<PAGE>
As filed with the U.S. Securities and Exchange Commission
on July 1, 1996
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. [ ]
Post-Effective Amendment No. 1 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 2 [ ]
(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>
It is proposed that this filing will become effective (check appropriate box):
[x] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
DECLARATION PURSUANT TO RULE 24f-2
Registrant has registered an indefinite number or amount of
securities under the Securities Act of 1933, as amended, pursuant to Section
(a)(1) of Rule 24f-2 under the Investment Company Act of 1940, as amended. The
Rule 24f-2 Notice for Registrant's fiscal year ending on October 31, 1996 is
expected to be filed in December of 1996.
<PAGE>
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>
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"
<PAGE>
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"
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>
PROSPECTUS SUPPLEMENT
JULY 1, 1996
WARBURG PINCUS JAPAN GROWTH FUND, INC.
The following information supplements the current prospectus for the
above-referenced Fund dated December 29, 1995.
FINANCIAL HIGHLIGHTS
(For a share of the Fund outstanding throughout the period)
The following information for the four month period ended April 30,
1996 is unaudited. Further information about the performance of Warburg,
Pincus Japan Growth Fund, Inc. is contained in the Fund's semi-annual report
dated April 30, 1996, copies of which may be obtained by calling Warburg
Pincus Funds at (800) 927-2874.
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 29, 1995
(COMMENCEMENT OF
OPERATIONS) THROUGH
APRIL 30, 1996
(UNAUDITED)
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
------
Income from Investment Operations:
Net Investment Income .00
Net Gain on Securities and Foreign Currency Related Items (both
realized and unrealized) .78
------
Total from Investment Operations .78
------
Less Distributions:
Dividends from Net Investment Income .00
Distributions from Capital Gains .00
------
Total Distributions .00
------
NET ASSET VALUE, END OF PERIOD $ 10.78
------
------
Total Return 7.80%`D'
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $15,151
Ratios to average daily net assets:
Operating expenses 1.75%*
Net investment loss (.29%)*
Decrease reflected in above operating expense ratio due to
waivers/reimbursements 4.42%*
Portfolio Turnover Rate 5.01%`D'
Average Commission Rate # $.0857
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased or sold during the period for which there was a commission
charged.
<PAGE>
PROSPECTUS SUPPLEMENT
JULY 1, 1996
WARBURG PINCUS JAPAN GROWTH FUND, INC.
(Advisor Shares)
The following information supplements the current prospectus for the
above-referenced Fund dated December 29, 1995.
FINANCIAL HIGHLIGHTS
(For a share of the Fund outstanding throughout the period)
The following information for the four month period ended April 30,
1996 is unaudited. Further information about the performance of Warburg,
Pincus Japan Growth Fund, Inc. is contained in the Fund's semi-annual report
dated April 30, 1996, copies of which may be obtained by calling Warburg
Pincus Funds at (800) 369-2728.
<TABLE>
<CAPTION>
December 29, 1995
(Commencement of
Operations) through
April 30, 1996
(Unaudited)
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
------
Income from Investment Operations:
Net Investment Loss (.01)
Net Gain on Securities and Foreign Currency Related Items (both realized and unrealized) .78
------
Total from Investment Operations .77
------
Less Distributions:
Dividends from Net Investment Income .00
Distributions from Capital Gains .00
------
Total Distributions .00
------
NET ASSET VALUE, END OF PERIOD $ 10.77
------
------
Total Return 7.70%`D'
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $1
Ratios to average daily net assets:
Operating expenses 2.00%*
Net investment loss (.39%)*
Decrease reflected in above operating expense ratio due to waivers/reimbursements 7.19%*
Portfolio Turnover Rate 5.01%`D'
Average Commission Rate # $0.857
</TABLE>
- ----------------------------
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total
number of shares purchased or sold during the period for which there was a
commission charged.
<PAGE>
<PAGE>1
0132211.02
STATEMENT OF ADDITIONAL INFORMATION
December 29, 1995
As Revised
July 1, 1996
------------------------
WARBURG PINCUS JAPAN GROWTH FUND
P.O Box 9030, Boston, Massachusetts 02205-9030
For information, call (800) 888-6878
------------------------
Contents
Investment Objective............................................1
Investment Policies.............................................2
Japan and Its Securities Markets................................27
Management of the Fund..........................................35
Additional Purchase and Redemption Information..................43
Exchange Privilege..............................................43
Additional Information Concerning Taxes.........................44
Determination of Performance....................................47
Independent Accountants and Counsel.............................50
Miscellaneous...................................................50
Financial Statement.............................................50
Appendix - Description of Ratings..............................A-1
Report of Coopers & Lybrand L.L.P.,
Independent Accountants.....................................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"), Warburg Pincus Emerging Markets Fund,
Warburg Pincus International Equity Fund and Warburg Pincus Japan OTC Fund and
with the Prospectus for the Advisor Shares of the Fund, each dated 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) 927-2874. Information
regarding the status of shareholder accounts may also be obtained by calling
the Fund at the same number 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.
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
<PAGE>3
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, Pincus Counsellors, Inc., the Fund's investment adviser
("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 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-
<PAGE>4
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 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
<PAGE>5
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, 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
<PAGE>6
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.
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
<PAGE>7
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 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.
<PAGE>8
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 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
<PAGE>9
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 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
<PAGE>10
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 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,
<PAGE>11
require segregation by the Fund of cash or liquid high-grade debt securities
or other securities that are acceptable as collateral to the appropriate
regulatory authority.
For example, a call option written by the Fund on securities
may require the Fund to hold the securities subject to the call (or securities
convertible into the securities without additional consideration) or to
segregate assets (as described above) sufficient to purchase and deliver the
securities if the call is exercised. A call option written by the Fund on an
index may require the Fund to own portfolio securities that correlate with the
index or to segregate assets (as described above) equal to the excess of the
index value over the exercise price on a current basis. A put option written by
the Fund may require the Fund to segregate assets (as described above) equal to
the exercise price. The Fund could purchase a put option if the strike price of
that option is the same or higher than the strike price of a put option sold by
the Fund. If the Fund holds a futures or forward contract, the Fund could
purchase a put option on the same futures or forward contract with a strike
price as high or higher than the price of the contract held. The Fund may enter
into fully or partially offsetting transactions so that its net position,
coupled with any segregated assets (equal to any remaining obligation), equals
its net obligation. Asset coverage may be achieved by other means when
consistent with applicable regulatory policies.
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
<PAGE>12
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 protecting 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.
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.
<PAGE>13
Foreign Debt Securities. The returns on foreign debt
securities reflect interest rates and other market conditions prevailing in
those countries and the effect of gains and losses in the denominated currencies
against the U.S. dollar, which have had a substantial impact on investment in
foreign fixed-income securities. The relative performance of various countries'
fixed-income markets historically has reflected wide variations relating to the
unique 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 determines that the credit risk with respect
to the instrumentality does not make its securities unsuitable for investment by
the Fund.
<PAGE>14
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
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
<PAGE>15
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.
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.
<PAGE>16
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 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
<PAGE>17
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 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 commitment. Due to
fluctuations in the value of securities purchased or sold on a when-issued or
delayed-delivery basis, the yields obtained on such securities may be higher
<PAGE>18
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. The seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If the Fund engages in a short sale, the collateral for the short
position will be maintained by the Fund's custodian or qualified sub-custodian.
While the short sale is open, the Fund will maintain in a segregated account an
amount of securities equal in kind and amount to the securities sold short or
securities convertible into or exchangeable for such equivalent securities.
These securities constitute the Fund's long position.
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
<PAGE>19
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
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.
<PAGE>20
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 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.
Reverse Repurchase Agreements and Dollar Rolls. The Fund may
enter into reverse repurchase agreements with the same parties with whom it may
enter into repurchase agreements. Reverse repurchase agreements involve the sale
of securities held by the Fund pursuant to its agreement to repurchase them at a
mutually agreed upon date, price and rate of interest. At the time the Fund
enters into a reverse repurchase agreement, it will establish and maintain a
segregated account with an approved custodian containing cash or liquid
high-grade debt securities having a value not less than the repurchase price
(including accrued interest). The assets contained in the segregated account
will be marked-to-market daily and additional assets will be placed in such
account on any day in which the assets fall below the repurchase price (plus
accrued interest). The Fund's liquidity and ability to manage its assets might
be
<PAGE>21
affected when it sets aside cash or portfolio securities to cover such
commitments. Reverse repurchase agreements involve the risk that the market
value of the securities retained in lieu of sale may decline below the price
of the securities the Fund has sold but is obligated to repurchase. In the
event the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce a Fund's
obligation to repurchase the securities, and the Fund's use of the proceeds of
the reverse repurchase agreement may effectively be restricted pending such
decision.
The Fund also may enter into "dollar rolls," in which the Fund
sells fixed-income securities for delivery in the current month and
simultaneously contracts to repurchase similar but not identical (same type,
coupon and maturity) securities on a specified future date. During the roll
period, the Fund would forego principal and interest paid on such securities.
