
practices and requirements comparable to those applicable to U.S. companies.
In addition, with respect to some foreign countries, there is the possibility
of expropriation or confiscatory taxation, limitations on the removal of funds
or other assets of the Fund, political or social instability, or domestic
developments which could affect U.S. investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency, and
balance of payments 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
<PAGE>5
sold. Due to the increased exposure of the Fund to market and foreign
exchange fluctuations brought about by such delays, and due to the
corresponding negative impact on Fund liquidity, the Fund will avoid investing
in countries which are known to experience settlement delays which may expose
the Fund to unreasonable risk of loss.
The interest payable on the Fund's foreign securities may be subject
to foreign withholding taxes, and while investors may be able to claim some
credit or deductions for such taxes with respect to their allocated shares of
such foreign tax payments, the general effect of these taxes will be to reduce
the Fund's income.
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 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 exchange-traded put and
call options on foreign currencies. 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
<PAGE>6
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. 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 entering into the hedge) of the hedged
securities.
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. For example, 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. Currency hedging involves some of
the same risks and considerations as other transactions with similar
instruments. 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.
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>7
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 hedging against changes in the value of portfolio securities due to
anticipated changes in interest rates, currency values and/or market
conditions and increasing return. The ability of the Fund to trade in futures
contracts may be limited by the requirements of the Internal Revenue Code of
1986, as amended (the "Code"), applicable to a regulated investment company.
The Fund will not enter into futures contracts and related options
for which the aggregate initial margin and premiums required to establish
positions other than those considered to be "bona fide hedging" by the CFTC
exceed 5% of the Fund's net asset value after taking into account unrealized
profits and unrealized losses on any such contracts it has entered into.
There is no overall limit on the percentage of the Fund's assets that may be
at risk with respect to futures activities.
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
<PAGE>8
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 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
<PAGE>9
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. This requires different
skills and techniques than predicting changes in the price of individual
securities, and there can be no assurance that the use of these portfolio
strategies will be successful. Even if Counsellors' expectations are correct,
where options on futures are used for hedging purposes, there may be an
imperfect correlation between the change in the value of the options and of
the portfolio securities hedged.
Options on Securities. The Fund may purchase and write 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. In addition, the Fund may write covered call
options on up to 25% of the stock and debt securities in its portfolio.
Options on securities and stock indexes (described below) may be purchased for
hedging purposes and to increase income and total return.
The Fund realizes fees (referred to as "premiums") for granting the
rights evidenced by the call options it has written. A put option embodies
the right of its purchaser to compel the writer of the option to purchase from
the option holder an underlying security at a specified price for a specified
time period or at a specified time. In contrast, a call option embodies the
right of its purchaser to compel the writer of the option to sell to the
option holder an underlying security at a specified price for a specified time
period or at a specified time.
The principal reason for writing covered call options on a security
is to attempt to realize, through the receipt of premiums, a greater return
than would be realized on the securities alone. In return for a premium, the
Fund as the writer of a covered call
<PAGE>10
option forfeits the right to any appreciation in the value of the underlying
security above the strike price for the life of the option (or until a closing
purchase transaction can be effected). Nevertheless, the Fund as the call
writer retains the risk of a decline in the price of the underlying security.
The size of the premiums that the Fund may receive may be adversely affected
as new or existing institutions, including other investment companies, engage
in or increase their option-writing activities.
Options written by the Fund will normally have expiration dates
between one and nine months from the date written. The exercise price of the
options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. The Fund may write (i) in-the-money call
options when Counsellors expects that the price of the underlying security
will remain flat or decline moderately during the option period,
(ii) at-the-money call options when Counsellors expects that the price of the
underlying security will remain flat or advance moderately during the option
period and (iii) out-of-the-money call options when Counsellors expects that
the premiums received from writing the call option plus the appreciation in
market price of the underlying security up to the exercise price will be
greater than the appreciation in the price of the underlying security alone.
In any of the preceding situations, if the market price of the underlying
security declines and the security is sold at this lower price, the amount of
any realized loss will be offset wholly or in part by the premium received.
To secure its obligation to deliver the underlying security when it writes a
call option, the Fund will be required to deposit in escrow the underlying
security or other assets in accordance with the rules of the Options Clearing
Corporation (the "Clearing Corporation") and of the securities exchange on
which the option is written.
In the case of options written by the Fund that are deemed covered
by virtue of the Fund's holding convertible or exchangeable preferred stock or
debt securities, the time required to convert or exchange and obtain physical
delivery of the underlying common stock with respect to which the Fund has
written options may exceed the time within which the Fund must make delivery
in accordance with an exercise notice. In these instances, the Fund may
purchase or temporarily borrow the underlying securities for purposes of
physical delivery. By so doing, the Fund will not bear any market risk, since
the Fund will have the absolute right to receive from the issuer of the
underlying security an equal number of shares to replace the borrowed stock,
but the Fund may incur additional transaction costs or interest expenses in
connection with any such purchase or borrowing.
Additional risks exist with respect to certain of the securities for
which the Fund may write covered call options. If the Fund writes covered
call options on mortgage-backed securities, the mortgage-backed securities
that it holds as cover may, because of scheduled amortization or unscheduled
prepayments, cease to be sufficient cover. If this occurs, the Fund will
compensate for the decline in the value of the cover by purchasing an
appropriate additional amount of mortgage-backed securities.
<PAGE>11
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. In cases where the Fund has written an option, it will realize a
profit if the cost of the closing purchase transaction is less than the
premium received upon writing the original option and will incur a loss if the
cost of the closing purchase transaction exceeds the premium received upon
writing the original option. Similarly, when the Fund has purchased an option
and engages in a closing sale transaction, whether the Fund realizes a profit
or loss will depend upon whether the amount received in the closing sale
transaction is more or less than the premium the Fund initially paid for the
original option plus the related transaction costs. So long as the obligation
of the Fund as the writer of an option continues, the Fund may be assigned an
exercise notice by the broker-dealer through which the option was sold,
requiring the Fund to deliver the underlying security against payment of the
exercise price. This obligation terminates when the option expires or the
Fund effects a closing purchase transaction. The Fund can no longer effect a
closing purchase transaction with respect to an option once it has been
assigned an exercise notice.
Although the Fund will generally purchase or write only those
options for which Counsellors believes there is an active secondary market so
as to facilitate closing transactions, there is no assurance that sufficient
trading interest will exist to create a liquid secondary market on a
securities exchange for any particular option or at any particular time, and
for some options no such secondary market may exist. A liquid secondary
market in an option may cease to exist for a variety of reasons. In the past,
for example, higher than anticipated trading activity or order flow or other
unforeseen events have at times rendered certain of the facilities of the
Clearing Corporation and various securities exchanges inadequate and resulted
in the institution of special procedures, such as trading rotations,
restrictions on certain types of orders or trading halts or suspensions in one
or more options. There can be no assurance that similar events, or events
that may otherwise interfere with the timely execution of customers' orders,
will not recur. In such event, it might not be possible to effect closing
transactions in particular options. Moreover, 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
<PAGE>12
participating in over-the-counter transactions would fail to meet their
obligations to the Fund. The Fund, however, intends to purchase
over-the-counter options only from dealers whose debt securities, as
determined by Counsellors, are considered to be investment grade. If, as a
covered call option writer, the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise. In either case, the Fund would continue to be at market risk on the
security and could face higher transaction costs, including brokerage
commissions.
Options as a Hedge. In addition to 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.
Stock Index Options. 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, to hedge against the effects
of market-wide price movements or to increase income and total return. The
aggregate value of the securities underlying the calls or puts on stock
indexes written by the Fund, determined as of the date the options are sold,
when added to the value of the securities underlying the calls on stock and
debt securities written by the Fund, may not exceed 25% of the Fund's net
assets. A stock index measures the movement of a certain group of stocks by
assigning relative values to the common stocks included in the index,
fluctuating with changes in the market values of the stocks included in the
index. Some stock index options are based on a broad market index such as the
New York Stock Exchange ("NYSE") Composite index, or a narrower market index
such as the Standard & Poor's 100. Indexes may also be based on a particular
industry or market segment.
Options on stock indexes are similar to options on stock except that
(i) the expiration cycles of stock index options are monthly, while those of
stock options are currently quarterly, and (ii) the delivery requirements are
different. Instead of giving the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive a cash "exercise settlement amount" equal to (a) the amount, if any,
by which the fixed exercise price of the option exceeds (in the case of a put)
or is less than (in the case of a call) the closing value of the underlying
index on the date of exercise, multiplied by (b) a fixed "index multiplier."
Receipt of this cash amount will depend upon
<PAGE>13
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 or writing of options on an index depends upon
movements in the level of stock prices in the stock market generally or, in
the case of certain indexes, in an industry or market segment, rather than
movements in the price of a particular stock. Accordingly, successful use by
the Fund of options on stock indexes will be subject to Counsellors' ability
to predict correctly movements in the direction of the stock market generally
or of a particular industry. This requires different skills and techniques
than predicting changes in the price of individual stocks, and there can be no
assurance that the use of these portfolio strategies will be successful.
OTC Options. The Fund may purchase OTC or dealer options or sell
covered OTC options. Unlike exchange-listed options where an intermediary or
clearing corporation, such as the Clearing Corporation, assures that all
transactions in such options are properly executed, the responsibility for
performing all transactions with respect to OTC options rests solely with the
writer and the holder of those options. A listed call option writer, for
example, is obligated to deliver the underlying stock to the clearing
organization if the option is exercised, and the clearing corporation is then
obligated to pay the writer the exercise price of the option. If the Fund
were to purchase a dealer option, however, it would rely on the dealer from
whom it purchased the option to perform if the option were exercised. If the
dealer fails to honor the exercise of the option by the Fund, the Fund would
lose the premium it paid for the option and the expected benefit of the
transaction.
Listed options generally have a continuous liquid market while
dealer options have none. Consequently, the Fund will generally be able to
realize the value of a dealer option it has purchased only by exercising it or
reselling it to the dealer who issued it. Similarly, when the Fund writes a
dealer option, it generally will be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the
dealer to which the Fund originally wrote the option. Although the Fund will
seek to enter into dealer options only with dealers who will agree to and that
are expected to be capable of entering into closing transactions with the
Fund, there can be no assurance that the Fund will be able to liquidate a
dealer option at a favorable price at any time prior to expiration. The
inability to enter into a closing transaction may result in material losses to
the Fund. Until the Fund, as a covered dealer call option writer, is able to
effect a closing purchase
<PAGE>14
transaction, it will not be able to liquidate securities (or other assets)
used to cover the written option until the option expires or is exercised.
This requirement may impair the Fund's ability to sell portfolio securities
or, with respect to currency options, currencies at a time when such sale
might be advantageous. In the event of insolvency of the other party, the
Fund may be unable to liquidate a dealer option.
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 currencies, securities and 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 or other securities that are acceptable as
collateral to the appropriate regulatory authority.
For example, a call option written by the Fund on securities may
require the Fund to hold the securities subject to the call (or securities
convertible into the securities without additional consideration) or to
segregate assets (as described above) sufficient to purchase and deliver the
securities if the call is exercised. A call option written by the Fund on an
index may require the Fund to own portfolio securities that correlate with the
index or to segregate assets (as described above) equal to the excess of the
index value over the exercise price on a current basis. A put option written
by the Fund may require the Fund to segregate assets (as described above)
equal to the exercise price. 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.
The Fund may enter into fully or partially offsetting transactions so that its
net position, coupled with any segregated assets (equal to any remaining
obligation), equals its net obligation. Asset coverage may be achieved by
other means when consistent with applicable regulatory policies.
When-Issued Securities and Delayed-Delivery Transactions. The Fund
may utilize up to 20% of its total assets to purchase securities on a
"when-issued" basis or purchase or sell securities for delayed delivery (i.e.,
payment or delivery occur beyond the normal settlement date at a stated price
and yield). When-issued transactions normally settle within 30-45 days. The
Fund will enter into a when-issued transaction for the purpose of acquiring
portfolio securities and not for the purpose of leverage, but may sell the
securities before the settlement date if Counsellors deems it advantageous to
do so. The payment obligation and the interest rate that will be received on
when-issued securities are fixed at the time the buyer enters into the
commitment. Due to fluctuations in the value of securities purchased or sold
on a when-issued or delayed-delivery basis, the yields obtained on such
securities may be higher or lower than the yields available in the market on
the dates when the investments are actually delivered to the buyers.
<PAGE>15
When the Fund agrees to purchase when-issued or delayed-delivery
securities, its custodian will set aside cash, U.S. government securities or
other liquid high-grade debt obligations or other securities that are
acceptable as collateral to the appropriate regulatory authority equal to the
amount of the commitment in a segregated account. Normally, the custodian
will set aside portfolio securities to satisfy a purchase commitment, and in
such a case the Fund may be required subsequently to place additional assets
in the segregated account in order to ensure that the value of the account
remains equal to the amount of the Fund's commitment. It may be expected that
the Fund's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets
aside cash. When the Fund engages in when-issued or delayed-delivery
transactions, it relies on the other party to consummate the trade. Failure
of the seller to do so may result in the Fund's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
American, European and Continental Depositary Receipts. The assets
of the Fund may be invested in the securities of foreign issuers in the form
of American Depositary Receipts ("ADRs") and European Depositary Receipts
("EDRs"). These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs are
receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. EDRs,
which are sometimes referred to as Continental Depositary Receipts ("CDRs"),
are receipts issued in Europe typically by non-U.S. banks and trust companies
that evidence ownership of either foreign or domestic securities. Generally,
ADRs in registered form are designed for use in U.S. securities markets and
EDRs and CDRs in bearer form are designed for use in European securities
markets.
Convertible Securities. Convertible securities in which the Fund
may invest, including both convertible debt and convertible preferred stock,
may be converted at either a stated price or stated rate into underlying
shares of common stock. Because of this feature, convertible securities
enable an investor to benefit from increases in the market price of the
underlying common stock. Convertible securities provide higher yields than
the underlying equity securities, but generally offer lower yields than
non-convertible securities of similar quality. Like bonds, the value of
convertible securities fluctuates in relation to changes in interest rates
and, in addition, also fluctuates in relation to the underlying common stock.
