<PAGE>1
As filed with the U.S. Securities and Exchange Commission
on December 18, 1995
Securities Act File No. 033-63655
Investment Company Act File No. 811-07371
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. 1 [x]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 1 [x]
(Check appropriate box or boxes)
Warburg, Pincus Japan Growth Fund, Inc.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Exact Name of Registrant as Specified in Charter)
466 Lexington Avenue
New York, New York 10017-3147
........................................ ..................
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 878-0600
Mr. Eugene P. Grace
Warburg, Pincus Japan Growth 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 common
stock, $.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 JAPAN GROWTH 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;
Portfolio Investments; Risk
Factors and Special
Considerations; Certain
Investment Strategies;
Investment Guidelines;
General Information
5. Management of the Fund . Management of the Funds
6. Capital Stock and Other
Securities . . . . . . . General Information
7. Purchase of Securities
Being Offered . . . . . How to Open an Account; How to
Purchase Shares; Net Asset
Value
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 . . . 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 Policies; See
Prospectuses--"Portfolio
Transactions and Turnover
Rate"
18. Capital Stock and Other
Securities . . . . . . . Management of the Fund--
Organization of the Fund; See
Prospectuses--"General
Information"
19. Purchase, Redemption and
Pricing of Securities
Being Offered . . . . . Additional Purchase and
Redemption Information; See
Prospectuses--"How to Open an
Account," "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 . . . . . . Investment Policies--Portfolio
Transactions; 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
DECEMBER 29, 1995
[ ] WARBURG PINCUS EMERGING MARKETS FUND
[ ] WARBURG PINCUS INTERNATIONAL EQUITY FUND
[ ] WARBURG PINCUS JAPAN GROWTH FUND
[ ] WARBURG PINCUS JAPAN OTC FUND
<PAGE>
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 18, 1995
WARBURG PINCUS FUNDS
P.O. BOX 9030
BOSTON, MASSACHUSETTS 02205-9030
TELEPHONE NUMBER: (800) 888-6878
December 29, 1995
PROSPECTUS
Warburg Pincus Funds are a family of open-end mutual funds that offer investors
a variety of investment opportunities. Four funds are described in this
Prospectus:
WARBURG PINCUS EMERGING MARKETS FUND seeks growth of capital by investing
primarily in equity securities of non-United States issuers consisting of
companies in emerging securities markets.
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 GROWTH FUND seeks long-term growth of capital by investing
principally in equity securities of Japanese issuers.
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 OneSource'tm' Program; Fidelity
Brokerage Services, Inc. FundsNetwork'tm' 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 Emerging Markets Fund, the
Japan Growth Fund and the Japan OTC 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, as
amended or supplemented from time to time, bear the same date as this Prospectus
and are incorporated by reference in their entirety into this Prospectus.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
<PAGE>
THE FUNDS' EXPENSES
Each of Warburg, Pincus Emerging Markets Fund, International Equity Fund,
Japan Growth Fund and Japan OTC Fund (the 'Funds') currently offers two separate
classes of shares: Common Shares and Advisor Shares. For a description of
Advisor Shares see 'General Information.' Common Shares of the Emerging Markets
Fund, the Japan Growth Fund and the Japan OTC Fund pay the Fund's distributor a
12b-1 fee. See 'Management of the Funds -- Distributor.'
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL JAPAN JAPAN
MARKETS EQUITY GROWTH OTC
FUND FUND FUND FUND
-------- ------------- ------ -----
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price).................................................. 0 0 0 0
Redemption Fee (as a percentage of the value of shares redeemed)... 0 0 0 1.00 %*
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees.................................................... 0 1.00% .82% .93 %
12b-1 Fees......................................................... .25% 0 .25% .25 %
Other Expenses..................................................... .75% .39% .68% .57 %
-------- ------ ------ -----
Total Fund Operating Expenses (after fee waivers)`D'............... 1.00% 1.39% 1.75% 1.75 %
EXAMPLE
You would pay the following expenses
on a $1,000 investment, assuming (1) 5% annual return
and (2) redemption at the end of each time period:
1 year............................................................. $ 10 $ 14 $ 20 $ 18
3 years............................................................ $ 32 $ 44 $ 63 $ 55
5 years............................................................ $ 55 $ 76 n.a. $ 95
10 years........................................................... $122 $ 167 n.a. $206
</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.'
`D' Management Fees, Other Expenses and Total Fund Operating Expenses for the
Emerging Markets, International Equity and Japan OTC Funds are based on
actual expenses for the fiscal year or period ended October 31, 1995, net
of any fee waivers or expense reimbursements. Without such waivers and/or
reimbursements, Management Fees for the Emerging Markets and Japan OTC
Funds would have each equalled 1.25%; Other Expenses would have equalled
11.87% and .60%, respectively; and Total Fund Operating Expenses would have
equalled 13.37% and 2.10%, respectively. There were no waivers or
reimbursements in the International Equity Fund. Absent the anticipated
waiver of fees by the Japan Growth Fund's investment adviser and
co-administrator, Management Fees would equal 1.25%, Other Expenses would
equal .75% and Total Fund Operating Expenses would equal 2.25%. The
investment adviser and co-administrator are under no obligation to continue
these waivers. Other Expenses and Total Fund Operating Expenses for the
Japan Growth Fund are based on annualized estimates of expenses for the
fiscal year ending October 31, 1996.
2
<PAGE>
<PAGE>
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a Common Shareholder of each Fund. 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. 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 Emerging Markets Fund, the Japan Growth Fund or
the Japan OTC 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 following information for the three fiscal years or period ended
October 31, 1995 has been derived from information audited by Coopers & Lybrand
L.L.P., independent auditors, whose report dated December , 1995 appears in the
relevant Fund's Statement of Additional Information. For the International
Equity Fund, the information for the two prior fiscal years has been audited by
Ernst & Young LLP, whose report was unqualified. Financial information is not
presented for the Japan Growth Fund, which had not commenced operations as of
October 31, 1995. Further information about the performance of the Funds (other
than the Japan Growth Fund) is contained in the Funds' annual report, dated
October 31, 1995, copies of which may be obtained without charge by calling
Warburg Pincus Funds at (800) 257-5614.
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 30, 1994
(INCEPTION) THROUGH
OCTOBER 31, 1995
-------------------
<S> <C>
Net Asset Value,
Beginning of Period....
Income from Investment
Operations
Net Investment
Income...............
Net Gains (Losses) from
Securities and
Foreign Currency
Related Items
(both realized and
unrealized)..........
Total from Investment
Operations...........
Less Distributions
Dividends (from net
investment income)...
Distributions (from
capital gains).......
Total Distributions....
Net Asset Value, End of
Period.................
Total Return.............
Ratios/Supplemental Data
Net Assets, End of Period
(000s).................
Ratios to Average Daily
Net Assets:
Operating expenses.....
Net investment
income...............
Change reflected in
above expense ratios
due to
waivers/reimbursements...
Portfolio Turnover
Rate...................
</TABLE>
- ------------
* Annualized.
3
<PAGE>
<PAGE>
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
FOR THE
PERIOD
MAY 2, 1989
(COMMENCEMENT
OF
OPERATIONS)
FOR THE YEAR ENDED OCTOBER 31, THROUGH
----------------------------------------------------------------------- OCTOBER 31,
1995 1994 1993 1992 1991 1990 1989
---------- ---------- -------- -------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $17.00 $12.22 $13.66 $11.81 $11.35 $10.00
---------- -------- -------- ------- ------- -------------
Income from Investment
Operations
Net Investment Income
(Loss)............... .09 .09 .15 .19 .13 .05
Net Gains (Losses) from
Securities and
Foreign Currency
Related Items (both
realized and
unrealized).......... 3.51 4.84 (1.28) 2.03 .55 1.30
---------- -------- -------- ------- ------- -------------
Total from Investment
Operations........... 3.60 4.93 (1.13) 2.22 .68 1.35
---------- -------- -------- ------- ------- -------------
Less Distributions
Dividends (from net
investment income)... (.04) (.02) (.16) (.33) (.10) .00
Distributions in excess
of net investment
income............... (.01) .00 .00 .00 .00 .00
Distributions (from
capital gains)....... (.04) (.13) (.15) (.04) (.12) .00
---------- -------- -------- ------- ------- -------------
Total Distributions.... (.09) (.15) (.31) (.37) (.22) .00
---------- -------- -------- ------- ------- -------------
Net Asset Value, End of
Period................. $20.51 $17.00 $12.22 $13.66 $11.81 $11.35
---------- -------- -------- ------- ------- -------------
---------- -------- -------- ------- ------- -------------
Total Return............. 21.22% 40.68% (8.44%) 19.42% 5.92% 28.73%*
Ratios/Supplemental Data
Net Assets, End of Period
(000s)................. $1,533,872 $378,661 $101,763 $72,553 $38,946 $13,260
Ratios to Average Daily
Net Assets:
Operating expenses..... 1.44% 1.48% 1.49% 1.50% 1.46% 1.50%*
Net investment income
(loss)............... .19% .38% .88% 1.19% 1.58% 1.33%*
Change reflected in
above expense ratios
due to
waivers/reimbursements.. .00% .00% .07% .17% .38% .89%*
Portfolio Turnover
Rate................... 17.02% 22.60% 53.29% 54.95% 66.12% 27.32%
</TABLE>
- ------------
* Annualized.
JAPAN OTC FUND
<TABLE>
<CAPTION>
FOR THE PERIOD
SEPTEMBER 30, 1994
FOR THE (COMMENCEMENT
YEAR ENDED OF OPERATIONS) THROUGH
OCTOBER 31, 1995 OCTOBER 31, 1994
---------------- ----------------------
<S> <C> <C>
Net Asset Value,
Beginning of Period.... $10.00
-------
Income from Investment
Operations
Net Investment
Income............... .00
Net Gains (Losses) from
Securities and
Foreign Currency
Related Items (both
realized and
unrealized).......... (.15)
-------
Total from Investment
Operations........... (.15)
-------
Less Distributions
Dividends (from net
investment income)... .00
Distributions (from
capital gains)....... .00
-------
Total Distributions.... .00
-------
Net Asset Value, End of
Period................. $9.85
-------
-------
Total Return............. (15.84%)*
Ratios/Supplemental Data
Net Assets, End of Period
(000s)................. $ 19,878
Ratios to Average Daily
Net Assets:
Operating expenses..... 1.00%*
Net investment
income............... .49%*
Change reflected in
above expense ratios
due to
waivers/reimbursements... 4.96%*
Portfolio Turnover
Rate................... .00%
</TABLE>
- ------------
* Annualized.
4
<PAGE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
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.
EMERGING MARKETS FUND
The Emerging Markets Fund seeks growth of capital. The Fund is a
non-diversified management investment company that pursues its investment
objective by investing primarily in equity securities on non-United States
issuers consisting of companies in emerging securities markets. An investment in
the Fund may involve a greater degree of risk than investment in other mutual
funds that seek capital appreciation by investing in larger, more developed
markets.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in equity securities of issuers in Emerging Markets (as defined
below), and the Fund intends to acquire securities of many issuers located in a
number of foreign countries. The Fund will not necessarily seek to diversify
investments on a geographical basis or on the basis of the level of economic
development of any particular country. However, the Fund will at all times,
except during defensive periods, maintain investments in at least three
countries outside the United States. An equity security of an issuer in an
Emerging Market is defined as common stock and preferred stock (including
convertible preferred stock); bonds, notes and debentures convertible into
common or preferred stock; stock purchase warrants and rights; equity interests
in trusts and partnerships; and depositary receipts of an issuer: (i) the
principal securities trading market for which is in an Emerging Market; (ii)
which derives at least 50% of its revenues or earnings, either alone or on a
consolidated basis, from goods produced or sold, investments made or services
performed in an Emerging Market, or which has at least 50% of its total or net
assets situated in one or more Emerging Markets; or (iii) that is organized
under the laws of, and with a principal office in, an Emerging Market.
Determinations as to whether in issuer is an Emerging Markets issuer will be
made by the Fund's investment adviser based on publicly available information
and inquiries made to the issuers.
As used in this Prospectus, an Emerging Market is any country (i) which is
generally considered to be an emerging or developing country by the World Bank
and the International Finance Corporation (the 'IFC') or by the United Nations
Development Programme or (ii) which is included in the IFC Investable Index or
the Morgan Stanley Capital International Emerging Markets Index or (iii) which
as a gross national product ('GNP') per capita of $2,000 or less, in each case
at the time of the Fund's investment. Among the countries which
Warburg, Pincus Counsellors, Inc., the Fund's investment adviser ("Warburg"),
currently considers to be Emerging Markets are the following: Algeria,
Angola, Antigua, Argentina, Armenia, Azerbaijan, Bangladesh, Barbuda, Barbados,
Belarus, Belize, Bhutan, Bolivia, Botswana, Brazil, Bulgaria, Cambodia, Chile,
People's Republic of China, Republic of China (Taiwan), Colombia, Cyprus, Czech
Republic, Dominica, Ecuador, Egypt, Estonia, Georgia, Ghana, Greece, Grenada,
Guyana, Hong Kong, Hungary, India, Indonesia, Israel, Ivory Coast, Jamaica,
Jordan, Kazakhstan, Kenya, Republic of Korea (South Korea), Latvia, Lebanon,
Lithuania, Malawi, Malaysia, Mauritius, Mexico, Moldova, Mongolia, Montserrat,
Morocco, Mozambique, Myanmar (Burma), Namibia, Nepal, Nigeria, Pakistan,
Panama, Papua New Guinea, Paraguay, Peru, Philippines, Poland, Portugal,
Romania, Russia, Saudi Arabia, Singapore, Slovakia, Slovenia, South Africa,
Sri Lanka, St. Kitts and Nevis, St.Lucia, St. Vincent and the Grenadines,
Swaziland, Tanzania, Thailand, Trinidad and Tobago,
5
<PAGE>
<PAGE>
Tunisia, Turkey, Turkmenistan, Uganda, Ukraine, Uruguay, Uzbekistan, Venezuela,
Vietnam, Yugoslavia, Zambia and Zimbabwe. Among the countries that will not be
considered Emerging Markets are: Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Ireland, Italy, Japan, Luxembourg, Netherlands, New
Zealand, Norway, Spain, Sweden, Switzerland, United Kingdom and the United
States.
The Fund may invest in securities of companies of any size, whether traded
on or off a national securities exchange. Fund holdings may include emerging
growth companies, which are small- or medium-sized companies that have passed
their start-up phase and that show positive earnings and prospects for achieving
profit and gain in a relatively short period of time.
In appropriate circumstances, such as when a direct investment by the Fund
in the securities of a particular country cannot be made or when the securities
of an investment company are more liquid than the underlying portfolio
securities, the Fund may, consistent with the provisions of the Investment
Company Act of 1940, as amended (the '1940 Act'), invest in the securities of
closed-end investment companies that invest in foreign securities.
INTERNATIONAL EQUITY FUND
The International Equity Fund seeks long-term capital appreciation. The
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 the judgment of
Warburg 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. Warburg 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 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 GROWTH FUND
The Japan Growth Fund seeks long-term growth of capital. The Fund is a
non-diversified management investment company that pursues its objective by
investing primarily in equity securities of Japanese issuers that present
attractive opportunities for growth. Under current market conditions the Fund
intends to invest at least 80% of its total assets -- but will invest no less
than 65% of its assets under normal market conditions -- in common and preferred
stocks, warrants and other rights, securities convertible into or exchangeable
for common stocks and American Depository Receipts ('ADRs') of Japanese issuers.
6
<PAGE>
<PAGE>
Warburg believes that Japanese industry is in the process of deregulation
and restructuring. The Fund is designed to provide an opportunity to participate
in the dynamic structural changes in the Japanese industrial system through
investment in higher growth companies that can be expected to benefit from these
changes. The Fund will seek to identify and invest in Japanese issuers that are
showing or are expected to show a rapid or high rate of growth, based on
comparisons with Japanese or non-Japanese companies in the same industry or
other considerations. The Fund will also invest in Japanese companies that
Warburg believes are undervalued based on price/earnings ratios, comparisons
with Japanese or non-Japanese companies or other factors.
Unlike the Warburg Pincus Japan OTC Fund, which invests primarily in
over-the-counter securities, the Fund may invest in companies of any size,
whether traded on an exchange or over-the-counter. Currently, there are eight
exchanges in Japan -- the Tokyo, Osaka, Nagoya, Kyoto, Hiroshima, Fukuoka,
Niigata and Sapporo exchanges -- and two over-the-counter markets -- JASDAQ and
the Japanese Second Section OTC Market (the 'Frontier Market'). The Fund
considers Japanese issuers to be (i) companies (A) organized under the laws of
Japan, or (B) whose principal business activities are conducted in Japan and
which derive at least 50% of their revenues or profits from goods produced or
sold, investments made, or services performed in Japan, or have at least 50% of
their assets in one or more such countries, or (C) which have issued securities
which are traded principally in Japan, and (ii) Japanese governmental entities
or political subdivisions. Determinations as to the eligibility of issuers under
the foregoing definition will be made by Warburg based on publicly available
information and inquiries made to the companies. The portion of the Fund's
assets not invested in Japanese issuers may be invested in securities of other
Asian issuers. The Fund does not, except during temporary defensive periods,
intend to invest in securities of non-Asian issuers. From time to time, the 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.
JAPAN OTC FUND
The Japan OTC Fund seeks long-term capital appreciation. The 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 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 obligations. 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
involve a greater degree of risk than an investment in other mutual funds that
seek capital
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appreciation by investing in better-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.
PORTFOLIO INVESTMENTS
DEBT. The International Equity Fund, the Japan Growth Fund and the Japan OTC
Fund may each invest up to 35% of its total assets in investment grade debt
securities (other than money market obligations) and, in the case of the
International Equity and Japan OTC Funds, preferred stocks that are not
convertible into common stock for the purpose of seeking capital appreciation.
The Emerging Markets Fund may invest up to 35% of its total assets in debt
securities (other than money market obligations) for the purpose of seeking
growth of capital. The interest income to be derived may be considered as one
factor in selecting debt securities for investment by Warburg. 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 Warburg's 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 Warburg. 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 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, although Warburg 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 Warburg believes that a defensive posture is warranted, each Fund
other than the Japan OTC Fund may invest temporarily without limit in U.S. and
foreign investment grade debt obligations, other securities of U.S. companies
and domestic and foreign money market obligations, including repurchase
agreements. The Japan OTC Fund may, for temporary defensive purposes, invest
without limit in U.S. debt securities and money market obligations.
Emerging Markets Fund. The Fund may invest or hold up to 35% of its net assets
in fixed-income securities (including convertible bonds) rated below investment
grade (commonly referred to as 'junk bonds') and as low as C by Moody's or D by
S&P, or in unrated securities considered to be of equivalent quality. Securities
that are rated C by Moody's are the lowest rated class and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Debt rated D by S&P is in default or is expected to default upon maturity or
payment date.
Among the types of debt securities in which the Emerging Markets Fund may
invest are Brady Bonds, loan participations and assignments, asset-backed
securities and mortgage-backed securities:
Brady Bonds are collateralized or uncollateralized securities created
through the
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exchange of existing commercial bank loans to public and private Latin American
entities for new bonds in connection with certain debt restructurings. Brady
Bonds have been issued only recently and therefore do not have a long payment
history. However, in light of the history of commercial bank loan defaults by
Latin American public and private entities, investments in Brady Bonds may be
viewed as speculative.
Loan Participations and Assignments of fixed and floating rate loans
arranged through private negotiations between a foreign government as borrower
and one or more financial institutions as lenders will typically result in the
Fund having a contractual relationship only with the lender, in the case of a
participation, or the borrower, in the case of an assignment. The Fund may not
directly benefit from any collateral supporting a participation, and in the
event of the insolvency of a lender will be treated as a general creditor of the
lender. As a result, the Fund assumes the risk of both the borrower and the
lender of a participation. The Fund's rights and obligations as the purchaser of
an assignment may differ from, and be more limited than, those held by the
assigning lender. The lack of a liquid secondary market for both participations
and assignments will have an adverse impact on the value of such securities and
on the Fund's ability to dispose of participations or assignments.
Asset-backed securities are collateralized by interests in pools of
consumer loans, with interest and principal payments ultimately depending on
payments in respect of the underlying loans by individuals (or a financial
institution providing credit enhancement). Because market experience in these
securities is limited, the market's ability to sustain liquidity through all
phases of the market cycle had not been tested. In addition, there is no
assurance that the security interest in the collateral can be realized. The Fund
may purchase asset-backed securities that are unrated.
Mortgage-backed securities are collateralized by mortgages or interests in
mortgages and may be issued by government or non-government entities.
Non-government issued mortgage-backed securities may offer higher yields than
those issued by government entities, but may be subject to greater price
fluctuations. The value of mortgage-backed securities may change due to shifts
in the market's perceptions of issuers, and regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Prepayment, which
occurs when unscheduled or early payments are made on the underlying mortgages,
may shorten the effective maturities of these securities and may lower their
returns.
MONEY MARKET OBLIGATIONS. Each Fund is authorized to invest, under normal market
conditions, up to 20% of its total assets in domestic and foreign short-term
(one year or less remaining to maturity) and medium-term (five years or less
remaining to maturity) money market obligations and for temporary defensive
purposes may invest in these securities without limit. These instruments consist
of obligations issued or guaranteed by the U.S. government or a foreign
government, their agencies or instrumentalities; 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 Warburg 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 Funds may invest in repurchase agreement
transactions 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
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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. Warburg,
acting under the supervision of the Fund's Board of Directors (the '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 Warburg 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 mutual funds that are unaffiliated with the Fund, Warburg, the Funds'
co-administrator, PFPC Inc. ('PFPC'), 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. Subsequent to purchase by a Fund, convertible
securities may cease to be rated or a rating may be reduced below the minimum
required for purchase by the Fund. Neither event will require sale of such
securities, although Warburg will consider such event in its determination of
whether the Fund should continue to hold the securities. The Japan Growth Fund
does not currently intend during the coming year to hold more than 5% of its net
assets in convertible securities rated below investment grade. 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 and 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
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below investment grade subsequent to acquisition by the Fund.
RISK FACTORS AND SPECIAL
CONSIDERATIONS
Investing in common stocks and securities convertible into common stocks is
subject to the inherent risk of fluctuations in the prices of such securities.
For certain additional risks relating to eacch Fund's investments, see
'Portfolio Investments' beginning at page 8 and 'Certain Investment Strategies'
beginning at page 15.
JAPANESE INVESTMENTS. Investing in Japanese securities may involve the risks
described below associated with investing in foreign securities generally. In
addition, because the Japan Growth Fund and the Japan OTC Fund invest 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 Growth Fund and the Japan OTC Fund
should each be considered a vehicle for diversification, but the Funds
themselves are 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.
A significant portion of the Japan OTC Fund's assets will be and assets of
the Japan Growth Fund may be invested in securities traded through JASDAQ.
JASDAQ traded securities can be volatile, which may result in a Fund's net asset
value fluctuating in response. 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 a 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.
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 December , 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 December , 1995) per share over the prior fiscal year
and net worth of 200 million yen (approximately $1.92 million as of December ,
1995). JASDAQ has generally attracted small
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growth companies or companies whose major shareholders wish to sell only a small
portion of the company's equity.
The Frontier Market is a recently developed second over-the-counter market
and 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.
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.
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.
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 27 of the Statement of Additional Information for
the Japan Growth Fund and page 28 of the Statement of Additional Information for
the Japan OTC Fund, and 'Investment Policies -- Japanese Investments,' beginning
at page 3 of the Statement of Additional Information for the International
Equity Fund.
EMERGING MARKETS. The 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
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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.
EMERGING GROWTH AND SMALL COMPANIES. 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. 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. 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. 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 Emerging Markets Fund, the Japan Growth Fund or 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 better-known, larger
companies.
NON-PUBLICLY TRADED SECURITIES; 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
(except for the Japan OTC Fund) the Fund's governing Board determines on an
ongoing basis that an adequate trading market exists for the security. In
addition to an adequate trading market, the Board will also consider factors
such as trading activity, availability of reliable price information and other
relevant information in determining whether a Rule 144A Security is liquid. This
investment practice could have the effect of increasing the level of illiquidity
in the Funds to the extent that qualified institutional buyers become
uninterested for a time in purchasing Rule 144A Securities. The Board of each
Fund will carefully monitor any investments by the Fund in Rule 144A Securities.
The Boards 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. In the case of the Japan OTC Fund, all Rule 144A Securities will be
limited to 10% of the Fund's net assets, included within the Fund's limit on
illiquid securities.
Non-publicly traded securities (including Rule 144A Securities) may involve
a high degree of business and financial risk and may result in substantial
losses. These securities may be less liquid than publicly traded securities, and
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 real-
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ized 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. The Emerging Markets Fund, the Japan Growth Fund and the
Japan OTC Fund are classified as non-diversified investment companies 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.
LOWER-RATED SECURITIES. The Emerging Markets Fund may invest in lower-rated and
comparable unrated securities (commonly referred to as 'junk bonds'), which (i)
will likely have some quality and protective characteristics that, in the
judgment of the rating organizations, are outweighed by large uncertainties or
major risk exposures to adverse conditions and (ii) are predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. The market values of
certain of these securities also tend to be more sensitive to individual
corporate developments and changes in economic conditions than higher-quality
bonds. In addition, medium- and lower-rated securities and comparable unrated
securities generally present a higher degree of credit risk. The risk of loss
due to default by such issuers is significantly greater because medium- and
lower-rated securities and unrated securities generally are unsecured and
frequently are subordinated to the prior payment of senior indebtedness.
The market value of securities in lower rating categories is more volatile
than that of higher quality securities. In addition, the Fund may have
difficulty disposing of certain of these securities because there may be a thin
trading market. The lack of a liquid secondary market for certain securities may
have an adverse impace on the Fund's ability to dispose of particular issues and
may make it more difficult for the Fund to obtain accurate market quotations for
purposes of valuing the Fund and calculating its net asset value.
PORTFOLIO TRANSACTIONS AND
TURNOVER RATE
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 Growth Fund's portfolio turnover rate. However, it
is anticipated that the 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
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'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 Warburg believes that the charge for the transaction does not
exceed usual and customary levels and when doing so is consistent with
guidelines adopted by the Board.
CERTAIN INVESTMENT STRATEGIES
Although there is no intention of doing so during the coming year, 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, (ii) lending portfolio securities and (iii)
except for the International Equity Fund, entering into reverse repurchase
agreements and dollar rolls. The Japan Growth Fund and the Japan OTC Fund may
each invest up to 5% of its net assets in each of mortgage-backed securities and
asset-backed securities. The Emerging Markets, Japan Growth and Japan OTC Funds
may also invest in zero coupon securities, although each Fund currently
anticipates that during the coming year zero coupon securities will not exceed
5% of net assets. The Emerging Markets Fund may invest in stand-by commitments,
although the Fund currently anticipates that during the coming year stand-by
commitments will not exceed 5% of net assets. Detailed information concerning
each Fund's strategies and related risks is contained below and in the Fund's
Statement of Additional Information.
STRATEGIES AVAILABLE TO ALL FUNDS
FOREIGN SECURITIES. Each Fund will ordinarily hold no less than 65% of its total
assets in foreign securities. 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 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
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the expense of maintaining securities with foreign custodians. The risks
associated with investing in securities of non-U.S. issuers are generally
hightened for investments in securities of issuers in emerging markets.
OPTIONS, FUTURES AND CURRENCY TRANSACTIONS. At the discretion of the Advisers,
each Fund may, but is not required to, engage in a number of strategies
involving options, futures and forward currency contracts. These strategies,
commonly referred to as 'derivatives,' may be used (i) for the purpose of
hedging against a decline in value of the Fund's current or anticipated
portfolio holdings, (ii) as a substitute for purchasing or selling portfolio
securities or (iii) to seek to generate income to offset expenses or increase
return. TRANSACTIONS THAT ARE NOT CONSIDERED HEDGING SHOULD BE CONSIDERED
SPECULATIVE AND MAY SERVE TO INCREASE THE FUND'S INVESTMENT RISK. Transaction
costs and any premiums associated with these strategies, and any losses
incurred, will affect the Fund's net asset value and performance. Therefore, an
investment in the Fund may involve a greater risk than an investment in other
mutual funds that do not utilize these strategies. The Funds' use of these
strategies may be limited by position and exercise limits established by
securities and commodities exchanges and the NASD and by the Code.
Securities and Stock Index Options. The International Equity, Japan Growth
and Japan OTC Funds may each write covered call options, and the Japan Growth
and Japan OTC Funds may write 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.
Each Fund may also utilize up to 10% of its assets to purchase options on stocks
and debt securities that are traded on U.S. and foreign exchanges, as well as
over-the-counter ('OTC') options. The purchaser of a put option on a security
has the right to compel the purchase by the writer of the underlying security,
while the purchaser of a call option has the right to purchase the underlying
security from the writer. In addition to purchasing and writing options on
securities, each Fund may utilize up to 10% of its total assets (15% in the case
of the Emerging Markets Fund) to purchase exchange-listed and OTC put and call
options on stock indexes, and may also write such options. A stock index
measures the movement of a certain group of stocks by assigning relative values
to the common stocks included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or at
less advantageous prices, limit the amount of appreciation the Fund could
realize on its investments or require the Fund to hold securities it would
otherwise sell.
Futures Contracts and Related Options. Each 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, if consistent with CFTC
regulations, on foreign exchanges. These futures contracts are standardized
contracts for the future delivery of foreign currency or an interest rate
sensitive security or, in the case of stock index and certain other futures
contracts, are settled in cash with reference to a specified multiplier times
the change in the specified index, exchange rate or interest rate. 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.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be 'bona fide
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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. Although
the Funds are limited in the amount of assets that may be invested in futures
transactions, there is no overall limit on the percentage of Fund assets that
may be at risk with respect to futures activities.
Currency Exchange Transactions. The Funds will conduct their currency
exchange transactions either (i) on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, (ii) through entering into futures
contracts or options on futures contracts (as described above), (iii) through
entering into forward contracts to purchase or sell currency or (iv) in the case
of the Emerging Markets, Japan Growth and Japan OTC Funds, by purchasing
exchange-traded currency options. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date at a price
set at the time of the contract. An option on a foreign currency operates
similarly to an option on a security. Risks associated with currency forward
contracts and purchasing currency options are similar to those described in this
Prospectus for futures contracts and securities and stock index options. In
addition, the use of currency transactions could result in losses from the
imposition of foreign exchange controls, suspension of settlement or other
governmental actions or unexpected events. The International Equity Fund may
only enter into forward currency contracts for hedging purposes.
Hedging Considerations. The Funds may engage in options, futures and
currency transactions for, among other reasons, hedging purposes. A hedge is
designed to offset a loss on a portfolio position with a gain in the hedge
position; at the same time, however, a properly correlated hedge will result in
a gain in the portfolio position being offset by a loss in the hedge position.
As a result, the use of options, futures contracts and currency exchange
transactions for hedging purposes could limit any potential gain from an
increase in value of the position hedged. In addition, the movement in the
portfolio position hedged may not be of the same magnitude as movement in the
hedge. A Fund will engage in hedging transactions only when deemed advisable by
an Adviser, and successful use of hedging transactions will depend on the
Adviser's ability to correctly predict movements in the hedge and the hedged
position and the correlation between them, which could prove to be inaccurate.
Even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior or trends.
Additional Considerations. To the extent that a Fund engages in the
strategies described above, the Fund may experience losses greater than if these
strategies had not been utilized. In addition to the risks described above,
these instruments may be illiquid and/or subject to trading limits, and the Fund
may be unable to close out an option or futures position without incurring
substantial losses, if at all. The Fund is also subject to the risk of a default
by a counterparty to an off-exchange transaction.
Asset Coverage. Each Fund will comply with applicable regulatory
requirements designed to eliminate any potential for leverage with respect to
options written by the Fund on securities and indexes; currency, interest rate
and stock index futures contracts and options on these futures contracts; and
forward currency contracts. The use of these strategies may require that the
Fund maintain cash or certain liquid high-grade debt obligations 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 substi-
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tuted 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.
STRATEGY AVAILABLE TO THE EMERGING MARKETS FUND AND THE JAPAN GROWTH FUND
SHORT SALES AGAINST THE BOX. Each Fund may 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 a 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 a 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 Funds 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 Emerging Markets Fund and the Japan OTC Fund may each invest up to 15%
of its net assets; the International Equity Fund may invest up to 10% of its
total assets; and the Japan Growth Fund may invest up to 10% of its net assets,
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) certain 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 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 30% of total assets, and may pledge its assets to the
extent necessary to secure permitted borrowings (up to 10% of its assets in the
case of the International Equity Fund). Whenever borrowings (including reverse
repurchase agreements) exceed 5% of a Fund's 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
restric-
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tions 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 Warburg as investment adviser to the
Fund. The 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, Warburg, subject to the control of each Fund's officers and the
Board, manages the investment and reinvestment of the assets of the Funds in
accordance with each Fund's investment objective and stated investment policies.