The Fund would be compensated by the difference between the current sales price
and the forward price for the future purchase, as well as by the interest earned
on the cash proceeds of the initial sale. At the time the Fund enters into a
dollar roll transaction, it will place in a segregated account maintained with
an approved custodian cash or other liquid high-grade debt obligations having a
value not less than the repurchase price (including accrued interest) and will
subsequently monitor the account to ensure that its value is maintained. Reverse
repurchase agreements are considered to be borrowings under the 1940 Act.
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.
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.
<PAGE>22
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 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.
<PAGE>23
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 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.
Certain 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.
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. Options 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
<PAGE>24
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
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
<PAGE>25
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 and in doing so seeks to obtain the overall best
execution of portfolio transactions. 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. 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
the Fund and/or other accounts over which Warburg exercises investment
discretion. Warburg may place portfolio transactions with a broker or dealer
with whom it has negotiated a commission that is in excess of the commission
another broker or dealer would have charged for effecting the transaction if
Warburg determines in good faith that such amount of commission was reasonable
in relation to the value of such brokerage and research services provided by
such broker or dealer viewed in terms of either that particular transaction or
of the overall responsibilities of Warburg. 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. Research may include furnishing advice, either directly or through
publications or writings, as to the value of securities, the advisability of
purchasing or selling specific securities and the availability of securities or
purchasers or sellers of securities; furnishing seminars, information, analyses
and reports concerning issuers, industries, securities, trading markets and
methods, legislative developments, changes in accounting practices, economic
factors and trends and portfolio strategy; access to research analysts,
corporate management personnel, industry experts, economists and government
officials; comparative performance evaluation and technical measurement services
and quotation services; and products and other services (such as third party
publications, reports and analyses, and computer and electronic access,
equipment, software, information and accessories that deliver, process or
otherwise utilize information, including the research described above) that
assist Warburg in carrying out its responsibilities. For the fiscal period ended
April 30, 1996,$10,121.50 of total brokerage commissions was paid to brokers and
dealers who provided such research and other services. Research received from
brokers or dealers is supplemental to Warburg's own research program. The fees
to Warburg under its advisory agreement with the Fund are not reduced by reason
of its receiving any brokerage and research services.
During the fiscal period ended April 30, 1996, the Fund paid
an aggregate of approximately $41,985.00 in commissions to broker-dealers for
execution of portfolio transactions.
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.
<PAGE>26
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.
Portfolio Turnover
The Fund does not intend to seek profits through short-term
trading, but the rate of turnover will not be a limiting factor when the Fund
deems it desirable to sell or purchase securities. The Fund's portfolio turnover
rate is calculated by dividing the lesser of purchases or sales of its portfolio
securities for the year by the monthly average value of the portfolio
securities. Securities with remaining maturities of one year or less at the date
of acquisition are excluded from the calculation.
Certain practices that may be employed by the Fund could
result in high portfolio turnover. For example, options on securities may be
sold in anticipation of a decline in the price of the underlying security
(market decline) or purchased in anticipation of a rise in the price of the
underlying security (market rise) and later sold.
<PAGE>27
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 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 could
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.
<PAGE>28
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 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.
<PAGE>29
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 Trade Current
Year Exports Preceding Year Imports Preceding Year 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
1995 429,482 11.8 297,795 25.0 131,689 (13,154) (7,737) 110,798
</TABLE>
Source: Bank of Japan
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
---- ---- ---- ---- ----
(yen in billions)
<S> <C> <C> <C> <C> <C>
Consumption
Expenditures
Private.............. (Y)277,676.8 (Y)270,919.4 (Y)264,824.1 (Y)255,084.2 (Y)243,628.1
Government........... 46,108.0 44,666.4 43,257.9 41,232.0 38,806.6
Capital Formation
(incl. inventories)
Private.............. 93,111.4 99,180.1 108,727.6 116,638.0 110,871.9
Government........... 42,227.3 40,295.8 35,110.1 30,062.3 28,182.6
Exports of Goods and 44,449.2 44,243.8 47,409.4 46,809.7 45,919.9
Services...............
Imports of Goods and
Services............... 34,424.0 33,333.1 36,183.8 38,529.3 42,871.8
GDP (Expenditures)..... 469,148.7 465,972.4 463,145.3 451,296.9 24,537.2
Change in GDP from
Preceding Year
Nominal terms........ 0.7% 0.6% 2.6% 6.3% 7.2%
Real Terms........... 0.5% -0.2% 1.1% 4.3% 4.8%
</TABLE>
<TABLE>
<CAPTION>
1995 1989 1988 1987
---- ---- ---- ----
<S> <C> <C> <C> <C>
Consumption
Expenditures
Private.............. (Y)289,045 (Y)228,483.2 (Y)215,122.0 (Y)204,585.3
Government........... 46,824 36,274.8 34,184.3 32,974.5
Capital Formation
(incl. inventories)
Private.............. 70,758 100,130.8 89,043.7 76,176.5
Government........... 41,461 25,724.5 24,660.9 23,673.8
Exports of Goods and 45,408 42,351.8 37,483.2 36,209.6
Services...............
Imports of Goods and
Services............... 38,227 36,768.1 29,065.1 25,194.9
GDP (Expenditures)..... 480,693 396,197.0 371,429.0 348,425.0
Change in GDP from
Preceding Year
Nominal terms........ 0.3% 6.7% 6.6% 4.1%
Real Terms........... 0.9% 4.7% 6.2% 4.1%
</TABLE>
Source: Economic Planning Agency Japan
<PAGE>30
The following tables set forth certain economic indicators
in Japan for the years shown.
UNEMPLOYMENT
<TABLE>
<CAPTION>
Labor Productivity
Year Number Unemployed Percent Unemployed Index (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
1995..................... 2.10 3.2 103.0
</TABLE>
Source: Japan Productivity Center; Bureau of Stastics Management
and Coordination Agency
WHOLESALE PRICE INDEX
(Base Year: 1990)
All Change from
Year Commodities Preceding Year
---- ----------- --------------
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)
1995 92.2 (0.9)
Source: Bank of Japan
<PAGE>31
CONSUMER PRICE INDEX
Change from
Year General Preceding Year
---- ------- --------------
(Base Year: 1990)
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
1995 107.0 (0.1)
Source: Bureau of Statistics Management and Coordination Agency
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
1995 93.74
Source: Nikkei (Calendar Year, Closing Average,
Inter-Bank Rates in Toyko)
<PAGE>32
On December 28, 1995, the rate of exchange was 102.73
Japanese yen per U.S. dollar.
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
1995.
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>
1,253 461 857 356 434 138 244 206 264 201 194
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1996
<PAGE>33
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
1995........ 120,149 92,034 21,094 5,060
</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 (Y)443 190 (Y)235 268 (Y)330 398 (Y)475 151 (Y)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 1996; Tokyo Stock Exchange
New York
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 1996; 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
<PAGE>34
"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.
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 (Y)1,572,308 (Y)195,711,396 (Y)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.
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)
Year Year-end High Low
---- -------- ---- ---
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
1995 1,577.70 1,585.87 1,193.16
Source: Tokyo Stock Exchange, Fact Book 1996; Tokyo Stock
Exchange New York
<PAGE>35
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.
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.
<TABLE>
<S> <C>
Richard N. Cooper (62)........................... Director
Harvard University National Intelligence Counsel; Professor at Harvard
1737 Cambridge Street University; Director or Trustee of Circuit City Stores, Inc.
Cambridge, Massachusetts 02138 (retail electronics and appliances) and Phoenix Home Life
Insurance Co.
</TABLE>
<PAGE>36
<TABLE>
<S> <C>
Donald J. Donahue (71)........................... Director
99 Indian Field Road Chairman of Magma Copper Company since January 1987;
Greenwich, Connecticut 06830 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 (69)............................... Director
2425 North Fish Creek Road Private investor; Consultant and Director of Fritz
P.O. Box 483 Broadcasting, Inc. and Fritz Communications (developers and
Wilson, Wyoming 83014 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, Pincus & Co.,
New York, New York 10017-3147 Inc. ("EMW"); Associated with EMW since 1970; Director and
officer of other investment companies advised by Warburg.
Thomas A. Melfe (64)............................. Director
30 Rockefeller Plaza Partner in the law firm of Donovan Leisure Newton & Irvine;
New York, New York 10112 Director of Municipal Fund for New York Investors, Inc.
Alexander B. Trowbridge (66)..................... Director
1155 Connecticut Avenue, N.W. President of Trowbridge Partners, Inc. (business consulting)
Suite 700 from January 1990-January 1994; President of the National
Washington, DC 20036 Association of Manufacturers from 1980-1990; Director or
Trustee of New England Mutual Life Insurance Co., ICOS
Corporation (biopharmaceuticals), P.H.H. Corporation (fleet
auto management; housing and plant relocation service), WMX
Technologies Inc. (solid and hazardous waste collection and
disposal), The Rouse Company (real estate development),
SunResorts International Ltd. (hotel and real estate
management), Harris Corp. (electronics and communications
equipment), The Gillette Co. (personal care products) and
Sun Company Inc. (petroleum refining and marketing).