Warrants. The Fund may invest up to 5% of net assets in warrants
(valued at the lower of cost or market) (other than warrants acquired by the
Fund as part of a unit or attached to securities at the time of purchase).
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.
<PAGE>16
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, repurchase agreements which have a maturity of longer than seven days
and time deposits maturing in more than seven days. Securities that have
legal or contractual restrictions on resale but have a readily available
market are not considered illiquid for purposes of this limitation.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period.
Historically, illiquid securities have included securities subject
to contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
amount of these restricted or other illiquid securities because of the
potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal restrictions on
resale to the general public or to certain institutions may not be indicative
of the liquidity of such investments.
Rule 144A adopted by the SEC allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to
the general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the Securities Act for resales of certain
securities to qualified institutional buyers. Counsellors anticipates that
the market for certain restricted securities such as institutional commercial
paper will expand further as a result of this regulation and use of automated
systems for the trading, clearance 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
<PAGE>17
of trades and quotes for the security; (iii) the number of dealers wishing to
purchase or sell the security and the number of other potential purchasers;
(iv) dealer undertakings to make a market in the security and (v) the nature
of the security and the nature of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
Borrowing. The Fund may borrow up to 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 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.
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. Purchase the securities of any issuer if as a result more than
5% of the value of the Fund's total assets would be invested in the securities
of such issuer, except that
<PAGE>18
this 5% limitation does not apply to U.S. government securities and except
that up to 25% of the value of the Fund's total assets may be invested without
regard to this 5% limitation.
4. 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.
5. 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.
6. 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.
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.
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.
<PAGE>19
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 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 Prospectuses discuss the time at which the net asset value of
the Fund is determined for purposes of sales and redemptions. The following
is a description of the procedures used by the Fund in valuing its assets.
Securities listed on a U.S. securities exchange (including
securities traded through the NASDAQ National Market System) or on a foreign
securities exchange will be valued on the basis of the closing value on the
date on which the valuation is made or, in the absence of sales, at the mean
between the closing bid and asked prices. Other U.S. over-the-counter
securities, foreign over-the-counter securities and securities listed or
traded on certain foreign stock exchanges whose operations are similar to the
U.S. over-the-counter market will be valued on the basis of the bid price at
the close of business on each day, or, if market quotations for those
securities are not readily available, at fair value, as determined in good
faith pursuant to consistently applied procedures established by the Board. A
security which is listed or traded on more than one exchange is valued at the
quotation on the exchange determined to be the primary market for such
security. 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. In
determining the market value of portfolio investments, the Fund may
<PAGE>20
employ outside organizations (a "Pricing Service") which may use a matrix or
formula method that takes into consideration market indexes, matrices, yield
curves and other specific adjustments. The procedures of Pricing Services are
reviewed periodically by the officers of the Fund under the general
supervision and responsibility of the Board, which may replace any such
Pricing Service at any time. Short-term obligations with maturities of 60
days or less are valued at amortized cost, which constitutes fair value as
determined by the Board. The amortized cost method of valuation may also be
used with respect to debt obligations with 60 days or less remaining to
maturity. All other securities and other assets of the Fund will be valued at
their fair value as determined in good faith pursuant to consistently applied
procedures established by the Board. In addition, the Board or its delegates
may value a security at fair value if it determines that such security's value
determined by the methodology set forth above does not reflect its fair value.
Trading in securities in certain foreign countries is completed at
various times prior to the close of business on each business day in New York
(i.e., a day on which the 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. As a result, 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 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,
<PAGE>21
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.
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.
<PAGE>22
In no instance will portfolio securities be purchased from or sold
to Counsellors or Counsellors Securities or any affiliated person of such
companies. In addition, the Fund will not give preference to any institutions
with whom the Fund enters into distribution or shareholder servicing
agreements ("Agreements") concerning the provision of distribution services or
support services to customers ("Customers") who beneficially own the Fund's
Common Stock, par value $.001 per share, designated Common Stock - Series 1
(the "Series 1 Shares") or Common Stock - Series 2 (the "Advisor Shares").
See the Prospectuses, "Shareholder Servicing."
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.
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. The Fund's investment in special
situation companies could result in high portfolio turnover. To the extent
that its portfolio is traded for the short-term, the Fund will be engaged
essentially in trading activities based on short-term considerations affecting
the value of an issuer's stock instead of long-term investments based on
fundamental valuation of securities. Because of this policy, portfolio
securities may be sold without regard to the length of time for which
<PAGE>23
they have been held. Consequently, the annual portfolio turnover rate of the
Fund may be higher than mutual funds having a similar objective that do not
invest in special situation companies.
MANAGEMENT OF THE FUND
Officers and Board of Directors
The names (and ages) of the Fund's Directors and officers, their
addresses, present positions and principal occupations during the past five
years and other affiliations are set forth below.
Richard N. Cooper (61) . . Director
Room 7E47OHB National Intelligence Counsel;
Central Intelligence Agency Professor at Harvard University;
930 Dolly Madison Blvd. Director or Trustee of CNA
McClain, Virginia 22107 Financial Corporation, Circuit City Stores,
Inc. (retail electronics and appliances) and
Phoenix Home Life Insurance Co.
Donald J. Donahue (71) . . Director
99 Indian Field Road Chairman of Magma Copper Company
Greenwich, Connecticut 06830 since January 1987; Director or Trustee of GEV
Corporation and Signet Star Reinsurance
Company; Chairman and Director of NAC Holdings
from September 1990-June 1993.
Jack W. Fritz (68) . . . Director
2425 North Fish Creek Road Private investor; Consultant and
P.O. Box 483 Director of Fritz Broadcasting, Inc. and
Wilson, Wyoming 83014 Fritz Communications (developers and operators
of radio stations); Director of Advo, Inc.
(direct mail advertising).
John L. Furth* (64) . . . Chairman of the Board
466 Lexington Avenue Vice Chairman and Director of EMW;
New York, New York 10017-3147 Associated with EMW since 1970; Chairman of
the Board of 15 other investment companies
advised by Counsellors; President of one other
investment company advised by Counsellors.
- ------------------------
* Indicates a Director who is an "interested person" of the Fund as defined
in the 1940 Act.
<PAGE>24
Thomas A. Melfe (63) . . Director
30 Rockefeller Plaza Partner in the law firm of Donovan Leisure
New York, New York 10112 Newton & Irvine; Director of Municipal Fund
for New York Investors, Inc.
Alexander B. Trowbridge (66) Director
1155 Connecticut Avenue, N.W. President of Trowbridge Partners, Inc.
Suite 700 (business consulting) from January 1990-
Washington, DC 20036 January 1994; President of the National
Association of Manufacturers from 1980-1990;
Director or Trustee of New England Mutual Life
Insurance Co., ICOS Corporation
(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).
Arnold M. Reichman (47) . President
466 Lexington Avenue Managing Director and Assistant Secretary
New York, New York 10017-3147 of EMW; Associated with EMW since 1984; Senior
Vice President, Secretary and Chief Operating
Officer of Counsellors Securities; President
or Executive Vice President of 15 other
investment companies advised by Counsellors.
Eugene L. Podsiadlo (38) Senior Vice President
466 Lexington Avenue Managing Director of EMW;
New York, New York 10017-3147 Associated with EMW since 1991; Vice President
of Citibank, N.A. from 1987-1991; Senior Vice
President of Counsellors Securities and 15
other investment companies advised by
Counsellors.
<PAGE>25
Eugene P. Grace (44) . . Vice President and Secretary
466 Lexington Avenue Associated with EMW since April 1994;
New York, New York 10017-3147 Attorney-at-law from September 1989-April
1994; life insurance agent, New York Life
Insurance Company from 1993-1994; General
Counsel and Secretary, Home Unity Savings Bank
from 1991-1992; Vice President and Chief
Compliance Officer of Counsellors Securities;
Vice President and Secretary of 15 other
investment companies advised by Counsellors.
Stephen Distler (42) . . Vice President and Chief 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 Vice President and Chief Financial
Officer of 15 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 14 other investment companies
advised by Counsellors.
Karen Amato (31) . . . . Assistant Secretary
466 Lexington Avenue Associated with EMW since 1987;
New York, New York 10017-3147 Assistant Secretary of 15 other investment
companies advised by Counsellors.
No employee of Counsellors or PFPC Inc., the Fund's co-administrator
("PFPC"), or any of their affiliates receives any compensation from the Fund
for acting as an officer or director of the Fund. Each Director who is not a
director, trustee, officer or employee of Counsellors, PFPC or any of their
affiliates receives an annual fee of $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.
<PAGE>26
Directors' Compensation
(estimated for the fiscal year ended October 31, 1995+)
<TABLE>
<CAPTION>
Total Total Compensation from
Compensation from all Investment Companies
Name of Director Fund Managed by Counsellors*
---------------- ----------------- ------------------------
<S> <C> <C>
John L. Furth None** None**
Richard N. Cooper $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>
- ------------------------
+ Estimates of future payments to be made pursuant to existing
arrangements.
* Each Director also serves as a Director or Trustee of 15 other investment
companies advised by Counsellors.
** Mr. Furth is considered to be an interested person of the Fund and
Counsellors, as defined under Section 2(a)(19) of the 1940 Act, and,
accordingly, receives no compensation from the Fund or any other
investment company managed by Counsellors.
Elizabeth Dater, co-portfolio manager of the Fund, is also co-
portfolio manager of Warburg Pincus Emerging Growth Fund and the Small Company
Growth Portfolio of Warburg Pincus Trust. Ms. Dater also manages a
post-venture capital fund and is the former Director of Research for
Counsellors' investment management activities. Prior to joining Counsellors
in 1978, she was a vice president of research at Fiduciary Trust Company of
New York and an institutional sales assistant at Lehman Brothers. Ms. Dater
has been a regular panelist on Maryland Public Television's "Wall Street Week"
since 1976. Ms. Dater earned a B.A. degree from Boston University in
Massachusetts.
Stephen J. Lurito, co-portfolio manager of the Fund, is also co-
portfolio manager of Warburg Pincus Emerging Growth Fund and the Small Company
Growth Portfolio of Warburg Pincus Trust. Mr. Lurito, also the research
coordinator and a portfolio manager for micro-cap equity and post-venture
products, has been with EMW since 1987. Prior to that he was a research
analyst at Sanford C. Bernstein & Company, Inc. Mr. Lurito
<PAGE>27
earned a B.A. degree from the University of Virginia and an M.B.A. from the
Wharton School of Business of the University of Pennsylvania.
Robert S. Janis and Christopher M. Nawn are associate portfolio
managers and research analysts of the Fund. Prior to joining Counsellors in
October 1994, Mr. Janis was a vice president and senior research analyst at
U.S. Trust Company of New York. He earned B.A. and M.B.A. degrees from the
University of Pennsylvania. Prior to joining Counsellors in September 1994,
Mr. Nawn was a senior sector analyst and portfolio manager at the Dreyfus
Corporation. He earned a B.A. degree from the Colorado College and an M.B.A.
degree from the University of Texas.
Investment Adviser and Co-Administrators
Counsellors serves as investment adviser to the Fund, Counsellors
Funds Service, Inc. ("Counsellors Service") serves as a co-administrator to
the Fund and PFPC serves as a co-administrator to the Fund pursuant to
separate written agreements (the "Advisory Agreement," the "Counsellors
Service Co-Administration Agreement" and the "PFPC Co-Administration
Agreement," respectively). The services provided by, and the fees payable by
the Fund to, Counsellors under the Advisory Agreement, Counsellors Service
under the Counsellors Service Co-Administration Agreement and PFPC under the
PFPC Co-Administration Agreement are described in the Prospectuses. Each
class of shares of the Fund bears its proportionate share of fees payable to
Counsellors, Counsellors Service and PFPC in the proportion that its assets
bear to the aggregate assets of the Fund at the time of calculation. These
fees are calculated at an annual rate based on a percentage of the Fund's
average daily net assets. See the Prospectuses, "Management of the Fund."
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 July 12, 1995 under the laws of the
State of Maryland. The Fund's charter authorizes the Board to issue three
billion full and fractional shares of common stock, $.001 par value per share.
Common Stock ("Common Shares"), Common Stock -- Series 1 and Advisor Shares
have been authorized by the Fund's charter, although only Common Shares and
Advisor Shares have been issued by the Fund. When
<PAGE>28
matters are submitted for shareholder vote, each shareholder will have one
vote for each share owned and proportionate, fractional votes for fractional
shares held. Shareholders generally vote in the aggregate, except with
respect to (i) matters affecting only the shares of a particular class, in
which case only the shares of the affected class would be entitled to vote, or
(ii) when the 1940 Act requires that shares of the classes be voted
separately. There will normally be no meetings of shareholders for the
purpose of electing Directors unless and until such time as less than a
majority of the Directors holding office have been elected by shareholders.
The Directors will call a meeting for any purpose when requested to do so in
writing by shareholders of record of not less than 10% of the Fund's
outstanding shares.
All shareholders of the Fund in each class, upon liquidation, will
participate ratably in the Fund's net assets. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Directors can elect all Directors. Shares are
transferable but have no preemptive, conversion or subscription rights.
Custodians and Transfer Agent
PNC Bank, National Association ("PNC") and State Street Bank and
Trust Company ("State Street") serve as custodians of the Fund's U.S. and
foreign assets, respectively, pursuant to separate custodian agreements (the
"Custodian Agreements"). Under the Custodian Agreements, PNC and State Street
each (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 for
the account of the Fund's portfolio securities held by it and (v) makes
periodic reports to the Board concerning the Fund's custodial arrangements.
PNC may delegate its duties under its Custodian Agreement with the Fund to a
wholly owned direct or indirect subsidiary of PNC or PNC Bank Corp. upon
notice to the Fund and upon the satisfaction of certain other conditions.
With the approval of the Board, State Street is authorized to select one or
more foreign banking institutions and foreign securities depositories to serve
as sub-custodian on behalf of the Fund; State Street is not relieved of any
responsibility or liability to the Fund on account of any actions or omissions
of any such sub-custodian. PNC is an indirect, wholly owned subsidiary of PNC
Bank Corp., and its principal business address is Broad and Chestnut Streets,
Philadelphia, Pennsylvania 19101. The principal business address of State
Street is 225 Franklin Street, Boston, Massachusetts 02110.