Warburg 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, Warburg 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. Warburg 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 Warburg 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 Warburg, the Emerging Markets Fund, the Japan
Growth Fund and the Japan OTC Fund each pay Warburg a fee calculated at an
annual rate of 1.25% of the Fund's average daily net assets, and the
International Equity Fund pays Warburg an advisory fee calculated at an annual
rate of 1.00% of the Fund's average daily net assets. Warburg pays SPARX USA a
fee of .625% out of Warburg's advisory fee. Although these advisory fees are
higher than those paid by most other investment companies, including money
market and fixed income funds, Warburg believes that they are comparable to fees
charged by other mutual funds with similar policies and strategies. The advisory
agreement between each Fund and Warburg provides that Warburg will reimburse the
Fund to the extent certain expenses that are described in the Statement of
Additional Information exceed applicable state expense limitations. Warburg,
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 paid by
the Fund.
Warburg 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 November 30,
1995, Warburg managed approximately $11.9 billion of assets, including
approximately $6.2 billion of assets of twenty-six investment companies or
portfolios. Incorporated in 1970, Warburg is a wholly owned subsidiary of
Warburg, Pincus Counsellors G.P. ('Warburg G.P.'), a New York general
partnership. E.M. Warburg, Pincus & Co., Inc. ('EMW') controls Warburg through
its ownership of a class of voting preferred stock of Warburg. Warburg G.P. has
no business other than being a holding company of Warburg and its subsidiaries.
Warburg's address is 466 Lexington Avenue, New York, New York 10017-3147.
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
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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 November
30, 1995 had approximately $ million in assets under management. SPARX USA's
address is 413 Seaside Avenue, Honolulu, Hawaii 96815.
PORTFOLIO MANAGERS. Emerging Markets Fund. Richard H. King and Nicholas P.W.
Horsley are co-portfolio managers of the Fund, and Harold W. Ehrlich and Vincent
J. McBride are associate portfolio managers and research analysts.
International Equity Fund. Richard H. King is portfolio manager of the
Fund, and Nicholas P.W. Horsley, P. Nicholas Edwards, Harold W. Ehrlich and
Vincent J. McBride are associate portfolio managers and research analysts.
Japan Growth Fund. P. Nicholas Edwards is portfolio manager of the Fund.
Japan OTC Fund. Richard H. King, Nicholas P.W. Horsley and Shuhei Abe are
co-portfolio managers of the Fund, and Toshikatsu Kimura is an associate
portfolio manager.
Mr. King, a managing director of EMW since 1989, has been a portfolio
manager of each Fund other than the Japan Growth Fund since its inception. 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. Edwards has been with Warburg 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. Horsley
has been a co-portfolio manager of the Emerging Markets and Japan OTC Funds
since their inception. Mr. Horsley is a senior vice president of Warburg and has
been with Warburg since 1993, before which time he was a director, portfolio
manager and analyst at Barclays deZoete Wedd in New York City. Mr. Ehrlich is a
senior vice president of Warburg and has been with Warburg and the Funds 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 Warburg and the Funds since 1994. Prior to joining Warburg, 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 since
its inception, 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 has been an associate portfolio manager of the Japan OTC Fund since its
inception. 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.
CO-ADMINISTRATORS. The Funds employ Counsellors Funds Service, Inc.
('Counsellors Service'), a wholly owned subsidiary of Warburg, 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
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furnishing certain executive and administrative services, acting as liaison
between the Funds and their various service providers, furnishing corporate
secretarial services, which include preparing materials for meetings of the
Board, preparing proxy statements and annual, semiannual and quarterly reports,
assisting in other regulatory filings as necessary and monitoring and developing
compliance procedures for the Funds. As compensation, each Fund pays Counsellors
Service a fee calculated at an annual rate of .10% of the Fund's average daily
net assets.
Each Fund employs 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 Funds each pay
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.
CUSTODIANS. State Street Bank and Trust Company ('State Street') serves as
custodian of the Emerging Markets Fund's and the Japan OTC Fund's assets.
Fiduciary Trust Company International ('Fiduciary') serves as custodian of the
International Equity Fund's assets. PNC Bank, National Association ('PNC'),
serves as custodian of the Japan Growth Fund's U.S. assets, and Fiduciary serves
as custodian of the Fund's non-U.S. assets. State Street's principal business
address is 225 Franklin Street, Boston, Massachusetts 02110. Fiduciary's
principal business address is Two World Trade Center, New York, New York 10048.
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 Warburg and is
located at 466 Lexington Avenue, New York, New York 10017-3147. Counsellors
Securities receives a fee at an annual rate equal to .25% of the average daily
net assets of each of the Emerging Markets, Japan Growth and Japan OTC Fund's
Common Shares for distribution services, pursuant to a shareholder servicing and
distribution plan (the '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 Boards of the Emerging Markets Fund, the Japan Growth
Fund and the Japan OTC Fund evaluate the appropriateness of the 12b-1 Plans 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. No compensation is payable by the International Equity Fund
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to Counsellors Securities for distribution services.
Warburg or its affiliates may, at their own expense, provide promotional
incentives to parties who support the sale of shares of the Funds, consisting of
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.
DIRECTORS AND OFFICERS. The officers of each Fund manage its day-to-day
operations and are directly responsible to the Board. The Boards set broad
policies for each Fund and choose its officers. A list of the Directors and
officers of each Fund and a brief statement of their present positions and
principal occupations during the past five years is set forth in the Statement
of Additional Information of each Fund.
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 (i) 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 (ii) about
opening a Uniform Gifts to Minors Act or Uniform Transfers to Minors Act
('UGMA') account, an investor should telephone Warburg Pincus Funds at (800)
888-6878 or write to Warburg Pincus Funds at the address set forth above.
Investors should consult their own tax advisers about the establishment of
retirement plans 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
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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 prospective
investor after prompt inquiry. If a telephone order is placed and payment by
wire is not received on the same day, the Fund will cancel the purchase and the
investor may be liable for losses or fees incurred.
The minimum initial investment in 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 retirement plans and UGMA accounts, the minimum initial 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 Warburg 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.
PURCHASES THROUGH INTERMEDIARIES. The Funds understand that some broker-dealers
(other than Counsellors Securities), financial institutions, securities dealers
and other industry professionals, including certain of the programs discussed
below, may impose certain conditions on their clients or customers that invest
in the Funds, which are in addition to or different than those described in this
Prospectus, and may charge their clients or customers direct fees. Certain
features of the Funds, such as the initial and subsequent investment minimums,
redemption
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fees and certain trading restrictions, may be modified or waived 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 OneSource'tm' Program; Fidelity Brokerage Services,Inc.
Funds-Network'tm' Program; Jack White & Company,Inc.; and Waterhouse Securities,
Inc. The availability of the Japan OTC Fund through these brokerage firms may
vary. 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 clients and 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 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
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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 redemption proceeds.
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. Except as noted above, redemption proceeds will
normally be mailed or wired to an investor on the next business day following
the date a redemption order is effected. If, however, in the judgment of
Warburg, 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 a retirement plan 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
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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 another Warburg Pincus Fund at
their respective net asset values. Exchanges may be effected by mail or by
telephone in the manner described under 'Redemption of Shares' above. If an
exchange request is received by Warburg Pincus Funds prior to 4:00 p.m. (Eastern
time), the exchange will be made at 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 invest-
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ing in a diversified portfolio of fixed-income securities;
WARBURG PINCUS GLOBAL FIXED INCOME FUND -- a bond fund investing in a
portfolio consisting of investment grade fixed-income securities of
governmental and corporate issuers denominated in various currencies,
including U.S. dollars;
WARBURG PINCUS BALANCED FUND -- a fund seeking maximum total return
through a combination of long-term growth of capital and current income
consistent with preservation of capital through diversified investments in
equity and debt securities;
WARBURG PINCUS GROWTH & INCOME FUND -- an equity fund seeking long-term
growth of capital and income and a reasonable current return;
WARBURG PINCUS CAPITAL APPRECIATION FUND -- an equity fund seeking
long-term capital appreciation by investing principally in equity
securities of medium-sized domestic companies;
WARBURG PINCUS SMALL COMPANY VALUE -- an equity fund seeking long-term
capital appreciation by investing primarily in equity securities of small
companies;
WARBURG PINCUS EMERGING GROWTH FUND -- an equity fund seeking maximum
capital appreciation by investing in emerging growth companies; and
WARBURG PINCUS POST-VENTURE CAPITAL FUND -- an equity fund seeking
long-term growth of capital by investing principally in equity securities
of issuers in their post-venture capital stage of development;
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 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
annually 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.
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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, and
distributions derived from net realized long-term capital gains are taxable to
investors as long-term capital gains, in each case regardless of how long the
shareholder has held Fund shares and whether received in cash or reinvested in
additional 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.
Dividends and interest received by the Funds may be subject to withholding
and other taxes imposed by foreign countries. However, tax conventions between
certain countries and the United States may reduce or eliminate such taxes. If a
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. 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, each 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 Emerging Markets Fund and the Japan
Growth Fund. Certain provisions of the Code may require that a gain recognized
by a 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. A 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
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Fund to close the short sale. The Funds' short selling activities will not
result in unrelated business taxable income to a tax-exempt investor.
Special Tax Matters Relating to the Japan Growth Fund and the Japan OTC
Fund. In the opinion of Japanese counsel for the Funds, the operations of the
Funds will not subject a 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 a Fund
from sources within Japan is subject to a Japanese withholding tax at a rate of
10%.
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 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.
Securities listed on a U.S. securities exchange (including securities
traded through the NASDAQ National Market System) or foreign securities exchange
or traded in an over-the-counter market will be valued at the most recent sale
price when the valuation is made. Debt obligations that mature in 60 days or
less from the valuation date are valued on the basis of amortized cost, unless
the Board determines that using this valuation method would not reflect the
investments' value. Securities, options and futures contracts for which market
quotations are not readily available and other assets will be valued at their
fair value as determined in good faith pursuant to consistently applied
procedures established by the Board. Further information regarding valuation
policies is contained in the 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
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annual total return of its Common Shares over various periods of time. These
total return figures show the average percentage change in value of an
investment in the Common Shares from the beginning of the measuring period to
the end of the measuring period. The figures reflect changes in the price of the
Common Shares assuming that any income dividends and/or capital gain
distributions made by the Fund during the period were reinvested in Common
Shares of the Fund. Total return will be shown for recent one-, five- and
ten-year periods, and may be shown for other periods as well (such as from
commencement of the Fund's operations or on a year-by-year, quarterly or current
year-to-date basis).
When considering average total return figures for periods longer than one
year, it is important to note that the annual total return for one year in the
period might have been greater or less than the average for the entire period.
When considering total return figures for periods shorter than one year,
investors should bear in mind that 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 Emerging Markets Fund,
with the IFC Emerging Market Free Index, the IFC Investible Index or the Morgan
Stanley Capital International Emerging Markets 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; and in
the case of the Japan Growth Fund and 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; all of which are unmanaged indexes of common stocks; or (iii) other
appropriate indexes of investment securities or with data developed by Warburg
derived from such indexes. 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, Mutual
Fund Magazine, 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
port-
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folio managers describing approaches taken in managing the Fund's investments,
research methodology underlying stock selection or the Fund's investment
objective. In addition, a Fund and its portfolio managers may render periodic
updates of Fund activity, which may include discussion of significant portfolio
holdings and analysis of holdings by industry, country, credit quality and other
characteristics. Each Fund may also discuss measures of risk, 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 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 Emerging Markets Fund was incorporated on December 23, 1993
under the laws of the State of Maryland under the name 'Warburg, Pincus Emerging
Markets Fund, Inc.' The International Equity Fund was incorporated on February
9, 1989 under the laws of the State of Maryland under the name 'Counsellors
International Equity Fund, Inc.' On October 27, 1995 the Fund amended its
charter to change its name to 'Warburg, Pincus International Equity Fund, Inc.'
The Japan Growth Fund was incorporated on October 10, 1995 under the laws of the
State of Maryland under the name 'Warburg, Pincus Japan Growth Fund, Inc.,' and
the Japan OTC Fund was incorporated on July 26, 1994 under the laws of the State
of Maryland under the name 'Warburg, Pincus Japan OTC Fund, Inc.'
Each Fund's charter authorizes its Board to issue three billion full and
fractional shares of capital stock, $.001 par value per share, of which one
billion shares are designated Advisor Shares. Under each Fund's charter
documents, the Board has the power to classify or reclassify any unissued shares
of the Fund into one or more additional classes by setting or changing in any
one or more respects their relative rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption. The Board 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. Individual investors may only
purchase Advisor Shares through institutional shareholders of record,
broker-dealers, financial institutions, depository institutions, retirement
plans and financial intermediaries. 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. Because of the higher
fees paid 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 from their investment professional or
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 Board unless
and until such time as less than a majority of the members holding office have
been elected by investors. Any Director of a 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.
A meeting will be called for the purpose of voting on the removal of a Board
member at the
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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 as of November 30, 1995 because they may be deemed to
possess or share investment power over shares owned by clients of Warburg 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 or investment made through the Automatic Investment
Program). 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, financial institutions and broker-dealers, that will not be paid a
distribution fee by a Fund 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 fees by a Fund, Counsellors
Securities, Counsellors Service or any of their affiliates for transfer agency,
administrative, accounting, shareholder liaison and/or other services provided
to their clients or customers that invest in the Funds' Common Shares.
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 and registered representatives (including retirement plan
consultants) that facilitate the administration and servicing of shareholder
accounts may also be paid a fee. Fees paid vary depending on the arrangements
and the amount of Fund assets held by an institution's clients or customers
and/or the number of plan participants investing in the Fund. Warburg,
Counsellors Securities, Counsellors Service or any of their affiliates may, from
time to time, at their own expense, pay certain Fund transfer agent fees and
expenses related to clients and customers of these institutions and
organizations. In addition, these institutions and organizations may use a
portion of their compensation to compensate the Fund's custodian or transfer
agent for costs related to accounts of their clients or customers.
------------------------
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.
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TABLE OF CONTENTS
THE FUNDS' EXPENSES ...................................................... 2
FINANCIAL HIGHLIGHTS ..................................................... 3
INVESTMENT OBJECTIVES AND POLICIES ....................................... 5
PORTFOLIO INVESTMENTS .................................................... 8
RISK FACTORS AND SPECIAL
CONSIDERATIONS ....................................................... 11
PORTFOLIO TRANSACTIONS AND TURNOVER
RATE ................................................................. 14
CERTAIN INVESTMENT STRATEGIES ........................................... 15
INVESTMENT GUIDELINES ................................................... 18
MANAGEMENT OF THE FUNDS ................................................. 19
HOW TO OPEN AN ACCOUNT .................................................. 22
HOW TO PURCHASE SHARES .................................................. 22
HOW TO REDEEM AND EXCHANGE
SHARES ............................................................... 24
DIVIDENDS, DISTRIBUTIONS AND TAXES ...................................... 27
NET ASSET VALUE ......................................................... 29
PERFORMANCE ............................................................. 29
GENERAL INFORMATION ..................................................... 31
SHAREHOLDER SERVICING ................................................... 32
[LOGO]
[ ] WARBURG PINCUS
EMERGING MARKETS FUND
[ ] WARBURG PINCUS
INTERNATIONAL EQUITY FUND
[ ] WARBURG PINCUS
JAPAN GROWTH FUND
[ ] WARBURG PINCUS
JAPAN OTC FUND
PROSPECTUS
DECEMBER 29, 1995
WPIEQ-1-1295
STATEMENT OF DIFFERENCES
The trademark symbol shall be expressed as .................... 'tm'
The Dagger symbol shall be expressed as ....................... 'D'
<PAGE>
[Logo]
PROSPECTUS
DECEMBER 29, 1995
[ ] WARBURG PINCUS JAPAN GROWTH FUND
<PAGE>
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 18, 1995
WARBURG PINCUS ADVISOR FUNDS
P.O. BOX 9030
BOSTON, MASSACHUSETTS 02205-9030
TELEPHONE NUMBER: (800) 888-6878
December 29, 1995
PROSPECTUS
Warburg Pincus Advisor Funds are a family of open-end mutual funds that are
offered to investors who wish to buy shares through an investment professional,
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 JAPAN GROWTH FUND seeks long-term growth of capital by investing
primarily in equity securities of Japanese issuers.
International investing entails special risk considerations, including currency
fluctuations, lower liquidity, economic instability, political uncertainty and
differences in accounting methods. See 'Risk Factors and Special
Considerations.'
The Fund currently offers two classes of shares, one of which, the Advisor
Shares, is offered pursuant to this Prospectus. The 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.' Individual investors may
purchase Advisor Shares only through institutional shareholders of record,
broker-dealers, financial institutions, depository institutions, retirement
plans and other financial intermediaries ('Institutions'). The Advisor Shares
impose a 12b-1 fee of up to .75% per annum, which is the economic equivalent of
a sales charge. The Fund's Common Shares are available for purchase by
individuals directly and are offered by a separate prospectus.
NO MINIMUM INVESTMENT
There is no minimum amount of initial or subsequent purchases of shares imposed
on Institutions. See 'How to Purchase Shares.'
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in a Statement of Additional Information, has been filed with
the Securities and Exchange Commission (the 'SEC') and is available to investors
without charge by calling Warburg Pincus Advisor Funds at (800) 888-6878.
Information regarding the status of shareholder accounts may also be obtained by
calling Warburg Pincus Advisor Funds at (800) 888-6878. The Statement of
Additional Information, as amended or supplemented from time to time, bears the
same date as this Prospectus and is incorporated by reference in its entirety
into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
INVESTMENTS IN SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT
BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE
ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR
SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
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THE FUND'S EXPENSES
The Fund currently offers two separate classes of shares: Common Shares and
Advisor Shares. See 'General Information.' Because of the higher fees paid by
Advisor Shares, the total return on such shares can be expected 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)
Management
Fees....................................................................................................... .82%
12b-1 Fees............................................................................................ .75%*
Other Expenses........................................................................................ .68%
----
Total Fund Operating Expenses (after fee waivers)`D'.................................................. 2.25%
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................................................................................................ $25
3 years............................................................................................... $78
</TABLE>
- ------------
* Current 12b-1 fees are .50% out of a maximum .75% authorized under the
Advisor Shares' Distribution Plan. At least a portion of these fees should be
considered by the investor to be the economic equivalent of a sales charge.
`D' Absent the anticipated waiver of fees by the Fund's investment adviser and
co-administrator, Management Fees for the Fund 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. Other Expenses and Total Fund Operating Expenses
are based on annualized estimates of expenses for the fiscal year ending
October 31, 1996, net of any fee waivers or expense requirements.
------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as an Advisor Shareholder of the Fund. Institutions also
may charge their clients fees in connection with investments in the Advisor
Shares, which fees are not reflected in the table. The Example should not be
considered a representation of past or future expenses; actual Fund expenses may
be greater or less than those shown. Moreover, while the Example assumes a 5%
annual return, the Fund's actual performance will vary and may result in a
return greater or less than 5%. Long-term shareholders 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').
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INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks 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 non-diversified management investment company that pursues
its objective by investing primarily in equity securities of Japanese issuers
that present attractive opportunities for growth. Under current market
conditions the Fund intends to invest at least 80% of its total assets -- but
will invest no less than 65% of its assets under normal market conditions -- in
common and preferred stocks, warrants and other rights, securities convertible
into or exchangeable for common stocks and American Depository Receipts ('ADRs')
of Japanese issuers.
Warburg, Pincus Counsellors, Inc., the Fund's investment adviser
('Warburg'), believes that Japanese industry is in the process of deregulation
and restructuring. The Fund is designed to provide an opportunity to participate
in the dynamic structural changes in the Japanese industrial system through
investment in higher growth companies that can be expected to benefit from these
changes. The Fund will seek to identify and invest in Japanese issuers that are
showing or are expected to show a rapid or high rate of growth, based on
comparisons with Japanese or non-Japanese companies in the same industry or
other considerations. The Fund will also invest in Japanese companies that
Warburg believes are undervalued based on price/earnings ratios, comparisons
with Japanese or non-Japanese companies or other factors.
Unlike the Warburg Pincus Japan OTC Fund, which invests primarily in
over-the-counter securities, the Fund may invest in companies of any size,
whether traded on an exchange or over-the-counter. Currently, there are eight
exchanges in Japan -- the Tokyo, Osaka, Nagoya, Kyoto, Hiroshima, Fukuoka,
Niigata and Sapporo exchanges -- and two over-the-counter markets -- JASDAQ and
the Frontier Market. The Fund considers Japanese issuers to be (i) companies (A)
organized under the laws of Japan, or (B) whose principal business activities
are conducted in Japan and which derive at least 50% of their revenues or
profits from goods produced or sold, investments made, or services performed in
Japan, or have at least 50% of their assets in one or more such countries, or
(C) which have issued securities which are traded principally in Japan, and (ii)
Japanese governmental entities or political subdivisions. Determinations as to
the eligibility of issuers under the foregoing definition will be made by
Warburg based on publicly available information and inquiries made to the
companies. The portion of the Fund's assets not invested in Japanese issuers may
be invested in securities of other Asian issuers. The Fund does not, except
during temporary defensive periods, intend to invest in securities of non-Asian
issuers. From time to time, the 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.
PORTFOLIO INVESTMENTS
INVESTMENT GRADE DEBT. The Fund may invest up to 35% of its total assets in
investment grade debt securities (other than money market obligations) for the
purpose of seeking capital appreciation. The interest income to be derived may
be considered as one factor in selecting debt securities for investment by
Warburg. 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
3
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a strategy is dependent upon Warburg's 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 Warburg. 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, although Warburg will consider such event in
its determination of whether the Fund should continue to hold the securities.
When Warburg believes that a defensive posture is warranted, the Fund may
invest temporarily without limit in U.S. and foreign investment grade debt
obligations, other securities of U.S. companies and domestic and foreign money
market obligations, including repurchase agreements.
MONEY MARKET OBLIGATIONS. The Fund is authorized to invest, under normal
circumstances, up to 20% of its total assets in domestic and foreign short-term
(one year or less remaining to maturity) and medium-term (five years or less
remaining to maturity) money market obligations and for temporary defensive
purposes may invest in these securities without limit. These instruments consist
of obligations issued or guaranteed by the U.S. government or a foreign
government, their agencies or instrumentalities; 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 Warburg 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 with member banks of the Federal Reserve System and certain
non-bank dealers. Repurchase agreements are contracts under which the buyer of a
security simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Under the terms of a typical repurchase agreement,
the Fund would acquire any underlying security for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying
securities will at all times be at least equal to the total amount of the
purchase obligation, including interest. The Fund bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its obligations
or becomes bankrupt and the Fund is delayed or prevented from exercising its
right to dispose of the collateral securities, including the risk of a possible
decline in the value of the underlying securities during the period while the
Fund seeks to assert this right. Warburg, 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
4
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this risk. A repurchase agreement is considered to be a loan under the
Investment Company Act of 1940, as amended (the '1940 Act').
Money Market Mutual Funds. Where Warburg 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, Warburg or the Fund's
co-administrator, PFPC Inc. ('PFPC'). 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 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. Subsequent to purchase by the Fund, convertible
securities may cease to be rated or a rating may be reduced below the minimum
required for purchase by the Fund. Neither event will require sale of such
securities, although Warburg will consider such event in its determination of
whether the Fund should continue to hold the securities. The Fund does not
currently intend during the coming year to hold more than 5% of its net assets
in convertible securities rated below investment grade.
RISK FACTORS AND SPECIAL
CONSIDERATIONS
Investing in common stocks and securities convertible into common stocks is
subject to the inherent risk of fluctuations in the prices of such securities.
For certain additional risks relating to the Fund's investments, see 'Portfolio
Investments' beginning at page 3 and 'Certain Investment Strategies' beginning
at page 9.
JAPANESE INVESTMENTS. Investing in Japanese securities may involve the risks
described below associated with investing in foreign securities generally. In
addition, because the Fund invests primarily in Japan, the Fund will be subject
to general economic and political conditions in Japan. The 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 the
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 the 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.
The Fund's assets may be invested in securities traded through JASDAQ.
JASDAQ traded
5
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<PAGE>
securities can be volatile, which may result in the Fund's net asset value
fluctuating in response. 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 Fund's
investments traded through JASDAQ. In periods of rapid price increases, the
limited liquidity of JASDAQ may restrict 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 may
restrict 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.
At December 31, 1994, 581 issues were traded through JASDAQ, having an
aggregate market capitalization of approximately 14 trillion yen (approximately
$[134] billion as of December , 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 December , 1995) per share over the prior fiscal
year and net worth of 200 million yen (approximately $1.92 million as of
December , 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 a recently developed second over-the-counter market
and 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
companies traded through JASDAQ. As of the date of this Prospectus, there were
not yet any registrations on the Frontier Market.
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.
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
6
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<PAGE>
States, with whom the trade imbalance is the greatest.
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 Fund's
investing there. For additional information, see 'Japan and its Securities
Markets' beginning at page 27 of the Statement of Additional Information.
EMERGING MARKETS. The Fund may invest in securities of issuers located in less
developed Asian 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.
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. 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. 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. There is typically less publicly
available information concerning smaller companies than for larger, more
established ones. Although investing in securities of emerging growth companies
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 growth of capital by investing in better-known, larger
companies.
NON-PUBLICLY TRADED SECURITIES; 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 Fund's governing Board determines on an ongoing basis that an adequate
trading market exists for the security. In addition to an adequate trading
market, the Board will also consider factors such as trading activity,
availability of reliable price information and other relevant information in
determining whether a Rule 144A Security is liquid. This investment practice
could have the effect of increasing the level of illiquid-
7
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ity in the Funds 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 Warburg the daily function of determining
and monitoring the liquidity of Rule 144A Securities, although the Board will
retain ultimate responsibility for any determination regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities) may involve
a high degree of business and financial risk and may result in substantial
losses. These securities may be less liquid than publicly traded securities, and
the Fund may take longer to liquidate these positions than would be the case for
publicly traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized on such sales could be less than
those originally paid by the Fund. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to companies whose securities are publicly
traded. The Fund's investment in illiquid securities is subject to the risk that
should the Fund desire to sell any of these securities when a ready buyer is not
available at a price that is deemed to be representative of their value, the
value of the Fund's net assets could be adversely affected.
NON-DIVERSIFIED STATUS. The Fund is classified as a non-diversified investment
company under the 1940 Act, which means that the Fund is not limited by the 1940
Act in the proportion of its assets that it may invest in the obligations of a
single issuer. The Fund will, however, comply with diversification requirements
imposed by the Internal Revenue Code of 1986, as amended (the 'Code'), for
qualification as a regulated investment company. As a non-diversified investment
company, the Fund may invest a greater proportion of its assets in the
obligations of a small number of issuers and, as a result, may be subject to
greater risk with respect to portfolio securities. To the extent that the Fund
assumes large positions in the securities of a small number of issuers, its
return may fluctuate to a greater extent than that of a diversified company as a
result of changes in the financial condition or in the market's assessment of
the issuers.
PORTFOLIO TRANSACTIONS AND
TURNOVER RATE
The Fund will attempt to purchase securities with the intent of holding
them for investment but may purchase and sell portfolio securities whenever
Warburg 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%. High
portfolio turnover rates (100% or more) may result in dealer mark ups or
underwriting commissions as well as other transaction costs, including
correspondingly higher brokerage commissions. In addition, short-term gains
realized from portfolio turnover may be taxable to shareholders as ordinary
income. See 'Dividends, Distributions and Taxes -- Taxes' below and 'Investment
Policies -- Portfolio Transactions' in the Statement of Additional Information.
All orders for transactions in securities or options on behalf of the Fund
are placed by Warburg 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 Warburg 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.
8
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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, (ii) lending portfolio securities and (iii) entering into
reverse repurchase agreements and dollar rolls. The Fund may invest up to 5% of
its net assets in each of mortgage-backed securities and asset-backed
securities. The Fund may also invest in zero coupon securities, although the
Fund currently anticipates that during the coming year zero coupon securities
will not exceed 5% of net assets. Detailed information concerning the Fund's
strategies and related risks is contained below and in the Fund's Statement of
Additional Information.
FOREIGN SECURITIES. The Fund will ordinarily hold no less than 65% of its total
assets in Japanese securities. 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.
OPTIONS, FUTURES AND CURRENCY TRANSACTIONS. At the discretion of Warburg, the
Fund may, but is not required to, engage in a number of strategies involving
options, futures and forward currency contracts. These strategies, commonly
referred to as 'derivatives,' may be used (i) for the purpose of hedging against
a decline in value of the Fund's current or anticipated portfolio holdings, (ii)
as a substitute for purchasing or selling portfolio securities or (iii) to seek
to generate income to offset expenses or increase return. TRANSACTIONS THAT ARE
NOT CONSIDERED HEDGING SHOULD BE CONSIDERED SPECULATIVE AND MAY SERVE TO
INCREASE THE FUND'S INVESTMENT RISK. Transaction costs and any premiums
associated with these strategies, and any losses incurred, will affect the
Fund's net asset value and performance. Therefore, an investment in the Fund may
involve a greater risk than an investment in other mutual funds that do not
utilize these strategies. The Fund's use of these strategies may be limited by
position and exercise limits established by securities and commodities exchanges
and the NASD and by the Code.
Securities and Stock Index Options. The Fund may write put and call options
on up to 25% of the net asset value of the stock and debt
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securities in its portfolio and will realize fees (referred to as 'premiums')
for granting the rights evidenced by the options; the Fund may also utilize up
to 10% of its assets to purchase options on stocks and debt securities that are
traded on U.S. and foreign exchanges, as well as over-the-counter ('OTC')
options. The purchaser of a put option on a security has the right to compel the
purchase by the writer of the underlying security, while the purchaser of a call
option has the right to purchase the underlying security from the writer. In
addition to purchasing and writing 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 also write such options. A stock index
measures the movement of a certain group of stocks by assigning relative values
to the common stocks included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or at
less advantageous prices, limit the amount of appreciation the Fund could
realize on its investments or require the Fund to hold securities it would
otherwise sell.
Futures Contracts and Related 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, if consistent with CFTC
regulations, on foreign exchanges. These futures contracts are standardized
contracts for the future delivery of foreign currency or an interest rate
sensitive security or, in the case of stock index and certain other futures
contracts, are settled in cash with reference to a specified multiplier times
the change in the specified index, exchange rate or interest rate. 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.
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. Although the Fund is limited in the
amount of assets that may be invested in futures transactions, there is no
overall limit on the percentage of Fund assets that may be at risk with respect
to futures activities.
Currency Exchange Transactions. The Fund will conduct its currency exchange
transactions either (i) on a spot (i.e., cash) basis at the rate prevailing in
the currency exchange market, (ii) through entering into futures contracts or
options on futures contracts (as described above), (iii) through entering into
forward contracts to purchase or sell currency or (iv) by purchasing
exchange-traded currency options. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date at a price
set at the time of the contract. An option on a foreign currency operates
similarly to an option on a security. Risks associated with currency forward
contracts and purchasing currency options are similar to those described in this
Prospectus for futures contracts and securities and stock index options. In
addition, the use of currency transactions could result in losses from the
imposition of foreign exchange controls, suspension of settlement or other
governmental actions or unexpected events.
Hedging Considerations. The Fund may engage in options, futures and
currency transactions for, among other reasons, hedging purposes. A hedge is
designed to offset a loss on a portfolio position with a gain in the hedge
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position; at the same time, however, a properly correlated hedge will result in
a gain in the portfolio position being offset by a loss in the hedge position.
As a result, the use of options, futures contracts and currency exchange
transactions for hedging purposes could limit any potential gain from an
increase in value of the position hedged. In addition, the movement in the
portfolio position hedged may not be of the same magnitude as movement in the
hedge. The Fund will engage in hedging transactions only when deemed advisable
by Warburg, and successful use of hedging transactions will depend on Warburg's
ability to correctly predict movements in the hedge and the hedged position and
the correlation between them, which could prove to be inaccurate. Even a
well-conceived hedge may be unsuccessful to some degree because of unexpected
market behavior or trends.
Additional Considerations. To the extent that the Fund engages in the
strategies described above, the Fund may experience losses greater than if these
strategies had not been utilized. In addition to the risks described above,
these instruments may be illiquid and/or subject to trading limits, and the Fund
may be unable to close out an option or futures position without incurring
substantial losses, if at all. The Fund is also subject to the risk of a default
by a counterparty to an off-exchange transaction.