- ---------------------------
* Indicates a Director who is an "interested person" of the fund as defined in the 1940
Act.
</TABLE>
<PAGE>37
<TABLE>
<S> <C>
Arnold M. Reichman*(48)......................... Director and Executive Vice President
466 Lexington Avenue Managing Director and Assistant Secretary of EMW; Associated
New York, New York 10017-3147 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 (39)......................... Senior Vice President
466 Lexington Avenue Managing Director of EMW; Associated with EMW since 1991;
New York, New York 10017-3147 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 Chief Financial Officer
466 Lexington Avenue Managing Director, Controller and AssistantSecretary of EMW;
New York, New York 10017-3147 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.
Eugene P. Grace (44)............................. Vice President and Secretary
466 Lexington Avenue Associated with EMW since April
New York, New York 10022-3147 1994; 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 and Assistant
Secretary of Counsellors
Securities; Vice President
and Secretary of other
investment companies
advised by Warburg.
Howard Conroy (42)............................... Vice President, Treasurer and
466 Lexington Avenue Chief Accounting Officer
New York, New York 10022-3147 Associated with EMW since
1992; Associated with
Martin Geller, C.P.A. from
1990-1992; Vice President,
Finance with Gabelli/Rosenthal &
Partners, L.P. until 1990;
Vice President, Treasurer
and Chief Accounting
Officer of other investment
companies advised by
Warburg.
- ---------------------------
* Indicates a Director who is an "interested person" of the fund as defined in the 1940
Act.
</TABLE>
<PAGE>38
<TABLE>
<S> <C>
Janna Manes (28)................................. Assistant Secretary
466 Lexington Avenue Associated with EMW since 1996;
New York, New York 10022-3147 Associated with the law firm
of Willkie Farr & Gallagher from
1993-1996; Assistant Secretary of other
investment companies advised by Warburg.
</TABLE>
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>39
Directors' Compensation
<TABLE>
<CAPTION>
Total Compensation from
all Investment Companies
Name of Director Total Compensation from Fund+ Managed by Warburg+*
---------------- ----------------------------- ------------------------
<S> <C> <C>
John L. Furth None** None**
Arnold M. Reichman None** None**
Richard N. Cooper $1,500 $47,000
Donald J. Donahue $1,500 $47,000
Jack W. Fritz $1,500 $47,000
Thomas A. Melfe $1,500 $47,000
Alexander B. Trowbridge $1,500 $47,000
</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 19 other
investment companies advised by Warburg.
** Messrs. Furth and Reichman are considered to be interested persons of
the Fund and Warburg, as defined under Section 2(a)(19) of the 1940 Act,
and, accordingly, receive no compensation from the Fund or any other
investment company managed by Warburg. As of June 18, 1996 Directors or
officers of the Fund as a group did not own any of the outstanding
shares of the Fund.
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 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,
<PAGE>40
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.
During the fiscal period ended April 30, 1996, Warburg earned
$23,045 in investment advisory fees with respect to the Fund. Warburg
voluntarily waived $22,663 of such fees and reimbursed $48,598 in expenses
Counsellors Service earned $1,844 in co-administration fees with respect to
the Fund. PFPC received $2,212 in co-administration fees with respect to the
Fund and voluntarily waived $2,176 of such fees.
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.
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, (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
<PAGE>41
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 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.
<PAGE>42
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 beneficial owners of Advisor Shares. See the Advisor
Prospectus, "Shareholder Servicing." Agreements will be governed by a
distribution plan (the "Distribution Plan") pursuant to Rule 12b-1 under the
1940 Act. 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 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.
<PAGE>43
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 will comply with Rule 18f-1 promulgated under the
1940 Act with respect to redemptions in kind.
Automatic Cash Withdrawal Plan. An automatic cash withdrawal
plan (the "Plan") is available to shareholders who wish to receive specific
amounts of cash periodically. Withdrawals may be made under the Plan by
redeeming as many shares of the Fund as may be necessary to cover the stipulated
withdrawal payment. To the extent that withdrawals exceed dividends,
distributions and appreciation of a shareholder's investment in the Fund, there
will be a reduction in the value of the shareholder's investment and continued
withdrawal payments may reduce the shareholder's investment and ultimately
exhaust it. Withdrawal payments should not be considered as income from
investment in the Fund. All dividends and distributions on shares in the Plan
are automatically reinvested at net asset value in additional shares of the
Fund.
EXCHANGE PRIVILEGE
An exchange privilege with certain other funds advised by
Warburg is available to investors in the Fund. The funds into which exchanges of
Common Shares currently can be made are listed in the Common Share Prospectus.
Exchanges may also be made between certain Warburg Pincus Advisor Funds.
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
<PAGE>44
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.
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
<PAGE>45
during the one-year period ending October 31 during such year, together with
any undistributed, untaxed amounts of ordinary income and capital gains from
the previous calendar year. The Fund expects to pay the dividends and make the
distributions necessary to avoid the application of this excise tax.
The Fund's transactions, if any, in foreign currencies,
forward contracts, options and futures contracts (including options and forward
contracts on foreign currencies) will be subject to special provisions of the
Code that, among other things, may affect the character of gains and losses
recognized by the Fund (i.e., may affect whether gains or losses are ordinary or
capital), accelerate recognition of income to the Fund, defer Fund losses and
cause the Fund to be subject to hyperinflationary currency rules. These rules
could therefore affect the character, amount and timing of distributions to
shareholders. These provisions also (i) will require the Fund to mark-to-market
certain types of its positions (i.e., treat them as if they were closed out) and
(ii) may cause the Fund to recognize income without receiving cash with which to
pay dividends or make distributions in amounts necessary to satisfy the
distribution requirements for avoiding income and excise taxes. The Fund will
monitor its transactions, will make the appropriate tax elections and will make
the appropriate entries in its books and records when it acquires any foreign
currency, forward contract, option, futures contract or hedged investment so
that (a) neither the Fund nor its shareholders will be treated as receiving a
materially greater amount of capital gains or distributions than actually
realized or received, (b) the Fund will be able to use substantially all of its
losses for the fiscal years in which the losses actually occur and (c) the Fund
will continue to qualify as a regulated investment company.
A shareholder of the Fund receiving dividends or distributions
in additional shares should be treated for federal income tax purposes as
receiving a distribution in an amount equal to the amount of money that a
shareholder receiving cash dividends or distributions receives, and should have
a cost basis in the shares received equal to that amount.
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
<PAGE>46
and capital gains distributions in the Fund, within a period of 61 days
beginning 30 days before and ending 30 days after the disposition of the
shares. In such a case, the basis of the shares acquired will be increased to
reflect the disallowed loss.
Each shareholder will receive an annual statement as to the
federal income tax status of his dividends and distributions from the Fund for
the prior calendar year. Furthermore, shareholders will also receive, if
appropriate, various written notices after the close of the Fund's taxable year
regarding the federal income tax status of certain dividends and distributions
that were paid (or that are treated as having been paid) by the Fund to its
shareholders during the preceding year.
If a shareholder fails to furnish a correct taxpayer
identification number, fails to report fully dividend or interest income, or
fails to certify that he has provided a correct taxpayer identification number
and that he is not subject to "backup withholding," the shareholder may be
subject to a 31% "backup withholding" tax with respect to (i) taxable dividends
and distributions and (ii) the proceeds of any sales or repurchases of shares of
the Fund. An individual's taxpayer identification number is his social security
number. Corporate shareholders and other shareholders specified in the Code are
or may be exempt from backup withholding. The backup withholding tax is not an
additional tax and may be credited against a taxpayer's federal income tax
liability. Dividends and distributions also may be subject to state and local
taxes depending on each shareholder's particular situation.
Investment in Passive Foreign Investment Companies
If the Fund purchases shares in certain foreign entities
classified under the Code as "passive foreign investment companies" ("PFICs"),
the Fund may be subject to federal income tax on a portion of an "excess
distribution" or gain from the disposition of the shares, even though the income
may have to be distributed as a taxable dividend by the Fund to its
shareholders. In addition, gain on the disposition of shares in a PFIC generally
is treated as ordinary income even though the shares are capital assets in the
hands of the Fund. Certain interest charges may be imposed on either the Fund or
its shareholders with respect to any taxes arising from excess distributions or
gains on the disposition of shares in a PFIC.
The Fund may be eligible to elect to include in its gross
income its share of earnings of a PFIC on a current basis. Generally, the
election would eliminate the interest charge and the ordinary income treatment
on the disposition of stock, but such an election may have the effect of
accelerating the recognition of income and gains by the Fund compared to a fund
that did not make the election. In addition, information required to make such
an election may not be available to the Fund.
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
<PAGE>47
mark-to market the stock (that is, treat it as if it were sold for fair market
value). Such an election could result in acceleration of income to the Fund.