State Street also serves as the shareholder servicing, transfer and
dividend disbursing agent of the Fund pursuant to a Transfer Agency and
Service Agreement, under which State Street (i) issues and redeems shares of
the Fund, (ii) addresses and mails all communications by the Fund to record
owners of Fund shares, including reports to shareholders, dividend and
distribution notices and proxy material for its meetings of shareholders,
(iii) maintains shareholder accounts and, if requested, sub-accounts and
(iv) makes periodic reports to the Board concerning the transfer agent's
operations with respect to the Fund. State Street has delegated to Boston
Financial Data Services, Inc., a
<PAGE>29
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 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.
Advisor 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 Advisor Shares. See the Prospectuses,
"Shareholder Servicing." The Fund's Agreements with Institutions with respect
to Advisor Shares will be governed by a distribution plan (the "Distribution
Plan"). The Distribution Plan requires the Board, at least quarterly, to
receive and review written reports of amounts expended under the Distribution
Plan and the purposes for which such expenditures were made.
<PAGE>30
General. An Institution with which the Fund has entered into an
Agreement with respect to its Advisor Shares may charge a Customer one or more
of the following types of fees, as agreed upon by the Institution and the
Customer, with respect to the cash management or other services provided by
the Institution: (i) account fees (a fixed amount per month or per 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 Institution to its Customers prior to any purchase of
Fund shares. Prospectuses are available from the Fund's distributor upon
request. No preference will be shown in the selection of Fund portfolio
investments for the instruments of Institutions.
The Distribution Plan and the 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 Distribution Plan or the 12b-1 Plan, as the case may be
("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 or the 12b-1 Plan may not be amended to increase
materially the amount to be spent thereunder without shareholder approval of
the Advisor Shares or the Common Shares, as the case may be. 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 Advisor Shares or the Common Shares, as
the case may be.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of the Fund's shares is equal to the per share
net asset value of the relevant class of shares of the Fund. Information on
how to purchase and redeem Fund shares and how such shares are priced is
included in the Prospectuses under "Net Asset Value."
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed, other than customary weekend and holiday closings, or during
which trading on the NYSE is restricted, or during which (as determined by the
SEC) an emergency exists as a result of which disposal or fair valuation of
portfolio securities is not reasonably practicable, or for such other periods
as the SEC may permit. (The Fund may also suspend or postpone
<PAGE>31
the recordation of an exchange of its shares upon the occurrence of any of the
foregoing conditions.)
If the Board determines that conditions exist which make payment of
redemption proceeds wholly in cash unwise or undesirable, the Fund may make
payment wholly or partly in securities or other property. If a redemption is
paid wholly or partly in securities or other property, a shareholder would
incur transaction costs in disposing of the redemption proceeds. The Fund
intends to comply with Rule 18f-1 promulgated under the 1940 Act with respect
to redemptions in kind.
Automatic Cash Withdrawal Plan. An automatic cash withdrawal plan
(the "Plan") is available to shareholders who wish to receive specific amounts
of cash periodically. Withdrawals may be made under the Plan by redeeming as
many shares of the Fund as may be necessary to cover the stipulated withdrawal
payment. To the extent that withdrawals exceed dividends, distributions and
appreciation of a shareholder's investment in the Fund, there will be a
reduction in the value of the shareholder's investment and continued
withdrawal payments may reduce the shareholder's investment and ultimately
exhaust it. Withdrawal payments should not be considered as income from
investment in the Fund. All dividends and distributions on shares in the Plan
are automatically reinvested at net asset value in additional shares of the
Fund.
EXCHANGE PRIVILEGE
An exchange privilege with certain other funds advised by
Counsellors is available to investors in the Fund. The funds into which
exchanges can be made by holders of Common Shares currently are the Common
Shares of Warburg Pincus Cash Reserve Fund, Warburg Pincus New York Tax Exempt
Fund, Warburg Pincus New York Intermediate Municipal Fund, Warburg Pincus 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, Warburg
Pincus Emerging Markets Fund and Warburg Pincus Japan OTC Fund. Common
Shareholders of the Fund may exchange all or part of their shares for Common
Shares of these or other mutual funds organized by Counsellors in the future
on the basis of their relative net asset values per share at the time of
exchange. Exchanges of Advisor Shares may currently be made with Advisor
Shares of Warburg Pincus Balanced Fund, Warburg Pincus Capital Appreciation
Fund, Warburg Pincus Emerging Growth Fund, Warburg Pincus Growth & Income Fund
and Warburg Pincus International Equity 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
<PAGE>32
investment decision. This privilege is available to shareholders residing in
any state in which the Common Shares or Advisor Shares being acquired, as
relevant, may legally be sold. Prior to any exchange, the investor should
obtain and review a copy of the current prospectus of the relevant class of
each fund into which an exchange is being considered. Shareholders may obtain
a prospectus of the relevant class of the fund into which they are
contemplating an exchange from Counsellors Securities.
Upon receipt of proper instructions and all necessary supporting
documents, shares submitted for exchange are redeemed at the then-current net
asset value of the relevant class and the proceeds are invested on the same
day, at a price as described above, in shares of the relevant class of the
fund being acquired. Counsellors reserves the right to reject more than three
exchange requests by a shareholder in any 30-day period. The exchange
privilege may be modified or terminated at any time upon 60 days' notice to
shareholders.
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 each year as a "regulated investment
company" under Subchapter M of the Code. If it qualifies as a regulated
investment company, the Fund will pay no federal income taxes on its taxable
net investment income (that is, taxable income other than net realized capital
gains) and its net realized capital gains that are distributed to
shareholders. To qualify under Subchapter M, the Fund must, among other
things: (i) distribute to its shareholders at least 90% of its taxable net
investment income (for this purpose consisting of taxable net investment
income and net realized short-term capital gains); (ii) derive at least 90% of
its gross income from dividends, interest, payments with respect to loans of
securities, gains from the sale or other disposition of securities, or other
income (including, but not limited to, gains from options, futures, and
forward contracts) derived with respect to the Fund's business of investing in
securities; (iii) derive less than 30% of its annual gross income from the
sale or other disposition of securities, options, futures or forward contracts
held for less than three months; and (iv) diversify its holdings so that, at
the end of each fiscal quarter of the Fund (a) at least 50% of the market
value of the Fund's assets is represented by cash, U.S. government securities
and other securities, with those other securities limited, with respect to any
one issuer, to an amount no greater in value than 5% of the Fund's total
assets and to not more than 10% of the outstanding voting securities of the
issuer, and (b) not more than 25% of the market value of the Fund's assets is
invested in the securities of any one issuer (other than U.S. government
securities or securities of other regulated investment companies) or of two or
more issuers that the Fund controls and that are determined to be in the same
or similar trades or
<PAGE>33
businesses or related trades or businesses. In meeting these requirements,
the Fund may be restricted in the selling of securities held by the Fund for
less than three months and in the utilization of certain of the investment
techniques described above and in the Fund's Prospectuses. As a regulated
investment company, the Fund will be subject to a 4% non-deductible excise tax
measured with respect to certain undistributed amounts of ordinary income and
capital gain required to be but not distributed under a prescribed formula.
The formula requires payment to shareholders during a calendar year of
distributions representing at least 98% of the Fund's taxable ordinary income
for the calendar year and at least 98% of the excess of its capital gains over
capital losses realized during the one-year period ending October 31 during
such year, together with any undistributed, untaxed amounts of ordinary income
and capital gains from the previous calendar year. The Fund expects to pay
the dividends and make the distributions necessary to avoid the application of
this excise tax.
The Fund's transactions, if any, in foreign currencies, forward
contracts, options and futures contracts (including options and forward
contracts on foreign currencies) will be subject to special provisions of the
Code that, among other things, may affect the character of gains and losses
recognized by the Fund (i.e., may affect whether gains or losses are ordinary
or capital), accelerate recognition of income to the Fund, defer Fund losses
and cause the Fund to be subject to hyperinflationary currency rules. These
rules could therefore affect the character, amount and timing of distributions
to shareholders. These provisions also (i) will require the Fund to
mark-to-market certain types of its positions (i.e., treat them as if they
were closed out) and (ii) may cause the Fund to recognize income without
receiving cash with which to pay dividends or make distributions in amounts
necessary to satisfy the distribution requirements for avoiding income and
excise taxes. The Fund will monitor its transactions, will make the
appropriate tax elections and will make the appropriate entries in its books
and records when it acquires any foreign currency, forward contract, option,
futures contract or hedged investment so that (a) neither the Fund nor its
shareholders will be treated as receiving a materially greater amount of
capital gains or distributions than actually realized or received, (b) the
Fund will be able to use substantially all of its losses for the fiscal years
in which the losses actually occur and (c) the Fund will continue to qualify
as a regulated investment company.
A shareholder of the Fund receiving dividends or distributions in
additional shares should be treated for federal income tax purposes as
receiving a distribution in an amount equal to the amount of money that a
shareholder receiving cash dividends or distributions receives, and should
have a cost basis in the shares received equal to that amount.
Investors considering buying shares just prior to a dividend or
capital gain distribution should be aware that, although the price of shares
purchased at that time may reflect the amount of the forthcoming distribution,
those who purchase just prior to a distribution will receive a distribution
that will nevertheless be taxable to them. Upon the sale or exchange of
shares, a shareholder will realize a taxable gain or loss depending upon the
amount realized and the basis in the shares. Such gain or loss will be
treated as capital
<PAGE>34
gain or loss if the shares are capital assets in the shareholder's hands, and,
as described above, will be long-term or short-term depending upon the
shareholder's holding period for the shares. Any loss realized on a sale or
exchange will be disallowed to the extent the shares disposed of are replaced,
including replacement through the reinvestment of dividends and capital gains
distributions in the Fund, within a period of 61 days beginning 30 days before
and ending 30 days after the disposition of the shares. In such a case, the
basis of the shares acquired will be increased to reflect the disallowed loss.
Each shareholder will receive an annual statement as to the federal
income tax status of his dividends and distributions from the Fund for the
prior calendar year. Furthermore, shareholders will also receive, if
appropriate, various written notices after the close of the Fund's taxable
year regarding the federal income tax status of certain dividends and
distributions that were paid (or that are treated as having been paid) by the
Fund to its shareholders during the preceding year.
If a shareholder fails to furnish a correct taxpayer identification
number, fails to report fully dividend or interest income, or fails to certify
that he has provided a correct taxpayer identification number and that he is
not subject to "backup withholding," the shareholder may be subject to a 31%
"backup withholding" tax with respect to (i) taxable dividends and
distributions and (ii) the proceeds of any sales or repurchases of shares of
the Fund. An individual's taxpayer identification number is his social
security number. Corporate shareholders and other shareholders specified in
the Code are or may be exempt from backup withholding. The backup withholding
tax is not an additional tax and may be credited against a taxpayer's federal
income tax liability. Dividends and distributions also may be subject to
state and local taxes depending on each shareholder's particular situation.
Investment in Passive Foreign Investment Companies
If the Fund purchases shares in certain foreign entities classified
under the Code as "passive foreign investment companies" ("PFICs"), the Fund
may be subject to federal income tax on a portion of an "excess distribution"
or gain from the disposition of the shares, even though the income may have to
be distributed as a taxable dividend by the Fund to its shareholders. In
addition, gain on the disposition of shares in a PFIC generally is treated as
ordinary income even though the shares are capital assets in the hands of the
Fund. Certain interest charges may be imposed on either the Fund or its
shareholders with respect to any taxes arising from excess distributions or
gains on the disposition of shares in a PFIC.
The Fund may be eligible to elect to include in its gross income its
share of earnings of a PFIC on a current basis. Generally, the election would
eliminate the interest charge and the ordinary income treatment on the
disposition of stock, but such an election may have the effect of accelerating
the recognition of income and gains by the Fund compared to a fund that did
not make the election. In addition, information required to make such an
election may not be available to the Fund.
<PAGE>35
On April 1, 1992 proposed regulations of the Internal Revenue
Service (the "IRS") were published providing a mark-to-market election for
regulated investment companies. The IRS subsequently issued a notice
indicating that final regulations will provide that regulated investment
companies may elect the mark-to-market election for tax years ending after
March 31, 1992 and before April 1, 1993. Whether and to what extent the
notice will apply to taxable years of the Fund is unclear. If the Fund is not
able to make the foregoing election, it may be able to avoid the interest
charge (but not the ordinary income treatment) on disposition of the stock by
electing, under proposed regulations, each year to mark-to-market the stock
(that is, treat it as if it were sold for fair market value). Such an
election could result in acceleration of income to the Fund.
DETERMINATION OF PERFORMANCE
From time to time, the Fund may quote the total return of its Common
Shares and/or Advisor Shares in advertisements or in reports and other
communications to shareholders. Average annual total return is calculated by
finding the average annual compounded rates of return for the one-, five- and
ten- (or such shorter period as the relevant class of shares has been offered)
year periods that would equate the initial amount invested to the ending
redeemable value according to the following formula: P (1 + T)[*GRAPHIC
OMITTED-SEE FOOTNOTE BELOW] = ERV. For purposes of this formula, "P" is a
hypothetical investment of $1,000; "T" is average annual total return; "n" is
number of years; and "ERV" is the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the one-, five- or ten-year periods
(or fractional portion thereof). Total return or "T" is computed by finding
the average annual change in the value of an initial $1,000 investment over
the period and assumes that all dividends and distributions are reinvested
during the period.
The Fund may advertise, from time to time, comparisons of the
performance of its Common Shares and/or Advisor Shares with that of one or
more other mutual funds with similar investment objectives. The Fund may
advertise average annual calendar-year-to-date and calendar quarter returns,
which are calculated according to the formula set forth in the preceding
paragraph, except that the relevant measuring period would be the number of
months that have elapsed in the current calendar year or most recent three
months, as the case may be.
The performance of a class of Fund shares will vary from time to
time depending upon market conditions, the composition of the Fund's portfolio
and operating expenses allocable to it. As described above, total return is
based on historical earnings and is not intended to indicate future
performance. Consequently, any given performance quotation should not be
considered as representative of performance for any specified period in the
future. Performance information may be useful as a basis for comparison with
other investment alternatives. However, the Fund's performance will
fluctuate, unlike certain bank deposits or other investments which pay a fixed
yield for a stated period of time. Any fees charged by Institutions or other
institutional investors directly to their customers in connection with
investments in Fund shares are not reflected in the Fund's total return, and
- ------------------------
* - The expression (1 + T) is being raised to the nth power.