Asset Coverage. The Fund will comply with applicable regulatory
requirements designed to eliminate any potential for leverage with respect to
options written by the Fund on securities, indexes and currencies; currency,
interest rate and stock index futures contracts and options on these futures
contracts; and forward currency contracts. The use of these strategies may
require that the Fund maintain cash or certain liquid high-grade debt
obligations 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 SALES AGAINST THE BOX. The Fund may 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
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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 Fund may invest up to 10% of its net assets in securities with
contractual or other restrictions on resale and other instruments that are not
readily marketable, including (i) securities issued as part of a privately
negotiated transaction between an issuer and one or more purchasers; (ii)
repurchase agreements with maturities greater than seven days; (iii) time
deposits maturing in more than seven calendar days; and (iv) certain Rule 144A
Securities. Up to 5% of the Fund's total assets may be invested in the
securities of issuers which have been in continuous operation for less than
three years, and up to an additional 5% of its total assets may be invested in
warrants. The Fund may borrow from banks for temporary or emergency purposes,
such as meeting anticipated redemption requests, provided that borrowings by the
Fund may not exceed 30% of its total assets, and 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 net 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 Warburg as its investment adviser. Warburg,
subject to the control of the Fund's officers and the Board, manages the
investment and reinvestment of the assets of the Fund in accordance with the
Fund's investment objective and stated investment policies. Warburg makes
investment decisions for the Fund and places orders to purchase or sell
securities on behalf of the Fund. Warburg also employs a support staff of
management personnel to provide services to the Fund and furnishes the Fund with
office space, furnishings and equipment.
For the services provided by Warburg, the Fund pays Warburg 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, Warburg believes that
it is comparable to fees charged by other mutual funds with similar policies and
strategies. The advisory agreement between the Fund and Warburg provides that
Warburg will reimburse the Fund to the extent certain expenses that are
described in the Statement of Additional Information exceed applicable state
expense limitations. Warburg 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 paid by the Fund.
Warburg 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 November 30,
1995, Warburg managed approximately $11.9 billion of assets, including
approximately $6.2 billion of assets of twenty-six investment companies or
portfolios. Incorporated in 1970, Warburg is a wholly owned subsidiary of
Warburg, Pincus Counsellors G.P. ('Warburg G.P.'), a New York general
partnership. E.M. Warburg, Pincus &
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Co., Inc. ('EMW') controls Warburg through its ownership of a class of voting
preferred stock of Warburg. Warburg G.P. has no business other than being a
holding company of Warburg and its subsidiaries. Warburg's address is 466
Lexington Avenue, New York, New York 10017-3147.
PORTFOLIO MANAGER. P. Nicholas Edwards is the Fund's portfolio manager. Mr.
Edwards has been with Warburg 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.
CO-ADMINISTRATORS. The Fund employs Counsellors Funds Service, Inc.
('Counsellors Service'), a wholly owned subsidiary of Warburg, 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 other regulatory filings
as necessary and monitoring and developing compliance procedures for the Fund.
As compensation, the Fund pays Counsellors Service a fee calculated at an annual
rate of .10% of its average daily net assets.
The Fund employs PFPC, an indirect, wholly owned subsidiary of PNC Bank
Corp., as a co-administrator. As a co-administrator, PFPC calculates the Fund's
net asset value, provides all accounting services for the Fund and assists in
related aspects of the Fund's operations. As compensation, the Fund pays to PFPC
a fee calculated at an annual rate of .12% of the Fund's first $250 million in
average daily net assets, .10% of the next $250 million in average daily net
assets, .08% of the next $250 million in average daily net assets, and .05% of
average daily net assets over $750 million, 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.
CUSTODIANS. PNC Bank, National Association ('PNC'), serves as custodian of the
Fund's U.S. assets, and Fiduciary Trust Company International ('Fiduciary')
serves as custodian of the Fund's non-U.S. assets. Like PFPC, PNC is a
subsidiary of PNC Bank Corp. and its principal business address is Broad and
Chestnut Streets, Philadelphia, Pennsylvania 19101. Fiduciary's principal
business address is Two World Trade Center, New York, New York 10048.
TRANSFER AGENT. State Street Bank and Trust Company ('State Street') acts as
shareholder servicing agent, transfer agent and dividend disbursing agent for
the Fund. It has delegated to Boston Financial Data Services, Inc., a 50% owned
subsidiary ('BFDS'), responsibility for most shareholder servicing functions.
State Street's principal business address is 225 Franklin Street, Boston,
Massachusetts 02110. BFDS's principal business address is 2 Heritage Drive,
North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves as distributor of the shares of the
Fund. Counsellors Securities is a wholly owned subsidiary of Warburg 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.
Warburg or its affiliates may, at their own expense, provide promotional
incentives to parties who support the sale of shares of the Fund, consisting of
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
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sale or expected sale of significant amounts of Fund shares.
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
Individual investors may only purchase Warburg Pincus Advisor Fund shares
through Institutions. The Fund reserves the right to make Advisor Shares
available to other investors in the future. References in this Prospectus to
shareholders or investors also include Institutions which may act as record
holders of the Advisor Shares.
Each Institution separately determines the rules applicable to its
customers investing in the Fund, including minimum initial and subsequent
investment requirements and the procedures to be followed to effect purchases,
redemptions and exchanges of Advisor Shares. There is no minimum amount of
initial or subsequent purchases of Advisor Shares imposed on Institutions,
although the Fund reserves the right to impose minimums in the future.
Orders for the purchase of Advisor Shares are placed with an Institution by
its customers. The Institution is responsible for the prompt transmission of the
order to the Fund or its agent.
Institutions may purchase Advisor Shares by telephoning the Fund and
sending payment by wire. After telephoning (800) 888-6878 for instructions, an
Institution should then wire federal funds to Counsellors Securities Inc. using
the following wire address:
State Street Bank and Trust Co.
225 Franklin St.
Boston, MA 02101
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
Warburg Pincus Advisor Japan Growth Fund
DDA# 9904-649-2
[Shareowner name]
[Shareowner account number]
Orders by wire will not be accepted until a completed account application
has been received in proper form, and an account number has been established. If
a telephone order is received by the close of regular trading on the New York
Stock Exchange (the 'NYSE') (currently 4:00 p.m., Eastern time) and payment by
wire is received on the same day in proper form in accordance with instructions
set forth above, the shares will be priced according to the net asset value of
the Fund on that day and are entitled to dividends and distributions beginning
on that day. If payment by wire is received in proper form by the close of the
NYSE without a prior telephone order, the purchase will be priced according to
the net asset value of the Fund on that day and is entitled to dividends and
distributions beginning on that day. However, if a wire in proper form that is
not preceded by a telephone order is received after the close of regular trading
on the NYSE, the payment will be held uninvested until the order is effected at
the close of business on the next business day. Payment for orders that are not
accepted will be returned after prompt inquiry. Certain organizations or
Institutions 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 three business days following the day the order is effected. 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
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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 or customers that
invest in the Fund, which are in addition to or different than those described
in this Prospectus, and may charge their clients or customers direct fees.
Certain features of the Fund, such as initial and subsequent investment
minimums, redemption fees and certain trading restrictions, may be modified or
waived 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.
HOW TO REDEEM AND EXCHANGE
SHARES
REDEMPTION OF SHARES. An investor may redeem (sell) shares on any day that the
Fund's net asset value is calculated (see 'Net Asset Value' below). Requests for
the redemption (or exchange) of Advisor Shares are placed with an Institution by
its customers, which is then responsible for the prompt transmission of the
request to the Fund or its agent.
Institutions may redeem Advisor Shares by calling Warburg Pincus Advisor
Funds at (800) 888-6878 between 9:00 a.m. and 4:00 p.m. (Eastern time) on any
day on which the Fund's net asset value is calculated. An investor making a
telephone withdrawal should state (i) the name of the Fund, (ii) the account
number of the Fund, (iii) the name of the investor(s) appearing on the Fund's
records, (iv) the amount to be withdrawn and (v) the name of the person
requesting the redemption.
After receipt of the redemption request, the redemption proceeds will be
wired to the investor's bank as indicated in the account application 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. Except as noted above, 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 Warburg, immediate
payment would adversely affect the Fund, the Fund reserves the right to pay the
redemption proceeds within seven days after the redemption order is effected.
Furthermore, the Fund may suspend the right of redemption or postpone the date
of payment upon redemption (as well as suspend or postpone the recordation of an
exchange of shares) for such periods as are permitted under the 1940 Act.
The proceeds paid upon redemption may be more or less than the amount
invested depending upon a share's net asset value at the time of redemption.
If an investor redeems all the shares
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in his account, all dividends and distributions declared up to and including the
date of redemption are paid along with the proceeds of the redemption.
EXCHANGE OF SHARES. An Institution may exchange Advisor Shares of the Fund for
Advisor Shares of the other Warburg Pincus Advisor Funds at their respective net
asset values. Exchanges may be effected in the manner described under
'Redemption of Shares' above. If an exchange request is received by Warburg
Pincus Advisor Funds prior to 4:00 p.m. (Eastern time), the exchange will be
made at each fund's net asset value determined at the end of that business day.
Exchanges may be effected without a sales charge. The exchange privilege may be
modified or terminated at any time upon 60 days' notice to shareholders.
The exchange privilege is available to shareholders residing in any state
in which the Advisor Shares being acquired may legally be sold. When an investor
effects an exchange of shares, the exchange is treated for federal income tax
purposes as a redemption. Therefore, the investor may realize a taxable gain or
loss in connection with the exchange. Investors wishing to exchange Advisor
Shares of the Fund for 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
annually and pays them in the calendar year in which they are declared. Net
investment income earned on weekends and when the NYSE is not open will be
computed as of the next business day. Distributions of net realized long-term
and short-term capital gains are declared annually and, as a general rule, will
be distributed or paid in November or December of each calendar year. Unless an
investor instructs the Fund to pay dividends or distributions in cash, dividends
and distributions will automatically be reinvested in additional Advisor Shares
of the Fund at net asset value. The election to receive dividends in cash may be
made on the account application or, subsequently, by writing to Warburg Pincus
Advisor Funds at the address set forth under 'How to Redeem and Exchange Shares'
or by calling Warburg Pincus Advisor Funds at (800) 888-6878.
The Fund may be required to withhold for U.S. federal income taxes 31% of
all distributions payable to shareholders who fail to provide the Fund with
their correct taxpayer identification number or to make required certifications,
or who have been notified by the U.S. Internal Revenue Service that they are
subject to backup withholding.
TAXES. The Fund intends to continue to qualify each year as a 'regulated
investment company' within the meaning of the Code. The Fund, if it qualifies as
a regulated investment company, will be subject to a 4% non-deductible excise
tax measured with respect to certain undistributed amounts of ordinary income
and capital gain. The Fund expects to pay such additional dividends and to make
such additional distributions as are necessary to avoid the application of this
tax.
Dividends paid from net investment income and distributions of net realized
short-term capital gains are taxable to investors as ordinary income, and
distributions derived from net realized long-term capital gains will be taxable
to investors as long-term capital gains, in each case regardless of how long
investors have held Advisor Shares or whether received in cash or reinvested in
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-
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term capital gain or loss if it has held its shares for more than one year and
will be a short-term capital gain or loss if it has held its shares for one year
or less. However, any loss realized upon the sale or redemption of shares within
six months from the date of their purchase will be treated as a long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain during such six-month period with respect to such shares. Investors
may be proportionately liable for taxes on income and gains of the Fund, but
investors not subject to tax on their income will not be required to pay tax on
amounts distributed to them. The Fund's investment activities will not result in
unrelated business taxable income to a tax-exempt investor. The Fund's
dividends, to the extent not derived from dividends attributable to certain
types of stock issued by U.S. domestic corporations, will not qualify for the
dividends received deduction for corporations.
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 United States may reduce or eliminate such taxes. If
the Fund qualifies as a regulated investment company, if certain asset and
distribution requirements are satisfied and if more than 50% of the Fund's total
assets at the close of its fiscal year consist of stock or securities of foreign
corporations, the Fund may elect for U.S. income tax purposes to treat foreign
income taxes paid by it as paid by its shareholders. The Fund may qualify for
and make this election in some, but not necessarily all, of its taxable years.
If the Fund were to make an election, shareholders of the Fund would be required
to take into account an amount equal to their pro rata portions of such foreign
taxes in computing their taxable income and then treat an amount equal to those
foreign taxes as a U.S. federal income tax deduction or as a foreign tax credit
against their U.S. federal income taxes. Shortly after any year for which it
makes such an election, the Fund will report to its shareholders the amount per
share of such foreign 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.
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.
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%.
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
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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.
Securities listed on a U.S. securities exchange (including securities
traded through the NASDAQ National Market System) or foreign securities exchange
or traded in an over-the-counter market will be valued at the most recent sale
price when the valuation is made. Debt obligations that mature in 60 days or
less from the valuation date are valued on the basis of amortized cost, unless
the Board determines that using this valuation method would not reflect the
investments' value. Securities, options and futures contracts for which market
quotations are not readily available and other assets will be valued at their
fair value as determined in good faith pursuant to consistently applied
procedures established by the Board. 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 Fund's 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
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shown by means of schedules, charts or graphs, and may indicate various
components of total return (i.e., change in value of initial investment, income
dividends and capital gain distributions).
Investors should note that total return figures are based on historical
earnings and are not intended to indicate future performance. The Statement of
Additional Information describes the method used to determine the total return.
Current total return figures may be obtained by calling Warburg Pincus Advisor
Funds at (800) 888-6878.
In reports or other communications to investors or in advertising material,
the Fund may describe general economic and market conditions affecting the Fund.
The Fund may compare its performance with (i) that of other mutual funds as
listed in the rankings prepared by Lipper Analytical Services, Inc. or similar
investment services that monitor the performance of mutual funds or as set forth
in the publications listed below; (ii) the 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.); the S&P 500; the Nikkei
over-the-counter average; the JASDAQ Index; the Nikkei 225 and 300 Stock Indexes
and the Topix Index, all of which are unmanaged indexes of common stocks; or
(iii) other appropriate indexes of investment securities or with data developed
by Warburg derived from such indexes. The Fund may also include evaluations of
the Fund published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as The Wall Street Journal,
Investor's Daily, Money, Inc., Institutional Investor, Barron's, Fortune,
Forbes, Business Week, Mutual Fund Magazine, Morningstar, Inc. and Financial
Times.
In reports or other communications to investors or in advertising, the Fund
may also describe the general biography or work experience of the portfolio
managers of the Fund and may include quotations attributable to the portfolio
managers describing approaches taken in managing the Fund's investments,
research methodology underlying stock selection or the Fund's investment
objective. In addition, the Fund and its portfolio managers may render periodic
updates of Fund activity, which may include discussion of significant portfolio
holdings and analysis of holdings by industry, country, credit quality and other
characteristics. The Fund may also discuss measures of risk, 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 October 10, 1995 under the laws of
the State of Maryland under the name 'Warburg, Pincus Japan Growth Fund, Inc.'
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 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
19
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<PAGE>
calculate net asset value and performance quotations in the same manner, except
that Advisor Shares bear fees payable by the Fund to Institutions 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 paid
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 from their investment professional or 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 Director of the Fund may be removed from office
upon the vote of shareholders holding at least a majority of the Fund's
outstanding shares, at a meeting called for that purpose. A meeting will be
called for the purpose of voting on the removal of a Board member at the written
request of holders of 10% of the outstanding shares of the Fund.
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 through
Institutions whose clients or customers (or participants in the case of
retirement plans) ('Customers') are owners of Advisor Shares. Either those
Institutions or companies providing certain services to Customers (together,
'Service Organizations') will enter into agreements ('Agreements') with the Fund
and/or Counsellors Securities pursuant to a Distribution Plan as described
below. Such entities may 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 each participating Service Organization will be paid, out
of the assets of the Fund (either directly or by Counsellors Securities on
behalf of the Fund), 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 current 12b-1 fee is .50% per annum. The Board evaluates the
appropriateness of the Plan on a
20
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<PAGE>
continuing basis and in doing so considers all relevant factors.
Warburg, Counsellors Securities and Counsellors Service or any of their
affiliates may, from time to time, at their own expense, provide compensation to
Service Organizations. To the extent they do so, such compensation does not
represent an additional expense to the Fund or its shareholders. In addition,
Warburg, Counsellors Securities or any of their affiliates may, from time to
time, at their own expense, pay certain Fund transfer agent fees and expenses
related to accounts of Customers. A Service Organization may use a portion of
the fees paid pursuant to the Plan to compensate the Fund's custodian or
transfer agent for costs related to accounts of Customers.
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.
21
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<PAGE>
TABLE OF CONTENTS
THE FUND'S EXPENSES .......................................................... 2
INVESTMENT OBJECTIVE AND POLICIES ............................................ 3
PORTFOLIO INVESTMENTS ........................................................ 3
RISK FACTORS AND SPECIAL
CONSIDERATIONS ............................................................ 5
PORTFOLIO TRANSACTIONS AND TURNOVER
RATE ...................................................................... 8
CERTAIN INVESTMENT STRATEGIES ................................................ 9
INVESTMENT GUIDELINES ....................................................... 12
MANAGEMENT OF THE FUND ...................................................... 12
HOW TO PURCHASE SHARES ...................................................... 14
HOW TO REDEEM AND EXCHANGE
SHARES ................................................................... 15
DIVIDENDS, DISTRIBUTIONS AND TAXES .......................................... 16
NET ASSET VALUE ............................................................. 18
PERFORMANCE ................................................................. 18
GENERAL INFORMATION ......................................................... 19
SHAREHOLDER SERVICING ....................................................... 20
ADJGR-1-1295
[LOGO]
[ ] WARBURG PINCUS
JAPAN GROWTH FUND
PROSPECTUS
DECEMBER 29, 1995
STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as .......... 'D'
<PAGE>1
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
<PAGE>1
Subject to Completion, dated December 18, 1995
STATEMENT OF ADDITIONAL INFORMATION
December 29, 1995
________________________
WARBURG PINCUS JAPAN GROWTH FUND
P.O Box 9030, Boston, Massachusetts 02205-9030
For information, call (800) 888-6878
________________________
Contents
Page
Investment Objective . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Investment Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Japan and its Securities Markets . . . . . . . . . . . . . . . . . . . . 28
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . 40
Additional Purchase and Redemption Information . . . . . . . . . . . . . 47
Exchange Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Additional Information Concerning Taxes . . . . . . . . . . . . . . . . . 48
Determination of Performance . . . . . . . . . . . . . . . . . . . . . . 52
Auditors and Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Appendix - Description of Ratings . . . . . . . . . . . . . . . . . . . . A-1
Report of Coopers & Lybrand L.L.P., Independent Auditors . . . . . . . . A-5
This Statement of Additional Information is meant to be read in
conjunction with the Prospectus for the Common Shares of Warburg Pincus Japan
Growth Fund (the "Fund") and with the Prospectus for the Advisor Shares of the
Fund, each dated December 29, 1995, as amended or supplemented from time to
time, 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.
As described in the Prospectuses, the Fund will maintain at least
65% of its total assets in equity securities of Japanese issuers. In
addition, the Fund may invest up to 35% of its total assets in securities of
other Asian issuers. Asian issuers are (i) companies (A) organized under the
laws of an Asian country or its predecessors, or (B) whose principal business
activities are conducted in one or more Asian countries, and which derive at
least 50% of their revenues or profits from goods produced or sold,
investments made, or services performed in one or more Asian countries, or
have at least 50% of their assets in one or more such countries, or (C) which
have issued securities which are traded principally in an Asian country, and
(ii) governments, governmental entities or political subdivisions of Asian
countries. Determinations as to the eligibility of issuers under the
foregoing definition will be made by the investment advisers based on publicly
available information and inquiries made to the companies. The Fund considers
Asia to be comprised of the contiguous eastern Eurasian land mass and adjacent
islands, including the countries of Taiwan, Korea, Indonesia, China, Hong
Kong, Turkey, India, Malaysia, Pakistan, the Philippines, Sri Lanka, Singapore
and Thailand. For purposes of applying the foregoing limitations, if a
company meets the definition of an Asian issuer as a result of relationships
with respect to more than one Asian country, the Fund may consider the company
to be associated with any of such countries. Due to the rapidly evolving
nature of Asian markets, the Fund reserves the ability to consider additional
countries to be included in Asia if market conditions should develop so as to
warrant such a change in investment policy.
Options, Futures and Currency Exchange Transactions
Securities Options. The Fund may write covered put and call options
on stock and debt securities and may purchase such options that are traded on
foreign and U.S. exchanges, as well as over-the-counter ("OTC").
The Fund realizes fees (referred to as "premiums") for granting the
rights evidenced by the 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.
<PAGE>3
The principal reason for writing covered options on a security is to
attempt to realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. In return for a premium, the Fund
as the writer of a covered call option forfeits the right to any appreciation
in the value of the underlying security above the strike price for the life of
the option (or until a closing purchase transaction can be effected).
Nevertheless, the Fund as a put or 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.
If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that the
writer will also profit, because it should be able to close out the option at
a lower price. If security prices fall, the put writer would expect to suffer
a loss. This loss should be less than the loss from purchasing the underlying
instrument directly, however, because the premium received for writing the
option should mitigate the effects of the decline.
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
securities, 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. For example, 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.
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 Warburg 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 Warburg expects that the price of the underlying security
will remain flat or advance moderately
<PAGE>4
during the option period and (iii) out-of-the-money call options when Warburg
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. Out-of-the-money, at-the-money and in-the-money put options
(the reverse of call options as to the relation of exercise price to market
price) may be used in the same market environments that such call options are
used in equivalent transactions. 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 Clearing Corporation and of the securities exchange on which
the option is written.
Prior to their expirations, put and call options may be sold in
closing sale or purchase transactions (sales or purchases by the Fund prior to
the exercise of options that it has purchased or written, respectively, of
options of the same series) in which the Fund may realize a profit or loss
from the sale. An option position may be closed out only where there exists a
secondary market for an option of the same series on a recognized securities
exchange or in the over-the-counter market. When the Fund has purchased an
option and engages in a closing sale transaction, whether the Fund realizes a
profit or loss will depend upon whether the amount received in the closing
sale transaction is more or less than the premium the Fund initially paid for
the original option plus the related transaction costs. Similarly, 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. The Fund may engage in a closing purchase transaction to realize a
profit, to prevent an underlying security with respect to which it has written
an option 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).
The obligation of the Fund under an option it has written would be terminated
by a closing purchase transaction, but the Fund would not be deemed to own an
option as a result of the transaction. 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.
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
<PAGE>5
certain of the facilities of the Options Clearing Corporation (the "Clearing
Corporation") and various securities exchanges inadequate and resulted in the
institution of special procedures, such as trading rotations, restrictions on
certain types of orders or trading halts or suspensions in one or more
options. There can be no assurance that similar events, or events that may
otherwise interfere with the timely execution of customers' orders, will not
recur. In such event, it might not be possible to effect closing transactions
in particular options. Moreover, the Fund's ability to terminate options
positions established in the over-the-counter market may be more limited than
for exchange-traded options and may also involve the risk that securities
dealers participating in over-the-counter transactions would fail to meet
their obligations to the Fund. The Fund, however, intends to purchase
over-the-counter options only from dealers whose debt securities, as
determined by Warburg, 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.
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 Warburg 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.
Stock Index Options. The Fund may purchase and write
exchange-listed and OTC put and call options on stock 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, 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 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. Examples of stock
index derivatives which the Fund may utilize are the Nikkei 225 Index, the
Nikkei 300 Index, the OTC (JASDAQ) Index and the Topix 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,
<PAGE>6
multiplied by (b) a fixed "index multiplier." Receipt of this cash amount
will depend upon the closing level of the stock index upon which the option is
based being greater than, in the case of a call, or less than, in the case of
a put, the exercise price of the index and the exercise price of the option
times a specified multiple. The writer of the option is obligated, in return
for the premium received, to make delivery of this amount. Stock index
options may be offset by entering into closing transactions as described above
for securities options.
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 organization 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 OTC call option writer, is able to
effect a closing purchase transaction, it will not be able to liquidate
securities (or other assets) used to cover the written option until the option
expires or is exercised. This requirement may impair the Fund's ability to
sell portfolio securities or, 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.
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 currency values, interest rates and/or market
conditions and increasing return.
<PAGE>7
The Fund will not enter into futures contracts and related options
for which the aggregate initial margin and premiums (discussed below) 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. The Fund reserves the right to engage in transactions involving futures
contracts and options on futures contracts to the extent allowed by CFTC
regulations in effect from time to time and in accordance with the Fund's
policies. There is no overall limit on the percentage of Fund assets that may
be at risk with respect to futures activities. The ability of the Fund to
trade in futures contracts and options on 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.
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. 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
interest rate sensitive 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 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 close of the last trading day on the contract
and the price at which the agreement is made.
No consideration is paid or received by the Fund upon entering into
a futures contract. Instead, the Fund is required to deposit in a segregated
account with its custodian an amount of cash or cash equivalents, such as U.S.
government securities or other liquid high-grade debt obligations, equal to
approximately 1% to 10% of the contract amount (this amount is subject to
change by the exchange on which the contract is traded, and brokers may charge
a higher amount). This amount is known as "initial margin" and is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. The broker will have access to
amounts in the margin account if the Fund fails to meet its contractual
obligations. Subsequent payments, known as "variation margin," to and from
the broker, will be made daily as the 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." The Fund will also incur brokerage costs in connection
with entering into futures transactions.
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 (described below) 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
<PAGE>8
such contracts, there is no assurance that an active market will exist 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 or trading may be suspended for
specified periods during the day. 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 at
an advantageous price 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 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. In addition, if the transaction is entered into for hedging purposes, in
such circumstances the Fund may realize a loss on a futures contract or option
that is not offset by an increase in the value of the hedged position. Losses
incurred in futures transactions and the costs of these transactions will
affect the Fund's performance.
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; the ability to establish and close out positions
on such options will be subject to the existence of a liquid market.
An option on a currency, interest rate or stock index futures
contract, as contrasted with the direct investment in such a contract, gives
the purchaser the right, in return for the premium paid, to assume a position
in a futures contract at a specified exercise price at any time prior to the
expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). 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.
Currency Exchange 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.
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
<PAGE>9
prevailing in the currency exchange market, (ii) through entering into futures
contracts or options on such contracts (as described above), (iii) through
entering into forward contracts to purchase or sell currency or (iv) by
purchasing exchange-traded 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 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 brokers) and their customers.
Forward currency contracts are similar to currency futures contracts, except
that futures contracts are traded on commodities exchanges and are
standardized as to contract size and delivery date.
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 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.
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 U.S. dollar value of a foreign currency in which
the Fund's securities are denominated will reduce the U.S. 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 diminutions
in the U.S. dollar value of securities it holds, the Fund may purchase
currency put options. 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
<PAGE>10
adverse effect on the U.S. dollar value of its securities that otherwise would
have resulted. Conversely, if a rise in the U.S. 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. The benefit to the Fund derived from purchases of currency options,
like the benefit derived from other types of options, will be reduced by
premiums and other transaction costs. Because transactions in currency
exchange are generally conducted on a principal basis, no fees or commissions
are generally involved. 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. If a devaluation is
generally anticipated, the Fund may not be able to contract to sell a currency
at a price above the devaluation level it anticipates.
While the values of currency futures and options on futures, forward
currency contracts and currency options may be expected to correlate with
exchange rates, they will not reflect other factors that may affect the value
of the Fund's investments and a currency hedge may not be entirely successful
in mitigating changes in the value of the Fund's investments denominated in
that currency. A currency hedge, for example, should protect a Yen-
denominated bond against a decline in the Yen, but will not protect the Fund
against a price decline if the issuer's creditworthiness deteriorates.
Hedging. In addition to entering into options, futures and currency
exchange transactions for other purposes, including generating current income
to offset expenses or increase return, the Fund may enter into these
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 in a portfolio position with a gain in
the hedged position; at the same time, however, a properly correlated hedge
will result in a gain in the portfolio position being offset by a loss in the
hedged position. As a result, the use of options, futures, contracts and
currency exchange transactions for hedging purposes could limit any potential
gain from an increase in the value of the position hedged. In addition, the
movement in the portfolio position hedged may not be of the same magnitude as
movement in the hedge. With respect to futures contracts, 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.
In hedging transactions based on an index, 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. The risk
of imperfect correlation increases as the composition of the Fund's portfolio
varies from the composition of the index. In an effort to compensate for
imperfect correlation of relative
<PAGE>11
movements in the hedged position and the hedge, the Fund's hedge positions may
be in a greater or lesser dollar amount than the dollar amount of the hedged
position. Such "over hedging" or "under hedging" may adversely affect the
Fund's net investment results if market movements are not as anticipated when
the hedge is established. Stock index futures transactions may be subject to
additional correlation risks. First, all participants in the futures market
are subject to margin deposit and maintenance requirements. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through offsetting transactions which would distort the normal
relationship between the stock index and futures markets. Secondly, from the
point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market also
may cause temporary price distortions. Because of the possibility of price
distortions in the futures market and the imperfect correlation between
movements in the stock index and movements in the price of stock index
futures, a correct forecast of general market trends by Warburg still may not
result in a successful hedging transaction.
The Fund will engage in hedging transactions only when deemed
advisable by Warburg, and successful use by the Fund of hedging transactions
will be subject to Warburg's ability to predict trends in currency, interest
rate or securities markets, as the case may be, and to correctly predict
movements in the directions of the hedge and the hedged position and the
correlation between them, which predictions could prove to be inaccurate.
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 strategies will be successful. Even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or trends.
Losses incurred in hedging transactions and the costs of these transactions
will affect the Fund's performance.
Asset Coverage for Forward Contracts, Options, Futures and Options
on Futures. As described in the Prospectuses, the Fund will comply with
guidelines established by the SEC with respect to coverage of forward currency
contracts; options written by the Fund on currencies, securities and indexes;
and 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
<PAGE>12
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.
Additional Information on Other Investment Practices
Foreign Investments. Investors should recognize that investing in
foreign companies involves certain risks, including those discussed below,
which are not typically associated with investing in U.S. issuers. See "Japan
and Its Securities Markets" for a discussion of factors relating to Japanese
investments specifically.
Foreign Currency Exchange. Since the Fund will be investing in
securities denominated in Japanese yen and currencies of other Asian
countries, and since the Fund may temporarily hold funds in bank deposits or
other money market investments denominated in foreign currencies, the Fund
may be affected favorably or unfavorably by exchange control regulations or
changes in the exchange rate between such currencies and the dollar. A
change in the value of a foreign currency relative to the U.S. dollar will
result in a corresponding change in the dollar value of the Fund assets
denominated in that foreign currency. Changes in foreign currency exchange
rates may also affect the value of dividends and interest earned, gains and
losses realized on the sale of securities and net investment income and
gains, if any, to be distributed to shareholders by the Fund. The rate of
exchange between the U.S. dollar and other currencies is determined by the
forces of supply and demand in the foreign exchange markets. Changes in the
exchange rate may result over time from the interaction of many factors
directly or indirectly affecting economic and political conditions in the
United States and a particular foreign country, including economic and
political developments in other countries. Of particular importance are
rates of inflation, interest rate levels, the balance of payments and the
extent of government surpluses or deficits in the United States and the
particular foreign country, all of which are in turn sensitive to the
monetary, fiscal and trade policies pursued by the governments of the United
States and foreign countries important to international trade and finance.
Governmental intervention may also play a significant role. National
governments rarely voluntarily allow their currencies to float freely in
response to economic forces. Sovereign governments use a variety of
techniques, such as intervention by a country's central bank or imposition of
regulatory controls or taxes, to affect the exchange rates of their
currencies. See "Japan and Its Securities Markets -- Economic Background --
Currency Fluctuation" below. The Fund may use hedging techniques with the
objective of guarding against loss through the fluctuation of the value of
the yen against the U.S. dollar, particularly the forward market in foreign
exchange, currency options and currency futures. See "Currency Transactions"
and "Futures Activities" above.
<PAGE>13
Information. The majority of the securities held by the Fund will
not be registered with, nor the issuers thereof be subject to reporting
requirements of, the U.S. Securities and Exchange Commission (the "SEC").
Accordingly, there may be less publicly available information about the
securities and about the foreign company or government issuing them than is
available about a domestic company or government entity. Foreign companies
are generally not subject to uniform financial reporting standards, practices
and requirements comparable to those applicable to U.S. companies.