DETERMINATION OF PERFORMANCE
From time to time, the Fund may quote the total return of its
Common Shares and/or Advisor Shares in advertisements or in reports and other
communications to shareholders. With respect to the Fund's Common Shares, the
actual (non-annualized) total return for the period commencing December 29, 1995
(commencement of operations) and ended April 30, 1996 was 7.80%(7.30%
without waivers), and the average annual total return for the same period was
24.74% (23.05% without waivers). These figures are calculated by finding
the average annual compounded rates of return for the one-, five- and ten- (or
such shorter period as the relevant class of shares has been offered) year
periods that would equate the initial amount invested to the ending redeemable
value according to the following formula: P (1 + T)n = ERV. For purposes of
this formula, "P" is a hypothetical investment of $1,000; "T" is average
annual total return; "n" is number of years; and "ERV" is the ending
redeemable value of a hypothetical $1,000 payment made at the beginning of the
one-, five- or ten-year periods (or fractional portion thereof). Total return
or "T" is computed by finding the average annual change in the value of an
initial $1,000 investment over the period and assumes that all dividends and
distributions are reinvested during the period. With respect to Advisor
Shares, the Fund's actual (non-annualized) total return for the period
commencing December 29, 1995 (commencement of operations) and ended April 30,
1996 was 7.70% (5.30% without waivers), and the Fund's average annual total
return for the same period was 24.40% (16.42% without waivers). Investors
should note that this performance may not be representative of the Fund's
total returns in longer market cycles.
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. Investors should note that this performance may not be representative of
the Fund's total return in longer market cycles.
The performance of a class of Fund shares will vary from time
to time depending upon market conditions, the composition of the Fund's
portfolio and operating expenses allocable to it. As described above, total
return is based on historical earnings and is not intended to indicate future
performance. Consequently, any given performance quotation should not be
considered as representative of performance for any specified period in the
future. Performance information may be useful as a basis for comparison with
other investment alternatives. However, the Fund's performance will fluctuate,
unlike certain bank deposits or other investments which pay a fixed yield for a
stated period of time. Any fees charged by Institutions or other institutional
investors directly to their customers in connection with investments in Fund
shares are not reflected in the Fund's total return, and such fees, if charged,
will reduce the actual return received by customers on their investments.
<PAGE>48
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.
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.
<PAGE>49
MS-EAFE Index vs. S&P 500 Index
1972-1994
Annual Total Return+
Year -EAFE Index S&P 500 Index
---- ----------- -------------
1972* 33.28 14.43
1973* -16.82 -18.85
1974* -25.60 -30.96
1975* 31.21 27.81
1976 -.36 18.27
1977* 14.61 -9.64
1978* 28.92 5.01
1979 1.82 9.02
1980 19.01 27.71
1981* -4.85 -10.17
1982 -4.63 14.80
1983* 20.91 13.93
1984* 5.02 -1.22
1985* 52.97 29.45
1986* 66.80 14.97
1987* 23.18 .26
1988* 26.66 8.61
1989 9.22 28.81
1990 -24.71 -8.24
1991 10.19 27.94
1992 -13.89 4.43
1993* 30.49 7.22
1994* 6.24 -1.34
1995 9.42 34.71
- -----------------
+ Without reinvestment of dividends.
* The MS-EAFE Index has outperformed the S&P 500 Index 15 out of the
last 24 years.
Source: Morgan Stanley Capital International; Bloomberg Financial Markets
The quoted performance information shown above is not
intended to indicate the future performance of the Fund.
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;
<PAGE>50
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.
INDEPENDENT ACCOUNTANTS AND COUNSEL
Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), with principal
offices at 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as
independent accountants 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 accountants 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.
MISCELLANEOUS
As of June 12, 1996, the name, address and percentage of
ownership of other persons that control the Fund (within the meaning of the
rules and regulations under the 1940 Act) or own of record 5% or more of the
Fund's outstanding shares were as follows: Paine Webber, 1285 Avenue of the
Americas, Fl. 14, New York, NY 10019-6040 -- 5.7% and The Bank of New York, 200
Park Avenue, New York, NY 10166-0005 - 5.6%. To the knowledge of the Fund, these
entities are not beneficial owners of a majority of the shares held by them of
record. Mr. Lionel I. Pincus may be deemed to have beneficially owned
72.99% of Fund shares outstanding, including shares owned by clients for
which Warburg has investment discretion and by the companies that EMW may be
deemed to have control. Mr. Pincus disclaims ownership of these shares and
does not intend to exercise voting rights with respect to these shares.
FINANCIAL STATEMENTS
The Fund's unaudited financial statement for the fiscal period
ended April 30, 1996, and the Fund's audited statement of assets and
liabilities as of December 5, 1995, and the Report of Independent Accountants
related thereto are attached to this Statement of Additional Information.
<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 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.
<PAGE>A-2
BB - Debt rated BB has 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 - Debt rated B has 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 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.
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.
<PAGE>A-3
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.
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>
The views of the Funds' management are as of the date of the letters and
portfolio holdings described in this semiannual report are as of April 30, 1996;
these views and portfolio holdings may have changed subsequent to these dates.
<PAGE>
<PAGE>
WARBURG PINCUS JAPAN GROWTH FUND
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
Dear Shareholder: June 21, 1996
The objective of Warburg Pincus Japan Growth Fund (the 'Fund') is 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.
For the four months ended April 30, 1996 (the Fund's inception date was
December 29, 1995), the Fund gained 7.80% vs. a 7.59% gain in the Lipper Japan
Funds Average.
The Fund benefited from its real-estate holdings and the performance of its
over-the-counter (OTC) issues during the period; the OTC market generally
escaped much of the carnage wrought among many larger stocks in January. Also
fortuitous was the Fund's heavy weighting in capital spending as well as its
light stake in bank issues. And the Fund's holdings in Honda and several of its
component suppliers were especially beneficial, as the company is having a
banner year.
The Fund was somewhat disadvantaged by its concentration in the
semiconductor-related sector. Companies in this sector performed strongly in
1995, when the weighting was a benefit. Semiconductor stocks fared poorly vs.
other sectors through April 1996, however, and the high exposure was a handicap.
We subsequently cut back our semiconductor-related holdings in May. An
additional brake on the Fund's performance was its holdings in the retail
sector -- the segment slumped in April when inclement weather led to
disappointing clothing sales. Retail recovered from this dip in late May,
however, and we are maintaining our retail-related investments.
One factor that potentially weakened the Fund's semiannual results was
unrelated to how its components fared. Rather, the issue was the Fund's launch
date. Its inception on the last business day of last year meant that the Fund
was not fully invested when the Japanese market surged on the very first day of
trading in 1996. Had its investments been more fully developed, the Fund would
likely have outperformed the Lipper Japan Funds Average by more than it did.
According to recently released figures, the Japanese economy grew 3% in the
March quarter from the previous three-month period, surpassing economists'
expectations of 1.2% growth. These data notwithstanding, some analysts remain
pessimistic about Japan's long-term economic recovery, which they perceive as
faltering. We disagree with this perception, however, and continue to be
10
<PAGE>
<PAGE>
extremely optimistic about the country's economic health. The macroeconomic
figures in general remain sturdy, in our opinion. April industrial production
was in line with forecasts, up 3.9% month-over-month, while inventories declined
more than expected, down 0.8% in the same period.
We believe that some analysts are gloomy about Japan's near-term prospects
because the country's economy is in the midst of formal deregulation, and this
process remains slow. What these analysts are perhaps missing is that many
companies are finding ways to side-step obstacles and take advantage of
opportunities within the economy. In particular, myriad smaller companies in the
rapidly expanding OTC market are benefiting from the country's ongoing changes.
Moreover, with the Bank of Japan still anticipating a weaker economy,
interest-rate hikes, if there are any, should be modest, and this will likely
benefit the stock market.