<PAGE>36
such fees, if charged, will reduce the actual return received by customers on
their investments.
From time to time, the Fund may advertise evaluations of a class of
Fund shares published by nationally recognized financial publications, such as
Morningstar Inc. or Lipper Analytical Services, Inc. Morningstar, Inc. rates
funds in broad categories based on risk/reward analyses over various time
periods. In addition, reference may be made in advertising a class of Fund
shares to opinions of Wall Street economists and analysts regarding economic
cycles and their effects historically on the performance of small companies,
both as a class and relative to other investments. The Fund may also discuss
its beta, or volatility relative to the market, and make reference to its
relative performance in various market cycles in the United States.
AUDITORS AND COUNSEL
Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), with principal
offices at 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves
as independent auditors for the Fund. The statement of assets and liabilities
of Warburg, Pincus Post-Venture Capital Fund, Inc. as of September 6, 1995
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.
Willkie Farr & Gallagher serves as counsel for the Fund as well as
counsel to Counsellors, Counsellors Service and Counsellors Securities.
FINANCIAL STATEMENT
The Fund's financial statement follows 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.
The following summarizes the ratings used by Moody's for corporate
bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred
to as "gilt edged." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations.
Factors giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime
in the future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Moody's applies numerical modifiers (1, 2 and 3) with respect to the
bonds rated "Aa" through "Baa". The modifier 1 indicates that the bond being
rated ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the bond
ranks in the lower end of its generic rating category.
<PAGE>1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of Warburg, Pincus Post-Venture Capital Fund, Inc.
We have audited the accompanying Statement of Assets and Liabilities of
Warburg, Pincus Post-Venture Capital Fund, Inc. (the "Fund") as of September
6, 1995. 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 Post-Venture
Capital Fund, Inc. as of September 6, 1995 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
September 12, 1995
<PAGE>1
WARBURG, PINCUS POST-VENTURE CAPITAL FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
as of September 6, 1995
Assets:
Cash $100,000
Deferred Organizational Costs 110,270
Total Assets 210,270
Liabilities:
Accrued Organizational Costs 110,270
Net Assets $100,000
Net Asset Value, Redemption and
Offering Price Per Share (three
billion shares authorized,
consisting of 2 billion
Common Shares and 1 billion
Series 2 (Advisor) Shares -
$.001 per share) applicable to
9,900 Common Shares and 100
Series 2 Shares outstanding. $10.00
The accompanying notes are an integral part of this financial statement.
<PAGE>1
WARBURG, PINCUS POST-VENTURE CAPITAL FUND, INC.
Notes to Financial Statements
September 6, 1995
1. Organization:
Warburg, Pincus Post-Venture Capital Fund, Inc. (the "Fund") was incorporated
on July 12, 1995 under the laws of the State of Maryland. The Fund is
registered under the Investment Company Act of 1940, as amended, as an open-
end management investment company. The Fund's charter authorizes its Board of
Directors to issue three billion full and fractional shares of common stock,
$.001 par value per share, of which one billion shares are designated Series 2
(Advisor) 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 9,900 Common Shares and 100 Series 2 Shares (the "Initial Shares") to
Warburg, Pincus Counsellors, Inc., the Fund's investment adviser (the
"Adviser").
2. Organizational Costs and Transactions 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.
A director of the Fund is also a director of the Adviser. This director is
paid no fees by the Fund for serving as a director of the Fund.
<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.
(b) Exhibits:
Exhibit No. Description of Exhibit
- ----------- ----------------------
1 Articles of Incorporation.
2 By-Laws.
3 Not applicable.
4 Forms of Share Certificates.
5 Form of Investment Advisory Agreement.
6 Distribution Agreement.*
7 Not applicable.
8(a) Form of Custodian Agreement with PNC Bank, National
Association.**
(b) Form of Custodian Agreement with State Street Bank and Trust
Company.**
9(a) Form of Transfer Agency Agreement.**
(b) Form of Counsellors Service Co-Administration Agreement.**
- ------------------------
* Contained in Exhibit No. 15 hereto.
** Incorporated by reference; material provisions of this exhibit
substantially similar to those of this exhibit in Pre-Effective Amendment
No. 1 to the Registration Statement on Form N-1A of Warburg, Pincus Trust
filed on June 14, 1995 (Securities Act File No. 33-58125; EDGAR Accession
No. 950117-95-221)
<PAGE>C-2
Exhibit No. Description of Exhibit
- ----------- ----------------------
(c) Form of PFPC Co-Administration Agreement.***
10(a) Opinion and Consent of Willkie Farr & Gallagher, Counsel to the
Fund.
(b) Opinion and Consent of Venable, Baetjer and Howard, LLP,
Maryland Counsel to the Fund.
11 Consent of Coopers & Lybrand L.L.P., Independent Auditors to
the Fund.
12 Not applicable.
13 Form of Purchase Agreement.
14 Not applicable.
15(a) Form of Shareholder Services and Distribution Plan.
(b) Form of Shareholder Services Plan.***
(c) Form of Distribution Plan.***
(d) Form of Distribution Agreement.
(e) Rule 18f-3 Plan.
16 Not applicable.
17 Not applicable.
- ------------------------
*** Incorporated by reference; material provisions of this exhibit
substantially similar to those of this exhibit in Post-Effective
Amendment No. 10 to the Registration Statement on Form N-1A of
Counsellors International Equity Fund, Inc. filed on September 22, 1995
(Securities Act File No. 33-27031)
<PAGE>C-3
Item 25. Persons Controlled by or Under Common Control with
Registrant
All of the outstanding shares of common stock of Registrant on the
date Registrant's Registration Statement becomes effective will be owned by
Warburg, Pincus Counsellors, Inc. ("Counsellors"), a corporation formed under
New York law.
Item 26. Number of Holders of Securities
It is anticipated that Counsellors will hold all Registrant's shares
of common stock, par value $.001 per share, on the date Registrant's
Registration Statement becomes effective.
Item 27. Indemnification
Registrant, officers and directors of 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 Registrant's Registration Statement, filed
on July 21, 1995 (EDGAR Accession No. 899140-95-149).
Item 28. Business and Other Connections of
Investment Adviser
Counsellors is a wholly owned subsidiary of Warburg, Pincus
Counsellors G.P., acts as investment adviser to Registrant. Counsellors
renders investment advice to a wide variety of individual and institutional
clients. The list required by this Item 28 of officers and directors of
Counsellors, together with information as to their other business, profession,
vocation or employment of a substantial nature during the past two years, is
incorporated by reference to Schedules A and D of Form ADV filed by
Counsellors (SEC File No. 801-07321).
Item 29. Principal Underwriter
(a) Counsellors Securities will act as distributor for Registrant.
Counsellors Securities currently acts as distributor for Warburg, Pincus
Capital Appreciation Fund; Warburg, Pincus Cash Reserve Fund; Warburg, Pincus
Emerging Growth Fund; Warburg, Pincus Emerging Markets Fund; Warburg, Pincus
Fixed Income Fund; Warburg, Pincus Global Fixed Income Fund; Warburg, Pincus
Institutional Fund, Inc.; Warburg, Pincus Intermediate Maturity Government
Fund; Warburg, Pincus International Equity Fund; Warburg, Pincus Japan OTC
Fund; Warburg, Pincus New York Intermediate Municipal Fund; Warburg, Pincus
New York Tax Exempt Fund; The RBB Fund, Inc.; Warburg, Pincus Short-Term Tax-
Advantaged Bond Fund and Warburg, Pincus Trust.
<PAGE>C-4
(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 Post-Venture Capital Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(Fund's Articles of Incorporation, By-laws and minute books)
(2) Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as investment adviser)
(3) Counsellors Funds Service, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as co-administrator)
(4) PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as co-administrator)
(5) Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as distributor)
(6) PNC Bank, National Association
Broad and Chestnut Streets
Philadelphia, Pennsylvania 19101
(records relating to its functions as custodian)
(7) 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)
<PAGE>C-5
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Registrant hereby undertakes to file a post-effective
amendment, using financial statements which need not be certified, within four
to six months from the effective date of Registrant's Registration Statement
under the 1940 Act.
(b) Registrant hereby undertakes to call a meeting of its
shareholders for the purpose of voting upon the question of removal of a
director or directors of Registrant when requested in writing to do so by the
holders of at least 10% of Registrant's outstanding shares. Registrant
undertakes further, in connection with the meeting, to comply with the
provisions of Section 16(c) of the 1940 Act relating to communications with
the shareholders of certain common-law trusts.
(c) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE>C-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York and the State of New York, on the 20th day of September, 1995.
WARBURG, PINCUS POST-VENTURE CAPITAL FUND, INC.
By:/s/ Arnold M. Reichman
Arnold M. Reichman
President
ATTEST:
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated:
Signature Title Date
- --------- ----- ----
/s/ John L. Furth Chairman of the September 20, 1995
John L. Furth Board and Director
/s/ Arnold M. Reichman President September 20, 1995
Arnold M. Reichman
/s/ Stephen Distler Vice President September 20, 1995
Stephen Distler and Chief Financial
Officer
/s/ Howard Conroy Vice President, September 20, 1995
Howard Conroy Treasurer and Chief
Accounting Officer
/s/ Richard N. Cooper Director September 20, 1995
Richard N. Cooper
/s/ Donald J. Donahue Director September 20, 1995
Donald J. Donahue
<PAGE>C-7
Signature Title Date
- --------- ----- ----
/s/ Jack W. Fritz Director September 20, 1995
Jack W. Fritz
/s/ Thomas A. Melfe Director September 20, 1995
Thomas A. Melfe
/s/ Alexander B. Trowbridge Director September 20, 1995
Alexander B. Trowbridge
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
1 Articles of Incorporation.
2 By-Laws.
3 Not applicable.
4 Forms of Share Certificates.
5 Form of Investment Advisory Agreement.
6 Distribution Agreement.*
7 Not applicable.
8(a) Form of Custodian Agreement with PNC Bank, National
Association.**
(b) Form of Custodian Agreement with State Street Bank and Trust
Company.**
9(a) Form of Transfer Agency Agreement.**
(b) Form of Counsellors Service Co-Administration Agreement.**
(c) Form of PFPC Co-Administration Agreement.***
- ------------------------
* Contained in Exhibit No. 15 hereto.
** Incorporated by reference; material provisions of this exhibit
substantially similar to those of this exhibit in Pre-Effective Amendment
No. 1 to the Registration Statement on Form N-1A of Warburg, Pincus Trust
filed on June 14, 1995 (Securities Act File No. 33-58125; EDGAR Accession
No. 950117-95-221)
*** Incorporated by reference; material provisions of this exhibit
substantially similar to those of this exhibit in Post-Effective
Amendment No. 10 to the Registration Statement on Form N-1A of
Counsellors International Equity Fund, Inc. filed on September 22, 1995
(Securities Act File No. 33-27031)
<PAGE>
Exhibit No. Description of Exhibit
- ----------- ----------------------
10(a) Opinion and Consent of Willkie Farr & Gallagher, Counsel to the
Fund.
(b) Opinion and Consent of Venable, Baetjer and Howard, LLP,
Maryland Counsel to the Fund.
11 Consent of Coopers & Lybrand L.L.P., Independent Auditors to
the Fund.
12 Not applicable.
13 Form of Purchase Agreement.
14 Not applicable.
15(a) Form of Shareholder Services and Distribution Plan.
(b) Form of Shareholder Services Plan.***
(c) Form of Distribution Plan.***
(d) Form of Distribution Agreement.
(e) Rule 18f-3 Plan.
16 Not applicable.
17 Not applicable.
- ------------------------
*** Incorporated by reference; material provisions of this exhibit
substantially similar to those of this exhibit in Post-Effective
Amendment No. 10 to the Registration Statement on Form N-1A of
Counsellors International Equity Fund, Inc. filed on September 22, 1995
(Securities Act File No. 33-27031)
<PAGE>1
ARTICLES OF INCORPORATION
OF
WARBURG, PINCUS POST-VENTURE CAPITAL FUND, INC.
ARTICLE I
INCORPORATOR
The undersigned, Janna Manes, 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 the Maryland General Corporation
Law.
ARTICLE II
NAME
The name of the corporation is Warburg, Pincus Post-Venture Capital
Fund, Inc. (the Corporation ).
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,
on such terms and conditions, for such purposes and for such amount or kind of
consideration as may now or hereafter be permitted by law.
(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 this
Charter.
(5) To do any and all additional acts and to exercise any and all
additional powers or rights as may be
<PAGE>2
necessary, incidental, appropriate or desirable for the accomplishment of all
or any of the foregoing purposes.
The Corporation shall be authorized to exercise and enjoy all of the
powers, rights and privileges granted to, or conferred upon, corporations by
the Maryland General Corporation Law now or hereafter in force, and the
enumeration of the foregoing shall not be deemed to exclude any powers, rights
or privileges so granted or conferred.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the Corporation
in the State of Maryland is c/o The Corporation Trust Company Incorporated, 32
South Street, Baltimore, Maryland 21202. The name and address of the resident
agent of the Corporation in the State of Maryland is The Corporation Trust
Company Incorporated, a Maryland corporation, 32 South Street, Baltimore,
Maryland 21202.
ARTICLE V
CAPITAL STOCK
(1) (A) The total number of shares of capital stock that the
Corporation shall have authority to issue is three billion
(3,000,000,000) shares, of the par value of one tenth of one cent ($.001)
per share and of the aggregate par value of three million dollars
($3,000,000), all of which three billion (3,000,000,000) shares are
designated Common Stock.
(B) (i) One billion (1,000,000,000) shares of Common Stock
have been divided into and classified initially as a series of
Common Stock, designated Common 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"):
<PAGE>3
(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 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 agreements entered into by the
Corporation pursuant to any shareholder services plan and/or
distribution plan adopted by the Corporation with respect to 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 (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 agreements entered into by the
Corporation
<PAGE>4
pursuant to any shareholder services plan and/or distribution plan adopted by
the Corporation with respect to Series 2 Shares;
(ii) On any matter submitted to a vote of shareholders of
the Corporation that pertains to the agreements or expenses
described in clause (D)(i) above (or to any plan adopted by the
Corporation relating to said agreements or expenses), only 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 this Charter and the By-Laws of
the Corporation.