Political Instability. 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 and neighboring countries. For example, tensions in Asia
have increased following the announcement in March 1993 by The Democratic
People's Republic of Korea ("North Korea") of its intention to withdraw from
participation in the Nuclear Non-Proliferation Treaty and its refusal to allow
the International Atomic Energy Agency to conduct full inspections of its
nuclear facilities. Military action involving North Korea or the economic
deterioration of North Korea could adversely affect the entire region and the
performance of the Fund.
Delays. Securities of some foreign companies are less liquid and
their prices are more volatile than securities of comparable U.S. companies.
Certain foreign countries are known to experience long delays between the
trade and settlement dates of securities purchased or sold. Due to the
increased exposure of the Fund to market and foreign exchange fluctuations
brought about by such delays, and due to the corresponding negative impact on
Fund liquidity, the Fund will avoid investing in countries which are known to
experience settlement delays which may expose the Fund to unreasonable risk of
loss.
Foreign Taxes and Increased Expenses. The operating expenses of the
Fund can be expected to be higher than that of an investment company investing
exclusively in U.S. securities, since the expenses of the Fund, such as
custodial costs, valuation costs and communication costs, as well as the rate
of the investment advisory fees, though similar to such expense of some other
international funds, are higher than those costs incurred by other investment
companies.
General. In general, 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.
Foreign Debt Securities. The returns on foreign debt securities
reflect interest rates and other market conditions prevailing in those
countries and the effect of gains and losses in the denominated currencies
against the U.S. dollar, which have had a substantial
<PAGE>14
impact on investment in foreign fixed-income securities. The relative
performance of various countries' fixed-income markets historically has
reflected wide variations relating to the unique characteristics of each
country's economy. Year-to-year fluctuations in certain markets have been
significant, and negative returns have been experienced in various markets
from time to time.
The foreign government securities in which the Fund may invest
generally consist of obligations issued or backed by national, state or
provincial governments or similar political subdivisions or central banks in
foreign countries. Foreign government securities also include debt
obligations of supranational entities, which include international
organizations designated or backed by governmental entities to promote
economic reconstruction or development, international banking institutions and
related government agencies. Examples include the International Bank for
Reconstruction and Development (the "World Bank"), the European Coal and Steel
Community, the Asian Development Bank and the InterAmerican Development Bank.
Foreign government securities also include debt securities of
"quasi-governmental agencies" and debt securities denominated in multinational
currency units of an issuer (including supranational issuers). Debt
securities of quasi-governmental agencies are issued by entities owned by
either a national, state or equivalent government or are obligations of a
political unit that is not backed by the national government's full faith and
credit and general taxing powers. An example of a multinational currency unit
is the European Currency Unit ("ECU"). An ECU represents specified amounts of
the currencies of certain member states of the European Economic Community.
The specific amounts of currencies comprising the ECU may be adjusted by the
Council of Ministers of the European Community to reflect changes in relative
values of the underlying currencies.
U.S. Government Securities. The Fund may invest in debt obligations
of varying maturities issued or guaranteed by the United States government,
its agencies or instrumentalities ("U.S. government securities"). Direct
obligations of the U.S. Treasury include a variety of securities that differ
in their interest rates, maturities and dates of issuance. U.S. government
securities also include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Loan Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association ("GNMA"), General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home
Loan Mortgage Corporation ("FHLMC"), Federal Intermediate Credit Banks,
Federal Land Banks, Federal National Mortgage Association ("FNMA"), Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board
and Student Loan Marketing Association. The Fund may also invest in
instruments that are supported by the right of the issuer to borrow from the
U.S. Treasury and instruments that are supported by the credit of the
instrumentality. Because the U.S. government is not obligated by law to
provide support to an instrumentality it sponsors, the Fund will invest in
obligations issued by such an instrumentality only if Warburg, Pincus
Counsellors, Inc., the Fund's investment adviser
<PAGE>15
("Warburg"), determines that the credit risk with respect to the
instrumentality does not make its securities unsuitable for investment by the
Fund.
Below Investment Grade Securities. Although the Fund may invest
only in investment grade non-convertible debt securities (as described in the
Prospectuses), it may invest in below investment grade convertible debt and
preferred securities and it is not required to dispose of securities
downgraded below investment grade subsequent to acquisition by the Fund.
While the market values of medium- and lower-rated securities and unrated
securities of comparable quality tend to react less to fluctuations in
interest rate levels than do those of higher-rated securities, the market
values of certain of these securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-quality securities. In addition, medium- and lower-rated securities
and comparable unrated securities generally present a higher degree of credit
risk. Issuers of medium- and lower-rated securities and unrated securities
are often highly leveraged and may not have more traditional methods of
financing available to them so that their ability to service their obligations
during an economic downturn or during sustained periods of rising interest
rates may be impaired. The risk of loss due to default by such issuers is
significantly greater because medium- and lower-rated securities and unrated
securities generally are unsecured and frequently are subordinated to the
prior payment of senior indebtedness.
The market for medium- and lower-rated and unrated securities is
relatively new and has not weathered a major economic recession. Any such
recession could disrupt severely the market for such securities and may
adversely affect the value of such securities and the ability of the issuers
of such securities to repay principal and pay interest thereon.
The Fund may have difficulty disposing of certain of these
securities because there may be a thin trading market. Because there is no
established retail secondary market for many of these securities, the Fund
anticipates that these securities could be sold only to a limited number of
dealers or institutional investors. To the extent a secondary trading market
for these securities does exist, it generally is not as liquid as the
secondary market for higher-rated securities. The lack of a liquid secondary
market, as well as adverse publicity and investor perception with respect to
these securities, may have an adverse impact on market price and the Fund's
ability to dispose of particular issues when necessary to meet the Fund's
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities also may make it more difficult for
the Fund to obtain accurate market quotations for purposes of valuing the Fund
and calculating its net asset value.
The market value of securities in medium- and lower-rated categories
is more volatile than that of higher quality securities. Factors adversely
impacting the market value of these securities will adversely impact the
Fund's net asset value. The Fund will rely on the judgment, analysis and
experience of Warburg in evaluating the creditworthiness of an issuer. In
this evaluation, Warburg will take into consideration, among other things, the
<PAGE>16
issuer's financial resources, its sensitivity to economic conditions and
trends, its operating history, the quality of the issuer's management and
regulatory matters. Normally, medium-and lower-rated and comparable unrated
securities are not intended for short-term investment. The Fund may incur
additional expenses to the extent it is required to seek recovery upon a
default in the payment of principal or interest on its portfolio holdings of
such securities. Recent adverse publicity regarding lower-rated securities
may have depressed the prices for such securities to some extent. Whether
investor perceptions will continue to have a negative effect on the price of
such securities is uncertain.
Mortgage-Backed Securities. The Fund may invest up to 5% of its net
assets in mortgage-backed securities, such as those issued by GNMA, FNMA,
FHLMC or certain foreign issuers. Mortgage-backed securities represent direct
or indirect participations in, or are secured by and payable from, mortgage
loans secured by real property. The mortgages backing these securities
include, among other mortgage instruments, conventional 30-year fixed-rate
mortgages, 15-year fixed-rate mortgages, graduated payment mortgages and
adjustable rate mortgages. The government or the issuing agency typically
guarantees the payment of interest and principal of these securities.
However, the guarantees do not extend to the securities' yield or value, which
are likely to vary inversely with fluctuations in interest rates, nor do the
guarantees extend to the yield or value of the Fund's shares. These
securities generally are "pass-through" instruments, through which the holders
receive a share of all interest and principal payments from the mortgages
underlying the securities, net of certain fees.
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and
the associated average life assumption. The average life of pass-through
pools varies with the maturities of the underlying mortgage loans. A pool's
term may be shortened by unscheduled or early payments of principal on the
underlying mortgages. The occurrence of mortgage prepayments is affected by
various factors, including the level of interest rates, general economic
conditions, the location, scheduled maturity and age of the mortgage and other
social and demographic conditions. Because prepayment rates of individual
pools vary widely, it is not possible to predict accurately the average life
of a particular pool. For pools of fixed-rate 30-year mortgages, a common
industry practice in the U.S. has been to assume that prepayments will result
in a 12-year average life. At present, pools, particularly those with loans
with other maturities or different characteristics, are priced on an
assumption of average life determined for each pool. In periods of falling
interest rates, the rate of prepayment tends to increase, thereby shortening
the actual average life of a pool of mortgage-related securities. Conversely,
in periods of rising rates the rate of prepayment tends to decrease, thereby
lengthening the actual average life of the pool. However, these effects may
not be present, or may differ in degree, if the mortgage loans in the pools
have adjustable interest rates or other special payment terms, such as a
prepayment charge. Actual prepayment experience may cause the yield of
mortgage-backed securities to differ from the assumed average life yield.
Reinvestment of prepayments may occur at higher or lower interest rates than
the original investment, thus affecting the Fund's yield.
<PAGE>17
The rate of interest on mortgage-backed securities is lower than the
interest rates paid on the mortgages included in the underlying pool due to
the annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificate holders and to any guarantor, such as GNMA,
and due to any yield retained by the issuer. Actual yield to the holder may
vary from the coupon rate, even if adjustable, if the mortgage-backed
securities are purchased or traded in the secondary market at a premium or
discount. In addition, there is normally some delay between the time the
issuer receives mortgage payments from the servicer and the time the issuer
makes the payments on the mortgage-backed securities, and this delay reduces
the effective yield to the holder of such securities.
Asset-Backed Securities. The Fund may invest up to 5% of its net
assets in asset-backed securities, which represent participations in, or are
secured by and payable from, assets such as motor vehicle installment sales,
installment loan contracts, leases of various types of real and personal
property and receivables from revolving credit (credit card) agreements. Such
assets are securitized through the use of trusts and special purpose
corporations. Payments or distributions of principal and interest may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution
unaffiliated with the trust or corporation.
Asset-backed securities present certain risks that are not presented
by other securities in which the Fund may invest. Automobile receivables
generally are secured by automobiles. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations.
If the servicer were to sell these obligations to another party, there is a
risk that the purchaser would acquire an interest superior to that of the
holders of the asset-backed securities. In addition, because of the large
number of vehicles involved in a typical issuance and technical requirements
under state laws, the trustee for the holders of the automobile receivables
may not have a proper security interest in the underlying automobiles.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.
Credit card receivables are generally unsecured, and the debtors are entitled
to the protection of a number of state and federal consumer credit laws, many
of which give such debtors the right to set off certain amounts owed on the
credit cards, thereby reducing the balance due. Because asset-backed
securities are relatively new, the market experience in these securities is
limited, and the market's ability to sustain liquidity through all phases of
the market cycle has not been tested.
Zero Coupon Securities. The Fund may invest in "zero coupon" U.S.
Treasury, foreign government and U.S. and foreign corporate debt securities,
which are bills, notes and bonds that have been stripped of their unmatured
interest coupons and custodial receipts or certificates of participation
representing interests in such stripped debt obligations and coupons. The
Fund currently anticipates that during the coming year zero coupon securities
will not exceed 5% of its net assets. A zero coupon security pays no interest
to its holder prior to maturity. Accordingly, such securities usually trade
at a deep
<PAGE>18
discount from their face or par value and will be subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities that make current distributions of
interest. The Fund anticipates that it will not normally hold zero coupon
securities to maturity. Federal tax law requires that a holder of a zero
coupon security accrue a portion of the discount at which the security was
purchased as income each year, even though the holder receives no interest
payment on the security during the year. Such accrued discount will be
includible in determining the amount of dividends the Fund must pay each year
and, in order to generate cash necessary to pay such dividends, the Fund may
liquidate portfolio securities at a time when it would not otherwise have done
so.
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 affiliates of Warburg unless it has applied for
and received specific authority to do so from the SEC. Loans of portfolio
securities will be collateralized by cash, letters of credit or U.S.
government securities, which are maintained at all times in an amount equal to
at least 100% of the current market value of the loaned securities. Any gain
or loss in the market price of the securities loaned that might occur during
the term of the loan would be for the account of the Fund. From time to time,
the Fund may return a part of the interest earned from the investment of
collateral received for securities loaned to the borrower and/or a third party
that is unaffiliated with the Fund and that is acting as a "finder."
By lending its securities, the Fund can increase its income by
continuing to receive interest and any dividends on the loaned securities as
well as by either investing the collateral received for securities loaned
in short-term instruments or obtaining yield in the form of interest paid by
the borrower when U.S. government securities are used as collateral. Although
the generation of income is not an investment objective of the Fund, income
received could be used to pay the Fund's expenses and would increase an
investor's total return. The Fund will adhere to the following conditions
whenever its portfolio securities are loaned: (i) the Fund must receive at
least 100% cash collateral or equivalent securities of the type discussed in
the preceding paragraph from the borrower; (ii) the borrower must increase
such collateral whenever the market value of the securities rises above the
level of such collateral; (iii) the Fund must be able to terminate the loan at
any
<PAGE>19
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.
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 Warburg deems it advantageous to do
so. The payment obligation and the interest rate that will be received on
when-issued securities are fixed at the time the buyer enters into the com-
mitment. Due to fluctuations in the value of securities purchased or sold on
a when-issued or delayed-delivery basis, the yields obtained on such
securities may be higher or lower than the yields available in the market on
the dates when the investments are actually delivered to the buyers.
When the Fund agrees to purchase when-issued or delayed-delivery
securities, its custodian will set aside cash, U.S. government securities or
other liquid high-grade debt obligations or other 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.
Short Sales "Against the Box". In a short sale, the Fund sells a
borrowed security and has a corresponding obligation to the lender to return
the identical security. In a short sale, the seller does not immediately
deliver the securities sold and is said to have a short position in those
securities until delivery occurs. If the Fund engages in a short sale, the
collateral for the short position will be maintained by the Fund's custodian
or qualified sub-custodian. While the short sale is open, the Fund will
maintain in a segregated account an amount of securities equal in kind and
amount to the securities sold short or securities
<PAGE>20
convertible into or exchangeable for such equivalent securities. These
securities constitute the Fund's long position.
The Fund does not intend to engage in short sales against the box
for investment purposes. The Fund may, however, make a short sale as a hedge,
when it believes that the price of a security may decline, causing a decline
in the value of a security owned by the Fund (or a security convertible or
exchangeable for such security), or when the Fund wants to sell the security
at an attractive current price, but also wishes to defer recognition of gain
or loss for U.S. federal income tax purposes and for purposes of satisfying
certain tests applicable to regulated investment companies under the Code. In
such case, any future losses in the Fund's long position should be offset by a
gain in the short position and, conversely, any gain in the long position
should be reduced by a loss in the short position. The extent to which such
gains or losses are reduced will depend upon the amount of the security sold
short relative to the amount the Fund owns. There will be certain additional
transactions costs associated with short sales against the box, but the Fund
will endeavor to offset these costs with the income from the investment of the
cash proceeds of short sales.
Securities of Smaller Companies and Emerging Growth Companies. The
Fund's investment in over-the-counter securities, including those traded
through JASDAQ or on the Frontier Market (as described in the Prospectuses),
involves considerations that are not applicable to investing in securities of
established, larger-capitalization issuers, including reduced and less
reliable information about issuers and markets, less stringent accounting
standards, illiquidity of securities and markets, higher brokerage commissions
and fees and greater market risk in general. In addition, securities of
emerging growth and smaller companies may involve greater risks since these
securities may have limited marketability and, thus, may be more volatile.
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.
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
<PAGE>21
purchase, and because it does not represent any rights in the assets of the
issuer, warrants may be considered more speculative than certain other types
of investments. Also, the value of a warrant does not necessarily change with
the value of the underlying securities and a warrant ceases to have value if
it is not exercised prior to its expiration date.
Non-Publicly Traded and Illiquid Securities. The Fund may not
invest more than 10% of its net assets in non-publicly traded and 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 Securities. Rule 144A under the Securities Act 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. Warburg 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
<PAGE>22
domestic and foreign issuers, such as the PORTAL System sponsored by the
National Association of Securities Dealers, Inc.
An investment in Rule 144A Securities will be considered illiquid
and therefore subject to the Fund's limit on the purchase of illiquid
securities unless the Board or its delegates determines that the Rule 144A
Securities are liquid. In reaching liquidity decisions, the Board or its
delegates may consider, inter alia, the following factors: (i) the
unregistered nature of the security; (ii) the frequency of trades and quotes
for the security; (iii) the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; (iv) dealer
undertakings to make a market in the security and (v) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer).
Borrowing. The Fund may borrow up to 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, the entry into currency transactions, options, futures contracts,
options on futures contracts, forward commitment transactions and dollar roll
transactions that are not accounted for as financings (and the segregation of
assets in connection with any of the foregoing) shall not constitute
borrowing.
<PAGE>23
2. Purchase any securities which would cause 25% or more of the
value of the Fund's total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the
same industry; provided that there shall be no limit on the purchase of U.S.
government securities.
3. Make loans, except that the Fund may purchase or hold
fixed-income securities, including loan participations, assignments and
structured securities, lend portfolio securities and enter into repurchase
agreements.
4. Underwrite any securities issued by others except to the extent
that the investment in restricted securities and the sale of securities in
accordance with the Fund's investment objective, policies and limitations may
be deemed to be underwriting.
5. Purchase or sell real estate or invest in oil, gas or mineral
exploration or development programs, except that the Fund may invest in (a)
securities secured by real estate, mortgages or interests therein and (b)
securities of companies that invest in or sponsor oil, gas or mineral
exploration or development programs.
6. Make short sales of securities or maintain a short position,
except that the Fund may maintain short positions in forward currency
contracts, options, futures contracts and options on futures contracts and
enter into short sales "against the box."
7. Purchase securities on margin, except that the Fund may obtain
any short-term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with transactions in currencies,
options, futures contracts or related options will not be deemed to be a
purchase of securities on margin.
8. Invest in commodities, except that the Fund may purchase and
sell futures contracts, including those relating to securities, currencies and
indices, and options on futures contracts, securities, currencies or indices,
and purchase and sell currencies on a forward commitment or delayed-delivery
basis.
9. Issue any senior security except as permitted in these
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 and in connection with the writing of covered
put and call options and purchase of securities on a forward commitment or
delayed-delivery basis and collateral and initial or variation
<PAGE>24
margin arrangements with respect to currency transactions, options, futures
contracts, and options on futures contracts.
12. Invest more than 10% of the Fund's net assets in securities
which may be illiquid because of legal or contractual restrictions on resale
or securities for which there are no readily available market quotations. For
purposes of this limitation, repurchase agreements with maturities greater
than seven days shall be considered illiquid securities.
13. Purchase any security if as a result the Fund would then have
more than 5% of its total assets invested in securities of companies
(including predecessors) that have been in continuous operation for fewer than
three years ("unseasoned companies").
14. Purchase or retain securities of any company if, to the
knowledge of the Fund, any of the Fund's officers or Directors or any officer
or director of Warburg 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 aggregate of all Rule 144A Securities, non-publicly traded and
illiquid securities of companies (including predecessors) that have been in
continuous operation for less than three years is limited to 15% of assets.
This and other non-fundamental investment limitations are currently required
by one or more states in which shares of the Fund are sold. These may be more
restrictive than the limitations set forth above. 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. In addition, the relevant state may change
or eliminate its policy regarding such investment limitations.
If a percentage restriction (other than the percentage limitation
set forth in No. 1 above) 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.
<PAGE>25
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 foreign
securities exchange or traded in an over-the-counter market will be valued at
the most recent sale as of the time the valuation is made or, in the absence
of sales, at the mean between the bid and asked quotations. If there are no
such quotations, the value of the securities will be taken to be the highest
bid quotation on the exchange or market. Option or futures contracts will be
valued similarly. 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. Short-term obligations with maturities of
60 days or less are valued at amortized cost, which constitutes fair value as
determined by the Board. Amortized cost involves valuing a portfolio
instrument at its initial cost 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
amortized cost method of valuation may also be used with respect to other debt
obligations with 60 days or less remaining to maturity. In determining the
market value of portfolio investments, the Fund may employ outside
organizations (a "Pricing Service") which may use a matrix, formula or other
objective 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 a Pricing
Service at any time. Securities, options and futures contracts for which
market quotations are not available and certain 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 Japan and other Asian countries is
completed at various times prior to the close of business on each business day
in New York (i.e., a day on which the New York Stock Exchange (the "NYSE") is
open for trading). In addition, securities trading in a particular country or
countries may not take place on all business days in New York. Furthermore,
trading takes place in various foreign markets on days which are not business
days in New York and days on which the Fund's net asset value is not
calculated. As a result, calculation of the Fund's net asset value does not
take place contemporaneously with the determination of the prices of the
majority of the Fund's securities. 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. All assets and liabilities initially expressed in
foreign currency values will be
<PAGE>26
converted into U.S. dollar values at the prevailing exchange 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.
Portfolio Transactions
Warburg is responsible for establishing, reviewing and, where
necessary, modifying the Fund's investment program to achieve its investment
objective. Purchases and sales of newly issued portfolio securities are
usually principal transactions without brokerage commissions effected directly
with the issuer or with an underwriter acting as principal. Other purchases
and sales may be effected on a securities exchange or over-the-counter,
depending on where it appears that the best price or execution will be
obtained. The purchase price paid by the Fund to underwriters of newly issued
securities usually includes a concession paid by the issuer to the
underwriter, and purchases of securities from dealers, acting as either
principals or agents in the after market, are normally executed at a price
between the bid and asked price, which includes a dealer's mark-up or
mark-down. Transactions on U.S. stock exchanges and some foreign stock
exchanges involve the payment of negotiated brokerage commissions. On
exchanges on which commissions are negotiated, the cost of transactions may
vary among different brokers. On most foreign exchanges, commissions are
generally fixed. There is generally no stated commission in the case of
securities traded in domestic or foreign over-the-counter markets, but the
price of securities traded in over-the-counter markets includes an undisclosed
commission or mark-up. U.S. government securities are generally purchased
from underwriters or dealers, although certain newly issued U.S. government
securities may be purchased directly from the U.S. Treasury or from the
issuing agency or instrumentality.
Warburg will select specific portfolio investments and effect
transactions for the Fund for the Fund's equity investments in Japan and other
Asian countries. Warburg seeks to obtain the best net price and the most
favorable execution of orders, effecting transactions only through brokers and
dealers approved by Warburg. In evaluating prices and executions, Warburg
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, Warburg 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) to Warburg or the Fund and/or other accounts
over which Warburg exercises investment discretion. Research and other
services received may be useful to Warburg 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 Warburg in carrying
out its obligations to the Fund. The fees to Warburg under its advisory
agreement with the Fund are not reduced by reason of its receiving any
brokerage and research services.
<PAGE>27
Investment decisions for the Fund concerning specific portfolio
securities are made independently from those for other clients advised by
Warburg. 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 Warburg 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, Warburg 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 if, in Warburg's judgment, the use of Counsellors
Securities is likely to result in price and execution at least as favorable as
those of other qualified brokers, and if, in the transaction, Counsellors
Securities charges the Fund a commission rate consistent with those charged by
Counsellors Securities to comparable unaffiliated customers in similar
transactions. All transactions with affiliated brokers will comply with Rule
17e-1 under the 1940 Act.
In no instance will portfolio securities be purchased from or sold
to Warburg 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 concerning the provision of distribution services or support
services. 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
Warburg, in its sole discretion, believe such practice to be otherwise in the
Fund's interest.
<PAGE>28
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.
JAPAN AND ITS SECURITIES MARKETS
The Fund will be subject to general economic and political
conditions in Japan. In addition to the considerations discussed above, these
include future political and economic developments, the possible imposition
of, or changes in, exchange controls or other Japanese governmental laws or
restrictions applicable to such investments, diplomatic developments,
political or social unrest and natural disasters.
The information set forth in this section has been extracted from
various governmental publications and other sources. The Fund makes no
representation as to the accuracy of the information, nor has the Fund
attempted to verify it. Furthermore, no representation is made that any
correlation exists between Japan or its economy in general and the performance
of the Fund.
Domestic Politics
Japan has a parliamentary form of government. The legislative power
is vested in the Japanese Diet, which consists of a House of Representatives
and a House of Councillors. Members of the House of Representatives are
elected for terms of four years unless the House of Representatives is
dissolved prior to the expiration of their full elected terms. Members of the
House of Councillors are elected for terms of six years with one-half of the
membership being elected every three years. Various political parties are
represented in the Diet, including the conservative Liberal Democratic Party
("LDP"), which until August 1993 had been in power nationally since its
formation in 1955. The LDP ceased to have a majority of the House of
Representatives in June 1993, when certain members of the House of
Representatives left the LDP and formed two new political parties. After an
election for the House of Representatives was held on July 18, 1993 and the
LDP failed to secure a majority, seven parties formed a coalition to control
the House of Representatives and chose Morihiro Hosokawa, the Representative
of the Japan New Party, to head their
<PAGE>29
coalition. In April 1994, amid accusations of financial improprieties, Prime
Minister Hosokawa announced that he would resign. Tsutomu Hata succeeded Mr.
Hosokawa as prime minister and formed a new cabinet as a minority coalition
government. In June 1994 Mr. Hata yielded to political pressure from
opposition parties and resigned. He was succeeded by Social Democratic Party
leader Tomiichi Murayama, Japan's first Socialist prime minister since 1948,
who was chosen by a new and unstable alliance between left-wing and
conservative parties, including the LDP. On September 18, 1994, 187
opposition politicians founded a new party, the Reform Party led by Ichiro
Ozawa, to oppose the government of Prime Minister Murayama in the next
elections. Political realignment has continued in 1995 as the Social
Democrats incurred significant losses in the July elections. On August 28,
1995, the LDP elected Ryutaro Hashimoto, the minister for international trade
and industry, as its new leader. Mr. Hashimoto, who favors a stronger
Japanese role in world affairs, is considered the leading candidate for prime
minister in the next elections. A change in government in 1996 may result in
increased trade friction with the United States. This political instability
may hamper Japan's ability to establish and maintain effective economic and
fiscal policies, and recent and future political developments may lead to
changes in policy that might adversely affect the Fund's investments.
Economic Background
Over the past 30 years Japan has experienced significant economic
development. During the era of high economic growth in the 1960's and early
1970's the expansion was based on the development of heavy industries such as
steel and shipbuilding. In the 1970's Japan moved into assembly industries
which employ high levels of technology and consume relatively low quantities
of resources, and since then has become a major producer of electrical and
electronic products and automobiles. Moreover, since the mid-1980's Japan has
become a major creditor nation. With the exception of the periods associated
with the oil crises of the 1970's, Japan has generally experienced very low
levels of inflation. In the mid-1990's, Japan has been plagued by rising
unemployment, excess capacity and significant bad debts in the banking sector.
Japan is largely dependent upon foreign economies for raw materials.
For instance, almost all of its oil is imported, the majority from the Middle
East. Oil prices therefore have a major impact on the domestic economy, as is
evidenced by the current account deficits triggered by the two oil crises of
the 1970's. Oil prices have declined mainly due to a worldwide easing of
demand for crude oil. The stabilized price of oil contributed to Japan's
sizeable current account surplus and stability of wholesale and consumer
prices since 1981. While Japan is working to reduce its dependence on foreign
materials, its lack of natural resources poses a significant obstacle to this
effort.
International trade is important to Japan's economy, as exports
provide the means to pay for many of the raw materials it must import.
Japan's trade surplus has increased dramatically in recent years, exceeding
$100 billion per year since 1991 and reaching a record high of $145 billion in
1994. Because of the concentration of Japanese
<PAGE>30
exports in highly visible products such as automobiles, machine tools and
semiconductors, and the large trade surpluses resulting 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. In 1995, however, the trade surplus has decreased due to a
drop in exports. The reduced exports are due primarily to the strength of the
yen and the impact of the threatened U.S. trade sanctions. The United States
and Japan have engaged in "economic framework" negotiations to help increase
the United States' share in Japanese markets and reduce Japan's current
account surplus, but progress in the negotiations has been hampered by the
recent political upheaval in Japan. On June 28, 1995, the United States
agreed not to impose trade sanctions in return for a modest commitment by
Japan to buy more American cars and auto parts. Any trade sanctions imposed
upon Japan by the United States as a result of the current friction or
otherwise could adversely affect Japan and the performance of the Fund.
The following table sets forth the composition of Japan's trade
balance, as well as other components of its current account, for the years
shown.
CURRENT ACCOUNT
<TABLE>
<CAPTION>
Trade
--------------------------------------------------------------------------
Change from Change from Current
Year Exports Preceding Year Imports Preceding Year Trade Balance Services Transfers Balance
---- ------- -------------- ------- -------------- ------------- -------- --------- -------
(U.S. dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1984 168,290 15.7 124,003 8.8 44,257 (7,747) (1,507) 35,003
1985 174,015 3.4 118,029 (4.8) 55,986 (5,165) (1,652) 49,169
1986 205,591 18.1 112,764 (4.5) 92,827 (4,932) (2,050) 85,845
1987 224,605 9.2 128,219 13.7 96,386 (5,702) (3,669) 87,015
1988 259,765 15.7 164,753 28.5 95,012 (11,263) (4,118) 79,631
1989 269,570 3.8 192,653 16.9 76,917 (15,526) (4,234) 57,157
1990 280,374 4.0 216,846 12.6 63,528 (22,292) (5,475) 35,761
1991 306,557 9.3 203,513 (6.1) 103,044 (17,660) (12,483) 72,901
1992 330,850 7.9 198,502 (2.5) 132,348 (10,112) (4,685) 117,551
1993 351,292 6.2 209,778 5.7 141,514 (3,949) (6,117) 131,448
1994 384,176 9.4 238,232 13.6 145,944 (9,296) (7,508) 129,140
</TABLE>
Source: Institute of Fiscal and Monetary Policy, Ministry of Finance of
Japan
<PAGE>31
Economic Trends. The following table sets forth Japan's gross
domestic product for the years shown.
GROSS DOMESTIC PRODUCT (GDP)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(yen in billions)
Consumption
Expenditures
Private Y 277,676.8 Y 270,919.4 Y 264,824.1 Y 255,084.2 Y 243,628.1 Y 228,483.2 Y 215,122.0 Y 204,585.3
Government 46,108.0 44,666.4 43,257.9 41,232.0 38,806.6 36,274.8 34,184.3 32,974.5
Capital Formation
(incl. inventories)
Private 93,111.4 99,180.1 108,727.6 116,638.0 110,871.9 100,130.8 89,043.7 76,176.5
Government 42,227.3 40,295.8 35,110.1 30,062.3 28,182.6 25,724.5 24,660.9 23,673.8
Exports of Goods
and Services 44,449.2 44,243.8 47,409.4 46,809.7 45,919.9 42,351.8 37,483.2 36,209.6
Imports of Goods
and Services 34,424.0 33,333.1 36,183.8 38,529.3 42,871.8 36,768.1 29,065.1 25,194.9
GDP
(Expenditures) 469,148.7 465,972.4 463,145.3 451,296.9 24,537.2 396,197.0 371,429.0 348,425.0
Change in GDP
from Preceding
Year
Nominal terms 0.7% 0.6% 2.6% 6.3% 7.2% 6.7% 6.6% 4.1%
Real Terms 0.5% -0.2% 1.1% 4.3% 4.8% 4.7% 6.2% 4.1%
</TABLE>
Source: Institute of Fiscal and Monetary Policy, Ministry of Finance of
Japan
<PAGE>32
The following tables set forth certain economic indicators in Japan
for the years shown.