P. Nicholas Edwards
Portfolio Manager
11
<PAGE>
WARBURG PINCUS JAPAN GROWTH FUND
STATEMENT OF NET ASSETS
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<S> <C> <C>
COMMON STOCK (98.8%)
Aerospace (1.9%)
Mitsubishi Heavy Industries Ltd. 33,000 $ 294,412
-----------
Aerospace & Defense (1.7%)
Kawasaki Heavy Industries 50,000 258,382
-----------
Automobiles (2.3%)
Honda Motor Co. 15,000 342,440
-----------
Automotive Parts-Equipment (2.4%)
Hirata Technical Co., Ltd. 11,000 192,282
Keihin Seiki Mfg. 20,000 174,802
-----------
367,084
-----------
Banking (1.0%)
Toyo Trust & Banking 14,000 152,450
-----------
Business Services (1.0%)
Funai Consulting Co. 10,000 157,608
-----------
Chemicals (4.5%)
Noritsu Koki Co., Ltd. 6,500 264,495
Shin-Etsu Chemical Co., Ltd. 12,000 262,489
Showa Highpolymer Co., Ltd. 14,000 153,787
-----------
680,771
-----------
Communications & Media (3.4%)
Hikari Tsushin, Inc.`D' 1,000 166,205
NTT Data Communications Systems Co. 10 349,604
-----------
515,809
-----------
Computers (6.0%)
I.O. Data Device, Inc. 7,000 337,664
Nippon Systemware Co., Ltd. 5,000 239,278
Tokyo Electron Ltd. 9,000 334,416
-----------
911,358
-----------
Electrical Equipment (1.7%)
Shinmei Electric Co. 13,000 260,770
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
45
<PAGE>
<PAGE>
WARBURG PINCUS JAPAN GROWTH FUND
STATEMENTS OF NET ASSETS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
COMMON STOCK (CONT'D)
<S> <C> <C>
Electronics (18.9%)
Advantest Corp. 7,000 $ 347,025
Anritsu Corp. 20,000 294,202
Keyence Corp. 1,500 197,727
Kyocera Corp. 2,000 150,540
NEC Corp. 25,000 317,604
Rohm Co., Ltd. 5,000 318,082
Sharp Corp. 16,000 278,155
Sony Corp. 3,000 194,861
TDK Corp. 6,000 343,299
Yamatake-Honeywell 13,000 245,869
Yokogawa Electric 15,000 174,802
-----------
2,862,166
-----------
Engineering & Construction (1.7%)
Nichiei Construction Co. 20,000 254,083
-----------
Financial Services (7.7%)
Daiwa Securities Co., Ltd. 10,000 153,787
Nikko Securities Co., Ltd 20,000 254,083
Orix Corp. 5,500 227,481
Shohko Fund & Co., Ltd. 1,100 286,847
Wako Securities 27,000 249,651
-----------
1,171,849
-----------
Industrial Mfg. & Processing (6.2%)
Denki Kogyo Co., Ltd. 20,000 217,786
Fujikura Ltd. 36,000 280,944
Kitagawa Industries Co., Ltd. 7,000 260,770
Kyoritsu Air Tech, Inc. 14,000 181,870
-----------
941,370
-----------
Machinery (Electric) (0.6%)
Sugimoto Co., Ltd. 5,000 86,446
-----------
Manufacturing (7.6%)
Kawata Manufacturing Co., Ltd. 12,000 132,964
Nikon Corp. 20,000 269,367
Nitta Industrial Corp. 16,000 281,211
Sodick`D' 13,000 166,396
Zuiko Corp. 13,000 301,748
-----------
1,151,686
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
46
<PAGE>
<PAGE>
WARBURG PINCUS JAPAN GROWTH FUND
STATEMENTS OF NET ASSETS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
COMMON STOCK (CONT'D)
<S> <C> <C>
Office Equipment (2.1%)
Canon, Inc. 16,000 $ 317,891
-----------
Office Equipment & Supplies (1.2%)
King Jim Co., Ltd. 7,000 180,533
-----------
Oil Services (1.3%)
Cosmo Oil Co., Ltd. 30,000 196,294
-----------
Real Estate (6.8%)
Daibiru Corp. 16,000 215,493
Hankyu Realty 27,000 265,641
Mitsubishi Estate Co., Ltd. 20,000 280,829
Tachihi Enterprise Co., Ltd. 7,000 267,456
-----------
1,029,419
-----------
Retail (3.3%)
Circle K Japan Co., Ltd. 4,600 202,121
Homac Corp. 5,600 124,100
Ryohin Keikaku Co., Ltd. 2,000 178,623
-----------
504,844
-----------
Retail Food Chains (7.0%)
Chain Store Okuwa Co., Ltd. 18,000 295,730
Jusco Co., Ltd. 10,000 309,484
Nicchii Co., Ltd. 20,000 320,948
Uny Co., Ltd. 7,000 135,734
-----------
1,061,896
-----------
Retail Merchandising (1.3%)
Isetan 13,000 192,473
-----------
Steel (1.7%)
NKK Corp.`D' 82,000 256,911
-----------
Telecommunications (1.4%)
Nippon Denwa Shisetsu 22,000 206,992
-----------
Textiles (2.1%)
Shoei Co. 25,000 312,828
-----------
Utilities-Telecommunication (2.0%)
DDI Corp. 35 300,554
-----------
TOTAL COMMON STOCK (Cost $13,740,751) 14,969,319
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
47
<PAGE>
<PAGE>
WARBURG PINCUS JAPAN GROWTH FUND
STATEMENTS OF NET ASSETS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
--------- -----------
SHORT-TERM INVESTMENTS (3.1%)
<S> <C> <C>
Repurchase agreement with State Street Bank & Trust dated
04/30/96 at 5.24% to be repurchased at $467,068 on 05/01/96.
(Collateralized by $490,000 U.S. Treasury Bill due 10/03/96.
Market value of collateral is $478,975.) (Cost $467,000) $467,000 $ 467,000
-----------
TOTAL INVESTMENTS AT VALUE (101.9%) (Cost $14,207,751*) 15,436,319
OTHER LIABILITIES IN EXCESS OF ASSETS (1.9%) (284,083)
-----------
NET ASSETS (100.0%) (applicable to 1,405,618 Common Shares and 120 Advisor
Shares) $15,152,236
-----------
-----------
NET ASSET VALUE, offering and redemption price per Common Share
($15,150,944[div]1,405,618) $10.78
------
------
NET ASSET VALUE, offering and redemption price per Advisor Share
($1,292[div]120) $10.77
------
------
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-income producing security.
* Also cost for Federal income tax purposes.
See Accompanying Notes to Financial Statements.
48
<PAGE>
WARBURG PINCUS EQUITY FUNDS
STATEMENTS OF OPERATIONS
For the Six Months or Period Ended April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WARBURG PINCUS
CAPITAL WARBURG PINCUS WARBURG PINCUS WARBURG PINCUS
APPRECIATION EMERGING INTERNATIONAL JAPAN OTC
FUND GROWTH FUND EQUITY FUND FUND
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 1,752,424 $ 1,140,311 $ 29,566,608 $ 710,893
Interest 506,008 1,770,583 2,793,960 326,883
Foreign taxes withheld 0 0 (4,398,575) (106,634)
-------------- -------------- -------------- --------------
Total investment income 2,258,432 2,910,894 27,961,993 931,142
-------------- -------------- -------------- --------------
EXPENSES:
Investment advisory 1,018,822 3,798,956 13,679,226 1,354,133
Administrative services 291,092 844,212 2,238,360 238,320
Audit 12,976 14,430 35,709 10,217
Custodian/Sub-custodian 45,511 127,462 999,377 73,878
Directors/Trustees 4,972 4,972 4,972 3,953
Distribution 0 0 0 270,825
Insurance 7,458 7,957 15,893 829
Interest 0 0 377,929 8,872
Legal 40,608 33,911 84,530 39,112
Organizational 0 0 0 21,108
Printing 12,487 23,162 77,550 8,909
Registration 30,017 64,685 271,542 74,832
Shareholder servicing 44,278 540,633 922,673 3
Transfer agent 50,290 121,667 896,518 194,945
Miscellaneous 16,951 18,299 74,186 7,246
-------------- -------------- -------------- --------------
1,575,462 5,600,346 19,678,465 2,307,182
Less fees waived and expenses reimbursed (12,074) (29,430) (108,848) (411,394)
-------------- -------------- -------------- --------------
Total expenses 1,563,388 5,570,916 19,569,617 1,895,788
-------------- -------------- -------------- --------------
Net investment income (loss) 695,044 (2,660,022) 8,392,376 (964,646)
-------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN FROM
INVESTMENTS AND FOREIGN CURRENCY RELATED
ITEMS:
Net realized gain (loss) from security
transactions 35,051,572 24,253,712 44,566,893 (1,765,836)
Net realized gain (loss) from foreign
currency related items 0 0 75,108,081 9,118,454
Net change in unrealized appreciation from
investments and foreign currency related
items 8,079,386 155,554,780 279,254,351 8,251,073
-------------- -------------- -------------- --------------
Net realized and unrealized gain from
investments and foreign currency related
items 43,130,958 179,808,492 398,929,325 15,603,691
-------------- -------------- -------------- --------------
Net increase in net assets resulting from
operations $ 43,826,002 $177,148,470 $407,321,701 $ 14,639,045
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
(1) For the period December 29, 1995 (Commencement of Operations) through April
30, 1996.
See Accompanying Notes to Financial Statements.