(4) No holder of stock of the Corporation by virtue of being such a
holder shall have any preemptive or other right to purchase or subscribe for
any shares of the Corporation s capital stock or any other security that the
Corporation may issue or sell (whether out of the number of shares authorized
by this Charter or out of any shares of the Corporation s capital stock that
the Corporation may acquire) other than a right that the Board of Directors in
its discretion may determine to grant.
(5) The Board of Directors shall have authority by resolution to
classify or to reclassify, as the case may be, any authorized but unissued
shares of capital stock from time to 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.
<PAGE>5
(6) Notwithstanding any provision of law requiring any action to be
taken or authorized by the affirmative vote of a greater proportion of the
votes of all classes or of any class of stock of the Corporation, such action
shall be effective and valid if taken or authorized by the affirmative vote of
a majority of the total number of votes entitled to be cast thereon, except as
otherwise provided in this Charter.
(7) The presence in person or by proxy of the holders of one-third
of the shares of stock of the Corporation entitled to vote (without regard to
class) shall constitute a quorum at any meeting of the stockholders, except
with respect to any matter which, under applicable statutes or regulatory
requirements, requires approval by a separate vote of one or more classes of
stock, in which case the presence in person or by proxy of the holders of one-
third of the shares of stock of each class required to vote as a class on the
matter shall constitute a quorum.
ARTICLE VI
REDEMPTION
Each holder of shares of the Corporation s capital stock shall be
entitled to require the Corporation to redeem all or any part of the shares of
capital stock of the Corporation standing in the name of the holder on the
books of the Corporation, and all shares of capital stock issued by the
Corporation shall be subject to redemption by the Corporation, at the
redemption price of the shares as in effect from time to time as may be
determined by or pursuant to the direction of the Board of Directors of the
Corporation in accordance with the provisions of Article VII, subject to the
right of the Board of Directors of the Corporation to suspend the right of
redemption or postpone the date of payment of the redemption price in
accordance with provisions of applicable law. Without limiting the generality
of the foregoing, the Corporation shall, to the extent permitted by applicable
law, have the right at any time to redeem the shares owned by any holder of
capital stock of the Corporation (i) if the redemption is, in the opinion of
the Board of Directors of the Corporation, desirable in order to prevent the
Corporation from being deemed a "personal holding company" within the meaning
of the Internal Revenue Code of 1986 or (ii) if the value of the shares in the
account maintained by the Corporation or its transfer agent for any class of
stock for the stockholder is below an amount determined from time to time by
the Board of Directors of the Corporation (the "Minimum Account Balance") and
the stockholder has been given 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 at least the Minimum Account
Balance before the redemption is
<PAGE>6
effected by the Corporation. Payment of the redemption price shall be made in
cash by the Corporation at the time and in the manner as may be determined
from time to time by the Board of Directors of the Corporation unless, in the
opinion of the Board of Directors, which shall be conclusive, conditions exist
that make payment wholly in cash unwise or undesirable; in such event the
Corporation may make payment wholly or partly by securities or other property
included in the assets belonging or allocable to the class of the shares for
which redemption is being sought, the value of which shall be determined as
provided herein. The Board of Directors may establish procedures for
redemption of shares.
ARTICLE VII
BOARD OF DIRECTORS
(1) The number of directors constituting the Board of Directors
shall be one or such other number as may be set forth in the By-Laws or
determined by the Board of Directors pursuant to the By-Laws. The number of
Directors shall at no time be less than the minimum number required under the
Maryland General Corporation Law. Arnold M. Reichman has been appointed
director of the Corporation to hold office until the first annual meeting of
stockholders or until his successor is elected and qualified.
(2) In furtherance, and not in limitation, of the powers conferred
by the Maryland General Corporation Law, the Board of Directors is expressly
authorized:
(i) To make, alter or repeal the By-Laws of the Corporation,
except where such power is reserved by the By-Laws to the stockholders, and
except as otherwise required by the 1940 Act.
(ii) From time to time to determine whether and to what extent
and at what times and places and under what conditions and regulations the
books and accounts of the Corporation, or any of them other than the stock
ledger, shall be open to the inspection of the stockholders. No stockholder
shall have any right to inspect any account or book or document of the
Corporation, except as conferred by law or authorized by resolution of the
Board of Directors or of the stockholders.
(iii) Without the assent or vote of the stockholders, to
authorize the issuance from time to time of shares of the stock of any class
of the Corporation, whether now or 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.
<PAGE>7
(iv) Without the assent or vote of the stockholders, to
authorize and issue obligations of the Corporation, secured and unsecured, as
the Board of Directors may determine, and to authorize and cause to be
executed mortgages and liens upon the real or personal property of the
Corporation.
(v) Notwithstanding anything in this Charter to the contrary,
to establish in its absolute discretion the basis or method for determining
the value of the assets belonging to any class, the value of the liabilities
belonging to any class and the net asset value of each share of any class of
the Corporation s stock.
(vi) To determine in accordance with generally accepted
accounting principles and practices what constitutes net profits, earnings,
surplus or net assets in excess of capital, and to determine what accounting
periods shall be used by the Corporation for any purpose; to set apart out of
any funds of the Corporation reserves for such purposes as it shall determine
and to abolish the same; to declare and pay any dividends and distributions in
cash, securities or other property from surplus or any other funds legally
available therefor, at such intervals as it shall determine; to declare
dividends or distributions by means of a formula or other method of
determination, at meetings held less frequently than the frequency of the
effectiveness of such declarations; and to establish payment dates for
dividends or any other distributions on any basis, including dates occurring
less frequently than the effectiveness of declarations thereof.
(vii) In addition to the powers and authorities granted herein
and by statute expressly conferred upon it, the Board of Directors is
authorized to exercise all powers and do all acts that may be exercised or
done by the Corporation pursuant to the provisions of the laws of the State of
Maryland, this Charter and the By-Laws of the Corporation.
(3) Any determination made in good faith, and in accordance with
applicable law and generally accepted accounting principles and practices, if
applicable, by or pursuant to the direction of the Board of Directors, with
respect to the amount of assets, obligations or liabilities of the
Corporation, as to the amount of net income of the Corporation from dividends
and interest for any period or amounts at any time legally available for the
payment of dividends, as to the amount of any reserves or charges set up and
the propriety thereof, as to the time of or purpose for creating reserves or
as to the use, alteration or cancellation of any reserves or charges (whether
or not any obligation or liability for which the reserves or charges have been
created has been paid or discharged or is then or thereafter required to be
paid or discharged), as to the
<PAGE>8
value of any security owned by the Corporation, the determination of the net
asset value of shares of any class of the Corporation s capital stock, or as
to any other matters relating to the issuance, sale or other acquisition or
disposition of securities or shares of capital stock of the Corporation, and
any reasonable determination made in good faith by the Board of Directors
regarding whether any transaction constitutes a purchase of securities on
"margin," a sale of securities "short," or an underwriting of the sale of, or
a participation in any underwriting or selling group in connection with the
public distribution of, any securities, shall be final and conclusive, and
shall be binding upon the Corporation and all holders of its capital stock,
past, present and future, and shares of the capital stock of the Corporation
are issued and sold on the condition and understanding, evidenced by the
purchase of shares of capital stock or acceptance of share certificates, that
any and all such determinations shall be binding as aforesaid. No provision
of this Charter shall be effective to (i) require a waiver of compliance with
any provision of the Securities Act of 1933, as amended, or the 1940 Act, or
of any valid rule, regulation or order of the Securities and Exchange
Commission under those Acts or (ii) protect or purport to protect any director
or officer of the Corporation against any liability to the Corporation or its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
ARTICLE VIII
INDEMNIFICATION AND LIMITATION OF LIABILITY
(1) To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General Corporation Law,
no director or officer of the Corporation shall have any liability to the
Corporation or its stockholders for money damages. This limitation on
liability applies to events occurring at the time a person serves as a
director or officer of the Corporation whether or not such person is a
director or officer at the time of any proceeding in which liability is
asserted.
(2) The Corporation shall indemnify and advance expenses to its
currently acting and its former directors to the fullest extent that
indemnification of directors and advancement of expenses to directors is
permitted by the Maryland General Corporation Law. The Corporation shall
indemnify and advance expenses to its officers to the same extent as its
directors and to such further extent as is consistent with such law. The
board of directors may, through a by-law, resolution or agreement, make
further provisions for indemnification of directors, officers,
<PAGE>9
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 negligence or
reckless disregard of the duties involved in the conduct of his office.
(4) References to the Maryland General Corporation Law in this
Article VIII are to the law as from time to time amended. No amendment to
this Charter shall affect any right of any person under this Article VIII
based on any event, omission or proceeding prior to such amendment. The term
"Charter" as used herein shall have the meaning set forth in the Maryland
General Corporation Law and includes these Articles of Incorporation and all
amendments thereto.
ARTICLE IX
AMENDMENTS
The Corporation reserves the right from time to time to make any
amendment to its Charter, now or hereafter authorized by law, including any
amendment that alters the contract rights, as expressly set forth in this
Charter, of any outstanding stock, and all rights at any time conferred upon
the stockholders of the Corporation by its Charter are granted subject to the
provisions of this Article and the reservation of the right to amend the
Charter herein contained.
IN WITNESS WHEREOF, I have adopted and signed these Articles of
Incorporation and do hereby acknowledge that the adoption and signing are my
act.
/s/ Janna Manes
Incorporator
Dated the 11th day of July, 1995
<PAGE>1
BY-LAWS
OF
WARBURG, PINCUS POST-VENTURE CAPITAL FUND, INC.
A Maryland Corporation
ARTICLE I
STOCKHOLDERS
SECTION 1. Annual Meetings. No annual meeting of the stockholders of
the Warburg, Pincus Post-Venture Capital Fund, Inc. (the "Corporation") shall
be held in any year in which the election of directors is not required to be
acted upon under the Investment Company Act of 1940, as amended (the "1940
Act"), unless otherwise determined by the Board of Directors. An annual
meeting may be held at any place within the United States as may be determined
by the Board of Directors and as shall be designated in the notice of the
meeting, at the time specified by the Board of Directors. Any business of the
Corporation may be transacted at an annual meeting without being specifically
designated in the notice unless otherwise provided by statute, the
Corporation's Charter or these By-Laws.
SECTION 2. Special Meetings. Special meetings of the stockholders for
any purpose or purposes, unless otherwise prescribed by statute or by the
Corporation's Charter, may be held at any place within the United States, and
may be called at any time by the Board of Directors or by the President, and
shall be called by the President or Secretary at the request in writing of a
majority of the Board of Directors or at the request in writing of
stockholders entitled to cast at least 10% (ten percent) of the votes entitled
to be cast at the meeting upon payment by such stockholders to the Corporation
of the reasonably estimated cost of preparing and mailing a notice of the
meeting (which estimated cost shall be provided to such stockholders by the
Secretary of the Corporation). Notwithstanding the foregoing, unless
requested by stockholders entitled to cast a majority of the votes entitled to
be cast at the meeting, a special meeting of the stockholders need not be
called at the request of stockholders to consider any matter which is
substantially the same as a matter voted on at any special meeting of the
stockholders held during the preceding 12 (twelve) months. A written request
shall state the purpose or purposes of the proposed meeting.
SECTION 3. Notice of Meetings. Written or printed notice of the purpose
or purposes and of the time and place
<PAGE>2
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 the election of
persons as the Board of Directors may select. Notice of any meeting of
stockholders shall be deemed waived by any stockholder who attends the meeting
in person or by proxy, or who before or after the meeting submits a signed
waiver of notice that is filed with the records of the meeting.
SECTION 4. Quorum. Except as otherwise provided by statute or by the
Corporation's Charter, the presence in person or by proxy of stockholders of
the Corporation entitled to cast at least one-third of the votes to be cast
shall constitute a quorum at each meeting of the stockholders and all
questions shall be decided by majority of the votes cast (except with respect
to the election of directors, which shall be by a plurality of votes cast).
In the absence of a quorum, the stockholders present in person or by proxy, by
majority vote and without notice other than by announcement, may adjourn the
meeting from time to time as provided in Section 5 of this Article I until a
quorum shall attend. The stockholders present at any duly organized meeting
may continue to do business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum. The absence from any
meeting in person or by proxy of holders of the number of shares of stock of
the Corporation in excess of a majority that may be required by Maryland law,
the 1940 Act, or any other applicable statute, the Corporation's Charter or
these By-Laws, for action upon any given matter shall not prevent action at
the meeting on any other matter or matters that may properly come before the
meeting, so long as there are present, in person or by proxy, holders of the
number of shares of stock of the Corporation required for action upon such
other matter or matters.
SECTION 5. Adjournment. Any meeting of the stockholders may be
adjourned from time to time, without notice other than by announcement at the
meeting at which the adjournment is taken. At any adjourned meeting at which
a quorum shall be present, any action may be taken that could have been taken
at the meeting originally called. A meeting of the stockholders may not be
adjourned without further notice to a date more than 120 (one hundred twenty)
<PAGE>3
days after the original record date determined pursuant to Section 9 of this
Article I.
SECTION 6. Organization. At every meeting of the stockholders, the
Chairman of the Board, or in his absence or inability to act (or if there is
none), the President, or in his absence or inability to act, a Vice President,
or in the absence or inability to act of the chairman of the Board, the
President and all the Vice Presidents, a chairman chosen by the stockholders
shall act as chairman of the meeting. The Secretary, or in his absence or
inability to act, a person appointed by the chairman of the meeting, shall act
as secretary of the meeting and keep the minutes of the meeting.
SECTION 7. Order of Business. The order of business at all meetings of
the stockholders shall be as determined by the chairman of the meeting.
SECTION 8. Voting. Except as otherwise provided by statute or the
Corporation's Charter, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of stock standing in his name on the
records of the Corporation as of the record date determined pursuant to
Section 9 of this Article I.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person 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 11 (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 90 (ninety) nor fewer than 10 (ten) days before the
date of the meeting. All persons who were
<PAGE>4
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 Charter, any action
required to be taken at any meeting of stockholders, or any action that may be
taken at any meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if the following are filed with the
records of stockholders' meetings: (a) a unanimous written consent that sets
forth the action and is signed by each stockholder entitled to vote on the
matter and (b) a written waiver of notice and any right to dissent signed by
each stockholder entitled to notice of the meeting but not entitled to vote at
the meeting.