UNEMPLOYMENT
<TABLE>
<CAPTION>
Labor Productivity
Index
Year Number Unemployed Percent Unemployed (Manufacturing)
---- ----------------- ------------------ ------------------
(in millions) (Base Year: 1990)
<S> <C> <C> <C>
1984 1.61 2.7 72.4
1985 1.56 2.6 75.6
1986 1.67 2.8 77.0
1987 1.73 2.8 81.4
1988 1.55 2.5 90.8
1989 1.42 2.3 96.2
1990 1.34 2.1 100.0
1991 1.36 2.1 102.5
1992 1.42 2.2 97.0
1993 1.66 2.5 95.4
1994 1.92 2.9 98.3
</TABLE>
Source: Institute of Fiscal and Monetary Policy, Ministry of Finance of
Japan
WHOLESALE PRICE INDEX
(Base Year: 1990)
<TABLE>
<CAPTION>
Change from
All Preceding
Year Commodities Year
---- ----------- -----------
<S> <C> <C>
1985 110.4 (1.1)%
1986 100.3 (9.1)
1987 96.5 (3.8)
1988 95.6 (0.9)
1989 98.0 2.5
1990 100.0 2.0
1991 99.4 (0.6)
1992 97.8 (1.6)
1993 95.0 (2.9)
1994 93.0 (2.1)
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994
supp.), Institute of Fiscal and Monetary Policy,
Ministry of Finance of Japan; International Monetary
Fund
<PAGE>33
CONSUMER PRICE INDEX
<TABLE>
<CAPTION>
Change from
Year General Preceding Year
---- ------- --------------
(Base Year: 1990)
<S> <C> <C>
1985 93.5 2.0%
1986 94.1 0.6
1987 94.2 0.1
1988 94.9 0.7
1989 97.0 2.3
1990 100.0 3.1
1991 103.3 3.3
1992 105.0 1.6
1993 106.4 1.3
1994 107.1 0.7
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.),
Institute of Fiscal and Monetary Policy, Ministry of Finance of
Japan; International Monetary Fund
Currency Fluctuation. The Fund's investments in Japanese securities
will be denominated in yen and most income received by the Fund from such
investments will be in yen. However, the Fund's net asset value will be
reported, and distributions will be made, in U.S. dollars. Therefore, a
decline in the value of the yen relative to the U.S. dollar could have an
adverse effect on the value of the Fund's Japanese investments. The following
table presents the average exchange rates of Japanese yen for U.S. dollars for
the years shown:
CURRENCY EXCHANGE RATES
Year Yen Per U.S. Dollar
---- -------------------
1985 Y 238.47
1986 168.35
1987 144.60
1988 128.17
1989 138.07
1990 145.00
1991 134.59
1992 126.79
1993 111.08
1994 102.18
Source: Board of Governors of the Federal Reserve System, Federal Reserve
Bulletin
On December __, 1995, the noon buying rate in New York City for
cable transfers payable in Japanese yen was [104.20] yen per U.S. dollar.
<PAGE>34
Geological Factors. The islands of Japan lie in the western Pacific
Ocean, off the eastern coast of the continent of Asia. Japan has in the past
experienced earthquakes and tidal waves of varying degrees of severity. On
January 17, 1995, the Great Hanshin Earthquake killed over 5,000 people and
severely damaged the port of Kobe, Japan's largest container port. The
government has announced a $5.9 billion plan to repair the port and estimates
damage to the region at approximately $120 billion. However, the long-term
economic effects of the earthquake on the Japanese economy as a whole and on
the Fund's investments cannot be predicted.
Securities Markets
There are eight stock exchanges in Japan. Of these, the Tokyo Stock
Exchange is by far the largest, followed by the Osaka Stock Exchange and the
Nagoya Stock Exchange. These exchanges divide the market for domestic stocks
into two sections, with newly listed companies and smaller companies assigned
to the Second Section and larger companies assigned to the First Section.
The following table sets forth the number of Japanese companies
listed on each of the eight Japanese stock exchanges as of the end of 1994.
NUMBER OF DOMESTIC COMPANIES LISTED ON ALL STOCK EXCHANGES
<TABLE>
<CAPTION>
Tokyo Osaka Nagoya
--------------- ------------- -------------
1st 2nd 1st 2nd 1st 2nd
Sec. Sec. Sec. Sec. Sec. Sec. Kyoto Hiroshima Fukuoka Nigata Sapporo
---- ---- ---- ---- ---- ---- ----- --------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,235 454 855 344 431 129 240 203 260 200 193
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1995
<PAGE>35
The following table sets forth the trading volume and value of
Japanese stocks on each of the eight Japanese stock exchanges for the years
shown.
STOCK TRADING VOLUME & VALUE ON ALL STOCK EXCHANGES
(shares in millions; yen in billions)
<TABLE>
<CAPTION>
All Exchanges Tokyo Osaka Nagoya
-------------------- ------------------- ------------------- -------------------
Year Volume Value Volume Value Volume Value Volume Value
---- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1989 . . . . . 256,296 Y 386,395 222,599 Y 332,617 25,096 Y 41,679 7,263 Y 10,395
1990 . . . . . 145,837 231,837 123,099 186,667 17,187 35,813 4,323 7,301
1991 . . . . . 107,844 134,160 93,606 110,897 10,998 18,723 2,479 3,586
1992 . . . . . 82,563 80,456 66,408 60,110 12,069 15,575 3,300 3,876
1993 . . . . . 101,172 106,123 86,934 86,889 10,439 14,635 2,779 3,459
1994 . . . . . 105,936 114,622 84,514 87,356 14,903 19,349 4,719 5,780
</TABLE>
<TABLE>
<CAPTION>
Kyoto Hiroshima Fukuoka Niigata Sapporo
------------------ ------------------ ------------------ ----------------- -----------------
Volume Value Volume Value Volume Value Volume Value Volume Value
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 . . . 331 443 190 235 268 330 398 475 151 221
1990 . . . 416 770 169 261 203 405 245 334 195 286
1991 . . . 220 300 125 149 122 174 181 208 113 123
1992 . . . 225 322 110 136 139 129 163 178 149 129
1993 . . . 222 340 185 178 229 225 206 226 173 170
1994 . . . 447 562 255 312 578 669 249 299 267 296
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1995; Tokyo Stock Exchange
New York
<PAGE>36
The following table sets forth the stock trading value of Japanese
stocks on the Tokyo Stock Exchange for the years shown.
TOKYO STOCK EXCHANGE
STOCK TRADING VALUE
<TABLE>
<CAPTION>
Year Total Daily Average High Low Turnover Ratio
---- ----- ------------- ---- --- --------------
(yen in millions)
<S> <C> <C> <C> <C> <C>
1984 . . . . . . . . . . . . . Y 7,974,003 Y 36,843 Y 75,652 Y 3,682 47.1%
1985 . . . . . . . . . . . . . 78,711,048 276,179 727,316 110,512 44.7
1986 . . . . . . . . . . . . . 159,836,218 572,890 1,682,060 115,244 67.2
1987 . . . . . . . . . . . . . 250,736,971 915,098 2,382,114 221,230 80.6
1988 . . . . . . . . . . . . . 285,521,260 1,045,865 2,768,810 192,704 70.2
1989 . . . . . . . . . . . . . 332,616,597 1,335,810 2,796,946 392,347 61.1
1990 . . . . . . . . . . . . . 186,666,820 758,808 1,464,920 218,205 37.7
1991 . . . . . . . . . . . . . 110,897,491 450,803 1,531,064 151,565 29.3
1992 . . . . . . . . . . . . . 60,110,391 243,362 686,737 97,616 18.0
1993 . . . . . . . . . . . . . 86,889,072 353,208 1,422,760 61,747 28.3
1994 . . . . . . . . . . . . . 87,355,567 353,666 1,114,216 123,904 25.6
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1995; Tokyo Stock Exchange New York
OTC Market. Trading of securities on the Japanese OTC market ("OTC
Market" or "JASDAQ") is regulated primarily by the Japan Securities Dealers
Association (the "JSDA"). The JSDA reports the daily high and low selling
prices, the last selling price on each day, trading volumes, market
capitalization and the number of corporate issues registered with the JSDA as
traded over-the-counter by the member firms of the JSDA.
<PAGE>37
The following table sets forth the number of issues traded in, the
market capitalization of, and the trading value of stocks in, the Japanese OTC
market for the years shown.
JAPANESE OTC MARKET
NUMBER OF ISSUES, MARKET CAPITALIZATION
AND TRADING VALUE
<TABLE>
<CAPTION>
Stock Trading Value
--------------------------------------
(yen in thousands)
No. of
Year Issues Market Capitalization Total Daily Average
---- ------ --------------------- ----- -------------
(yen in millions)
<S> <C> <C> <C> <C>
1985 150 1,572,308 195,711,396 686,706
1986 161 2,138,063 450,081,898 1,642,634
1987 172 2,489,409 400,065,211 1,460,092
1988 216 4,270,830 721,639,214 2,643,367
1989 279 12,508,712 2,085,482,912 8,375,433
1990 357 11,972,160 6,111,700,820 24,844,312
1991 446 13,001,864 5,043,126,216 20,500,513
1992 451 8,008,572 1,091,101,849 4,417,416
1993 491 11,318,446 2,880,539,952 11,709,512
1994 581 14,628,729 5,384,108,058 21,798,008
</TABLE>
Source: JSDA, 1993 Annual Statistics for the OTC Market; Japan Securities
Research Institute
Securities Indexes. The Tokyo Stock Price Index ("TOPIX") is a
composite index of all common stocks listed on the First Section of the Tokyo
Stock Exchange. TOPIX reflects the change in the aggregate market value of
the common stocks as compared to the aggregate market value of those stocks as
of the close on January 4, 1968.
<PAGE>38
The following table sets forth the high, low and year-end TOPIX for
the years shown.
TOPIX (Tokyo Stock Price Index)
(Jan. 4, 1968=100)
<TABLE>
<CAPTION>
Year Year-end High Low
---- -------- ---- ---
<S> <C> <C> <C>
1985 1,049.40 1,058.35 916.93
1986 1,556.37 1,583.35 1,025.85
1987 1,725.83 2,258.56 1,557.46
1988 2,357.03 2,357.03 1,690.44
1989 2,881.37 2,884.80 2,364.33
1990 1,733.83 2,867.70 1,523.43
1991 1,714.68 2,028.85 1,638.06
1992 1,307.66 1,763.43 1,102.50
1993 1,439.31 1,698.67 1,250.06
1994 1,559.09 1,712.73 1,445.97
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1995; Tokyo Stock
Exchange New York
The Nikkei OTC Average is a price weighted index of the quotations
of the OTC registered stock traded by members of the JSDA. The following
table sets forth the year-end Nikkei OTC Average for the years shown.
NIKKEI OTC AVERAGE
Nikkei OTC
Year Average
---- ----------
1985 814.2
1986 1,056.4
1987 1,107.0
1988 1,313.1
1989 2,597.5
1990 2,175.5
1991 1,946.1
1992 1,227.9
1993 1,447.6
1994 1,776.1
Sources: The Nikkei Shimbun; Bloomberg Financial Markets
As these indexes reflect, share prices of companies traded on
Japanese stock exchanges and on the Japanese OTC market reached historical
peaks (which were later referred to as the "bubble") in 1989 and 1990.
Afterwards stock prices in both markets decreased significantly, reaching
their lowest levels in the second half of 1992. There can be no assurance
that additional market corrections will not occur.
<PAGE>39
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; Director
930 Dolly Madison Blvd. or Trustee of Circuit City Stores, Inc.
McClain, Virginia 22107 (retail electronics and appliances) and
Phoenix Home Life Insurance Co.
Donald J. Donahue (71). . . Director
99 Indian Field Road Chairman of Magma Copper Company since
Greenwich, Connecticut 06830 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 Director of
P.O. Box 483 Fritz Broadcasting, Inc. and Fritz
Wilson, Wyoming 83014 Communications (developers and operators of
radio stations); Director of Advo, Inc.
(direct mail advertising).
John L. Furth* (65) . . Chairman of the Board
466 Lexington Avenue Vice Chairman and Director of E.M. Warburg,
New York, New York 10017-3147 Pincus & Co., Inc. ("EMW"); Associated with
EMW since 1970; Director and officer of other
investment companies advised by Warburg.
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.
- -------------------------
* Indicates a Director who is an "interested person" of the fund as defined
in the 1940 Act.
<PAGE>40
Alexander B. Trowbridge (66) Director
1155 Connecticut Avenue, N.W. President of Trowbridge Partners, Inc.
Suite 700 (business consulting) from January
Washington, DC 20036 1990-January 1994; President of the National
Association of Manufacturers from 1980-1990;
Director or Trustee of New England Mutual Life
Insurance Co., ICOS Corporation
(biopharmaceuticals), P.H.H. Corporation
(fleet auto management; housing and plant
relocation service), WMX Technologies Inc.
(solid and hazardous waste collection and
disposal), The Rouse Company (real estate
development), SunResorts International Ltd.
(hotel and real estate management), Harris
Corp. (electronics and communications
equipment), The Gillette Co. (personal care
products) and Sun Company Inc. (petroleum
refining and marketing).
Arnold M. Reichman (47). . . President
466 Lexington Avenue Managing Director and Assistant Secretary of
New York, New York 10017-3147 EMW; Associated with EMW since 1984; Senior
Vice President, Secretary and Chief Operating
Officer of Counsellors Securities; Officer of
other investment companies advised by Warburg.
Eugene L. Podsiadlo (38). . . Senior Vice President
466 Lexington Avenue Managing Director of EMW; Associated with
New York, New York 10017-3147 EMW since 1991; Vice President of Citibank,
N.A. from 1987-1991; Senior Vice President of
Counsellors Securities and officer of other
investment companies advised by Warburg.
Stephen Distler (42). . . . Vice President and
466 Lexington Avenue Chief Financial Officer
New York, New York 10017-3147 Managing Director, Controller and Assistant
Secretary of EMW; Associated with EMW since
1984; Treasurer of Counsellors Securities;
Treasurer and Chief Accounting Officer or Vice
President and Chief Financial Officer of other
investment companies advised by Warburg.
<PAGE>41
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 other
investment companies advised by Warburg.
Howard Conroy (41). . . . . Vice President, Treasurer and Chief
466 Lexington Avenue Accounting Officer Associated with EMW since
New York, New York 10017-3147 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 other investment companies advised
by Warburg.
Karen Amato (32). . . . . . Assistant Secretary
466 Lexington Avenue Associated with EMW since 1987; Assistant
New York, New York 10017-3147 Secretary of other investment companies
advised by Warburg.
No employee of Warburg 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 Warburg, 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>42
Directors' Compensation
<TABLE>
<CAPTION>
Total Total Compensation from
Compensation from all Investment Companies
Name of Director Fund+ Managed by Warburg+*
---------------- ----------------- ------------------------
<S> <C> <C>
John L. Furth None** None**
Richard N. Cooper $1,500 $42,500
Donald J. Donahue $1,500 $42,500
Jack W. Fritz $1,500 $42,500
Thomas A. Melfe $1,500 $42,500
Alexander B. Trowbridge $1,500 $42,500
</TABLE>
__________________
+ Amounts shown are estimates of future payments to be made in the fiscal
year ending October 31, 1996 pursuant to existing arrangements.
* Each Director also serves as a Director or Trustee of 15 other investment
companies advised by Warburg.
** Mr. Furth is considered to be an interested person of the Fund and
Warburg, 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 Warburg.
Mr. P. Nicholas Edwards, portfolio manager of the Fund, is also an
associate portfolio manager and research analyst of Warburg Pincus Japan OTC
Fund, Warburg Pincus International Equity Fund and the International Equity
Portfolios of Warburg Pincus Institutional Fund, Inc. and Warburg Pincus
Trust. Prior to joining Warburg in August 1995, Mr. Edwards was a director at
Jardine Fleming Investment Advisors, Tokyo. He was a vice president of Robert
Fleming Inc. in New York City from 1988 to 1991. Mr. Edwards earned M.A.
degrees from Oxford University and Hiroshima University in Japan.
Investment Adviser and Co-Administrators
Warburg serves as investment adviser to the Fund, Counsellors Funds
Service, Inc. ("Counsellors Service") and PFPC serve as co-administrators to
the Fund pursuant to separate written agreements (the "Advisory Agreement,"
"Counsellors Service Co-Administration Agreement" and the "PFPC Co-
Administration Agreement," respectively). The services provided by, and the
fees payable by the Fund to, Warburg under the Advisory
<PAGE>43
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 Warburg, Counsellors Service and PFPC in the
proportion that its assets bear to the aggregate assets of the Fund at the
time of calculation.
Warburg agrees that if, in any fiscal year, the expenses borne by
the Fund exceed the applicable expense limitations imposed by the securities
regulations of any state in which shares of the Fund are registered or
qualified for sale to the public, it will reimburse the Fund to the extent
required by such regulations. Unless otherwise required by law, such
reimbursement would be accrued and paid on a monthly basis. At the date of
this Statement of Additional Information, the most restrictive annual expense
limitation applicable to the Fund is 2.5% of the first $30 million of the
average net assets of the Fund, 2% of the next $70 million of the average net
assets of the Fund and 1.5% of the remaining average net assets of the Fund.
The advisory fee payable by the Fund is calculated at an annual rate
based on a percentage of the Fund's average daily net assets. See the
Prospectuses, "Management of the Fund."
Custodian and Transfer Agent
PNC Bank, National Association ("PNC") and Fiduciary Trust Company
International ("Fiduciary") 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 Fiduciary
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, Fiduciary is authorized to select one or more
foreign banking institutions and foreign securities depositories to serve as
sub-custodian on behalf of the Fund; Fiduciary 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
Fiduciary is Two World Trade Center, New York, New York 10048.
State Street Bank and Trust Company ("State Street") acts 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,
<PAGE>44
(ii) addresses and mails all communications by the Fund to record owners of
Fund shares, including reports to shareholders, dividend and distribution
notices and proxy material for its meetings of shareholders, (iii) maintains
shareholder accounts and, if requested, sub-accounts and (iv) makes periodic
reports to the Board concerning the transfer agent's operations with respect
to the Fund. The principal business address of State Street is 225 Franklin
Street, Boston, Massachusetts 02110. State Street has delegated to Boston
Financial Data Services, Inc., a 50% owned subsidiary ("BFDS"), responsibility
for most shareholder servicing functions. BFDS's principal business address
is 2 Heritage Drive, Boston, Massachusetts 02171.
Organization of the Fund
The Fund's charter authorizes the Board to issue three billion full
and fractional shares of common stock, $.001 par value per share ("Common
Shares"), of which one billion shares are designated Common Stock - Series 1
and one billion shares are designated Common Stock - Series 2 (the "Advisor
Shares"). Only Common Shares and Advisor Shares have been issued by the Fund.
All shareholders of the Fund in each class, upon liquidation, will
participate ratably in the Fund's net assets. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Directors can elect all Directors. Shares are
transferable but have no preemptive, conversion or subscription rights.
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
<PAGE>45
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
("Agreements") with institutional shareholders of record, broker-dealers,
financial institutions, depository institutions, retirement plans and
financial intermediaries ("Institutions") to provide certain distribution,
shareholder servicing, administrative and/or accounting services for their
clients or customers (or participants in the case of retirement plans)
("Customers") who are owners of Advisor Shares. See the Advisor Prospectus,
"Shareholder Servicing." Agreements 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 purpose for which such expenditures were made.
An Institution with which the Fund has entered into an Agreement
with respect to its Advisor Shares may charge a Customer one or more of the
following types of fees, as agreed upon by the Institution and the Customer,
with respect to the cash management or other services provided by the
Institution: (i) account fees (a fixed amount per month or per 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 this 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.
General. 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
<PAGE>46
Plan or the 12b-1 Plan would require the approval of the Board in the same
manner. Neither the Distribution Plan nor the 12b-1 Plan may be amended to
increase materially the amount to be spent thereunder without shareholder
approval of the relevant class of shares. The Distribution Plan or the 12b-1
Plan may be terminated at any time, without penalty, by vote of a majority of
the Independent Directors or by a vote of a majority of the outstanding voting
securities of the relevant class of shares of the Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of the Fund's shares is equal to the per share
net asset value of the relevant class of shares of the Fund. Information on
how to purchase and redeem Fund shares and how such shares are priced is
included in the Prospectuses under "Net Asset Value."
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed, other than customary weekend and holiday closings, or during
which trading on the NYSE is restricted, or during which (as determined by the
SEC) an emergency exists as a result of which disposal or fair valuation of
portfolio securities is not reasonably practicable, or for such other periods
as the SEC may permit. (The Fund may also suspend or postpone the recordation
of an exchange of its shares upon the occurrence of any of the foregoing
conditions.)
If the Board determines that conditions exist which make payment of
redemption proceeds wholly in cash unwise or undesirable, the Fund may make
payment wholly or partly in securities or other investment instruments which
may not constitute securities as such term is defined in the applicable
securities laws. 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; such
redemptions will be made with readily marketable securities.
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.
<PAGE>47
EXCHANGE PRIVILEGE
An exchange privilege with certain other funds advised by Warburg 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 Global Fixed Income Fund, Warburg Pincus Balanced
Fund, Warburg Pincus Growth & Income Fund, Warburg Pincus Capital Appreciation
Fund, Warburg Pincus Small Company Value Fund, Warburg Pincus Post-Venture
Capital 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 Warburg in the future on the basis of their relative net asset
values per share at the time of the 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 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. Warburg 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.
<PAGE>48
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 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
<PAGE>49
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.
The Fund's investments in zero coupon securities may create special
tax consequences. Zero coupon securities do not make interest payments,
although a portion of the difference between a zero coupon security's face
value and its purchase price is imputed as income to the Fund each year even
though the Fund receives no cash distribution until maturity. Under the U.S.
federal tax laws, the Fund will not be subject to tax on this income if it
pays dividends to its shareholders substantially equal to all the income
received from, or imputed with respect to, its investments during the year,
including its zero coupon securities. These dividends ordinarily will
constitute taxable income to the shareholders of the Fund.
Investors considering buying shares just prior to a dividend or
capital gain distribution should be aware that, although the price of shares
purchased at that time may reflect the amount of the forthcoming distribution,
those who purchase just prior to a distribution will receive a distribution
that will nevertheless be taxable to them. Upon the sale or exchange of
shares, a shareholder will realize a taxable gain or loss depending upon the
amount realized and the basis in the shares. Such gain or loss will be
treated as capital gain or loss if the shares are capital assets in the
shareholder's hands, and, as described in the Prospectuses, will be long-term
or short-term depending upon the shareholder's holding period for the shares.
Any loss realized on a sale or exchange will be disallowed to the extent the
shares disposed of are replaced, including replacement through the
reinvestment of dividends and capital gains distributions in the Fund, within
a period of 61 days beginning 30 days before and ending 30 days after the
disposition of the shares. In such a case, the basis of the shares acquired
will be increased to reflect the disallowed loss.
Each shareholder will receive an annual statement as to the federal
income tax status of his dividends and distributions from the Fund for the
prior calendar year. Furthermore, shareholders will also receive, if
appropriate, various written notices after the close of the Fund's taxable
year regarding the federal income tax status of certain dividends
<PAGE>50
and distributions that were paid (or that are treated as having been paid) by
the Fund to its shareholders during the preceding year.
If a shareholder fails to furnish a correct taxpayer identification
number, fails to report fully dividend or interest income, or fails to certify
that he has provided a correct taxpayer identification number and that he is
not subject to "backup withholding," the shareholder may be subject to a 31%
"backup withholding" tax with respect to (i) taxable dividends and dis-
tributions and (ii) the proceeds of any sales or repurchases of shares of the
Fund. An individual's taxpayer identification number is his social security
number. Corporate shareholders and other shareholders specified in the Code
are or may be exempt from backup withholding. The backup withholding tax is
not an additional tax and may be credited against a taxpayer's federal income
tax liability. Dividends and distributions also may be subject to state and
local taxes depending on each shareholder's particular situation.
Investment in Passive Foreign Investment Companies
If the Fund purchases shares in certain foreign entities classified
under the Code as "passive foreign investment companies" ("PFICs"), the Fund
may be subject to federal income tax on a portion of an "excess distribution"
or gain from the disposition of the shares, even though the income may have to
be distributed as a taxable dividend by the Fund to its shareholders. In
addition, gain on the disposition of shares in a PFIC generally is treated as
ordinary income even though the shares are capital assets in the hands of the
Fund. Certain interest charges may be imposed on either the Fund or its
shareholders with respect to any taxes arising from excess distributions or
gains on the disposition of shares in a PFIC.
The Fund may be eligible to elect to include in its gross income its
share of earnings of a PFIC on a current basis. Generally, the election would
eliminate the interest charge and the ordinary income treatment on the
disposition of stock, but such an election may have the effect of accelerating
the recognition of income and gains by the Fund compared to a fund that did
not make the election. In addition, information required to make such an
election may not be available to the Fund.
On April 1, 1992 proposed regulations of the Internal Revenue
Service (the "IRS") were published providing a mark-to-market election for
regulated investment companies. The IRS subsequently issued a notice
indicating that final regulations will provide that regulated investment
companies may elect the mark-to-market election for tax years ending after
March 31, 1992 and before April 1, 1993. Whether and to what extent the
notice will apply to taxable years of the Fund is unclear. If the Fund is not
able to make the foregoing election, it may be able to avoid the interest
charge (but not the ordinary income treatment) on disposition of the stock by
electing, under proposed regulations, each year to mark-to market the stock
(that is, treat it as if it were sold for fair market value). Such an
election could result in acceleration of income to the Fund.
<PAGE>51
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. These figures are calculated by finding the
average annual compounded rates of return for the one-, five- and ten- (or
such shorter period as the relevant class of shares has been offered) year
periods that would equate the initial amount invested to the ending redeemable
value according to the following formula: P (1 + T)[*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 invest-
ments in Fund shares are not reflected in the Fund's total return, and such
fees, if charged, will reduce the actual return received by customers on their
investments.
Warburg believes that a diversified portfolio of international
equity securities, when combined with a similarly diversified portfolio of
domestic equity securities, tends to have a lower volatility than a portfolio
composed entirely of domestic securities. Furthermore, international equities
have been shown to reduce volatility in single asset portfolios regardless of
whether the investments are in all domestic equities or all domestic fixed-
income instruments, and research indicates that volatility can be
significantly decreased when international equities are added.
- ------------------------
* - The expression (1 + T) is being raised to the nth power.
<PAGE>52
To illustrate this point, the performance of international equity
securities, as measured by the Morgan Stanley Capital International (EAFE)
Europe, Australia and Far East Index (the "MS-EAFE Index"), has equalled or
exceeded that of domestic equity securities, as measured by the Standard &
Poor's 500 Composite Stock Index (the "S & P 500 Index") in 14 of the last 23
years. The following table compares annual total returns of the MS-EAFE Index
and the S & P 500 Index for the calendar years shown.
MS-EAFE Index vs. S&P 500 Index
1972-1994
Annual Total Return
Year MS-EAFE Index S&P 500 Index
---- ------------- -------------
1972* 36.36 18.61
1973* -14.91 -14.92
1974* -23.61 -26.56
1975 35.39 37.07
1976 2.55 23.54
1977* 18.06 -7.20
1978* 32.62 6.37
1979 4.75 18.61
1980 22.58 32.27
1981* -2.27 -5.24
1982 -1.85 21.42
1983* 23.70 22.50
1984* 7.39 6.27
1985* 56.16 31.73
1986* 69.44 18.62
1987* 24.64 5.28
1988* 28.27 16.49
1989 10.54 31.61
1990 -23.44 -3.11
1991 12.13 30.36
1992 -12.17 7.60
1993* 32.60 10.06
1994* 7.78 1.28
_________________
* The MS-EAFE Index has outperformed the S&P 500 Index 14 out of the last
23 years.
<PAGE>53
The quoted performance information shown above is not intended to
indicate the future performance of the Fund.
From time to time, the Fund may advertise evaluations of a class of
Fund shares published by nationally recognized financial publications, such as
Morningstar, Inc. or Lipper Analytical Services, Inc. Morningstar, Inc. rates
funds in broad categories based on risk/reward analyses over various time
periods. In addition, advertising or supplemental sales literature relating
to the Fund may describe the percentage decline from all-time high levels for
certain foreign stock markets. It may also describe how the Fund differs from
the MS-EAFE Index in composition. The Fund may also discuss in advertising
and sales literature the history of Japanese stock markets, including the
Tokyo Stock Exchange and OTC market. Sales literature and advertising may
also discuss trends in the economy and corporate structure in Japan, including
the contrast between the sales growth, profit growth, price/earnings ratios,
and return on equity (ROE) of companies; it may discuss the cultural changes
taking place among consumers in Japan, including increasing cost-consciousness
and accumulation of purchasing power and wealth among Japanese consumers, and
the ability of new companies to take advantage of these trends. The Fund may
also discuss current statistics and projections of the volume, market
capitalization, sector weightings and number of issues traded on Japanese
exchanges and in Japanese over-the-counter markets, and may include graphs of
such statistics in advertising and other sales literature.
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 Japan Growth Fund, Inc. as of December 5, 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 Warburg, Counsellors Service and Counsellors Securities.
FINANCIAL STATEMENTS
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.
BB, B and CCC - Debt rated BB and B are regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in
<PAGE>A-2
accordance with the terms of the obligation. BB represents a lower degree of
speculation than B, and CCC the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.
BB - Bonds rated BB have less near-term vulnerability to default
than other speculative issues. However, they face major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions, which
could lead to inadequate capacity to meet timely interest and principal
payments. The BB rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BBB rating.
B - Bonds rated B have a greater vulnerability to default but
currently have the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will likely
impair capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to
default and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The CCC
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating.
CC - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C - This rating is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating
may be used to cover a situation where a bankruptcy petition has been filed,
but debt service payments are continued.
Additionally, the rating CI is reserved for income bonds on which no
interest is being paid. Such debt is rated between debt rated C and debt
rated D.
To provide more detailed indications of credit quality, the ratings
from "AA" to "CCC" may be modified by the addition of a plus or minus sign to
show relative standing within this major rating category.
D - Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating also will
be used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
<PAGE>A-3
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.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to the
bonds rated "Aa" through "B." The modifier 1 indicates that the bond being
rated ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the bond
ranks in the lower end of its generic rating category.
Caa - Bonds that are rated Caa are of poor standing. These issues
may be in default or present elements of danger may exist with respect to
principal or interest.
<PAGE>A-4
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of Warburg, Pincus Japan Growth Fund, Inc.
We have audited the accompanying Statement of Assets and Liabilities of
Warburg, Pincus Japan Growth Fund, Inc. (the "Fund") as of December 5, 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 Japan Growth
Fund, Inc. as of December 5, 1995 in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 8, 1995
<PAGE>
WARBURG PINCUS JAPAN GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
as of December 5, 1995
Assets:
Cash $100,000
Deferred Organizational Costs 65,000
Deferred Offering Costs 47,055
-------
Total Assets 212,055
-------
Liabilities:
Accrued Organizational Costs 65,000
Accrued Offering Costs 47,055
-------
Total Liabilities 112,055
-------
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
Advisor Shares - $.001 per share)
applicable to 9,900 Common Shares
and 100 Advisor Shares outstanding. $10.00
=====
The accompanying notes are an integral part of this financial statement.
<PAGE>
WARBURG PINCUS JAPAN GROWTH FUND, INC.
Notes to Financial Statement
December 5, 1995
1. Organization:
Warburg Pincus Japan Growth Fund, Inc. (the "Fund") was incorporated on
October 10, 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 capital stock,
$.001 par value per share, of which one billion shares are designated Advisor
Shares. Common Shares bear fees of .25% of average daily net asset value
pursuant to a 12b-1 distribution plan. Advisor Shares bear fees not to exceed
.75% of average daily net asset value pursuant to a 12b-1 distribution plan.
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 Advisor Shares (the "Initial Shares") to Warburg
Pincus Counsellors, Inc., the Fund's investment advisor (the "Adviser"), on
December 5, 1995.
2. Organizational Costs, Offering Costs and Transactions with Affiliates:
Organizational costs have been capitalized by the Fund and are being amortized
over sixty months commencing with operations. Offering costs have been
capitalized by the Fund and are being amortized over a period of one year. 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 outstanding at the time of redemption.
Certain officers and a director of the Fund are also officers and a director
of the Adviser. These officers and director are paid no fees by the Fund for
serving as an officer or 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.(1)
2 By-Laws.(1)
3 Not applicable.
4 Forms of Share Certificates.(2)
5 Form of Investment Advisory Agreement.
6 Distribution Agreement.(3)
7 Not applicable.
8(a) Form of Custodian Agreement with Fiduciary Trust Company.
(b) Form of Custodian Agreement with PNC Bank, National
Association.(4)
9(a) Form of Transfer Agency Agreement.(2)
(b) Forms of Co-Administration Agreements.(2)
(c) Forms of Services Agreements.
- -------------------------
(1) Incorporated by reference to Registrant's Registration Statement on Form
N-1A, filed on October 25, 1995.
(2) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in Pre-
Effective Amendment No. 2 to the Registration Statement on Form N-1A of
Warburg, Pincus Post-Venture Capital Fund, Inc., filed on September 22,
1995 (Securities Act File No. 33-61225).
<PAGE>C-2
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(a) Consent of Coopers & Lybrand L.L.P., Independent Auditors.
(b) Consent of Hamada & Matsumoto, Japanese counsel to the Fund.
12 Not Applicable.
13 Form of Purchase Agreement.(2)
14 Not applicable.
15(a) Form of Shareholder Servicing and Distribution Plan.(2)
(b) Form of Shareholder Services Plan.(2)
(c) Form of Distribution Plan.
(d) Form of Distribution Agreement.(2)
(e) Rule 18f-3 Plan.
16 Not applicable.
17 Not applicable.
- -------------------------
(3) Contained in Exhibit No. 15 hereto.