52
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WARBURG PINCUS WARBURG PINCUS WARBURG PINCUS WARBURG PINCUS
EMERGING POST-VENTURE JAPAN GROWTH SMALL COMPANY
MARKETS FUND CAPITAL FUND FUND(1) VALUE FUND(1)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
$ 871,861 $ 7,405 $ 20,294 $ 11,275
131,321 115,266 9,591 25,599
(115,778) 0 (3,044) 0
-------------- -------------- ------- --------------
887,404 122,671 26,841 36,874
-------------- -------------- ------- --------------
393,664 281,291 23,045 28,606
69,285 45,006 4,056 5,722
9,940 6,095 5,942 6,270
136,197 50,816 1,844 8,224
4,412 4,350 3,345 3,005
78,731 56,256 4,608 7,150
149 2,486 397 1,682
0 0 0 0
27,502 14,701 13,131 6,010
22,360 11,706 22,295 16,949
7,512 6,559 4,332 6,610
62,736 18,730 9,521 12,426
4 5 2 2
25,408 19,989 10,337 10,092
3,702 3,847 2,901 826
-------------- -------------- ------- --------------
841,602 521,837 105,756 113,574
(372,478) (150,531) (73,492) (63,513)
-------------- -------------- ------- --------------
469,124 371,306 32,264 50,061
-------------- -------------- ------- --------------
418,280 (248,635) (5,423) (13,187)
-------------- -------------- ------- --------------
943,653 4,199,792 (4,899) 476,234
(107,843) 0 (46,576) 0
15,766,945 16,286,273 950,715 2,353,236
-------------- -------------- ------- --------------
16,602,755 20,486,065 899,240 2,829,470
-------------- -------------- ------- --------------
$ 17,021,035 $ 20,237,430 $893,817 $2,816,283
-------------- -------------- ------- --------------
-------------- -------------- ------- --------------
</TABLE>
- --------------------------------------------------------------------------------
(1) For the period December 29, 1995 (Commencement of Operations) through April
30, 1996.
53
<PAGE>
<PAGE>
WARBURG PINCUS EQUITY FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months or Period Ended April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WARBURB PINCUS WARBURG PINCUS WARBURG PINCUS
CAPITAL APPRECIATION FUND EMERGING GROWTH FUND INTERNATIONAL EQUITY FUND
-------------------------------- ------------------------------ --------------------------------
FOR THE FOR THE FOR THE
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR
APRIL 30, 1996 ENDED APRIL 30, 1996 ENDED APRIL 30, 1996 ENDED
(UNAUDITED) OCTOBER 31, 1995 (UNAUDITED) OCTOBER 31, 1995 (UNAUDITED) OCTOBER 31, 1995
-------------- ---------------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment
income (loss) $ 695,044 $ 563,484 $ (2,660,022) $ (2,982,589) $ 8,392,376 $ 12,746,935
Net realized gain
(loss) from
security
transactions 35,051,572 31,649,453 24,253,712 49,113,782 44,566,893 (34,444,203)
Net realized gain
from foreign
currency related
items 0 0 0 0 75,108,081 16,792,905
Net change in
unrealized
appreciation
(depreciation)
from investments
and foreign
currency related
items 8,079,386 12,386,702 155,554,780 84,670,426 279,254,351 (4,675,049)
-------------- ---------------- -------------- ---------------- -------------- ----------------
Net increase
(decrease) in
net assets
resulting
from
operations 43,826,002 44,599,639 177,148,470 130,801,619 407,321,701 (9,579,412)
-------------- ---------------- -------------- ---------------- -------------- ----------------
FROM DISTRIBUTIONS:
Dividends from net
investment
income:
Common Shares (205,824) (563,484) 0 0 (61,542,400) (11,671,023)
Advisor Shares 0 0 0 0 (8,824,069) (629,473)
Distributions from
capital gains:
Common Shares (29,718,914) (10,419,627) (29,520,528) 0 0 (42,332,078)
Advisor Shares (2,066,408) (575,892) (10,992,686) 0 0 (5,756,403)
-------------- ---------------- -------------- ---------------- -------------- ----------------
Net decrease
from
distributions (31,991,146) (11,559,003) (40,513,214) 0 (70,366,469) (60,388,977)
-------------- ---------------- -------------- ---------------- -------------- ----------------
FROM CAPITAL SHARE
TRANSACTIONS:
Proceeds from sale
of shares 89,052,368 88,963,455 465,672,295 335,569,078 817,778,154 1,383,361,959
Reinvested
dividends 31,176,989 11,246,752 38,944,251 0 62,023,115 54,872,977
Net asset value of
shares redeemed (38,573,371) (53,459,471) (124,172,439) (116,280,844) (302,210,653) (715,598,203)
-------------- ---------------- -------------- ---------------- -------------- ----------------
Net increase in
net assets
from capital
share
transactions 81,655,986 46,750,736 380,444,107 219,288,234 577,590,616 722,636,733
-------------- ---------------- -------------- ---------------- -------------- ----------------
Net increase in
net assets 93,490,842 79,791,372 517,079,363 350,089,853 914,545,848 652,668,344
NET ASSETS:
Beginning of period 247,305,865 167,514,493 654,762,611 304,672,758 2,385,943,847 1,733,275,503
-------------- ---------------- -------------- ---------------- -------------- ----------------
End of period $ 340,796,707 $247,305,865 $1,171,841,974 $654,762,611 $3,300,489,695 $ 2,385,943,847
-------------- ---------------- -------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ---------------- -------------- ----------------
</TABLE>
See Accompanying Notes to Financial Statements.
54
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WARBURG PINCUS WARBURG PINCUS WARBURG PINCUS
JAPAN OTC FUND EMERGING MARKETS FUND POST-VENTURE CAPITAL FUND
------------------------------- -------------------------------- --------------------------------
FOR THE PERIOD FOR THE PERIOD
DECEMBER 30, SEPTEMBER 29,
FOR THE FOR THE 1994 FOR THE 1995
SIX MONTHS SIX MONTHS (COMMENCEMENT SIX MONTHS (COMMENCEMENT
ENDED FOR THE YEAR ENDED OF OPERATIONS) ENDED OF OPERATIONS)
APRIL 30, 1996 ENDED APRIL 30, 1996 THROUGH APRIL 30, 1996 THROUGH
(UNAUDITED) OCTOBER 31, 1995 (UNAUDITED) OCTOBER 31, 1995 (UNAUDITED) OCTOBER 31, 1995
-------------- ---------------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$ (964,646) $ (73,801) $ 418,280 $ 29,534 $ (248,635) $ 356
(1,765,836) (4,629,196) 943,653 102,219 4,199,792 (26,884)
9,118,454 7,895,010 (107,843) (4,992) 0 0
8,251,073 (195,368) 15,766,945 (9,058) 16,286,273 164,441
-------------- ---------------- -------------- ---------------- -------------- ----------------
14,639,045 2,996,645 17,021,035 117,703 20,237,430 137,913
-------------- ---------------- -------------- ---------------- -------------- ----------------
(8,403,516) 0 (114,242) (14,321) 0 0
(43) 0 (6) (3) 0 0
0 0 (103,802) 0 0 0
0 0 (8) 0 0 0
-------------- ---------------- -------------- ---------------- -------------- ----------------
(8,403,559) 0 (218,058) (14,324) 0 0
-------------- ---------------- -------------- ---------------- -------------- ----------------
177,370,926 200,565,875 176,191,838 7,753,908 108,506,952 2,792,403
7,560,310 0 191,486 13,802 0 0
(130,373,825) (44,871,674) (13,419,949) (1,191,160) (11,738,318) (4,887)
-------------- ---------------- -------------- ---------------- -------------- ----------------
54,557,411 155,694,201 162,963,375 6,576,550 96,768,634 2,787,516
-------------- ---------------- -------------- ---------------- -------------- ----------------
60,792,897 158,690,846 179,766,352 6,679,929 117,006,064 2,925,429
178,569,482 19,878,636 6,780,929 101,000 3,025,429 100,000
-------------- ---------------- -------------- ---------------- -------------- ----------------
$ 239,362,379 $178,569,482 $ 186,547,281 $ 6,780,929 $ 120,031,493 $ 3,025,429
-------------- ---------------- -------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ---------------- -------------- ----------------
</TABLE>
55
<PAGE>
<PAGE>
WARBURG PINCUS EQUITY FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (CONT'D)
For the Six Months or Period Ended April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WARBURG PINCUS
WARBURG PINCUS SMALL COMPANY
JAPAN GROWTH FUND VALUE FUND
----------------- -----------------
FOR THE PERIOD FOR THE PERIOD
DECEMBER 29, 1995 DECEMBER 29, 1995
(COMMENCEMENT (COMMENCEMENT
OF OPERATIONS) OF OPERATIONS)
THROUGH THROUGH
APRIL 30, 1996 APRIL 30, 1996
(UNAUDITED) (UNAUDITED)
----------------- -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment loss $ (5,423) $ (13,187)
Net realized gain (loss) from security transactions (4,899) 476,234
Net realized gain (loss) from foreign currency related
items (46,576) 0
Net change in unrealized appreciation from investments
and foreign currency related items 950,715 2,353,236
----------------- -----------------
Net increase in net assets resulting from
operations 893,817 2,816,283
----------------- -----------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 15,808,878 22,657,465
Reinvested dividends 0 0
Net asset value of shares redeemed (1,650,459) (138,159)
----------------- -----------------
Net increase in net assets from capital share
transactions 14,158,419 22,519,306
----------------- -----------------
Net increase in net assets 15,052,236 25,335,589
NET ASSETS:
Beginning of period 100,000 100,000
----------------- -----------------
End of period $15,152,236 $25,435,589
----------------- -----------------
----------------- -----------------
</TABLE>
See Accompanying Notes to Financial Statements.