SECTION 12. Notice of Stockholder Business.
(a) At any annual or special meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be
<PAGE>5
properly brought before an annual or special meeting business must be (i) (A)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (B) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (C) subject
to the provisions of Section 13 of this Article I, otherwise properly brought
before the meeting by a stockholder and (ii) a proper subject under applicable
law for stockholder action.
(b) For business to be properly brought before an annual or special
meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, any
such notice must be delivered to or mailed and received at the principal
executive offices of the Corporation not later than 60 (sixty) days prior to
the date of the meeting; provided, however, that if less than 70 (seventy)
days' notice or prior public disclosure of the date of the meeting is given or
made to stockholders, any such notice by a stockholder to be timely must be so
received not later than the close of business on the tenth day following the
day on which notice of the date of the annual or special meeting was given or
such public disclosure was made.
(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 (the "Exchange Act"), or any successor rule thereto.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. General Powers. Except as otherwise provided in the
Corporation's Charter, the business and affairs of the Corporation shall be
managed under the direction of its Board of Directors. All powers of the
Corporation may be exercised by or under authority of the Board of Directors
except as conferred on or reserved to the stockholders by law, by the
Corporation's Charter or by these By-Laws.
SECTION 2. Number of Directors. The number of directors shall be fixed
from time to time by resolution of the Board of Directors adopted by a
majority of the entire Board of Directors; provided, however, that the number
of directors shall in no event be fewer than one nor more than fifteen. Any
vacancy created by an increase in directors may be filled in accordance with
Section 7 of this Article II. No reduction in the number of directors shall
have the effect of removing any director from office prior to the expiration
of his term unless the director is specifically removed pursuant to Section 6
of this Article II at the time of the decrease. A director need not be a
stockholder of
<PAGE>7
the Corporation, a citizen of the United States or a resident of the State of
Maryland.
SECTION 3. Election and Term of Directors. The term of office of each
director shall be from the time of his election and qualification until his
successor shall have been elected and shall have qualified, or until his
death, or until his resignation or removal as provided in these By-laws, or as
otherwise provided by statute or the Corporation's Charter.
SECTION 4. Director Nominations.
(a) Only persons who are nominated in accordance with the procedures set
forth in this Section 4 shall be eligible for election or re-election as
directors. Nominations of persons for election or re-election to the Board of
Directors of the Corporation may be made at a meeting of stockholders by or at
the direction of the Board of Directors or by any stockholder of the
Corporation who is entitled to vote for the election of such nominee at the
meeting and who complies with the notice procedures set forth in this Section
4.
(b) Such nominations, other than those made by or at the direction of
the Board of Directors, shall be made pursuant to timely notice delivered in
writing to the Secretary of the Corporation. To be timely, any such notice by
a stockholder must be delivered to or mailed and received at the principal
executive offices of the Corporation not later than 60 (sixty) days prior to
the meeting; provided, however, that if less than 70 (seventy) days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, any such notice by a stockholder to be timely must be so
received not later than the close of business on the tenth day following the
day on which notice of the date of the meeting was given or such public
disclosure was made.
(c) Any such notice by a stockholder shall set forth (i) as to each
person whom the stockholder proposes to nominate for election or re-election
as a director, (A) the name, age, business address and residence address of
such person, (B) the principal occupation or employment of such person, (C)
the class and number of shares of the capital stock of the Corporation which
are beneficially owned by such person and (D) any other information relating
to such person that is required to be disclosed in solicitations of proxies
for the election of directors pursuant to Regulation 14A under the Exchange
Act or any successor regulation thereto (including without limitation such
person's, written consent to being named in the proxy statement as a nominee
<PAGE>8
and to serving as a director if elected and whether any person intends to seek
reimbursement from the Corporation of the expenses of any solicitation of
proxies should such person be elected a director of the Corporation); and (ii)
as to the stockholder giving the notice (A) the name and address, as they
appear on the Corporation's books, of such stockholder and (B) the class and
number of shares of the capital stock of the Corporation which are
beneficially owned by such stockholder. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to be set forth in a stockholder's notice of nomination which
pertains to the nominee.
(d) If a notice by a stockholder is required to be given pursuant to
this Section 4, no person shall be entitled to receive reimbursement from the
Corporation of the expenses of a solicitation of proxies for the election as a
director of a person named in such notice unless such notice states that such
reimbursement will be sought from the Corporation. No person shall be
eligible for election as a director of the Corporation unless nominated in
accordance with the procedures set forth in this Section 4. The chairman of
the meeting shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the procedures prescribed by
the By-Laws, and if he should so determine, he shall so declare to the meeting
and the defective nomination shall be disregarded for all purposes.
SECTION 5. Resignation. A director of the Corporation may resign at any
time by giving written notice of his resignation to the Board of Directors or
the Chairman of the Board or to the President or the Secretary of the
Corporation. Any resignation shall take effect at the time specified in it
or, should the time when it is to become effective not be specified in it,
immediately upon its receipt. Acceptance of a resignation shall not be
necessary to make it effective unless the resignation states otherwise.
SECTION 6. Removal of Directors. Any director of the Corporation may be
removed by the stockholders with or without cause at any time by a vote of a
majority of the votes entitled to be cast for the election of directors.
SECTION 7. Vacancies. Subject to the provisions of the 1940 Act, any
vacancies in the Board of Directors, whether arising from death, resignation,
removal or any other cause except an increase in the number of directors,
shall be filled by a vote of the majority of the Board of
<PAGE>9
Directors then in office even though that majority is less than a quorum,
provided that no vacancy or vacancies shall be filled by action of the
remaining directors if, after the filling of the vacancy or vacancies, fewer
than two-thirds of the directors then holding office shall have been elected
by the stockholders of the Corporation. A majority of the entire Board as
calculated prior to Board expansion may fill a vacancy which results from an
increase in the number of directors. In the event that at any time a vacancy
exists in any office of a director that may not be filled by the remaining
directors, a special meeting of the stockholders shall be held as promptly as
possible and in any event within 60 (sixty) days, for the purpose of filling
the vacancy or vacancies. Any director elected or appointed to fill a vacancy
shall hold office until a successor has been chosen and qualifies or until his
earlier resignation or removal.
SECTION 8. Place of Meetings. Meetings of the Board may be held at any
place that the Board of Directors may from time to time determine or that is
specified in the notice of the meeting.
SECTION 9. Regular Meetings. Regular meetings of the Board of Directors
may be held without notice at the time and place determined by the Board of
Directors.
SECTION 10. Special Meetings. Special meetings of the Board of
Directors may be called by two or more directors of the Corporation or by the
Chairman of the Board or the President.
SECTION 11. Notice of Special Meetings. Notice of each special meeting
of the Board of Directors shall be given by the Secretary as hereinafter
provided. Each notice shall state the time and place of the meeting and shall
be delivered to each director, either personally or by telephone, facsimile
transmission or other standard form of telecommunication, at least 24 (twenty-
four) hours before the time at which the meeting is to be held, or by first-
class mail, postage prepaid, addressed to the director at his residence or
usual place of business, and mailed at least 3 (three) days before the day on
which the meeting is to be held.
SECTION 12. Waiver of Notice of Meetings. Notice of any special meeting
need not be given to any director who shall, either before or after the
meeting, sign a written waiver of notice that is filed with the records of the
meeting or who shall attend the meeting.
<PAGE>10
SECTION 13. Quorum and Voting. One-third (but not fewer than two unless
there be only one director) of the members of the entire Board of Directors
shall be present in person at any meeting of the Board in order to constitute
a quorum for the transaction of business at the meeting, and except as
otherwise expressly required by statute, the Corporation's Charter, these By-
Laws, the 1940 Act, or any other applicable statute, the act of a majority of
the directors present at any meeting at which a quorum is present shall be the
act of the Board. In the absence of a quorum at any meeting of the Board, a
majority of the directors present may adjourn the meeting to another time and
place until a quorum shall be present. Notice of the time and place of any
adjourned meeting shall be given to the directors who were not present at the
time of the adjournment and, unless the time and place were announced at the
meeting at which the adjournment was taken, to the other directors. At any
adjourned meeting at which a quorum is present, any business may be transacted
that might have been transacted at the meeting as originally called.
SECTION 14. Organization. The Board of Directors may, by resolution
adopted by a majority of the entire Board, designate a Chairman of the Board,
who shall preside at each meeting of the Board. In the absence or inability
of the Chairman of the Board to act or if there is none, the President, or, in
his absence or inability to act, another director chosen by a majority of the
directors present, shall act as chairman of the meeting and preside at the
meeting. The Secretary, or, in his absence or inability to act, any person
appointed by the chairman, shall act as secretary of the meeting and keep the
minutes thereof.
SECTION 15. Committees. The Board of Directors may designate one or
more committees of the Board of Directors, each consisting of 2 (two) or more
directors. To the extent provided in the resolution, and permitted by law,
the committee or committees shall have and may exercise the powers of the
Board of Directors in the management of the business and affairs of the
Corporation and may authorize the seal of the Corporation to be affixed to all
papers that may require it. Any committee or committees shall have the name
or names determined from time to time by resolution adopted by the Board of
Directors. Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required. The members of a
committee present at any meeting, whether or not they constitute a quorum, may
appoint a director to act in the place of an absent member.
SECTION 16. Written Consent of Directors in Lieu of a Meeting. Subject
to the provisions of the 1940 Act, any
<PAGE>11
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee of the Board may be taken without a meeting if
all members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the records of the Board's
or such committee's meetings.
SECTION 17. Telephone Conference. Members of the Board of Directors or
any committee of the Board may participate in any Board or committee meeting
by means of a conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other at
the same time. Participation by such means shall constitute presence in
person at the meeting.
SECTION 18. Compensation. Each director shall be entitled to receive
compensation, if any, as may from time to time be fixed by the Board of
Directors, including a fee for each meeting of the Board or any committee
thereof, regular or special, he attends. Directors may also be reimbursed by
the Corporation for all reasonable expenses incurred in traveling to and from
the place of a Board or committee meeting.
ARTICLE III
OFFICERS, AGENTS AND EMPLOYEES
SECTION 1. Number and Qualifications. The officers of the Corporation
shall be a President, a Secretary and a Treasurer, each of whom shall be
elected by the Board of Directors. The Board of Directors may elect or
appoint one or more Vice Presidents and may also appoint any other officers,
agents and employees it deems necessary or proper. Any two or more offices
may be held by the same person, except the offices of President and Vice
President, but no officer shall execute, acknowledge or verify any instrument
in more than one capacity. Officers shall be elected by the Board of
Directors, each to hold office until his successor shall have been duly
elected and shall have qualified, or until his death, or until his resignation
or removal as provided in these By-Laws. The Board of Directors may from time
to time elect, or designate to the President the power to appoint, such
officers (including one or more Assistant Vice Presidents, one or more
Assistant Treasurers and one or more Assistant Secretaries) and such agents as
may be necessary or desirable for the business of the Corporation. Such other
officers and agents shall have such duties and shall hold their offices for
such terms as may be prescribed by the Board or by the appointing authority.
<PAGE>12
SECTION 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of his resignation to the Board of
Directors, the Chairman of the Board, the President or the Secretary. Any
resignation shall take effect at the time specified therein or, if the time
when it shall become effective is not specified therein, immediately upon its
receipt. Acceptance of a resignation shall not be necessary to make it
effective unless the resignation states otherwise.
SECTION 3. Removal of Officer, Agent or Employee. Any officer, agent or
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate the power of removal as
to agents and employees not elected or appointed by the Board of Directors.
Removal shall be without prejudice to the person's contract rights, if any,
but the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
SECTION 4. Vacancies. A vacancy in any office whether arising from
death, resignation, removal or any other cause, may be filled for the
unexpired portion of the term of the office that shall be vacant, in the
manner prescribed in these By-Laws for the regular election or appointment to
the office.
SECTION 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer with respect to other officers under his control.
SECTION 6. Bonds or Other Security. If required by the Board, any
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in an amount and with any
surety or sureties as the Board may require.
SECTION 7. President. The President shall be the chief executive
officer of the Corporation. In the absence or inability of the Chairman of
the Board to act (or if there is none), the President shall preside at all
meetings of the stockholders and of the Board of Directors. The President
shall have, subject to the control of the Board of Directors, general charge
of the business and affairs of the Corporation, and may employ and discharge
employees and agents of the Corporation, except those elected or appointed by
the Board, and he may delegate these powers.
SECTION 8. Vice President. Each Vice President shall have the powers
and perform the duties that the Board of Directors or the President may from
time to time prescribe.
<PAGE>13
SECTION 9. Treasurer. Subject to the provisions of any contract that
may be entered into with any custodian pursuant to authority granted by the
Board of Directors, the Treasurer shall have charge of all receipts and
disbursements of the Corporation and shall have or provide for the custody of
the Corporation's funds and securities; he shall have full authority to
receive and give receipts for all money due and payable to the Corporation,
and to endorse checks, drafts and warrants, in its name and on its behalf and
to give full discharge for the same; he shall deposit all funds of the
Corporation, except those that may be required for current use, in such banks
or other places of deposit as the Board of Directors may from time to time
designate; and, in general, he shall perform all duties incident to the office
of Treasurer and such other duties as may from time to time be assigned to him
by the Board of Directors or the President.
SECTION 10. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board of Directors, the committees
of the Board and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation (unless
the seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to
be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept
and filed; and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board of Directors or the President.
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.
<PAGE>14
ARTICLE IV
STOCK
SECTION 1. Stock Certificates. Each holder of stock of the Corporation
shall be entitled upon specific written request to such person as may be
designated by the Corporation to have a certificate or certificates, in a form
approved by the Board, representing the number of shares of stock of the
Corporation owned by him; provided, however, that certificates for fractional
shares will not be delivered in any case. The certificates representing
shares of stock shall be signed by or in the name of the Corporation by the
Chairman of the Board, President or a Vice President and by the Secretary or
an Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed
with the seal of the Corporation. Any or all of the signatures or the seal on
the certificate may be facsimiles. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate shall be issued, it may be issued by the Corporation
with the same effect as if such officer, transfer agent or registrar were
still in office at the date of issue.