(4) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-1A of Warburg, Pincus Trust filed on June 14, 1995
(Securities Act File No. 33-58125).
<PAGE>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. ("Warburg"), a corporation formed under New
York law.
Item 26. Number of Holders of Securities
It is anticipated that Warburg 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 Warburg, 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 on Form
N-1A, filed on October 25, 1995.
Item 28. Business and Other Connections of
Investment Adviser
Warburg is a wholly owned subsidiary of Warburg, Pincus Counsellors
G.P., acts as investment adviser to Registrant. Warburg renders investment
advice to a wide variety of individual and institutional clients. The list
required by this Item 28 of officers and directors of Warburg, 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 Warburg (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 The RBB Fund, Inc.;
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; Warburg, Pincus Post-Venture Capital
Fund; 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.
(c) None.
Item 30. Location of Accounts and Records
(1) Warburg, Pincus Japan Growth Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(Registrant'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) PNC Bank, National Association
Broad & Chestnut Streets
Philadelphia, Pennsylvania 19101
(records relating to its functions as custodian)
(6) Fiduciary Trust Company International
Two World Trade Center
New York, New York 10048
(records relating to its functions as custodian)
(7) Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as distributor)
(8) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(records relating to its functions as shareholder servicing
agent, transfer agent and dividend disbursing agent)
<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 1933 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 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 15th day of December, 1995.
WARBURG, PINCUS JAPAN GROWTH 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 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 December 15, 1995
John L. Furth Board of Directors
/s/ Arnold M. Reichman President December 15, 1995
Arnold M. Reichman
/s/ Stephen Distler Vice President and December 15, 1995
Stephen Distler Chief Financial
Officer
/s/ Howard Conroy Vice President, December 15, 1995
Howard Conroy Treasurer and Chief
Accounting Officer
/s/ Richard N. Cooper Director December 15, 1995
Richard N. Cooper
/s/ Donald J. Donahue Director December 15, 1995
Donald J. Donahue
/s/ Jack W. Fritz Director December 15, 1995
Jack W. Fritz
<PAGE>C-7
/s/ Thomas A. Melfe Director December 15, 1995
Thomas A. Melfe
/s/ Alexander B. Trowbridge Director December 15, 1995
Alexander B. Trowbridge
<PAGE>1
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
1 Articles of Incorporation.(1)
2 By-Laws.(1)
3 Not applicable.
4 Forms of Share Certificates.(2)
5 Form of Investment Advisory Agreement.
6 Distribution Agreement.(3)
7 Not applicable.
8(a) Form of Custodian Agreement with Fiduciary Trust Company.
(b) Form of Custodian Agreement with PNC Bank, National
Association.(4)
9(a) Form of Transfer Agency Agreement.(2)
(b) Forms of Co-Administration Agreements.(2)
(c) Forms of Services Agreements.
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(a) Consent of Coopers & Lybrand L.L.P., Independent Auditors.
(b) Consent of Hamada & Matsumoto, Japanese counsel to the Fund.
12 Not applicable.
13 Form of Purchase Agreement.(2)
- -------------------------
(1) Incorporated by reference to Registrant's Registration Statement on Form
N-1A, filed on October 25, 1995.
(2) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in Pre-
Effective Amendment No. 2 to the
<PAGE>2
Exhibit No. Description of Exhibit
- ----------- ----------------------
14 Not applicable.
15(a) Form of Shareholder Servicing and Distribution Plan.(2)
(b) Form of Shareholder Services Plan.(2)
(c) Form of Distribution Plan.
(d) Form of Distribution Agreement.(2)
(e) Rule 18f-3 Plan.
16 Not applicable.
17 Not applicable.
- -------------------------
Registration Statement on Form N-1A of Warburg, Pincus Post-Venture
Capital Fund, Inc., filed on September 22, 1995 (Securities Act File No.
33-61225).
(3) Contained in Exhibit No. 15 hereto.
(4) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in Pre-
Effective Amendment No. 1 to the Registration Statement on Form N-1A of
Warburg, Pincus Trust filed on June 14, 1995 (Securities Act File No.
33-58125).
<PAGE>1
INVESTMENT ADVISORY AGREEMENT
_____________, 1995
Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
Warburg, Pincus Japan Growth 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 respect to the securities that the Fund may hold or contemplate
purchasing.
<PAGE>2
3. Brokerage
In executing transactions for the Fund and selecting brokers or
dealers, the Adviser will use its best efforts to seek the best overall terms
available. In assessing the best overall terms available for any portfolio
transaction, the Adviser will consider all factors it deems relevant
including, but not limited to, breadth of the market in the security, the
price of the security, the financial condition and execution capability of the
broker or dealer and the reasonableness of any commission for the specific
transaction and for transactions executed through the broker or dealer in the
aggregate. In selecting brokers or dealers to execute a particular
transaction and in evaluating the best overall terms available, the Adviser
may consider the brokerage and research services (as those terms are defined
in Section 28(e) of the Securities Exchange Act of 1934, 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 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
<PAGE>3
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 reimbursement, if any, will be estimated, reconciled and paid on
an annual basis.
<PAGE>4
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 October 9, 1995, together with all amendments thereto, is on file in the
Department of Assessments and Taxation of the State of Maryland.
12. Miscellaneous
The Fund recognizes that directors, officers and employees of the
Adviser may from time to time serve as directors, trustees, officers and
employees of corporations and business
<PAGE>5
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 JAPAN GROWTH
FUND, INC.
By:________________________
Name:
Title:
Accepted:
WARBURG, PINCUS COUNSELLORS, INC.
By:_________________________
Name:
Title:
<PAGE>1
AGREEMENT dated between FIDUCIARY TRUST COMPANY
INTERNATIONAL ("Bank") and ______________________________________ ("Fund")
1. Custody Account. The Bank agrees to establish and maintain (a) a
custody account in the name of the Fund ("Custody Account") for any and all
stocks, shares, bonds, debentures, notes, mortgages or other obligations for
the payment of money and any certificates, receipts, warrants or other
instruments representing rights to receive, purchase or subscribe for the same
or evidencing or representing any other rights or interests therein and other
similar property (hereinafter called "Securities") from time to time received
by the Bank or its subcustodian (as defined in the last sentence of Section 3)
for the account of the Fund, and (b) a deposit account in the name of the Fund
("Deposit Account") for any and all cash in any currency received by the Bank
or its subcustodian for the account of the Fund, which cash shall not be
subject to withdrawal by draft or check.
2. Maintenance of Securities. Securities in the Custody Account shall be
held in the country or other jurisdiction as shall be specified from time to
time in Instructions (as defined in Section 9 hereof), provided that such
country or other jurisdiction shall be one in which the principal trading
market for such Securities is located or the country or other jurisdiction in
which such Securities are to be presented for payment or are acquired for the
Custody Account and cash in the Deposit Account shall be credited to an
account in such amounts and in the country or other jurisdiction as shall be
specified from time to time in Instructions, provided that
<PAGE>2
such country or other jurisdiction shall be one in which such cash is the
legal currency for the payment of public or private debts.
3. Eligible Subcustodians. The Board of the Fund authorizes the Bank to
hold the Securities in the Custody Account and the cash in the Deposit Account
in custody and deposit accounts, respectively, which have been established by
the Bank with (a) a securities system, (b) one of the Bank's branches, a
branch of a qualified U.S. bank, an eligible foreign custodian or an eligible
foreign securities depository and (c) a subcustodian of an eligible foreign
custodian, that itself is an eligible foreign custodian or an eligible foreign
securities depository with which that subcustodian has entered into an
agreement for the custody of Fund assets; provided, however, that the Board of
the Fund has approved the use of the securities system and the Bank's or its
subcustodian's contract with, such eligible foreign custodian or eligible
foreign securities depository by resolution, and Instructions to such effect
have been provided to the Bank. For purposes of this Agreement, "qualified
U.S. bank." "eligible foreign custodian" and "eligible foreign securities
depository" shall have the meanings provided in Rule 17f-5 under the
Investment Company Act of 1940 as interpreted by the staff of the Securities
and Exchange Commission and a "securities system" shall mean a clearing agency
registered with the Securities and Exchange Commission under Section 17A of
the Securities Exchange Act of 1934, which acts as a securities depository, or
a book-entry system authorized by the U.S. Department of the Treasury and
certain federal agencies.
Hereinafter the term "subcustodian" will refer to (a) any securities system,
(b) any branch of a qualified U.S. bank, any eligible foreign custodian or any
eligible foreign securities depository
<PAGE>3
with which the Bank has entered into an agreement of the type contemplated
hereunder regarding Securities and/or cash held in or to be acquired for the
Custody Account or the Deposit Account, and (c) any subcustodian of an
eligible foreign custodian with which the eligible foreign custodian has
entered into an agreement like that between the Bank and such eligible foreign
custodian or an eligible foreign securities depository in which the
subcustodians participate.
4. Use of Subcustodian. With respect to Securities and other assets
which are maintained by the Bank in the physical custody of a subcustodian
pursuant to Section 3 (as used in this Section 4, the term "Securities" means
such Securities and other assets):
(a) The Bank will identify on its books as belonging to the Fund any
Securities held by such subcustodian.
(b) In the event that a subcustodian permits any of the Securities placed
in its care to be held in an eligible foreign securities depository such
subcustodian will be required by its agreement with the Bank to identify on
its books such Securities as being held for the account of the bank as a
custodian for its customers.
(c) Any Securities in the Custody Account held by a subcustodian of the
Bank will be subject only to the instructions of the Bank or its agents, and
any Securities held in an eligible foreign securities depository for the
account of a subcustodian will be subject only to the instructions of such
subcustodian.
<PAGE>4
(d) The Bank will only deposit Securities other than cash in an account
with a subcustodian which includes exclusively the assets held by the Bank for
its customers, and the Bank will cause such account to be designated by such
subcustodian as a special custody account for the exclusive benefit of
customers of the Bank.
(e) Any agreement the Bank shall enter into with a subcustodian with
respect to the holding of Securities shall require that (i) the Securities are
not subject to any right, charge, security interest, lien or claim of any kind
in favor of such subcustodian or its creditors except for their safe custody
or administration and (ii) beneficial ownership of such Securities is freely
transferable without the payment of money or value other than for safe custody
or administration; provided, however, that the foregoing shall not apply to
the extent that any of the above-mentioned rights, charges, etc. result from
any compensation or other expenses arising with respect to the safekeeping of
Securities pursuant to such agreement or from any arrangements made by the
Fund with any such subcustodian.
(f) The Bank shall allow independent public accountants of the Fund such
reasonable access to the records of the Bank relating to the Securities held
in the Custody Account as required by such accountants in connection with
their examination of the books and records pertaining to the affairs of the
Fund. The Bank shall, subject to restrictions under applicable law, also
obtain from any subcustodian with which the Bank maintains the physical
possession of any Securities in the Custody Account an undertaking to permit
independent public accountants of the Fund such reasonable access to the
records of such subcustodian as may be required in connection with their
examination of the books and records pertaining to the affairs
<PAGE>5
of the Fund. Upon a reasonable request from the Fund, the Bank shall furnish
to the Fund such reports (or portions thereof) of the Bank's external auditors
as relate directly to the Bank's system of internal accounting controls
applicable to the Bank's duties under this Agreement. The Bank shall use its
best efforts to obtain and furnish the Fund with such similar reports as the
Fund may reasonable request with respect to each eligible foreign custodian
and eligible foreign securities depository holding Securities of the Fund.
(g) The Bank will supply to the Fund at least monthly a statement in
respect to any Securities in the Custody Account held by a subcustodian,
including an identification of the entity having possession of the Securities,
and the Bank will send to the Fund an advice or notification of any transfers
of Securities to or from the Custody Account, indicating, as to Securities
acquired for the Fund, the identity of the entity having physical possession
of such Securities. In the absence of the filing in writing with the Bank by
the Fund of exceptions or objections to any such statement within sixty (60)
days of the Fund's receipt of such statement, or within sixty (60) days after
the date that a material defect is reasonable discoverable, the Fund shall be
deemed to have approved such statement, the Bank shall, to the extent
permitted by law, be released, relieved and discharged with respect to all
matters and things set forth in such statement as though such statement had
been settled by the decree of a court of competent jurisdiction in an action
in which the Fund and all persons having any equity interest in the Fund were
parties.
(h) The Bank hereby warrants to the Fund that in the Bank's opinion,
after due inquiry, the established procedures to be followed by each of its
branches, each branch of a qualified
<PAGE>6
U.S. bank, each eligible foreign custodian and each eligible foreign
securities depository holding Securities of the Fund pursuant to this
Agreement afford protection for such Securities at least equal to that
afforded by the Bank's established procedures with respect to similar
securities held by the Bank (and its securities depositories) in New York.
(i) The Bank hereby warrants to the Fund that, as of the date of this
Agreement, the Bank is maintaining a Bankers Blanket Bond, and the Bank hereby
agrees to notify the Fund in the event its Bankers Blanket Bond is cancelled
or otherwise lapses.
5. Deposit Account Payments. Subject to the provisions of Section 7, the
Bank shall make, or cause its subcustodians to make, payments of cash credited
to the Deposit Account only:
(a) in connection with the purchase of Securities for the Fund and the
delivery of such securities to, or the crediting of such Securities to, or the
crediting of such Securities to the account of, the Bank or its subcustodian,
each such payment to be made at prices as confirmed by Instructions;
(b) for the purchase or redemption of shares of the capital stock of the
Fund and the delivery to, or crediting to the account of, the Bank or is
subcustodian of such shares to be so purchased or redeemed;
(c) for the payment for the account of the Fund of dividends, interest,
taxes, management
<PAGE>7
or supervisory fees, capital distributions or operating expenses;
(d) for the payments to be made in connection with the conversion,
exchange or surrender of Securities held in the Custody Account;
(e) for other proper corporate purposes of the Fund; or
(f) upon the termination of the Custody Agreement as hereinafter set
forth.
All payments of cash for a purpose permitted by subsection (a), (b), (c) or
(d) of this Section 5 will be made only upon receipt by the Bank of
Instructions which shall specify the purpose for which the payment is to be
made. In the case of any payment to be made for the purpose permitted by
subsection (e) of the Section 5, the Bank must first receive a certified copy
of a resolution of the Board of the Fund adequately describing such payment,
declaring such purpose to be a proper corporate purpose, and naming the person
or persons to whom such payment is to be made. Any payment pursuant to
subsection (f) of this Section 5 will be made in accordance with Section 17.
In the event that any payment made under this Section 5 exceeds the funds
available in the Deposit Account, the Bank may, in its discretion, advance the
Fund an amount equal to such excess and such advance shall be deemed a loan
from the Bank to the Fund, payable on demand, bearing interest at the rate of
interest customarily charged by the Bank on similar loans.
<PAGE>8
If the Bank causes the Deposit Account to be credited on the payable
date for interest, dividends or redemptions, the Fund will promptly return to
the Bank any such amount or property so credited upon oral or written
notification that neither the Bank nor its subcustodian can collect such
amount or property in the ordinary course of business. The Bank or its
subcustodian, as the case may be, shall have no duty or obligation to
institute legal proceedings, file a claim or proof of claim in any insolvency
proceeding or take any other action with respect to the collection of such
amount or property beyond its ordinary collection procedures.
6. Custody Account Transactions. Subject to the provisions of Section 7,
Securities in the Custody Account will be transferred, exchanged or delivered
by the Bank or its subcustodians only:
(a) upon sale of such Securities for the Fund and receipt by the Bank or
its subcustodian only of payment therefore, each such payment to be in the
amount confirmed by Instructions from Authorized Persons;
(b) when such Securities are called, redeemed or retired, or otherwise
become payable;
(c) in exchange for or upon conversion into other Securities alone or
other Securities and cash pursuant to any plan of merger, consolidation,
reorganization, recapitalization or readjustment;
(d) upon conversion of such Securities pursuant to their terms into other
Securities;
<PAGE>9
(e) upon exercise of subscription, purchase or other similar rights
represented by such Securities;
(f) for the purpose of exchanging interim receipts or temporary
Securities for definitive Securities;
(g) for the purpose of redeeming in kind shares of the capital stock of
the Fund against delivery to the Bank or its subcustodian of such shares to be
so redeemed;
(h) for other proper corporate purposes of the Fund; or
(i) upon the termination of this Custody Agreement as hereinafter set
forth.
All transfers, exchanges or deliveries of Securities in the Custody Account
for a purpose permitted by either subsection (a), (b), (c), (d), (e), or (f)
of this Section 6 will be made, except as provided in Section 8, only upon
receipt by the Bank of Instructions which shall specify the purpose of the
transfer, exchange or delivery to be made. In the case of any transfer or
delivery to be made for the purpose permitted by subsection (g) of this
Section 6, the Bank must first receive Instructions from Authorized Persons
specifying the shares held by the Bank of its subcustodian to be so
transferred or delivered and naming the person or persons to whom transfers or
delivery of such shares shall be made. In the case of any transfer, exchange
or delivery to be made for the purpose permitted by subsection (h) of this
Section 6, the Bank must first receive a certified copy of a resolution of the
Board of the Fund adequately describing such
<PAGE>10
transfer. exchange or delivery, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom delivery of such
securities shall be made. Any transfer or delivery pursuant to subsection (i)
of this Section 6 will be made in accordance with Section 17.
7. Custody Account Procedures. With respect to any transaction involving
Securities held in or to be acquired for the Custody Account, the Bank shall
cause the Deposit Account to be credited on the contractual settlement date
with the proceeds of any sale or exchange of Securities from the Custody
Account and to be debited on the contractual settlement date for the cost of
Securities purchased or acquired for the Custody Account. The Bank may
reverse any such credit or debit if the transaction with respect to which
such credit or debit was made fails to settle within a reasonable period,
determined by the Bank in its discretion, after the contractual settlement
date, except, that if any Securities delivered pursuant to this Section 7 are
returned by the recipient thereof, the Bank may cause any such credits and
debits to be reversed at any time.
Notwithstanding the preceding paragraph, settlement and payment for
Securities received for, and delivery of Securities out of, the Custody
Account may be effected in accordance with the customary or established
securities trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including, without
limitation, delivering Securities to the purchaser thereof or to a dealer
therefore (or an agent for such purchaser or dealer) against a receipt with
the expectation of receiving later payment for such Securities from such
purchaser or dealer.
<PAGE>11
8. Actions of the Bank. Until the Bank receives Instruction from
Authorized Persons to the contrary, the Bank will, or will instruct its
subcustodian, to:
(a) present for payment any Securities in the Custody Account which are
called, redeemed or retired or otherwise become payable and all coupons and
other income items which call for payment upon presentation to the extent that
the Bank or subcustodian is aware of such opportunities for payment, and hold
cash received upon presentation of such Securities in accordance with the
provision of Sections 2, 3 and 4 of this Agreement;
(b) in respect of Securities in the Custody Account, execute in the name
of the Fund such ownership and other certificates as may be required to obtain
payments in respect thereof;
(c) exchange interim receipts or temporary Securities in the Custody
Account for definitive Securities;
(d) in respect of trades reported on the Fund's behalf through Depository
Trust Company ("DTC"), accept instruction from DTC (whether in a DTC report or
otherwise) as though they were given by an Authorized Person.
(e) convert monies received with respect to Securities of foreign issue
into United States dollars or any other currency necessary to effect any
transaction involving the Securities whenever it is practicable to do so
through customary banking channels, using any method or agency available,
including, but not limited to, the facilities of the Bank, its subsidiaries,
<PAGE>12
affiliates or subcustodians, which shall be entitled to receive compensation
for such services; and
(f) appoint brokers and dealers for any transaction involving the
Securities in the Custody Account in accordance with Section 11(a) of the
Securities and Exchange Act of 1934 and Rule 11a-2-2(T) thereunder, including,
without limitation, affiliates of the Bank or any subcustodian, which brokers
and dealers shall be entitled to receive compensation for their services.
9. Instructions. As used in the Agreement, the term "Instructions"
means instruction of (or on behalf of) the Fund received by the Bank, via
telephone, telex, TWX, facsimile transmission, bank wire or other teleprocess
or electronic instruction system acceptable to the Bank which the Bank
believes in good faith to have been given by two Authorized Persons or which
are transmitted with proper testing or authentication pursuant to terms and
conditions which the Bank may specify.
Any instructions delivered to the Bank by telephone shall promptly
thereafter be confirmed in writing signed by two Authorized Persons (which
confirmation may bear the facsimile signature of such Persons), but the Fund
will hold the Bank harmless for any failure on the part of the Fund or its
agents to send such confirmation in writing, the failure of such confirmation
to conform to the telephone instructions received, and the Bank's failure to
produce such confirmation at any subsequent time. Unless otherwise expressly
provided, all Instructions shall continue in full force and effect until
cancelled or superseded. If the Bank requires test arrangements,
authentication methods or other security devices to be used with respect to
Instructions, any Instructions thereafter shall be given and processed in
accordance with such terms and conditions for the use of such arrangements,
methods or devices as the Bank may put
<PAGE>13
into effect and modify from time to time. The Fund shall safeguard and shall
cause its agents, if applicable, to safeguard any testkeys, identification
codes or other security devices which the Bank shall make available to the
Fund or its agents. The Bank may electronically record any instructions given
by telephone, and other telephone discussions, with respect to the Custody
Account.
10. Authorized Persons. As used in the Agreement, the term "Authorized
Person" means such officers or such agents of the Fund as have been designated
by a resolution of the Board of the Fund, a certified copy of which has been
provided to the Bank, to act on behalf of the Fund in the performance of any
acts which Authorized Persons may do under this Agreement,. Such persons
shall continue to be Authorized Persons until such time as the Bank receives
Instruction from Authorized Persons that any such officer, or agent is no
longer an Authorized Person.
11. Nominees. Securities in the Custody Account which are ordinarily
held in registered form may be registered in the name of the Bank's nominee
or, as to any Securities in the possession of an entity other than the Bank,
in the name of such entity's nominee. The Fund agrees to hold any such
nominee harmless from any liability as a holder of record of such Securities,
but not if such liability is a result of such nominee's negligence. The Bank
may without notice to the Fund cause any such Securities to cease to be
registered in the name of any such nominee and to be registered in the name of
the Bank's nominee or held by one of its subcustodians and registered in the
name of such subcustodian's nominee are called for partial redemption by the
issuer of such Security, the Bank may allot, or cause to be allotted, the
called
<PAGE>14
portion to the respective beneficial holders of such class of security in any
manner the Bank deems to be fair and equitable.
12. Standard of Care. The Bank shall be responsible for the performance
of only such duties as are set forth herein or contained in Instructions given
to the Bank by Authorized Persons which are not contrary to the provisions of
the Agreement. The Bank will use reasonable care with respect to the
safekeeping of Securities in the Custody Account and cash in the Deposit
Account. The Bank shall be liable to the Fund for any loss which shall occur
as the result of a failure of a subcustodian or an eligible foreign securities
depository engaged by such subcustodian to exercise reasonable care with
respect to the safekeeping of such Securities and other assets to the same
extent that the Bank would be liable to the Fund if the Bank were holding such
Securities and other assets in New York. In the event of any loss to the Fund
by reason of the failure of the Bank or its subcustodian or an eligible
foreign securities depository engaged by such subcustodians to utilize
reasonable care, the Bank shall be liable to the Fund to the extent of the
Fund's damages, to be determined based on the market value of the property
which is the subject of the loss at the date of discovery of such loss and
without reference to any special conditions or circumstances. The Bank shall
be held to the exercise of reasonable care in carrying out this Agreement but
shall be indemnified by, and shall be without liability to, the Fund for any
action authorized by this Agreement taken or omitted by the Bank in good faith
without negligence. The Bank shall be entitled to rely, and may act, on the
prior, written advice of counsel (who may be counsel for the Fund) on all
matters and shall be without liability for any action reasonably taken or
omitted in good faith pursuant to such advice. The Bank need not maintain any
insurance for the benefit of the Fund. The Bank shall provide to the Fund, on
<PAGE>15
an annual basis, a report stating whether any events have occurred which would
render the arrangements hereunder to cease to be in compliance with the rules
of the Securities and Exchange Commission governing such arrangements and
describing any such event.
All collections of funds or other property paid or distributed in respect
of Securities in the Custody Account shall be made at the risk of the Fund.
The Bank shall have no liability for any loss occasioned by delay in the
actual receipt of notice by the Bank or by its subcustodian or any payment,
redemption or other transaction regarding Securities in the Custody Account in
respect of which the Bank has agreed to take action as provided in Section 8
hereof. The Bank shall not be liable for any action taken in good faith upon
Instruction or upon any certified copy of any resolution and may rely on the
genuineness of any such documents which it may in good faith believe to be
validly executed. The Bank shall not be liable for any loss resulting from,
or caused by, the direction of the Fund to maintain custody of any Securities
or cash in a foreign country including, but not limited to, losses resulting
from nationalization, expropriation, currency restriction, act of war or
terrorism, insurrection, revolution, nuclear fusion, fission or radiation, or
acts of God.
13. Compliance with Securities and Exchange Commission Rules and Orders.
Except to the extent the Bank has specifically agreed pursuant to this
Agreement to comply with a condition of a rule, regulation, interpretation, or
exemptive order promulgated by or under the authority of the Securities and
Exchange Commission, the Fund shall be solely responsible to assure that the
maintenance of Securities and cash under this Agreement complies with any such
rule, regulation, interpretation or exemptive order.
<PAGE>16
14. Corporate Action. The Bank or its subcustodian is to forward to
Provident National Bank ("Provident") (or any successor thereto appointed by
the Fund) only such communications relative to the Securities in the Custody
Account as call for voting or the exercise of rights or other specific action
(including material relative to legal proceedings intended to be transmitted
to security holders) to the extent sufficient copies are received by the Bank
or its subcustodian in time for forwarding to each customer. The Bank or its
subcustodian will cause its nominee to execute and deliver to Provident (or
its successor) proxies relating to Securities in the Custody Account
registered in the name of such nominee but without indicating the manner in
which such proxies are to be voted. Proxies relating to bearer Securities
will be delivered in accordance with written instructions from Authorized
Persons.
15. Fees and Expenses. The Fund agrees to pay to the Bank from time to
time such compensation for its services pursuant to the Agreement as may be
mutually agreed upon in writing from time to time. The Fund hereby agrees to
hold the Bank harmless from any liability or loss resulting from any taxes or
other governmental charges, and any expenses related thereto, which may be
imposed or assessed with respect to the Custody Account and also agrees to
hold the Bank, its subcustodian, and their respective nominees harmless from
any liability as a record holder of Securities in the Custody Account. The
Bank is authorized to charge any account of the Fund for such items and the
Bank shall have a lien on Securities in the Custody Account and on cash in the
Deposit Account for any amount owing to the Bank from time to time under this
Agreement.
16. Effectiveness. This Agreement shall be effective on the date first
noted above.
<PAGE>17
17. Termination. This Agreement may be terminated by the Fund or the
Bank by 60 days' written notice to the other, sent by registered mail, proved
that any termination by the Fund shall be authorized by a resolution of the
Board of the Fund, a certified copy of which shall accompany such notice of
termination, and provided further, that such resolution shall specify the
names of the persons to whom the Bank shall deliver the Securities in the
Custody Account and to whom the cash in the Deposit Account shall be paid. If
notice of termination is given by the Bank, the Fund shall, within 60 days
following the giving of such notice, deliver to the Bank a certified copy of a
resolution of its Board specifying the names of the persons to whom the Bank
shall deliver such Securities and cash to the persons so specified, after
deducting therefrom any amounts which the Bank determines to be owed to it
under Section 15. If within 60 days following the giving of a notice of
termination by the Bank, the Bank does not receive from the Fund a certified
copy of a resolution of Board specifying the names of the persons to whom the
cash in the Cash Account shall be paid, the Bank, at its election, may deliver
such Securities and pay such cash to a bank or trust company doing business in
the State of New York to be held and disposed of pursuant to the provisions of
the Agreement, or to Authorized Persons, or may continue to hold such
Securities and cash until a certified copy of one or more resolutions as
aforesaid is delivered to the Bank. The obligations of the parties hereto
regarding the use of reasonable care, indemnities and payment of fees and
expenses shall survive the termination of this Agreement.
18. Notices. Any notice or other communication from the Fund or its
agents to the Bank is to be sent to the office of the Bank at Two World Trade
Center, New York, New York 10048, Attention: Global Custody Division, or such
other address as may hereafter be given
<PAGE>18
to the Fund in accordance with the notice provision hereunder, and any notice
from the Bank to the Fund is to be mailed postage prepaid, addressed to the
Fund at the address appearing below, or as the same may hereafter be changed
on the Bank's records in accordance with notice hereunder from the Fund.
19. Governing Law and Successors and Assigns. This Agreement shall be
governed by the law of the State of New York and shall not be assignable by
any party, but shall bind the respective successors and assigns of the Fund
and the Bank.
20. Headings. The headings of the paragraphs hereof are included for
convenience of reference only and do not form a part of this Agreement.
21. Counterpart Execution. This Agreement may be executed in any number
of counterparts with the same effect as if all parties hereto had signed the
same documents. All counterparts shall be construed together and shall
constitute one Agreement.
[__________________________]
By:__________________________________________
Title:________________________________________
<PAGE>19
Address for record: 466 Lexington Avenue
New York, NY 10017-3147
FIDUCIARY TRUST COMPANY
INTERNATIONAL
By:__________________________________________
Title:________________________________________
<PAGE>1
[____________________________________]
466 Lexington Avenue
New York, New York 10017
Dear
RE: Amendment to Custody Agreement - Repurchase Agreements
Reference is made to the Custody Agreement between us dated
__________ (the "Agreement"). In order to provide for the short-term
investment of uncommitted cash balanced in your custody account, the
Agreement is hereby amended by deleting any previous provisions
relating to repurchase transactions and adding a new section entitled
"Investment of Uncommitted Cash Balances - Repurchase Agreements" in the
following form:
Investment of Uncommitted Cash Balances - Repurchase Agreements
__________________________________________ has authority to authorize and
hereby authorizes Fiduciary Trust Company International to invest any
uncommitted cash balances held in the Custody Account, in increments
of $1,000 in repurchase transactions ("repos") in accordance with the
Memorandum from Fiduciary Trust Company International to _______________
________________________, dated ________, a copy of which is attached
hereto. Fiduciary Trust Company International is also hereby authorized
to execute as agent for ________________________________________, a
written agreement regarding repos with the entities specified in such
Memorandum. Neither Fiduciary Trust Company International nor any of its
officers, directors, employees or agents shall be liable for any loss or
damage resulting from any action or failure to act relating to such repos,
except when it or any of them have acted negligently, and in any event
neither it nor they shall be liable for any action or failure to act that
is substantially consistent with the attached Memorandum. Fiduciary Trust
Company International shall have no liability for any failure of the Seller
(as defined in the attached Memorandum) to perform any of its obligations
under any repo agreement. ______________________________________, will
indemnify and reimburse Fiduciary Trust Company International for all taxes,
liabilities and expenses incurred in connection with the repos authorized
hereunder (including but not limited to those incurred as a result of
___________________________________________, failure to keep securities
purchased under a repo free of pledges or other transfer obligations).
Except as provided above, the Agreement shall remain unchanged and
in full force and effect. This letter of amendment shall be governed by the
laws of the State of New York.
<PAGE>2
If the foregoing meets with your approval, please sign the enclosed
copy of this letter in the space provided and return it to us,
whereupon the Agreement will be amended in accordance with this letter.
Very truly yours,
FIDUCIARY TRUST COMPANY INTERNATIONAL
By____________________________________
Senior Vice President
AGREED
[____________________________________]
By____________________________________
<PAGE>3
MEMORANDUM
Date:________________
To: ______________________________________
From: Fiduciary Trust Company International
SUBJECT: Short-Term Investment of Cash in Repurchase Agreements ("Repos")
Introduction
As a service to you, Fiduciary Trust Company International ("Fiduciary"),
if authorized to do so by you, will use its best efforts as your agent to
secure a return on any uncommitted cash balances held in your account by
investing such funds on an overnight (or next business day) basis in
repurchase transactions ("repos") involving securities issued or guaranteed by
the U.S. Government or an agency of the U.S. Government. There will be
no additional fee for this service, and transaction charges will not apply.