56
<PAGE>
WARBURG PINCUS JAPAN GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a Common Share of the Fund Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 29, 1995
(COMMENCEMENT OF
OPERATIONS) THROUGH
APRIL 30, 1996
(UNAUDITED)
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
------
Income from Investment Operations:
Net Investment Income .00
Net Gain on Securities and Foreign Currency Related Items (both
realized and unrealized) .78
------
Total from Investment Operations .78
------
Less Distributions:
Dividends from Net Investment Income .00
Distributions from Capital Gains .00
------
Total Distributions .00
------
NET ASSET VALUE, END OF PERIOD $ 10.78
------
------
Total Return 7.80%`D'
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $15,151
Ratios to average daily net assets:
Operating expenses 1.75%*
Net investment loss (.29%)*
Decrease reflected in above operating expense ratio due to
waivers/reimbursements 4.42%*
Portfolio Turnover Rate 5.01%`D'
Average Commission Rate # $.0857
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased or sold during the period for which there was a commission
charged.
See Accompanying Notes to Financial Statements.
63
<PAGE>
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Warburg Pincus Equity Funds are comprised of Warburg Pincus Capital
Appreciation Fund (the 'Capital Appreciation Fund'), Warburg Pincus
International Equity Fund (the 'International Equity Fund'), Warburg Pincus
Post-Venture Capital Fund (the 'Post-Venture Capital Fund') and Warburg Pincus
Small Company Value Fund (the 'Small Company Value Fund') which are registered
under the Investment Company Act of 1940, as amended (the '1940 Act'), as
diversified, open-end management investment companies, and Warburg Pincus
Emerging Growth Fund (the 'Emerging Growth Fund'), Warburg Pincus Japan OTC Fund
(the 'Japan OTC Fund'), Warburg Pincus Emerging Markets Fund (the 'Emerging
Markets Fund') and Warburg Pincus Japan Growth Fund (the 'Japan Growth Fund'),
together with the Capital Appreciation Fund, the International Equity Fund, the
Post-Venture Capital Fund, the Emerging Growth Fund, the Japan OTC Fund, the
Emerging Markets Fund and the Small Company Value Fund, the 'Funds') which are
registered under the 1940 Act as non-diversified, open-end management investment
companies.
Investment objectives for each Fund are as follows: the Capital Appreciation
Fund, the International Equity Fund, the Japan OTC Fund and the Small Company
Value Fund seek long-term capital appreciation; the Emerging Growth Fund seeks
maximum capital appreciation; the Emerging Markets Fund and Japan Growth Fund
seek growth of capital; the Post-Venture Capital Fund seeks long-term growth of
capital.
Each Fund offers two classes of shares, one class being referred to as Common
Shares and one class being referred to as Advisor Shares. Common and Advisor
Shares in each Fund represent an equal pro rata interest in such Fund, except
that they bear different expenses which reflect the difference in the range of
services provided to them. Common Shares for the Japan OTC Fund, the Emerging
Markets Fund, the Post-Venture Capital Fund, the Japan Growth Fund and the Small
Company Value Fund bear expenses paid pursuant to a shareholder servicing and
distribution plan adopted by each Fund at an annual rate not to exceed .25% of
the average daily net asset value of each Fund's outstanding Common Shares.
Advisor Shares for each Fund bear expenses paid pursuant to a distribution plan
adopted by each Fund at an annual rate not to exceed .75% of the average daily
net asset value of each Fund's outstanding Advisor Shares. The Common and the
Advisor Shares are currently bearing expenses of .25% and .50% of average daily
net assets, respectively.
The net asset value of each Fund is determined daily as of the close of
regular trading on the New York Stock Exchange. Each Fund's investments are
valued at market value, which is currently determined using the last reported
sales price. If no sales are reported, investments are generally valued at the
last reported mean
66
<PAGE>
<PAGE>
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
price. In the absence of market quotations, investments are generally valued at
fair value as determined by or under the direction of the Fund's governing
Board. Short-term investments that mature in 60 days or less are valued on the
basis of amortized cost, which approximates market value.
The books and records of the Funds are maintained in U.S. dollars.
Transactions denominated in foreign currencies are recorded at the current
prevailing exchange rates. All assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the current exchange rate
at the end of the period. Translation gains or losses resulting from changes in
the exchange rate during the reporting period and realized gains and losses on
the settlement of foreign currency transactions are reported in the results of
operations for the current period. The Funds do not isolate that portion of
gains and losses on investments in equity securities which are due to changes in
the foreign exchange rate from that which are due to changes in market prices of
equity securities. The Funds isolate that portion of gains and losses on
investments in debt securities which are due to changes in the foreign exchange
rate from that which are due to changes in market prices of debt securities.
Security transactions are accounted for on a trade date basis. Interest
income is recorded on the accrual basis. Dividends are recorded on the
ex-dividend date. Income, expenses (excluding class-specific expenses,
principally distribution and shareholder servicing fees) and realized/unrealized
gains/losses are allocated proportionately to each class of shares based upon
the relative net asset value of outstanding shares. The cost of investments sold
is determined by use of the specific identification method for both financial
reporting and income tax purposes.
Dividends from net investment income and distributions of net realized
capital gains, if any, are declared and paid annually for all Funds. However, to
the extent that a net realized capital gain can be reduced by a capital loss
carryover, such gain will not be distributed. Income and capital gain
distributions are determined in accordance with Federal income tax regulations
which may differ from generally accepted accounting principles.
No provision is made for Federal taxes as it is each Fund's intention to
continue to qualify for and elect the tax treatment applicable to regulated
investment companies under the Internal Revenue Code and make the requisite
distributions to its shareholders which will be sufficient to relieve it from
Federal income and excise taxes.
Costs incurred by the Japan OTC Fund, the Emerging Markets Fund, the
Post-Venture Capital Fund, the Japan Growth Fund and the Small Company Value
Fund in connection with their organization have been deferred and are
67
<PAGE>
<PAGE>
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
being amortized over a period of five years from the date each Fund commenced
its operations.
Each Fund may enter into repurchase agreement transactions. Under the terms
of a typical repurchase agreement, a Fund acquires an underlying security
subject to an obligation of the seller to repurchase. The value of the
underlying security collateral will be maintained at an amount at least equal to
the total amount of the purchase obligation, including interest. The collateral
is in the Fund's possession.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.
The Funds have an arrangement with their transfer agent whereby interest
earned on uninvested cash balances was used to offset a portion of the transfer
agent expense. For the period ended April 30, 1996, the Funds received credits
or reimbursements under this arrangement as follows:
<TABLE>
<CAPTION>
FUND AMOUNT
- ----------------------------------------------------------------------- --------
<S> <C>
Capital Appreciation $ 12,074
Emerging Growth 29,430
International Equity 108,848
Japan OTC 9,778
Emerging Markets 1,980
Post-Venture Capital 1,261
Japan Growth 55
Small Company Value 76
--------
163,502
--------
--------
</TABLE>
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR
Warburg, Pincus Counsellors, Inc. ('Warburg'), a wholly owned subsidiary of
Warburg, Pincus Counsellors G.P. ('Counsellors G.P.'), serves as each Fund's
investment adviser. For its investment advisory services, Warburg receives the
following fees based on each Fund's average daily net assets:
<TABLE>
<CAPTION>
FUND ANNUAL RATE
- ------------------------------------------------------- -----------------------------------
<S> <C>
Capital Appreciation .70% of average daily net assets
Emerging Growth .90% of average daily net assets
International Equity 1.00% of average daily net assets
Japan OTC 1.25% of average daily net assets
Emerging Markets 1.25% of average daily net assets
Post-Venture Capital 1.25% of average daily net assets
Japan Growth 1.25% of average daily net assets
Small Company Value 1.00% of average daily net assets
</TABLE>
68
<PAGE>
<PAGE>
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
For the period ended April 30, 1996, investment advisory fees, waivers and
reimbursements were as follows:
<TABLE>
<CAPTION>
GROSS NET EXPENSE
FUND ADVISORY FEE WAIVER ADVISORY FEE REIMBURSEMENTS
- --------------------------------- ------------ --------- ------------ --------------
<S> <C> <C> <C> <C>
Capital Appreciation $ 1,018,822 $ 0 $ 1,018,822 $ 0
Emerging Growth 3,798,956 0 3,798,956 0
International Equity 13,679,226 0 13,679,226 0
Japan OTC 1,354,133 (366,440) 987,693 0
Emerging Markets 393,664 (344,848) 48,816 0
Post-Venture Capital 281,291 (138,774) 145,217 0
Japan Growth 23,045 (23,045) 0 (48,216)
Small Company Value 28,606 (28,606) 0 (32,335)
</TABLE>
SPARX Investment & Research, USA, Inc. ('SPARX USA') serves as sub-investment
adviser for the Japan OTC Fund. From its investment advisory fee, Warburg pays
SPARX USA a fee at an annual rate of .625% of the average daily net assets of
the Japan OTC Fund. No compensation is paid by the Japan OTC Fund to SPARX USA
for its sub-investment advisory services.