SECTION 2. Books of Account and Record of Stockholders. There shall be
kept at the principal executive office of the Corporation correct and complete
books and records of account of all the business and transactions of the
Corporation. There shall be made available upon request of any stockholder,
in accordance with Maryland law, a record containing the number of shares of
stock issued during a specified period not to exceed 12 (twelve) months and
the consideration received by the Corporation for each such share.
SECTION 3. Transfers of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a transfer agent
or transfer clerk, and on surrender of the certificate or certificates, if
issued, for the shares properly endorsed or accompanied by a duly executed
stock transfer power and the payment of all taxes thereon. Except as
otherwise provided by law, the Corporation shall be entitled to recognize the
exclusive right of a person in whose name any share or shares stand on the
record of stockholders as the owner of the share or shares for all purposes,
including, without limitation, the rights to
<PAGE>15
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 or to
indemnify the Corporation against any claim that may be made against it on
account of the alleged theft, loss, destruction or the mutilation of any such
certificate, or issuance of a new certificate. Anything herein to the
contrary notwithstanding, the Board of Directors, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the Maryland General Corporation Law.
SECTION 6. Fixing of Record Date for Dividends, Distributions, etc., The
Board may fix, in advance, a date not more than 90 (ninety) days preceding the
date fixed for the payment of any dividend or the making of any distribution
or the allotment of rights to subscribe for securities of the Corporation, or
for the delivery of evidences of rights or evidences of interests arising out
of any change, conversion or exchange of common stock or other securities, as
the record date for the determination of the stockholders entitled to receive
any such dividend, distribution, allotment, rights or interests, and in such
case only the stockholders of record at the time so fixed shall be entitled to
receive such dividend, distribution, allotment, rights or interests.
<PAGE>16
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 (the
"Securities Act") and the 1940 Act, as such statutes are now or hereafter in
force, except that such indemnity shall not protect any such person against
any liability to the Corporation or any stockholder thereof to which such
person would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct
of his office ("disabling conduct").
SECTION 2. Advances. Any current or former director or officer of the
Corporation claiming indemnification within the scope of this Article V shall
be entitled to advances from the Corporation for payment of the reasonable
expenses incurred by him in connection with proceedings to which he is a party
in the manner and to the full extent permissible under the Maryland General
Corporation Law, the Securities Act and the 1940 Act, as such statutes are now
or hereafter in force; provided however, that the person seeking
indemnification shall provide to the Corporation a written affirmation of his
good faith belief that the standard of conduct necessary for indemnification
by the Corporation has been met and a written undertaking to repay any such
advance unless it is ultimately determined that he is entitled to
indemnification, and provided further that at
<PAGE>17
least one of the following additional conditions is met: (a) the person
seeking indemnification shall provide a security in form and amount acceptable
to the Corporation for his undertaking; (b) the Corporation is insured against
losses arising by reason of the advance; or (c) a majority of a quorum of
directors of the Corporation who are neither "interested persons" as defined
in Section 2(a)(19) of the 1940 Act, nor parties to the proceeding
("disinterested non-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 and the 1940 Act, as such statutes are now or hereafter in
force, whether the standards required by this Article V have been met;
provided, however, that indemnification shall be made only following: (a) a
final decision on the merits by a court or other body before whom the
proceeding was brought that the person to be indemnified was not liable by
reason of disabling conduct or (b) in the absence of such a decision, a
reasonable determination, based upon a review of the facts, that the person to
be indemnified was not liable by reason of disabling conduct, by (i) the vote
of a majority of a quorum of disinterested non-party directors or (ii) an
independent legal counsel in a written opinion.
SECTION 4. Indemnification of Employees and Agents. Employees and
agents who are not officers or directors of the Corporation may be
indemnified, and reasonable expenses may be advanced to such employees or
agents, in accordance with the procedures set forth in this Article V to the
extent permissible under the 1940 Act, the Securities Act and Maryland General
Corporation Law, as such statutes are now or hereafter in force, to the
extent, consistent with the foregoing, as may be provided by action of the
Board of Directors or by contract.
SECTION 5. Other Rights. The indemnification provided by this Article V
shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may
be entitled under any insurance or other agreement, vote of stockholders or
disinterested directors or otherwise, both as to action by a director or
officer of the Corporation in his official
<PAGE>18
capacity and as to action by such person in another capacity while holding
such office or position, and shall continue as to a person who has ceased to
be a director or officer and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 6. Insurance. The Corporation shall have the power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or who, while a director,
officer, employee or agent of the Corporation, is or was serving at the
request of the Corporation as a director, officer, partner, trustee, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust,
enterprise or employee benefit plan, against any liability asserted against
and incurred by him in any such capacity, or arising out of his status as
such, provided that no insurance may be obtained by the Corporation for
liabilities against which it would not have the power to indemnify him under
this Article V or applicable law.
SECTION 7. Constituent, Resulting or Surviving Corporations. For the
purposes of this Article V, references to the "Corporation" shall include all
constituent corporations absorbed in a consolidation or merger as well the
resulting or surviving corporation so that any person who is or was a
director, officer, employee or agent of a constituent corporation or is or was
serving at the request of a constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise shall stand in the same position under this Article V with
respect to the resulting or surviving corporation as he would if he had served
the resulting or surviving corporation in the same capacity.
ARTICLE VI
SEAL
The seal of the Corporation shall be circular in form and shall bear the
name of the Corporation, the year of its incorporation, the words "Corporate
Seal" and "Maryland" and any emblem or device approved by the Board of
Directors. The seal may be used by causing it or a facsimile to be impressed
or affixed or in any other manner reproduced, or by placing the word "(seal)"
adjacent to the signature of the authorized officer of the Corporation.
<PAGE>19
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 1940 Act.
As adopted, July 12, 1995
<PAGE>
NUMBER SHARES
_________ ---------
Incorporated under the laws of the State of Maryland
WARBURG, PINCUS POST-VENTURE CAPITAL FUND, INC.
Common Stock - Series 2 (Advisor Shares)
The Corporation is Authorized to Issue One Billion Shares Par Value $.001,
Designated Common Stock - Series 2
THIS CERTIFIES that 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>
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 designations 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
this 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.
<TABLE>
<CAPTION>
<S> <C>
TEN COM as tenants in common UNIF GIFT MIN ACT Custodian
TEN ENT as tenants by the entireties (Minor)
JT TEN as joint tenants with right of survivorship and not under Uniform Gifts to Minors Act (State)
as tenants in common
</TABLE>
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
For value received, the undersigned hereby sells, assigns
and transfers unto ____________________________________________________
__________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
_____________________________________________________________________ Shares
represented by the within Certificate, and hereby irrevocably constitutes and
appoints ________________________________________________________________
_____________________________________________ Attorney 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
NOTICE: The signature to the assignment must correspond with the
name as written on the face of the certificate in every particular
without alteration or enlargement, or any change whatsoever.
<PAGE>
NUMBER SHARES
_________ -----------
Incorporated under the laws of the State of Maryland
WARBURG, PINCUS POST-VENTURE CAPITAL FUND, INC.
Common Stock
The Corporation is Authorized to Issue One Billion Shares Par Value $.001,
Designated Common Stock
THIS CERTIFIES that 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>
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 designations 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
this 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.
<TABLE>
<CAPTION>
<S> <C>
TEN COM as tenants in common UNIF GIFT MIN ACT Custodian
TEN ENT as tenants by the entireties (Minor)
JT TEN as joint tenants with right of survivorship and not under Uniform Gifts to Minors Act (State)
as tenants in common
</TABLE>
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
For value received, the undersigned hereby sells, assigns
and transfers unto ____________________________________________________
__________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
_____________________________________________________________________ Shares
represented by the within Certificate, and hereby irrevocably constitutes and
appoints ________________________________________________________________
_____________________________________________ Attorney 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
NOTICE: The signature to the assignment must correspond with the
name as written on the face of the certificate in every particular
without alteration or enlargement, or any change whatsoever.
<PAGE>1
INVESTMENT ADVISORY AGREEMENT
, 1995
Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
Warburg, Pincus Post-Venture Capital Fund, Inc. (the "Fund"), a
corporation organized and existing 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 the capital of the Fund 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 and Statement of Additional Information, as each may be
amended from time to time, have been or will be submitted to the Adviser. The
Fund desires to employ and hereby appoints the Adviser to act as investment
adviser to the Fund. The Adviser accepts the appointment and agrees to
furnish the services for the compensation set forth below.
2. Services as Investment Adviser
Subject to the supervision and direction of the Board of 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 relating to the Fund as from time to time in effect, (c) make
investment decisions for the Fund and (d) place purchase and sale orders for
securities on behalf of the Fund. In providing those services, the Adviser
will provide investment research and supervision of the Fund's investments and
conduct a continual program of investment, evaluation and, if appropriate,
sale and reinvestment of the Fund's assets. In addition, the Adviser will
furnish the Fund with whatever statistical information the Fund may reasonably
request with
<PAGE>2
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, as the same may from
time to time be amended) provided to the Fund and/or other accounts over which
the Adviser or an affiliate exercises investment discretion.
4. Information Provided to the Fund
The Adviser will keep the Fund informed of developments materially
affecting the Fund, and will, on its own initiative, furnish the Fund from
time to time with whatever information the Adviser believes is appropriate for
this purpose.
5. Standard of Care
The Adviser shall exercise its best judgment in rendering the
services listed in paragraphs 2, 3 and 4 above. The Adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters to which this Agreement relates,
provided that nothing herein shall be deemed to protect or purport to protect
the Adviser against any liability to the Fund or to shareholders of the Fund
to which the Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence on its part in the performance of
its duties or by reason of the Adviser's reckless disregard of its obligations
and duties under this Agreement.
6. Compensation
In consideration of the services rendered pursuant to this
Agreement, the Fund will pay the Adviser an annual fee calculated at an annual
rate of 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
<PAGE>3
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 its
proportionate share of 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 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
<PAGE>4
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, 1997 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, as amended) 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).
11. Representation by the Fund
The Fund represents that a copy of its Articles of Incorporation,
dated July 12, 1995, together with all amendments thereto, is on file in the
Department of Assessments and Taxation of the State of Maryland.
<PAGE>5
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
names 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 POST-VENTURE
CAPITAL FUND, INC.
By:
Name:
Title:
Accepted:
WARBURG, PINCUS COUNSELLORS, INC.
By:
Name:
Title:
<PAGE>1
[LETTERHEAD OF WILLKIE FARR & GALLAGHER]
September 20, 1995
Warburg, Pincus Post-Venture Capital Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Ladies and Gentlemen:
We have acted as counsel to Warburg, Pincus Post-Venture Capital Fund, Inc.
(the "Fund"), a corporation organized under the laws of the State of Maryland,
in connection with the preparation of a registration statement on Form N-1A
covering the offer and sale of an indefinite number of shares of Common Stock
of the Fund, par value $.001 per share (the "Common Stock").
We have examined copies of the Charter, as amended, and By-laws of the Fund,
the Fund's prospectus and statement of additional information (the "Statement
of Additional Information") included in its Registration Statement on Form N-
1A, Securities Act File No. 33-61225 and Investment Company Act File No. 811-
07327 (the "Registration Statement"), all resolutions adopted by the Fund's
Board of Directors (the "Board") at its initial meeting held on July 25, 1995,
consents of the Board and other records, documents and papers that we have
deemed necessary for the purpose of this opinion. We have also examined such
other statutes and authorities as we have deemed necessary to form a basis for
the opinion hereinafter expressed.
In our examination of material, we have assumed the genuineness of all
signatures and the conformity to original documents of all copies submitted to
us. As to various questions of fact material to our opinion, we have relied
upon statements and certificates of officers and representatives of the Fund
and others.
Based upon the foregoing, we are of the opinion that:
1. The Fund is duly organized and validly existing as a corporation in
good standing under the laws of the State of Maryland.
<PAGE>2
2. The 10,000 presently issued and outstanding shares of Common Stock,
including 9,900 Common Shares and 100 Advisor Shares, of the Fund
have been validly and legally issued and are fully paid and
nonassessable.
3. The Common Shares and Advisor Shares of the Fund to be offered for
sale pursuant to the Registration Statement are, to the extent of
the number of shares authorized to be issued by the Fund in its
Charter, duly authorized and, when sold, issued and paid for as
contemplated by the Registration Statement, will have been validly
and legally issued and will be fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the reference to us in the Statement of Additional
Information and to the filing of this opinion as an exhibit to any application
made by or on behalf of the Fund or any distributor or dealer in connection
with the registration or qualification of the Fund, the Common Shares or the
Advisor Shares under the securities laws of any state or other jurisdiction.
We are members of the Bar of the State of New York only and do not opine as to
the laws of any jurisdiction other than the laws of the State of New York and
the laws of the United States, and the opinions set forth above are,
accordingly, limited to the laws of those jurisdictions. As to matters
involving the application of the laws of the State of Maryland, we have relied
on the opinion of Messrs. Venable, Baetjer and Howard, LLP.
Very truly yours,
/s/ Willkie Farr and Gallagher
<PAGE>1
[LETTERHEAD OF VENABLE, BAETJER AND HOWARD, LLP]
September 22, 1995
Willkie, Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022-4677
Re: Warburg, Pincus Post-Venture Capital Fund, Inc.
Ladies and Gentlemen:
We have acted as special Maryland counsel for Warburg, Pincus Post-
Venture Capital Fund, Inc., a Maryland corporation (the "Fund"), in connection
with the organization of the Fund and the issuance of shares of its common
stock, par value $.001 per share, including Common Stock (the Common Shares )
and Common Stock - Series 2 Shares (the "Advisor Shares").
As Maryland counsel for the Fund, we are familiar with its Charter
and Bylaws. We have examined its Registration Statement on Form N-1A,
Securities Act File No. 33-61225 and Investment Company Act File No. 811-
07327, including the prospectuses and statement of additional information
contained therein, substantially in the form in which it is to become
effective (the "Registration Statement"). We have further examined and relied
upon a certificate of the Maryland State Department of Assessments and
Taxation to the effect that the Fund is duly incorporated and existing under
the laws of the State of Maryland and is in good standing and duly authorized
to transact business in the State of Maryland.