For purposes of this Memorandum, a repo is a transaction under a
written agreement between a Seller (as that term is hereinafter defined)
and you, which discloses your identity to the Seller and is signed by
Fiduciary as you agent. Under this agreement, Fiduciary agrees to purchase
securities from the Seller subject to an obligation of the Seller to
repurchase the securities from Fiduciary, an obligation of Fiduciary to
resell them to the Seller, on the next business day, for a price (the
"repurchase price") equal to the sum of the initial purchase price and an
agreed-upon amount of interest. Such initial purchase price will always be
at least 100% of the market value of the purchase securities at the time of
the repo is agreed upon. (In as much as each repo will terminate the
morning of the next business day, the daily mark- to-market procedure to
determine whether there is a margin excess or deficit does not apply). The
agreement with the Seller contains provisions protecting each party against
the other's default, and includes a promise by you that the purchased
securities will not be pledged, resold or otherwise transferred to another
person while the repo is outstanding. (A copy of the agreement with the
Seller will be provided to you upon request).
The amount of your funds used to purchase securities in a repo is
referred to in this Memorandum as an amount "invested" in a repo. Your
funds will be invested in repos only in increments of $1,000.
All repos entered into by Fiduciary for you will be entered into with
J.P. Morgan Securities Inc. (the "Seller"). J.P. Morgan
<PAGE>4
Securities Inc. is a broker/dealer registered with the SEC and a wholly owned
subsidiary of J.P. Morgan Securities Holdings Inc., a wholly owned subsidiary
of J.P. Morgan & Co. Incorporated. J.P. Morgan & Co. Incorporated has its
principal offices in New York City, has stock that is traded on the New York
Stock Exchange, and files publicly available reports under the Securities
Exchange Act of 1934.
You should note that, as a purchaser of securities in a repo, you
will not (except in certain circumstances if the Seller fails to
repurchase the securities in accordance with a repo agreement) have the
right to retain any interest paid on the purchased securities or the right
to retain, pledge, sell or transfer any of such securities. Accordingly,
you will not benefit from any increase in the market value of the purchased
securities while a repo is outstanding, and the repurchase price for a
repo does not depend upon the interest paid on the purchased securities.
You should also note that all actions of Fiduciary under this Memorandum
with respect to your account are taken by Fiduciary as your agent.
Accordingly, any reference to a repo agreement between Fiduciary and the
Seller means, insofar as such agreement applies to your account, an agreement
between you (acting through Fiduciary) and the Seller, and any right or
obligation of Fiduciary under such repo agreement is your right or
obligation. By authorizing Fiduciary to invest your funds in repos under
the this Memorandum, you authorize Fiduciary, as your agent, to take such
action with respect to the purchased securities (including their subsequent
sale) as it considers appropriate if the Seller should fail to repurchase
the securities in accordance with the relevant repo agreement.
Method of Operation
By authorizing Fiduciary to invest your funds in repos under this
Memorandum, you authorize Fiduciary each day to withdraw, in increments of
$1,000, the uncommitted cash balance from your account with Fiduciary. For
administrative convenience, Fiduciary on each business day invests in a single
repo all of the funds available for such investment from the accounts of all
of its clients purchasing repos. Each client whose funds are invested in such
a repo will have an undivided pro rata interest in the securities purchased in
that repo, and will be entitled to a pro rata share of the repurchase price
for that repo.
By approximately 1:00 p.m. (New York time) on the day a repo is
agreed to, Fiduciary instructs the Federal Reserve Bank of New York (the
"Reserve Bank") (i) to pay the Seller, from a cash account maintained at
the Reserve Bank by Fiduciary (the "Cash Account"), the amount of the
purchase price for that day's repo against receipt into an account
maintained at that Reserve Bank by Fiduciary, as
<PAGE>5
agent for its clients ("Repo Account"), of the purchased securities, and (ii)
to deliver the purchased securities back to the Seller on the following
business day against receipt into the Cash Account of the agreed repurchase
price.
The Transfer of the purchased securities into the Repo Account has the
effect of transferring record ownership of the purchased securities to
Fiduciary, as agent for its clients. As result, if the record date for any
interest payable on the purchased securities occurs while the repo is
outstanding, that interest will be paid to Fiduciary. However. under the
repo agreement with the Seller, Fiduciary (as agent for its clients) is
obligated to remit to the Seller any such interest payment promptly upon its
receipt by Fiduciary.
Each increment of $1,000 of your funds invested in a repo will be
reflected in your statement as the purchase of a repo on the day it is
invested. For administrative purposes, each increment of $l,000 is treated
by Fiduciary as being continuously invested in a repo until that $1,000
increment is no longer available for such investment. However, during
that period, one repo is completed and another one commenced each
business day. On each business day's completion of a repo in which your funds
are invested, Fiduciary will credit your account with your share of the profit
generated by such repo.
You may at any time notify Fiduciary that you wish to terminate Fiduciary's
authority to invest the uncommitted cash balance in your account in repos. If
such notice is received by Fiduciary on or before 12:00 noon on a business
day, the termination will take effect on the day the notice is received. If
the notice is received by Fiduciary after 12:00 noon on a business day (or is
received on a day which is not a business day), the termination will take
effect on the following business day.
Risks
With respect to funds invested for you by Fiduciary in a repo with J.P. Morgan
Securities Inc., the Securities Investor Protection Corporation has taken
the position that the provisions of the Securities Investor Protection Act
of 1970 does not provide protection to you with respect to such a repo. An
obligation on the part of J. P. Morgan Securities Inc. to repurchase
securities in any repo is not guaranteed by Fiduciary or by the U.S.
Government or any agency thereof that may be an issuer or guarantor of any
of the purchased securities.
If the Seller fails to repurchase securities in accordance with a repo
agreement, you may suffer losses because of delays and costs in liquidating
the purchased securities. Such delays could result in losses to you if the
market value of the security diminishes before they can be sold. To the
extent that your share of the
<PAGE>6
repurchase price for any purchased securities exceeds your share of the amount
obtained upon liquidation of such securities, you would be an unsecured
creditor of the Seller. If a bankruptcy or other insolvency proceeding with
respect to the Seller commenced while a repo was outstanding, there could be a
substantial delay in the liquidation of the purchased securities (during which
time interest may cease to accrue).
0032846.03
<PAGE>1
SERVICES AGREEMENT
Gentlemen:
We have an agreement (the "Distribution Agreement") with each of
several open-end investment companies, or series thereof, for which Warburg,
Pincus Counsellors, Inc. ("Counsellors") provides investment advisory services
(together with such other open-end investment companies, or series thereof, for
which Counsellors may provide advisory services in the future, the "Funds").
Pursuant to the Distribution Agreements, we act as the distributor of shares of
common stock of the Funds designated "Common Shares" (collectively, the
"Shares"). You provide recordkeeping and administrative services to certain
employee benefit plans and retirement plans (together, the "Plans") that include
or propose to include certain of the Funds as an investment alternative. The
terms "Prospectus" and "Statement" as used herein refer respectively to the then
current prospectus and statement of additional information relating to the
Shares forming parts of the Registration Statement on Form N-1A of a Fund under
the Securities Act of 1933, as amended (the "1933 Act").
As used herein, unless the context otherwise requires, "we," "ours"
and/or "us" refer to Counsellors Securities Inc. and "you", "your" and "yours"
refer to the company that is the counterparty to this Agreement.
1. Services. As applicable, you agree to provide the administrative,
shareholder and/or other services set forth on Schedule A hereto, as amended
from time to time. In providing such services, you shall not, except as
specifically provided herein, have any authority to act as agent for us or any
Fund, but shall act only as agent of the Plans and the Plan participants who
from time to time beneficially own Shares of one or more Funds and as an
independent contractor and not as an employee or agent of the Funds, Counsellors
or us.
You will maintain all records required by law, including records
detailing the services you provide in return for the fees to which you are
entitled under this Agreement. Such records shall be preserved, maintained and
made available to the extent required and in accordance with the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules thereunder. Upon
request by a Fund or us, you agree to promptly make copies or, if required,
originals of such of these records available to the Fund or us, as the case may
be. You also agree to promptly notify the Fund or us if you experience any
difficulty in maintaining the records described in the foregoing in an accurate
and complete manner. This provision shall survive the termination of this
Agreement.
<PAGE>2
You agree to furnish the Funds, Counsellors and us with such
information as we may reasonably request (including, without limitation,
periodic certifications confirming the provision to Plans and Plan participants
of the services described herein). Moreover, you agree to provide to the Funds,
Counsellors and us access to you and your personnel at our reasonable request
during normal business hours to confirm compliance with the provisions of this
Agreement and applicable law. In performing services hereunder, you agree that
you will not engage in any activities set forth in Schedule B.
You shall take all steps necessary to ensure that the arrangements
provided for in this Agreement are properly disclosed to the Plans. You agree to
inform Plans and Plan participants that they are transacting business with you
and not with us, Counsellors or the Funds, and that they and Plan participants
may look only to you for resolution of problems or discrepancies in their
accounts or between those accounts and your omnibus accounts (the "Accounts") at
the Funds. You and your employees will, upon request, be available during normal
business hours to consult with the Funds, Counsellors and us or our designees
concerning the performance of your responsibilities under this Agreement.
In no way shall the provisions of this Agreement limit the authority of
any Fund or us to take such action as such entity may deem appropriate or
advisable in respect of all matters pertaining to the continuous offering of
Shares. We have full authority to take such action as we may deem advisable in
respect of all matters pertaining to the continuous offering of Shares. We
reserve the right in our sole discretion and without notice to you to suspend
sales or withdraw the offering of Shares. To the extent reasonably practicable,
we or the relevant Fund will provide you with notice of any such suspension or
withdrawal and you will use your best efforts to cause compliance with any such
notice.
You shall maintain at all times general liability and other insurance
coverage, including errors and omissions coverage, that is reasonable and
customary in light of your duties hereunder, with limits of not less than $5
million. Such insurance coverage shall be issued by a qualified insurance
carrier with a Best's rating of at least "A" or with the highest rating of a
nationally recognized statistical rating organization.
We may enter into other similar agreements with any other person or
persons without your consent.
2. Orders for Shares. Orders received from you for Shares of a Fund
will be accepted by us only at the public offering price applicable to each
order, as set forth in the relevant Prospectus and Statement. All orders by you
for a Fund's Shares will be held through the Accounts with the Fund; and you
agree to make available on a monthly basis to the Funds records necessary to
determine the number of Plans and Plan participants in each Account (indicating
the number of new accounts opened during the month, as well as the number of
ongoing accounts) and the times of receipt of Plan participant orders. You agree
to use your best efforts to assist us in identifying "market timers" or
investors who engage in a pattern of short-term trading.
<PAGE>3
On each day on which a Fund calculates its net asset value (a "Business
Day"), you shall aggregate and calculate the net purchase and redemption orders
for each Account maintained by the Fund in which Plan participant assets are
invested. Net orders shall only reflect Plan participant orders that you have
received prior to the close of regular trading on the New York Stock Exchange,
Inc. (the "NYSE") (currently 4:00 p.m., Eastern time) on that Business Day.
Orders that you have received after the close of regular trading on the NYSE
shall be treated as though received on the next Business Day. Each communication
of orders by you shall constitute a representation that such orders were
received by you prior to the close of regular trading on the NYSE on the
Business Day on which the purchase or redemption order is priced in accordance
with Rule 22c-1 under the 1940 Act. Other procedures relating to the handling of
orders shall be in accordance with the Prospectus and Statement of the relevant
Fund or with oral or written instructions that we or the relevant Fund shall
forward to you from time to time.
Subject to the terms and conditions of this Agreement and the
procedures referred to above, you shall be appointed to act, and you by
indicating next to your signature below have agreed to act as agent of each Fund
for the purpose specifically set forth in this paragraph. Provided that you
comply with the foregoing, you shall be deemed to be an agent of each Fund to
the extent orders refer to such Fund for the sole purpose of receiving
instructions from yourself as Plan agent for the purchase and redemption of
Shares prior to the close of regular trading each Business Day and communicating
orders based on such instructions to the Fund's transfer agent, all as specified
herein, and the Business Day on which you receive such instructions prior to the
close of regular trading on the NYSE shall be the Business Day on which such
orders will be deemed to be received by us or the Fund's transfer agent as a
result of such instructions.
Dividends and capital gains distributions will be automatically
reinvested at net asset value in accordance with each Fund's prospectus.
Payment for Shares of a Fund ordered from us must be received together
with your order unless we agree otherwise. All orders are subject to acceptance
or rejection by us or the relevant Fund in the sole discretion of either, or by
the relevant Fund's transfer agent acting on our behalf, and orders shall be
effective only upon receipt in proper form. The Funds may, if necessary, delay
redemption of Shares to the extent permitted by the 1940 Act.
<PAGE>4
3. Fees. For the services and facilities provided by you hereunder, we
agree to pay you beginning on the effective date indicated next to our signature
below an amount calculated at the rate and in the manner set forth in Schedule
C, as amended from time to time. We will provide you, at least monthly, a
written report detailing amounts so calculated with respect to each Fund.
You agree that during the term of this Agreement, you will not assess
against or collect from Plans or Plan participants any transaction fee upon the
purchase or redemption of any Fund's Shares that are considered in calculating
the fee due pursuant to this Agreement.
4. Counsellors Securities' Responsibilities; Limitation of Liability
for Claims. Any printed information that we furnish to you other than the
Prospectus, the Statement, information supplemental to the Prospectus and the
Statement, periodic reports and proxy solicitation materials are our sole
responsibility, and not the responsibility of any Fund, and you agree that the
Funds, the shareholders of the Funds and the officers and governing Boards of
the Funds shall have no liability or responsibility to you in these respects.
You also agree that the payment of compensation to you under this Agreement is,
except as set forth in Schedule C hereto, solely our responsibility and not that
of any Fund, and you agree that the Funds, the shareholders of the Funds and the
officers and governing Boards of the Funds shall have no liability or
responsibility to you with respect to any indebtedness, liability or obligation
hereunder. Further, it is understood, in the case of each Fund that is organized
as a Massachusetts business trust or series thereof, that the declarations of
trust for each trust refers to the trustees collectively as trustees and not as
individuals personally, and that the declaration of trust provides that no
shareholder, trustee, officer, employee or agent of the trust shall be subject
to claims against or obligations of the trust to any extent whatsoever, but that
the trust estate only shall be liable. No Fund shall be liable for the
obligations or liabilities of any other Fund. No series of any Fund, if any,
shall be liable for obligations of any other series.
5. Pricing Errors. In the event adjustments are required to correct any
error in the computation of the net asset value of a Fund's Shares, the Fund or
we shall notify you as soon as practicable after discovering the need for those
adjustments that result in an aggregate reimbursement of $150 or more to the
Accounts maintained by the Fund for Plan participants. Any such notice shall
state for each day for which an error occurred the incorrect price, the correct
price and, to the extent communicated to the Fund's shareholders, the reason for
the price change. You may send this notice or a derivation thereof (so long as
such derivation is approved in advance by Counsellors) to Plan participants and
Customers whose accounts are affected by the price change.
<PAGE>5
If the Accounts maintained by the Fund for Plan participants received
amounts in excess of the amounts to which it otherwise would have entitled prior
to an adjustment for an error, you, at our request, will make a good faith
attempt to collect such excess amounts from Plan participants. In no event,
however, shall you be liable to the Funds or us for any such amounts.
If an adjustment is to be made in accordance with the first paragraph
of this section 5, the relevant Fund shall make all necessary adjustments
(within the parameters specified in that first paragraph) to the number of
Shares owned in the Accounts and distribute to you the amount of such
underpayment for credit to Plan participants' accounts.
6. Termination; Assignment. This Agreement shall be terminable without
penalty upon 30 days' written notice to us by you and upon 30 days' written
notice to you by us; provided, however, that any termination of this Agreement
shall not affect any unpaid obligations under this Agreement and you shall be
entitled to receive all fees earned up to and including the effective date of
termination.
This Agreement shall not be assignable by either us or you without the
prior written consent of the Funds. Nothing in this Agreement is intended to
confer upon any person other than the Funds and the parties hereto and their
permitted assigns and successors any rights or remedies under or by reason of
this Agreement.
7. Publicity. CSI will provide you on a timely basis with investment
performance information for each Fund, including total return for the preceding
calendar month and calendar quarter, the calendar year to date, and the prior
one-year, five-year, and ten-year (or life of the Fund) periods. You may, based
on the Securities and Exchange Commission-mandated information supplied by CSI,
prepare communications for Plan participants ("Participant Materials"). You
shall provide copies of all Participant Materials to CSI concurrently with their
first use for CSI's internal recordkeeping purposes. It is understood that
neither CSI nor any Fund shall be responsible for errors or omissions in, or the
content of, Participant Materials.
8. Standard of Care; Indemnification. In carrying out your and our
obligations under this Agreement, you and we each agree to act in good faith
and without negligence.
You agree to and do release, indemnify and hold each Fund, its
investment adviser and their and our respective officers, trustees, directors
and controlling persons harmless from and against any and all direct or indirect
claims, liabilities, expenses or losses resulting from requests, directions,
<PAGE>6
actions or inactions of or by you or your officers, employees or agents
regarding your responsibilities hereunder. Without limiting the generality of
the foregoing, you agree that this provision will apply to claims, liabilities,
expenses or losses arising out of (a) your making any statement or
representation concerning the Shares that is not contained in the relevant
Prospectus or Statement or in such printed material issued by us or a Fund as
information supplemental to the Prospectus and Statement (including, without
limitation, any statement, representation or omission contained in Participant
Materials) and (b) a sale of Shares in any state or jurisdiction in which such
Shares are not qualified for sale or exempt from the requirements of the
relevant securities laws or in which you are not properly licensed or authorized
to make offers or sales. The Funds and CSI, in each case solely to the extent
relating to such party's responsibilities hereunder, agree to and do release,
indemnify and hold you and your officers, directors and controlling persons
harmless from and against any and all direct or indirect claims, liabilities,
expenses or losses resulting from requests, directions, actions or inactions of
or by us, any Fund or our respective officers, employees or agents.
This provision shall survive the termination of this Agreement.
9. Representations and Warranties. Each party hereby represents and
warrants to the other that it is duly authorized by all necessary action,
approval or authorization to enter into this Agreement and that it is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized.
You further represent, warrant and agree that:
(i) you are fully authorized by applicable law and
regulation and by any agreement you may have with any Plan, Customer or
client for whom you may act pursuant to this Agreement to perform the
services and receive the compensation therefor described in this
Agreement;
(ii) in performing the services described in this
Agreement, you will comply with all applicable laws, rules and
regulations;
(iii) if you are not duly registered as a
broker-dealer under Section 15 of the Securities Exchange Act of
1934, as amended (the "1934 Act") and applicable state securities
laws and regulations, you are not required to be so registered and
will not be required to be so registered in order to perform this
Agreement;
(iv) neither you nor any of your "affiliates" (as
such term is defined in 29 C.F.R. Section 2510.3-21(e)) is a
"fiduciary" of any Plan as such term is defined in section 3(21) of the
Employment Retirement Income Security Act of 1974, as amended
("ERISA"), and section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code");
(v) the receipt of fees hereunder will not constitute
a "prohibited transaction" as such term is defined in section 406 of
ERISA and section 4975 of the Code; and
<PAGE>7
(vi) you are duly registered as a transfer agent
under Section 17A of the 1934 Act and applicable state securities laws
and regulations, and such registrations shall continue to be in full
force and effect throughout the term of this Agreement.
10. Governing Law; Complete Agreement. This Agreement shall be
governed by and construed in accordance with the laws (except the conflict
of law rules) of the State of New York.
This Agreement contains the full and complete understanding of the
parties and supersedes all prior representations, promises, statements,
arrangements, agreements, warranties and understandings between the parties
with respect to the subject matter hereof, whether oral or written, express
or implied.
11. Amendment. This Agreement, including the Schedules thereto,
may be modified or amended and the terms of this Agreement may be waived only
by writings signed by each of the parties.
12. Notices. All notices and communications shall be mailed or
telecopied to you to the address set forth below and to us at 466 Lexington
Avenue, New York, New York 10017, Attention: Eugene P. Grace (Fax No.:
212-878-9351), or in any case to such other address as a party may request by
giving written notice to the other.
COUNSELLORS SECURITIES INC.
Date:_____________ __, 1995 By:________________________________
Name:
Title:
Effective Date: _________, 1995
<PAGE>8
WARBURG, PINCUS INTERMEDIATE
MATURITY GOVERNMENT FUND
WARBURG, PINCUS INTERMEDIATE MUNICIPAL
FUND
WARBURG, PINCUS FIXED INCOME FUND
WARBURG, PINCUS GLOBAL FIXED INCOME FUND
WARBURG, PINCUS CAPITAL APPRECIATION FUND
WARBURG, PINCUS INTERNATIONAL EQUITY FUND
WARBURG, PINCUS EMERGING GROWTH FUND
WARBURG, PINCUS EMERGING MARKETS FUND
WARBURG, PINCUS JAPAN OTC FUND
<PAGE>9
WARBURG, PINCUS SHORT-TERM TAX-ADVANTAGED
BOND FUND
WARBURG, PINCUS POST-VENTURE CAPITAL FUND
By: __________________________________
Name:
Title:
By: __________________________________
Name:
Title:
WARBURG, PINCUS BALANCED FUND
WARBURG, PINCUS GROWTH & INCOME FUND
By: ___________________________________
Name:
Title:
Please indicate your confirmation and acceptance of this Agreement as
of the date written above by signing below and returning one copy of this
Agreement to Counsellors Securities Inc., 466 Lexington Avenue, New York, New
York 10017, Attention: Eugene P. Grace.
Accepted and Agreed:
TOWERS PERRIN
By:__________________________
Name (Print):___________________________
Title:_______________________________
<PAGE>10
Address: Centre Square East
1500 Market Street
Philadelphia, PA 19102-4790
Telephone No.: (215) 246-7479
Fax No.: (215) 246-4463
INDICATE INTENTION TO ACT AS AGENT
AS SET FORTH IN THIS AGREEMENT:
We agree to act as agent for the sole purpose of and to the extent set forth
in paragraph 2 of this Agreement. Yes ____ No ____
<PAGE>A-1
Capitalized terms used herein and not otherwise defined shall
have the meaning set forth in the body of the Services Agreement.
SCHEDULE A
Administrative Services
(i) receiving from the Plans and Plan participants, by the close of
regular trading on the New York Stock Exchange (currently 4:00 p.m., Eastern
time) on any business day (i.e., a day on which the New York Stock Exchange is
open for trading), instructions for the purchase and redemption of shares;
aggregating and processing purchase and redemption requests for Shares from Plan
participants and Customers and placing net purchase and redemption orders with
CSI or its designee; payment for net purchase orders must be received at the
time the order is placed; communicating orders in a timely manner to CSI or its
designee and promptly delivering, or instructing the Plans to deliver,
appropriate documentation to CSI or its designee;
(ii) providing Plan participants with a service that invests the
assets of their accounts in Shares;
(iii) providing information periodically to Plans and Plan
participants showing their positions in Shares;
(iv) arranging for bank wires;
(v) providing sub-accounting with respect to Shares
beneficially owned by Plans and Plan participants;
(vi) if required by law, forwarding shareholder communications
from the relevant Fund (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices)
to Plans and Plan participants at your expense, with such material to be
provided to you by CSI to the extent reasonably practicable upon ten Business
Days' notice;
(vii) withholding taxes on non-resident alien accounts and
otherwise as appropriate;
<PAGE>A-2
(viii) maintaining records of dividends and distributions; and
disbursing dividends and distributions and reinvesting such in the relevant
Fund for Plans and Plan participants;
(ix) preparing and delivering to Plans, Plan participants and
state and federal regulatory authorities, including the U.S. Internal Revenue
Service, such information respecting dividends and distributions paid by the
relevant Fund as may be required by law;
(x) maintaining adequate records for each Plan reflecting Shares
purchased and redeemed, including dates and prices for all transactions, and
Share balances;
(xi) preparing and delivering to Plan participants periodic
account statements on a quarterly basis showing the total dollar amount
(contract value) of Shares held as of the statement closing date;
(xii) on behalf of and to the extent instructed by each Plan, at
your expense deliver to Plan participants (or deliver to the Plans for
distribution to Plan participants) and Customers prospectuses, statements of
additional information and other materials provided to you by CSI to the
extent reasonably practicable upon ten Business Days' notice;
(xiii) maintain quarterly purchase summaries (expressed in dollar
amounts) for each Plan;
(xiv) settle orders in accordance with the terms of the
Prospectus and Statement of the Funds; and
(xv) transmit to us, or to the Funds if so instructed by us, such
occasional and periodic reports as we shall reasonably request from time to
time to enable us or the Funds to comply with applicable laws and
regulations.
<PAGE>A-3
Shareholder Services
(i) responding to Plans, Plan participant and Customer
inquiries;
(ii) providing information on Plan, Plan participant and
Customer investments;
(iii) providing other shareholder liaison services;
(iv) providing office space and equipment, telephone facilities
and personnel (which may be any part of the space, equipment and facilities
currently used in your business, or any personnel employed by you) as may be
reasonably necessary or beneficial in order to provide services to Plans and
Customers under this Agreement;
(v) send confirmations of orders to the Plans and Plan
participants and Customers as required by Rule 10b-10 of the Securities
Exchange Act of 1934 (the "1934 Act") and paying any costs in connection
therewith;
(vi) using all reasonable efforts to ensure that taxpayer
identification numbers provided by you on behalf of the Plans, Plan
participants and Customers are correct; and
(vii) providing the Plans, Plan participants and Customers a
confirming Prospectus following an acquisition of Shares to the extent
required by law.
Other Services
(i) providing all other services as may be incidental to the
Administrative Services and Shareholder Services enumerated above;
(ii) providing such other services as may be normal or customary
for service providers performing substantially similar services; and
(iii) providing such other services as may be mutually agreed by
the parties to the extent permitted under applicable statutes, rules and
regulations.
<PAGE>B-1
SCHEDULE B
Prohibited Activities
(i) You shall not withhold placing orders for the Shares received
from Plan participants and Customers so as to profit yourself as a result of
such withholding.
(ii) You shall not place orders for Shares unless you have already
received purchase orders for Shares at the applicable public offering price
and subject to the terms hereof.
(iii) You agree that you will not offer or sell any Shares except
under circumstances that will result in compliance with applicable federal
and state securities laws and that in connection with sales and offers to
sell Shares you will furnish to each person to whom any such sale or offer is
made, at or prior to the time of offering or sale, a copy of the relevant
Prospectus and, if requested, the corresponding Statement (each as then
amended or supplemented) and will not furnish to any person any information
relating to a Fund that is inconsistent in any respect with the information
contained in the Prospectus and Statement (each as then amended or
supplemented).
(iv) You shall not make any representations concerning the Shares
except those contained in the relevant Prospectus and Statement and in such
printed information subsequently issued by us or a Fund as information
supplemental to the Prospectus and Statement.
<PAGE>C-1
SCHEDULE C
Total Annual Fee as % of Average
Net Assets of Plan Participants
held in the Account:
Name of Fund
- -------------------------- ---------------------- ---------------------
Warburg Pincus
New York Intermediate Bond .15
Intermediate Maturity .15
Government
Short-Term Tax-Advantaged .15
Bond .15
Fixed Income .15
Global Fixed Income .15
Growth & Income .20
International Equity .20
Emerging Growth .20
Capital Appreciation .20
Japan OTC .20
Balanced Fund .20
Emerging Markets .20
Post-Venture Capital .20
CSI or another of the Funds' designees shall pay the Fee to you, and
shall be reimbursed by each Fund for a portion of the Fee due with respect to
that Fund to be determined from time to time ("Fund Portion"). The difference
between the Fee due minus the Fund Portion shall not be reimbursed by the
Funds, but shall be borne by CSI or another of the Funds' designees.
These fees will be computed by CSI and paid monthly. For purposes of
determining the fees payable hereunder, the average net assets of the Plan
Pareticipants' Shares will be computed in the manner specified in the
relevant Fund's registration statement (as the same is in effect from time to
<PAGE>C-2
time) in connection with the computation of the net asset value of Shares for
purposes of purchases and redemptions.
In computing your fee, one-twelfth of the applicable fee rate set
forth above shall be applied to the average aggregate monthly net asset value
of shares of the applicable Funds in accounts for which you provide services
for the month in question. Each month's fee shall be determined independently
of every other month's fee. For the month in which this Agreement becomes
effective or terminates, there shall be an appropriate proration on the basis
of the number of days that the Agreement is in effect during the month. In
addition, if in any period the aggregate amount payable to you is less than
$200, we may, in our discretion, defer the payment of such amount until it,
together with a subsequent payment or payments, exceeds $200.
<PAGE>1
WARBURG PINCUS ADVISOR FUNDS SERVICES AGREEMENT
Gentlemen:
This is to confirm that, in consideration of the agreements hereinafter
contained, the undersigned open-end management investment company, or series
thereof (the "Fund"), has agreed that ________ (the "Service Organization")
shall provide certain distribution services in connection with the offer and
sale of shares of the Fund's common stock or beneficial interest, as the case
may be, par value $.001 per share, designated Series 2 Shares ("Advisor
Shares"), as well as certain shareholder servicing, administrative and
accounting services to certain of its customers who from time to time may
beneficially own Advisor Shares. The Fund acknowledges that Advisor Shares may
be sold by the Service Organization directly to [investors or/certain employee
benefit and retirement plans ("Plans") that include or propose to include the
Fund as an investment alternative or/a separate account of _______________
Insurance Company (each, a "Separate Account"), which will issue group annuity
contracts to qualified pension or profit-sharing plans ("Plans"), such investors
and separate accounts being referred to herein by the term "Customers"]. The
terms "Prospectus" and "Statement" as used herein refer respectively to the then
current prospectus and statement of additional information relating to the
Advisor Shares forming parts of the Registration Statement on Form N-1A of a
Fund under the Securities Act of 1933, as amended (the "1933 Act").
1. Services. Service Organization agrees to provide the distribution
and marketing, administrative, shareholder and/or other services set forth on
Schedule A hereto, as amended from time to time. In providing such services,
Service Organization shall not, except as specifically provided herein, have any
authority to act as agent for any Fund, but shall act only as agent of the
Plans, the Plan participants and Customers who from time to time beneficially
own Advisor Shares and as an independent contractor and not as an employee or
agent of the Fund, Warburg, Pincus Counsellors, Inc. ("Counsellors"), the
investment adviser to the Fund, or Counsellors Securities Inc. ("CSI"), the
distributor of the Advisor Shares.
Service Organization will maintain all records required by law,
including records detailing the services it provides in return for the fees to
which it is entitled under this Agreement. Such records shall be preserved,
maintained and made available to the extent required by law and in accordance
with the Investment Company Act of 1940, as amended (the "1940 Act"), and the
rules thereunder. Upon request by the Fund or CSI, Service Organization agrees
to promptly make copies or, if required, originals of such of these records
<PAGE>2
available to the Fund or CSI, as the case may be. Service Organization also
agrees to promptly notify the Fund or CSI if it experiences any difficulty in
maintaining these records in an accurate and complete manner. This provision
shall survive the termination of this Agreement.
Service Organization agrees to furnish the Fund, Counsellors and CSI
with such information as they may reasonably request (including, without
limitation, periodic certifications confirming the provision to Plans, Plan
participants and Customers of the services described herein). Moreover, Service
Organization agrees to provide to the Fund, Counsellors and CSI access to it and
its personnel at their reasonable request during normal business hours to
confirm compliance with the provisions of this Agreement and applicable law. In
performing services hereunder, Service Organization agrees that it will not
engage in any activities set forth in Schedule B.
Service Organization shall take all steps necessary to ensure that the
arrangements provided for in this Agreement are properly disclosed to the Plans
and Customers. Service Organization agrees to inform Plans and Customers that
they are transacting business with Service Organization and not with CSI,
Counsellors or the Fund, and that they and Plan participants may look only to
Service Organization for resolution of problems or discrepancies in their
accounts or between those accounts and Service Organization's omnibus accounts
(the "Accounts") at the Fund. Service Organization and Service Organization's
employees will, upon request, be available during normal business hours to
consult with the Fund, Counsellors and CSI or their designees concerning the
performance of Service Organization's responsibilities under this Agreement.
Upon Service Organization's written request, CSI will inform Service
Organization as to the states and jurisdictions in which it believes the Advisor
Shares have been qualified for sale under, or are exempt from the requirements
of, the respective securities laws of such states and jurisdictions. However,
neither CSI, Counsellors nor the Fund assumes any responsibility or obligation
as to Service Organization's right to sell Advisor Shares in any state or
jurisdiction. Service Organization agrees that it will not offer or sell any
Advisor Shares to Plans, Customers or persons in any jurisdiction in which
Service Organization is not properly licensed and authorized to make such offers
or sales, or in which Advisor Shares are not qualified for sale. CSI has full
authority to take such action as it may deem advisable in respect of all matters
pertaining to the continuous offering of Advisor Shares. The Fund reserves the
right in its sole discretion and without notice to Service Organization to
suspend sales or withdraw the offering of Advisor Shares.