We have also examined and relied upon such corporate records of the
Fund and other documents and certificates with respect to factual matters as
we have deemed necessary to render the opinion expressed herein. We have
assumed, without independent verification, the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity with originals of all documents submitted to us as copies.
<PAGE>2
Based on such examination, we are of the opinion and so advise you
that:
1. The Fund is duly organized and validly existing as a corporation
in good standing under the laws of the State of Maryland.
2. The 10,000 presently issued and outstanding shares of common
stock, including 9,900 Common Shares and 100 Advisor Shares
of the Fund have been validly and legally issued and are
fully paid and nonassessable.
3. The Common Shares and Advisor Shares of the Fund to be offered for
sale pursuant to the Registration Statement are, to the
extent of the number of shares authorized to be issued by the
Fund in its Charter, duly authorized and, when sold, issued
and paid for as contemplated by the Registration Statement,
will have been validly and legally issued and will be fully
paid and nonassessable.
This letter expresses our opinion with respect to the Maryland
General Corporation Law governing matters such as due organization and the
authorization and issuance of stock. It does not extend to the securities or
"blue sky" laws of Maryland, to federal securities laws or to other laws.
You may rely upon our foregoing opinion in rendering your opinion to
the Fund that is to be filed as an exhibit to the Registration Statement. We
consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ Venable, Baetjer and Howard, LLP
BA3DOCS1/21674.01
<PAGE>1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion of our report dated September 8, 1995 on our audit
of the Statement of Assets and Liabilities of Warburg, Pincus Post-Venture
Capital Fund, Inc. as of September 6, 1995 with respect to this Pre-Effective
Amendment No. 2 to the Registration Statement (No. 33-61225) under the
Securities Act of 1933 on Form N-1A. We also consent to the reference to our
Firm under the caption "Auditors and Counsel" in the filing.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
September 22, 1995
<PAGE>1
PURCHASE AGREEMENT
Warburg, Pincus Post-Venture Capital 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
10,000 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 $100,000.00 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, as amended, and, if
redeemed, their redemption proceeds will not be subject to reduction based on
the unamortized organizational expenses of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day of , 1995.
WARBURG, PINCUS POST-VENTURE
CAPITAL FUND, INC.
By:
Name:
Title:
ATTEST:
WARBURG, PINCUS COUNSELLORS, INC.
By:
Name:
Title:
ATTEST:
<PAGE>1
SHAREHOLDER SERVICING AND DISTRIBUTION PLAN
This Shareholder Servicing and Distribution Plan ("Plan") is adopted
by Warburg, Pincus Post-Venture Capital Fund, Inc., a corporation organized
under the laws of State of Maryland (the "Fund"), with respect to the common
stock, par value $.001 per share, of the Fund other than those designated
Common Stock - Series 1 or Common Stock - Series 2 (the "Shares") pursuant to
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as amended
(the "1940 Act"), subject to the following terms and conditions:
Section 1. Amount of Payments.
The Fund will pay Counsellors Securities Inc. ("Counsellors
Securities"), a corporation organized under the laws of the State of New York,
for shareholder servicing and distribution services provided to the Shares, an
annual fee of up to .25% of the value of the average daily net assets of the
Shares. Fees to be paid with respect to the Fund under this Plan will be
calculated monthly and paid quarterly by the Fund.
Section 2. Services Payable under the Plan.
(a) The annual fees described above payable with respect to the
Fund are intended to compensate Counsellors Securities, or enable Counsellors
Securities to compensate other persons ("Service Providers"), including any
other distributor of Shares, for providing (i) ongoing servicing and/or
maintenance of the accounts of holders of Shares ("Shareholder Services");
(ii) services that are primarily intended to result in, or that are primarily
attributable to, the sale of Shares ("Selling Services"); and (iii)
subtransfer agency services, subaccounting services or administrative services
with respect to Shares ("Administrative Services"). Shareholder Services may
include, among other things, responding to inquiries of prospective investors
regarding the Fund and services to shareholders not otherwise required to be
provided by the Fund's custodian or any co-administrator. Selling Services
may include, but are not limited to: the printing and distribution to
prospective investors in Shares of prospectuses and statements of additional
information describing the Fund; the preparation, including printing, and
distribution of sales literature, reports and media advertisements relating to
the Shares; providing telephone services relating to the Fund; distributing
Shares; 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
<PAGE>2
other mass media advertising, and related travel and entertainment expenses;
and 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. In providing compensation for Selling Services
in accordance with this Plan, Counsellors Securities is expressly authorized
(i) to make, or cause to be made, payments reflecting an allocation of
overhead and other office expenses related to providing Services; (ii) to
make, or cause to be made, payments, or to provide for the reimbursement of
expenses of, persons who provide support services in connection with the
distribution of Shares including, but not limited to, office space and
equipment, telephone facilities, answering routine inquiries regarding the
Fund, and providing any other Service; and (iii) to make, or cause to be made,
payments to compensate selected dealers or other authorized persons for
providing any Services. Administrative Services may include, but are not
limited to, establishing and maintaining accounts and records on behalf of
Fund shareholders; processing purchase, redemption and exchange transactions
in Shares; and other similar services not otherwise required to be provided by
the Fund's transfer agent or any co-administrator.
(b) Payments under this Plan are not tied exclusively to the
expenses for shareholder servicing, administration and distribution expenses
actually incurred by Counsellors Securities or any Service Provider, and the
payments may exceed expenses actually incurred by Counsellors Securities
and/or a Service Provider. Furthermore, any portion of any fee paid to
Counsellors Securities or to any of its affiliates by the Fund or any of their
past profits or other revenue may be used in their sole discretion to provide
services to shareholders of the Fund or to foster distribution of Shares.
Section 3. Approval of Plan.
Neither this Plan nor any related agreements will take effect until
approved by a majority of (a) the outstanding voting Shares, (b) the full
Board of Directors of the Fund and (c) those Directors who are not interested
persons of the Fund and who have no direct or indirect financial interest in
the operation of this Plan or in any agreements related to it (the
"Independent Directors"), cast in person at a meeting called for the purpose
of voting on this Plan and the related agreements.
Section 4. Continuance of Plan.
This Plan will continue in effect with respect to the Shares from
year to year so long as its continuance is specifically approved annually by
vote of the Fund's Board of Directors in the manner described in Section 3(b)
and 3(c) above. The Fund's Board of Directors will evaluate the
appropriateness
<PAGE>3
of this Plan and its payment terms on a continuing basis and in doing so will
consider all relevant factors, including the types and extent of Shareholder
Services, Selling Services and Administrative Services provided by Counsellors
Securities and/or Service Providers and amounts Counsellors Securities and/or
Service Providers receive under this Plan.
Section 5. Termination.
This Plan may be terminated at any time with respect to the Shares
by vote of a majority of the Independent Directors or by a vote of a majority
of the outstanding voting Shares.
Section 6. Amendments.
This Plan may not be amended to increase materially the amount of
the fees described in Section 1 above with respect to the Shares without
approval of at least a majority of the outstanding voting Shares. In
addition, all material amendments to this Plan must be approved in the manner
described in Section 3(b) and 3(c) above.
Section 7. Selection of Certain Directors.
While this Plan is in effect with respect to the Fund, 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.
Section 8. Written Reports.
In each year during which this Plan remains in effect with respect
to the Fund, any person authorized to direct the disposition of monies paid or
payable by the Fund pursuant to the Plan or any related agreement will prepare
and furnish to the Fund's Board of Directors, and the Board will review, at
least quarterly, written reports, complying with the requirements of the Rule,
which set out the amounts expended under this Plan and the purposes for which
those expenditures were made.
Section 9. Preservation of Materials.
The Fund will preserve copies of this Plan, any agreement relating
to this Plan and any report made pursuant to Section 8 above, for a period of
not less than six years (the first two years in an easily accessible place)
from the date of this Plan, the agreement or the report.
<PAGE>4
Section 10. Meaning of Certain Terms.
As used in this 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 under
the 1940 Act, subject to any exemption that may be granted to the Fund under
the 1940 Act by the Securities and Exchange Commission.
Section 11. Date of Effectiveness.
This Plan will become effective as of the date the Fund first
commences its investment operations.
IN WITNESS WHEREOF, the Fund has executed this Plan as of the ______
day of __________, 1995.
WARBURG, PINCUS POST-VENTURE
CAPITAL FUND, INC.
By:
Name:
Title:
<PAGE>1
DISTRIBUTION AGREEMENT
___________, 1995
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 Post-Venture Capital
Fund, Inc. (the "Fund"), an open-end, 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 prospectuses (the
"prospectus") and statement of additional information (the "statement of
additional information") 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 statement of additional
information, 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
<PAGE>2
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 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 Shareholder Servicing and
Distribution Plan (with respect to Common Shares, the "12b-1 Plan") and in the
Distribution Plan (with respect to Series 2 Shares, the "Distribution Plan"),
each adopted by the Fund pursuant to Rule 12b-1 under the 1940 Act ("Rule 12b-
1") to be performed by Counsellors Securities, without limitation,
distributing and receiving subscription order forms and receiving written
redemption requests.
1.5 Pursuant to the 12b-1 Plan, 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) pay-
ments 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
<PAGE>3
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, 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
<PAGE>4
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.
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
<PAGE>5
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
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
<PAGE>6
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
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
<PAGE>7
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.
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.
<PAGE>8
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 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
<PAGE>9
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 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, 1997 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
<PAGE>10
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.
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 POST-VENTURE
CAPITAL FUND, INC.
By:
Name:
Title:
Accepted:
COUNSELLORS SECURITIES INC.
By:
Name:
Title:
<PAGE>1
THE WARBURG PINCUS EMERGING MARKETS,
JAPAN OTC AND POST-VENTURE CAPITAL FUNDS
Rule 18f-3 Plan
Rule 18f-3 (the "Rule") under the Investment Company Act of 1940, as
amended (the "1940 Act"), requires that the Board of an investment company
desiring to offer multiple classes pursuant to the Rule adopt a plan setting
forth the separate arrangement and expense allocation of each class, and any
related conversion features or exchange privileges. The differences in
distribution arrangements and expenses among these classes of shares, and the
exchange features of each class, are set forth below in this Plan, which is
subject to change, to the extent permitted by law and by the governing
documents of each Fund, by action of the Board of each Fund.
The Board, including a majority of the non-interested Board members, of
each of the investment companies, or series thereof, listed on Schedule A
attached hereto (each, a "Fund") which desires to offer multiple classes has
determined that the following plan is in the best interests of each class
individually and the Fund as a whole:
1. Class Designation: Fund shares shall be divided into Common Shares
("Common Shares"), Common Shares - Series 1 ("Series 1 Shares") and Common
Shares - Series 2 ("Series 2 Shares").
2. Differences in Services: Support services will be provided by
financial institutions and/or retirement plans to customers and plan
participants who beneficially own Series 1 Shares or Series 2 Shares, as the
case may be; distribution assistance will also be provided in connection with
Series 2 Shares. Counsellors Securities Inc. ("CSI") will provide shareholder
and distribution services in connection with the Common Shares.
3. Differences in Distribution Arrangements: Common Shares are sold to
the general public and are subject to a .25% per annum shareholder servicing
and distribution fee payable to CSI under a Shareholder Servicing and
Distribution Plan adopted pursuant to Rule 12b-1 under the 1940 Act.
Specified minimum initial and subsequent purchase amounts are applicable to
the Common Shares.
<PAGE>2
Series 1 Shares may be sold to certain financial institutions and shall
be charged a shareholder service fee payable at an annual rate of up to .25%,
and an administrative fee payable at an annual rate of up to .25%, of the
average daily net assets of such Class pursuant to a Shareholder Services
Plan.
Series 2 Shares are designed for institutional investors and are
available for purchase by financial institutions investing on behalf of their
customers and by retirement plans that make a Fund an investment option for
participants in the Plans (collectively, "Institutions"). Series 2 Shares are
charged a shareholder service fee payable at an annual rate of up to .25%, and
a distribution fee payable at an annual rate of up to .50%, of the average
daily net assets of such Class under a Distribution Plan adopted pursuant to
Rule 12b-1 under the 1940 Act. There is no minimum amount of initial or
subsequent purchases of Series 2 Shares imposed on Institutions.
4. Expense Allocation. The following expenses shall be allocated, to
the extent practicable, on a Class-by-Class basis: (a) fees under the
Distribution Plan and Shareholder Services Plan; (b) printing and postage
expenses related to preparing and distributing materials, such as shareholder
reports, prospectuses and proxies, to current shareholders of a specific
Class; (c) Securities and Exchange Commission and Blue Sky registration fees
incurred by a specific Class; (d) the expense of administrative personnel and
services required to support the shareholders of a specific Class; (e)
auditors' fees, litigation or other legal expenses relating solely to a
specific Class; (f) transfer agent fees identified by the Fund's transfer
agent as being attributable to a specific Class; (g) expenses incurred in
connection with shareholders' meetings as a result of issues relating to a
specific Class; and (h) accounting expenses relating solely to a specific
Class.
The distribution, administrative and shareholder servicing fees and other
expenses listed above which are attributable to a particular Class are charged
directly to the net assets of the particular Class and, thus, are borne on a
pro rata basis by the outstanding shares of that Class; provided, however,
that money market funds and other funds making daily distributions of their
net investment income may allocate these items to each share regardless of
class or on the basis of relative net assets (settled shares), applied in each
case consistently.
5. Conversion Features. No Class shall be subject to any automatic
conversion feature.
<PAGE>3
6. Exchange Privileges. Shares of a Class shall be exchangeable only
for (a) shares of the same Class of other investment companies advised by
Warburg, Pincus Counsellors, Inc. and (b) shares of certain other investment
companies specified from time to time.
7. Additional Information. This Plan is qualified by and subject to the
terms of the then current prospectus for the applicable Class; provided,
however, that none of the terms set forth in any such prospectus shall be
inconsistent with the terms of the Classes contained in this Plan. The
prospectus for each Class contains additional information about that Class and
the applicable Fund's multiple class structure.
Dated: July 25, 1995
<PAGE>4
SCHEDULE A
Warburg Pincus Emerging Markets Fund
Warburg Pincus Japan OTC Fund
Warburg Pincus Post-Venture Capital Fund