<PAGE>3
Service Organization shall maintain at all times general liability and
other insurance coverage, including errors and omissions coverage, that is
reasonable and customary in light of its duties hereunder, with limits of not
less than $5 million. Such insurance coverage shall be issued by a qualified
insurance carrier with a Best's rating of at least "A" or with the highest
rating of a nationally recognized statistical rating organization.
The Fund may enter into other similar agreements with any other person
or persons without Service Organization's consent.
2. Orders for Advisor Shares. Orders received from Service Organization
for Advisor Shares of the Fund will be accepted by the Fund only at the public
offering price applicable to each order, as set forth in the relevant Prospectus
and Statement. All orders by Service Organization for Advisor Shares will be
held through the Accounts with the Fund; and Service Organization agrees to make
available on a monthly basis to the Fund records necessary to determine the
number of Plans, Plan participants and/or Customers in each Account and the
times of receipt of Plan participant and Customer orders. Service Organization
agrees to use its best efforts to assist the Fund in identifying "market timers"
or investors who engage in a pattern of short-term trading.
On each day on which the Fund calculates its net asset value (a
"Business Day"), Service Organization shall aggregate and calculate the net
purchase and redemption orders for each Account maintained by the Fund in which
Plan participant and Customer assets are invested. Net orders shall only reflect
Plan participant and Customer orders that Service Organization has received
prior to the close of regular trading on the New York Stock Exchange, Inc. (the
"NYSE") (currently 4:00 p.m., Eastern time) on that Business Day. Orders that
Service Organization has received after the close of regular trading on the NYSE
shall be treated as though received on the next Business Day. Each communication
of orders by Service Organization shall constitute a representation that such
orders were received by it prior to the close of regular trading on the NYSE on
the Business Day on which the purchase or redemption order is priced in
accordance with Rule 22c-1 under the 1940 Act. Other procedures relating to the
handling of orders shall be in accordance with the Prospectus and Statement of
the relevant Fund or with oral or written instructions that CSI or the Fund
shall forward to Service Organization from time to time.
Subject to the terms and conditions of this Agreement and the
procedures referred to above, Service Organization shall be appointed to act,
and Service Organization by indicating next to its signature below has agreed to
act as agent of the Fund for the purpose specifically set forth in this
paragraph. Provided that Service Organization complies with the foregoing, it
<PAGE>4
shall be deemed to be an agent of the Fund for the sole purpose of receiving
instructions as Plan agent for the purchase and redemption of Advisor Shares of
that Fund prior to the close of regular trading each Business Day and
communicating orders based on such instructions to the Fund's transfer agent,
all as specified herein. The Business Day on which Service Organization receives
such instructions prior to the close of regular trading on the NYSE shall be the
Business Day on which such orders will be deemed to be received by CSI or the
Fund's transfer agent as a result of such instructions.
Dividends and capital gains distributions will be automatically
reinvested at net asset value in accordance with the Fund's Prospectus.
Payment for Advisor Shares of the Fund must be received together with
Service Organization's order unless the Fund agrees otherwise. All orders are
subject to acceptance or rejection by CSI or the Fund in the sole discretion of
either, or by the Fund's transfer agent acting on its behalf, and orders shall
be effective only upon receipt in proper form. The Fund may, if necessary, delay
redemption of Advisor Shares to the extent permitted by the 1940 Act.
3. Fees. (a) In consideration of the shareholder services provided by
the Service Organization, the Fund may pay to the Service Organization, and the
Service Organization will accept as full payment therefor, a fee at the annual
rate of [up to .25%] of the average daily net assets of the Advisor Shares held
of record by the Service Organization from time to time on behalf of Plan
participants and Customers (the "Customers' Advisor Shares"), which fee will be
computed daily and payable quarterly.
(b) In consideration of the distribution, marketing,
administrative and accounting services and facilities provided by the Service
Organization, the Fund will pay to the Service Organization, and the Service
Organization will accept as full payment therefor, a fee at the annual rate of
[up to .50%] of the average daily net assets of the Customers' Advisor Shares,
which fee will be computed daily and payable quarterly.
(c) For purposes of determining the fees payable under this
Section 3, the average daily net assets of the Customers' Advisor Shares will be
computed in the manner specified in the relevant Fund's registration statement
(as the same is in effect from time to time) in connection with the computation
of the net asset value of Advisor Shares for purposes of purchases and
redemptions.
(d) Service Organization will provide to Plans, Plan
participants and Customers a schedule of fees showing the compensation payable
to the Service Organization hereunder, along with any other fees charged by it
to Plans, Plan participants and Customers relating to their assets that are
invested in Advisor Shares.
<PAGE>5
4. Counsellors Securities' Responsibilities; Limitation of Liability
for Claims. Any printed information that is furnished to Service Organization
other than the Prospectus, the Statement, information supplemental to the
Prospectus and the Statement, periodic reports and proxy solicitation materials
is CSI's sole responsibility, and not the responsibility of the Fund, and
Service Organization agrees that the Fund, the shareholders of the Fund and the
officers and governing Board of the Fund shall have no liability or
responsibility to Service Organization in these respects. Further, it is
understood, in the case of the Fund that is organized as a Massachusetts
business trust or series thereof, that the declarations of trust for each trust
refers to the trustees collectively as trustees and not as individuals
personally, and that the declaration of trust provides that no shareholder,
trustee, officer, employee or agent of the trust shall be subject to claims
against or obligations of the trust to any extent whatsoever, but that the trust
estate only shall be liable. No Fund shall be liable for the obligations or
liabilities of any other Fund. No series of any Fund, if any, shall be liable
for obligations of any other series.
5. Pricing Errors. In the event adjustments are required to correct any
error in the computation of the net asset value of a Fund's Advisor Shares, the
Fund or CSI shall notify Service Organization as soon as practicable after
discovering the need for those adjustments that result in an aggregate
reimbursement of $150 or more to any one Account maintained by the Fund for Plan
participants and/or Customers. Any such notice shall state for each day for
which an error occurred the incorrect price, the correct price and, to the
extent communicated to the Fund's shareholders, the reason for the price change.
Service Organization may send this notice or a derivation thereof (so long as
such derivation is approved in advance by CSI or Counsellors) to Plan
participants and Customers whose accounts are affected by the price change.
If an Account maintained by the Fund for Plan participants and
Customers received amounts in excess of the amounts to which it otherwise would
have entitled prior to an adjustment for an error, Service Organization, at the
Fund's request, will make a good faith attempt to collect such excess amounts
from Plan participants and Customers. In no event, however, shall Service
Organization be liable to the Fund or CSI for any such amounts.
If an adjustment is to be made in accordance with the first paragraph
of this section 5, the relevant Fund shall make all necessary adjustments
(within the parameters specified in that first paragraph) to the number of
Advisor Shares owned in the Accounts and distribute to Service Organization the
amount of such underpayment for credit to Plan participants' and Customers'
accounts.
6. Publicity. CSI will provide Service Organization on a timely basis
with investment performance information for the Fund in which Service
Organization maintains an Account, including total return for the preceding
<PAGE>6
calendar month and calendar quarter, the calendar year to date, and the prior
one-year, five-year, and ten-year (or life of the Fund) periods. Service
Organization may, based on the Securities and Exchange Commission-mandated
information supplied by CSI, prepare communications for Plan participants and
Customers ("Participant Materials"). Service Organization shall provide copies
of all Participant Materials to CSI concurrently with their first use for CSI's
internal recordkeeping purposes. It is understood that neither CSI nor any Fund
shall be responsible for errors or omissions in, or the content of, Participant
Materials.
7. Standard of Care; Indemnification. In carrying out Service
Organization's and CSI's obligations under this Agreement, Service
Organization and CSI each agree to act in good faith and without negligence.
Service Organization agrees to and does release, indemnify and hold the
Fund, its investment adviser(s), CSI and their respective officers, trustees,
directors, employees, agents and controlling persons harmless from and against
any and all direct or indirect claims, liabilities, expenses or losses resulting
from requests, directions, actions or inactions of or by Service Organization or
its officers, employees or agents regarding Service Organization's
responsibilities hereunder. Without limiting the generality of the foregoing,
Service Organization agrees that this provision will apply to claims,
liabilities, expenses or losses arising out of (a) Service Organization making
any statement or representation concerning the Advisor Shares that is not
contained in the relevant Prospectus or Statement or in such printed material
issued by CSI or a Fund as information supplemental to the Prospectus and
Statement (including, without limitation, any statement, representation or
omission contained in Participant Materials) and (b) a sale of Advisor Shares in
any state or jurisdiction in which such Advisor Shares are not qualified for
sale or exempt from the requirements of the relevant securities laws or in which
Service Organization is not properly licensed or authorized to make offers or
sales. CSI and the Fund, in each case solely to the extent relating to such
party's responsibilities hereunder, agree to and do release, indemnify and hold
Service Organization and its officers, directors and controlling persons
harmless from and against any and all direct or indirect claims, liabilities,
expenses or losses resulting from requests, directions, actions or inactions of
or by any Fund, its investment adviser(s), CSI or their respective officers,
trustees, directors, employees, agents or controlling persons.
This provision shall survive the termination of this Agreement.
8. Representations and Warranties. Each party hereby represents and
warrants to the other that it is duly authorized by all necessary action,
approval or authorization to enter into this Agreement and that it is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized.
<PAGE>7
Service Organization further represents, warrants and agrees that:
(i) Service Organization is and, during the term of
this Agreement, will be fully authorized by applicable law and
regulation and by any agreement it may have with any Plan, Customer or
client for whom it may act in a manner covered by this Agreement to
perform the services and receive the compensation therefor described in
this Agreement;
(ii) in performing the services described in this
Agreement, Service Organization will comply with all applicable laws,
rules and regulations;
(iii) Service Organization is duly registered as a
broker-dealer under Section 15 of the Securities Exchange Act of 1934,
as amended (the "1934 Act") and applicable state securities laws and
regulations, and all such registrations are in full force and effect
and will remain in effect during the term of this Agreement;
(iv) neither Service Organization nor any of its
"affiliates" (as such term is defined in 29 C.F.R. Section
2510.3-21(e)) is or, during term of this Agreement, will become a
"fiduciary" of any Plan as such term is defined in section 3(21) of the
Employment Retirement Income Security Act of 1974, as amended
("ERISA"), and section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code");
(v) the receipt of fees hereunder will not
constitute a "prohibited transaction" as such term is defined in
section 406 of ERISA and section 4975 of the Code;
(vi) the compensation payable to Service
Organization hereunder, together with any other compensation it
receives from Plans, Plan participants and Customers for services
contemplated by this Agreement, will not be excessive or unreasonable
under the laws and instruments governing its relationships with Plans,
Plan participants and Customers; and
(vii) Service Organization is duly registered as a
transfer agent under Section 17A of the 1934 Act and applicable state
securities laws and regulations and such registrations are in full
force and effect and will remain in effect during the term of this
Agreement.
<PAGE>8
9. Reports. Service Organization will furnish the Fund or its designees
with such information as it or they may reasonably request (including, without
limitation, periodic certifications confirming the provision to Plans, Plan
participants and Customers of the services described herein), and will otherwise
cooperate with the Fund and its designees (including, without limitation, any
auditors designated by the Fund), in connection with the preparation of reports
to the Fund's governing Board concerning this Agreement and the monies paid or
payable by the Fund pursuant hereto, as well as any other reports or filings
that may be required by law. Service Organization will promptly notify the Fund
and CSI in the event it is no longer able to make the representations and
warranties set forth above.
10. Term. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by the Fund or their designee or on
such other date as the parties may determine. Unless sooner terminated, this
Agreement will continue until one year from the date hereof, and thereafter will
continue automatically for successive annual periods provided such continuance
is specifically approved at least annually by the Fund in the manner set forth
in the next paragraph. This Agreement is terminable with or without cause,
without penalty, at any time by the Fund, which termination may be by vote of a
majority of (a) the Disinterested Trustees/Directors (as defined below) or (b)
the outstanding Series 2 Advisor Shares of the Fund, or by Service Organization
upon 30 days' notice to the other party hereto.
Anything in this Agreement to the contrary notwithstanding, no
compensation may be paid under this Agreement until this Agreement has been
approved by vote of a majority of (i) the Fund's governing Board and (ii) those
Trustees/Directors who are not "interested persons" (as defined in the 1940 Act)
of the Fund and have no direct or indirect financial interest in the operation
of the Distribution Plan adopted by the Fund regarding the provision of
distribution and support services to the beneficial owners of the Advisor Shares
or in any agreements related thereto ("Disinterested Trustees/Directors"), cast
in person at a meeting for the purpose of voting on such approval.
11. Governing Law; Complete Agreement; Assignment. This Agreement
shall be governed by and construed in accordance with the laws (except the
conflict of law rules) of the State of New York.
This Agreement contains the full and complete understanding of the
parties and supersedes all prior representations, promises, statements,
arrangements, agreements, warranties and understandings between the parties with
respect to the subject matter hereof, whether oral or written, express or
implied.
<PAGE>9
This Agreement is non-assignable by the parties hereto and will
terminate automatically in the event of its assignment (as such term is defined
in the 1940 Act). Nothing in this Agreement is intended to confer upon any
person other than the Fund and the parties hereto and their permitted assigns
and successors any rights or remedies under or by reason of this Agreement.
12. Amendment. This Agreement, including the Schedules thereto, may be
modified or amended and the terms of this Agreement may be waived only by
writings signed by each of the parties.
13. Notices. All notices and communications shall be mailed or
telecopied to Service Organization to the address set forth below and to the
Fund or CSI at 466 Lexington Avenue, New York, New York 10017, Attention:
Eugene P. Grace (Fax No.: 212-878-9351), or in any case to such other address
as a party may request by giving written notice to the other.
COUNSELLORS SECURITIES INC.
Date:_____________ __, 1995 By:________________________________
WARBURG, PINCUS _________________ FUND
Please indicate Service Organization's confirmation and acceptance of
this Agreement as of the date written above by signing below and returning
one copy of this Agreement to Counsellors Securities Inc., 466 Lexington
Avenue, New York, New York 10017, Attention: Eugene P. Grace.
Accepted and Agreed:
[ ]
By:_________________________
Name (Print):________________________
Title:_______________________________
Address:__________________________________
<PAGE>10
Telephone No.:___________________________
Fax No.:__________________________________
INDICATE INTENTION TO ACT AS AGENT
AS SET FORTH IN THIS AGREEMENT:
We agree to act as agent for the sole purpose of and to the extent set forth
in paragraph 2 of this Agreement. Yes ____ No ____
Capitalized terms used
herein and not otherwise defined
shall have the meaning set forth in
the body of the Series 2 Account
Services Agreement.
<PAGE>A-1
42597
SCHEDULE A
Distribution and Marketing Services
(i) formulation and implementation of marketing and promotional
activities including, but not limited to, direct mail promotions and other
advertising, if appropriate;
(ii) printing and distributing Prospectuses, Statements and
reports of the Fund to prospective Plans, Plan sponsors and Customers;
(iii) preparing, printing and distributing sales literature
pertaining to the Fund; and
(iv) obtaining information, analyses and reports with respect to
marketing and promotional activities relating to the Fund.
Administrative Services
(i) receiving from the Plans, Plan participants and
Customers, by the close of regular trading on the New York Stock Exchange
(currently 4:00 p.m., Eastern time) on any business day (i.e., a day on which
the New York Stock Exchange is open for trading), instructions for the
purchase and redemption of shares; aggregating and processing purchase and
redemption requests for Advisor Shares from Plan participants and Customers
and placing net purchase and redemption orders with CSI or its designee;
payment for net purchase orders must be received at the time the order is
placed; communicating orders in a timely manner to CSI or its designee and
promptly delivering, or instructing the Plans to deliver, appropriate
documentation to CSI or its designee;
(ii) providing Plan participants and Customers with a service that
invests the assets of their accounts in Advisor Shares;
(iii) providing information periodically to Plans, Plan
participants and Customers showing their positions in Advisor Shares;
(iv) arranging for bank wires;
<PAGE>A-2
(v) providing sub-accounting with respect to Advisor Shares
beneficially owned by Plans, Plan participants and Customers;
(vi) if required by law, forwarding shareholder communications
from the relevant Fund (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices)
to Plans, Plan participants and Customers at Service Organization's expense,
with such material to be provided to it by CSI to the extent reasonably
practicable upon ten Business Days' notice;
(vii) withholding taxes on non-resident alien accounts and
otherwise as appropriate;
(viii) maintaining records of dividends and distributions; and
disbursing dividends and distributions and reinvesting such in the relevant
Fund for Plans and Plan participants;
(ix) preparing and delivering to Plans, Plan participants and
Customers and state and federal regulatory authorities, including the U.S.
Internal Revenue Service, such information respecting dividends and
distributions paid by the relevant Fund as may be required by law;
(x) maintaining adequate records for each Plan and Customer
reflecting Advisor Shares purchased and redeemed, including dates and prices
for all transactions, and Share balances;
(xi) preparing and delivering to Plans and Customers periodic
account statements showing for each Plan and Customer, respectively, the
total number of Advisor Shares held as of the statement closing date,
purchases and redemptions of Advisor Shares during the statement period, and
dividends and other distributions paid during the statement period (whether
paid in cash or reinvested in Advisor Shares), including dates and prices for
all transactions;
(xii) on behalf of and to the extent instructed by each Plan and
Customer, at Service Organization's expense, delivering to Plan participants
(or delivering to the Plans for distribution to Plan participants) and
Customers Prospectuses, Statements and other materials provided to it by CSI
to the extent reasonably practicable upon ten Business Days' notice;
(xiii) maintain daily and monthly purchase summaries (expressed in
both Share and dollar amounts) for each Plan and Customer;
(xiv) settle orders in accordance with the terms of the
Prospectus and Statement of the Fund; and
<PAGE>A-3
(xv) transmit to CSI, or to the Fund if so instructed by CSI, such
occasional and periodic reports as CSI shall reasonably request from time to
time to enable CSI or the Fund to comply with applicable laws and
regulations.
Shareholder Services
(i) responding to Plans, Plan participant and Customer inquiries;
(ii) providing information on Plan, Plan participant and
Customer investments;
(iii) providing other shareholder liaison services;
(iv) providing office space and equipment, telephone facilities
and personnel (which may be any part of the space, equipment and facilities
currently used in Service Organization's business, or any personnel employed
by Service Organization) as may be reasonably necessary or beneficial in
order to provide services to Plans and Customers under this Agreement;
(v) send confirmations of orders to the Plans and Plan
participants and Customers as required by Rule 10b-10 of the Securities
Exchange Act of 1934 (the "1934 Act") and paying any costs in connection
therewith;
(vi) using all reasonable efforts to ensure that taxpayer
identification numbers provided by Service Organization on behalf of the
Plans, Plan participants and Customers are correct; and
(vii) providing the Plans, Plan participants and Customers a
confirming Prospectus following an acquisition of Advisor Shares to the
extent required by law.
<PAGE>A-4
Other Services
(i) providing all other services as may be incidental
to the Distribution and Marketing Services, Administrative Services and
Shareholder Services enumerated above;
(ii) providing such other services as may be normal or customary
for service providers performing substantially similar services; and
(iii) providing such other services as may be mutually agreed by
the parties to the extent permitted under applicable statutes, rules and
regulations.
<PAGE>B-1
84370324
SCHEDULE B
Prohibited Activities
(i) Service Organization shall not withhold placing orders
for the Advisor Shares received from Plan participants and Customers so as to
profit as a result of such withholding.
(ii) Service Organization shall not place orders for Advisor
Shares unless it has already received purchase orders for Advisor Shares at
the applicable public offering price and subject to the terms hereof.
(iii) Service Organization agrees that it will not offer or sell
any Advisor Shares except under circumstances that will result in compliance
with applicable federal and state securities laws and that in connection with
sales and offers to sell Advisor Shares Service Organization will furnish to
each person to whom any such sale or offer is made, at or prior to the time
of offering or sale, a copy of the relevant Prospectus and, if requested, the
corresponding Statement (each as then amended or supplemented) and will not
furnish to any person any information relating to a Fund that is inconsistent
in any respect with the information contained in the Prospectus and Statement
(each as then amended or supplemented).
(iv) Service Organization shall not make any representations
concerning the Advisor Shares except those contained in the relevant
Prospectus and Statement and in such printed information subsequently issued
by CSI or a Fund as information supplemental to the Prospectus and Statement.
<PAGE>1
[LETTERHEAD OF WILLKIE FARR & GALLAGHER]
December 18, 1995
Warburg, Pincus Japan Growth Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Ladies and Gentlemen:
We have acted as counsel to Warburg, Pincus Japan Growth 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 prospectuses and statement of additional information (the
"Statement of Additional Information") included in its Registration Statement
on Form N-1A, Securities Act File No. 33-63655 and Investment Company Act File
No. 811-07371 (the "Registration Statement"), all resolutions adopted by the
Fund's Board of Directors (the "Board") at its initial meeting held on October
26, 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 & GALLAGHER
<PAGE>1
[LETTERHEAD OF VENABLE, BAETJER AND HOWARD, LLP]
December 18, 1995
Willkie, Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022-4677
Re: Warburg, Pincus Japan Growth Fund, Inc.
Ladies and Gentlemen:
We have acted as special Maryland counsel for Warburg, Pincus Japan
Growth 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. 33-63655 and Investment Company Act File No. 811-
07371, 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
BA0\27653
<PAGE>1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion of our report dated December 8, 1995 on our audit
of the Statement of Assets and Liabilities of Warburg, Pincus Japan Growth
Fund, Inc. as of December 5, 1995 with respect to this Pre-Effective
Amendment No. 1 to the Registration Statement (No. 33-63655) 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
December 18, 1995
<PAGE>1
[LETTERHEAD OF HAMADA & MATSUMOTO]
Warburg, Pincus Japan Growth Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Ladies and Gentlemen:
We have acted as counsel to Warburg, Pincus Japan Growth Fund, Inc. (the
"Fund"), a corporation organized under the laws of the State of Maryland, as
to matters of Japanese law. We hereby confirm that the information set forth
under the caption "Dividends, Distributions and Taxes - Special Matters
Relating to the Japan Growth Fund and Japan OTC Fund" in the Prospectuses
contained in the Fund's Registration Statement on Form N-1A, as amended (the
"Registration Statement"), has been reviewed by us and in our opinion is
correct. In addition, we hereby consent to the reference to us in the
Prospectuses and to the filing of this opinion with the U.S. Securities and
Exchange Commission as an exhibit to the Registration Statement.
Very truly yours,
HAMADA & MATSUMOTO
By: /s/ Yogo Kimura
----------------
Yogo Kimura
Temp3086
<PAGE>1
DISTRIBUTION PLAN
This Distribution Plan (the "Plan") is adopted in accordance with
Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940
Act"), by Warburg, Pincus Japan Growth Fund, Inc., a corporation organized
under the laws of the State of Maryland (the "Fund"), subject to the following
terms and conditions:
Section 1. Distribution Agreements; Annual Fee.
Any officer of the Fund or Counsellors Securities Inc., the Fund's
distributor ("Counsellors Securities"), is authorized to execute and deliver
written agreements in substantially the form attached hereto or in any form
duly approved by the Board of Directors of the Fund (the "Distribution
Agreements") with institutional shareholders of record, broker-dealers,
financial institutions, depository institutions, retirement plans and other
financial intermediaries ("Service Organizations") of shares of the Fund's
common stock, par value $.001 per share, designated Common Stock - Series 2
(the "Series 2 Shares"). Pursuant to the Distribution Agreement, Service
Organizations will be paid an annual fee out of the assets of the Fund by the
Fund directly or by Counsellors Securities on behalf of the Fund for providing
(a) services primarily intended to result in the sale of Series 2 Shares
("Distribution Services"), (b) shareholder servicing to their customers or
clients who are the record and/or the beneficial owners of Series 2 Shares
("Customers") ("Shareholder Services") and/or (c) administrative and
accounting services to Customers ("Administrative Services"). A Service
Organization will be paid an annual distribution fee under the Plan calculated
daily and paid monthly at an annual rate of up to .50% of the average daily
net assets of the Series 2 Shares held by or on behalf of its Customers
("Customers' Shares") with respect to Distribution Services and Administrative
Services and may be paid an annual service fee of up to .25% of the average
daily net assets of Customers' Shares with respect to Shareholder Services.
Section 2. Services.
The annual fee paid to Service Organizations under Section 1 of the
Plan with respect to Distribution Services will compensate Service
Organizations to cover certain expenses primarily intended to result in the
sale of Series 2 Shares, including, but not limited to: (a) costs of payments
made to employees that engage in the distribution of Series 2 Shares; (b)
payments made to, and expenses of, persons who provide support services in
connection with the distribution of Series 2 Shares, including, but not
limited to, office space and equipment, telephone facilities, processing
shareholder transactions and
<PAGE>2
providing any other shareholder services not otherwise provided by the Fund's
transfer agent; (c) costs relating to the formulation and implementation of
marketing and promotional activities, including, but not limited to, direct
mail promotions and television, radio, newspaper, magazine and other mass
media advertising; (d) costs of printing and distributing prospectuses,
statements of additional information and reports of the Fund to prospective
holders of Series 2 Shares; (e) costs involved in preparing, printing and
distributing sales literature pertaining to the Fund and (f) costs involved in
obtaining whatever information, analyses and reports with respect to marketing
and promotional activities that the Fund may, from time to time, deem
advisable.
The annual fee paid to Service Organizations under Section 1 of the
Plan with respect to Shareholder Services, if any, will compensate Service
Organizations for personal service and/or the maintenance of Customer
accounts, including but not limited to (a) responding to Customer inquiries,
(b) providing information on Customer investments and (c) providing other
shareholder liaison services.
The annual fee paid to Service Organizations under Section 1 of the
Plan with respect to Administrative Services, if any, will compensate Service
Organizations for administrative and accounting services to their Customers,
including, but not limited to: (a) aggregating and processing purchase and
redemption requests from Customers and placing net purchase and redemption
orders with the Fund's distributor or transfer agent; (b) providing Customers
with a service that invests the assets of their accounts in Series 2 Shares;
(c) processing dividend payments from the Fund on behalf of Customers; (d)
providing information periodically to Customers showing their positions in
Series 2 Shares; (e) arranging for bank wires; (f) providing sub-accounting
with respect to Series 2 Shares beneficially owned by Customers or the
information to the Fund necessary for sub-accounting; (g) forwarding
shareholder communications from the Fund (for example, proxies, shareholder
reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers, if required by law and (h)
providing other similar services to the extent permitted under applicable
statutes, rules and regulations.
Payments under this Plan are not tied exclusively to the expenses
for shareholder servicing, administration and distribution expenses actually
incurred by any Service Organization, and the payments may exceed expenses
actually incurred by any Service Organization.
<PAGE>3
Section 3. Additional Payments.
Counsellors Securities, Warburg, Pincus Counsellors, Inc., the
Fund's investment adviser ("Warburg"), Counsellors Funds Service, Inc., the
Fund's co-administrator ("Counsellors Service"), or any affiliate of any of
the foregoing may, from time to time, make payments to Service Organizations
for providing distribution, administrative, accounting and/or other services
with respect to holders of Series 2 Shares. Counsellors Securities, Warburg,
Counsellors Service or any affiliate thereof may, from time to time, at their
own expense, pay certain Fund transfer agent fees and expenses related to
accounts of Customers of Service Organizations that have entered into
Distribution Agreements. A Service Organization may use a portion of the fees
paid pursuant to the Plan to compensate the Fund's custodian or transfer agent
for costs related to accounts of Customers of the Service Organization that
hold Series 2 Shares. Payments by the Fund under this Plan shall not be made
to a Service Organization with respect to services for which the Service
Organization is otherwise compensated by Counsellors Securities, Warburg,
Counsellors Service or any affiliate thereof.
Payments may be made to Service Organizations by Counsellors
Securities, Warburg, Counsellors Service or any affiliate thereof from any
such entity's own resources, which may include a fee it receives from the
Fund.
Section 4. Monitoring.
Counsellors Securities shall monitor the arrangements pertaining to
the Fund's Distribution Agreements with Service Organizations.
Section 5. Approval by Shareholders.
The Plan is effective, and fees are payable in accordance with
Section 1 of the Plan pursuant to the approval of the Plan by a vote of at
least a majority of the outstanding voting Series 2 Shares.
Section 6. Approval by Directors.
The Plan is effective, and payments under any related agreement may
be made pursuant to the approval of the Plan and such agreement by a majority
vote of both (a) the full Board of Directors of the Fund and (b) those
Directors who are not interested persons of the Fund and who have no direct or
indirect financial interest in the operation of the Plan or in any agreements
related to it (the "Qualified Directors"), cast in person at a meeting called
for the purpose of voting on the Plan and the related agreements.
<PAGE>4
Section 7. Continuance of the Plan.
The Plan will continue in effect for so long as its continuance is
specifically approved at least annually by the Fund's Board of Directors in
the manner described in Section 5 above.
Section 8. Termination.
The Plan may be terminated at any time by a majority vote of the
Qualified Directors or by a majority of the outstanding voting Series 2
Shares.
Section 9. Amendments.
The Plan may not be amended to increase materially the amount of the
fees described in Section 1 above with respect to the Series 2 Shares without
approval of at least a majority of the outstanding voting Series 2 Shares. In
addition, all material amendments to the Plan must be approved by the Fund's
Board of Directors in the manner described in Section 6 above.
Section 10. Selection of Certain Directors.
While the Plan is in effect, the selection and nomination of the
Fund's Directors who are not interested persons of the Fund will be committed
to the discretion of the Directors then in office who are not interested
persons of the Fund.
Section 11. Written Reports.
In each year during which the Plan remains in effect, Counsellors
Securities will furnish to the Fund's Board of Directors, and the Board will
review, at least quarterly, written reports, which set out the amounts
expended under the Plan and the purposes for which those expenditures were
made.
Section 12. Preservation of Materials.
The Fund will preserve copies of the Plan, any agreement relating to
the Plan and any report made pursuant to Section 11 above, for a period of not
less than six years (the first two years in an easily accessible place) from
the date of the Plan, agreement or report.
Section 13. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and "majority of
the outstanding voting securities" will be deemed to have the same meanings
that those terms have under the 1940 Act and the rules and regulations
thereunder, subject to any
<PAGE>5
exemption that may be granted to the Fund under the 1940 Act by the Securities
and Exchange Commission.
IN WITNESS WHEREOF, the Fund has executed the Plan as of
_______________, 1995.
WARBURG, PINCUS JAPAN GROWTH
FUND, INC.
By:___________________________
Name:
Title:
Acknowledged this
day of ________, 1995
COUNSELLORS SECURITIES INC.
By:___________________________
Name:
Title:
<PAGE>1
WARBURG PINCUS EMERGING MARKETS, JAPAN GROWTH,
JAPAN OTC, POST-VENTURE CAPITAL AND SMALL COMPANY VALUE 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 (a
"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 listed above (the "Funds" and each a "Fund"),
by action of the Board of each Fund.
The Board, including a majority of the non-interested Board members, of
each of the Funds, or series thereof, 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; distribution assistance and
support services may also be provided by financial institutions, retirement
plans, broker-dealers, depository institutions, institutional shareholders of
record and other financial intermediaries 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 intermediaries 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 available for purchase by financial institutions,
retirement plans, broker-dealers, depository institutions and other financial
intermediaries (collectively, "Institutions"). Series 2 Shares may be charged
a shareholder service fee (the "Shareholder Service Fee") payable at an annual
rate of up to .25%, and a distribution fee (the "Distribution Service 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. Payments may be made out of the assets of the Fund by the Fund
directly or by CSI on its behalf. Additional payments may be made by CSI or
an affiliate thereof from time to time to Institutions for providing
distribution, administrative, accounting and/or other services with respect to
Series 2 Shares. Payments by the Fund shall not be made to an Institution
pursuant to the Plan with respect to services for which Institutions are
otherwise compensated by CSI or an affiliate thereof. CSI or an affiliate
thereof may pay certain Fund transfer agent fees and expenses related to
accounts of customers of Institutions that have entered into agreements with
CSI or the Fund. An Institution may use a portion of the fees paid pursuant
to the Plan to compensate the Fund's custodian or transfer agent for costs
related to accounts of customers of the Institution that hold Series 2 Shares.
Payments may be made to Institutions by CSI or an affiliate thereof from such
entity's own resources, which may include a fee it receives from the Fund.
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
Shareholder Servicing and Distribution Plan, Shareholder Services Plan or
Distribution Plan, as applicable; (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
<PAGE>3
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.
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: October 26, 1995