Counsellors Funds Service, Inc. ('CFSI'), a wholly owned subsidiary of
Warburg, and PFPC Inc. ('PFPC'), an indirect, wholly owned subsidiary of PNC
Bank Corp. ('PNC'), serve as each Fund's co-administrators. For its
administrative services, CFSI currently receives a fee calculated at an annual
rate of .10% of each Fund's average daily net assets. For the period ended April
30, 1996, administrative services fees earned by CFSI were as follows:
<TABLE>
<CAPTION>
FUND CO-ADMINISTRATION FEE
- -------------------------------------------------------- ------------------------------
<S> <C>
Capital Appreciation $ 145,546
Emerging Growth 422,106
International Equity 1,367,923
Japan OTC 108,331
Emerging Markets 31,493
Post-Venture Capital 22,503
Japan Growth 1,844
Small Company Value 2,861
</TABLE>
For its administrative services, PFPC currently receives a fee calculated at
an annual rate of .10% of the average daily net assets of the Capital
Appreciation Fund, the Emerging Growth Fund, the Post-Venture Capital Fund and
the Small Company Value Fund. For the International Equity Fund, the Japan OTC
Fund, the Emerging Markets Fund and the Japan Growth Fund, PFPC currently
receives a fee calculated at an annual rate of .12% on each Fund's first $250
million in average daily net assets, .10% on the next $250 million in average
daily net assets, .08% on the next $250 million in average daily net assets, and
.05% of the average daily net assets over $750 million.
69
<PAGE>
<PAGE>
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
For the period ended April 30, 1996, administrative service fees earned and
waived by PFPC were as follows:
<TABLE>
<CAPTION>
NET
FUND CO-ADMINISTRATION FEE WAIVER CO-ADMINISTRATION FEE
- --------------------------------- --------------------- -------- -------------------------
<S> <C> <C> <C>
Capital Appreciation $ 145,546 $ 0 $ 145,546
Emerging Growth 422,106 0 422,106
International Equity 870,437 0 870,437
Japan OTC 129,989 (35,176) 94,813
Emerging Markets 37,792 (25,650) 12,142
Post-Venture Capital 22,503 (10,496) 12,007
Japan Growth 2,212 (2,176) 36
Small Company Value 2,861 (2,496) 365
</TABLE>
Counsellors Securities Inc. ('CSI'), also a wholly owned subsidiary of
Warburg, serves as each Fund's distributor. No compensation is paid by the
Capital Appreciation Fund, the Emerging Growth Fund or the International Equity
Fund to CSI for distribution services. For its shareholder servicing and
distribution services, CSI currently receives a fee calculated at an annual rate
of .25% of the average daily net assets of the Common Shares for the Japan OTC
Fund, the Emerging Markets Fund, the Post-Venture Capital Fund, the Japan Growth
Fund and the Small Company Value Fund pursuant to a shareholder servicing and
distribution plan adopted by each Fund. For the period ended April 30, 1996,
distribution fees earned by CSI were as follows:
<TABLE>
<CAPTION>
FUND DISTRIBUTION FEE
- ---------------------------------- ------------------------------
<S> <C>
Japan OTC $270,825
Emerging Markets 78,731
Post-Venture Capital 56,256
Japan Growth 4,608
Small Company Value 7,150
</TABLE>
3. INVESTMENTS IN SECURITIES
For the period ended April 30, 1996, purchases and sales of investment
securities (excluding short-term investments) were as follows:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
- -------------------------------------------------------- ------------ ------------
<S> <C> <C>
Capital Appreciation $290,731,151 $254,842,002
Emerging Growth 497,749,953 209,700,119
International Equity 925,234,824 406,226,464
Japan OTC 122,933,961 66,163,776
Emerging Markets 168,927,212 13,512,891
Post-Venture Capital 124,242,050 36,036,247
Japan Growth 23,119,410 290,760
Small Company Value 23,182,561 3,349,967
</TABLE>
At April 30, 1996, the net unrealized appreciation from investments for those
securities having an excess of value over cost and net unrealized depreciation
70
<PAGE>
<PAGE>
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
from investments for those securities having an excess of cost over value (based
on cost for Federal income tax purposes) was as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
- --------------------------------- ------------ -------------- --------------
<S> <C> <C> <C>
Capital Appreciation $ 52,754,467 $ (2,480,919) $ 50,273,548
Emerging Growth 302,641,446 (11,858,559) 290,782,887
International Equity 518,554,076 (106,585,313) 411,968,763
Japan OTC 23,989,323 (14,393,658) 9,595,665
Emerging Markets 17,034,584 (1,273,816) 15,760,768
Post-Venture Capital 18,657,288 (2,206,574) 16,450,714
Japan Growth 1,248,768 (20,200) 1,228,568
Small Company Value 2,553,211 (199,975) 2,353,236
</TABLE>
4. FORWARD FOREIGN CURRENCY CONTRACTS
The International Equity Fund, the Japan OTC Fund, the Emerging Markets Fund,
the Post-Venture Capital Fund, the Japan Growth Fund and the Small Company Value
Fund may enter into forward currency contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date. Risks may arise
upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar. The
Funds will enter into forward contracts primarily for hedging purposes. The
forward currency contracts are adjusted by the daily exchange rate of the
underlying currency and any gains or losses are recorded for financial statement
purposes as unrealized until the contract settlement date.
At April 30, 1996, the International Equity Fund, the Japan OTC Fund and the
Japan Growth Fund had the following open forward foreign currency contracts:
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
- -------------------------------------------------------------------------------------------------
FORWARD FOREIGN UNREALIZED
CURRENCY EXPIRATION CURRENCY CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE TO BE SOLD AMOUNT VALUE GAIN/(LOSS)
- ----------- --------- -------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
French
Francs 09/24/96 681,529,150 $135,860,209 $132,836,150 $ 3,024,059
Japanese
Yen 03/05/97 18,772,784,400 185,700,000 186,700,431 (1,000,431)
Japanese
Yen 03/05/97 15,981,700,000 158,000,000 158,942,340 (942,340)
Japanese
Yen 03/05/97 12,662,950,000 125,500,000 125,936,472 (436,472)
Japanese
Yen 03/05/97 4,594,026,000 45,400,000 45,688,834 (288,834)
Japanese
Yen 03/05/97 3,273,712,500 32,440,296 32,557,959 (117,663)
Japanese
Yen 03/05/97 1,668,150,000 16,500,000 16,590,204 (90,204)
Japanese
Yen 03/05/97 951,280,000 9,400,000 9,460,738 (60,738)
------------ ------------ ----------------
$708,800,505 $708,713,128 $ 87,377
------------ ------------ ----------------
------------ ------------ ----------------
</TABLE>
71
<PAGE>
<PAGE>
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
4. FORWARD FOREIGN CURRENCY CONTRACTS (CONT'D)
<TABLE>
<CAPTION>
JAPAN OTC FUND
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FORWARD FOREIGN UNREALIZED
CURRENCY EXPIRATION CURRENCY CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE TO BE SOLD AMOUNT VALUE GAIN/(LOSS)
- ----------- --------- -------------- ------------ ------------ ----------------
Japanese
Yen 05/31/96 23,205,000,000 $221,000,000 $222,589,928 ($ 1,589,928)
Japanese
Yen 05/31/96 314,100,000 3,000,000 3,012,950 (12,950)
Japanese
Yen 05/31/96 311,400,000 3,000,000 2,987,050 12,950
------------ ------------ ----------------
$227,000,000 $228,589,928 ($ 1,589,928)
------------ ------------ ----------------
------------ ------------ ----------------
</TABLE>
<TABLE>
<CAPTION>
JAPAN GROWTH FUND
- --------------------------------------------------------------------------------------------
FORWARD FOREIGN UNREALIZED
CURRENCY EXPIRATION CURRENCY CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE TO BE SOLD AMOUNT VALUE GAIN (LOSS)
- ----------- --------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Japanese
Yen 03/05/97 485,088,000 $ 4,800,000 $ 4,824,346 ($ 24,346)
Japanese
Yen 03/05/97 217,801,500 2,100,000 2,166,101 (66,101)
Japanese
Yen 03/05/97 187,488,000 1,800,000 1,864,625 (64,625)
Japanese
Yen 03/05/97 176,570,500 1,700,000 1,756,047 (56,047)
Japanese
Yen 03/05/97 102,700,000 1,000,000 1,021,382 (21,382)
Japanese
Yen 03/05/97 92,367,000 900,000 918,618 (18,618)
Japanese
Yen 03/05/97 71,540,000 700,000 711,487 (11,487)
Japanese
Yen 03/05/97 41,144,000 400,000 409,189 (9,189)
Japanese
Yen 03/05/97 40,460,000 400,000 402,387 (2,387)
----------- ----------- -------
$13,800,000 $14,074,182 ($ 274,182)
----------- ----------- -------
----------- ----------- -------
</TABLE>
5. EQUITY SWAP TRANSACTIONS
The International Equity Fund (the 'Fund') entered into a Taiwanese equity
swap agreement (which represents approximately .41% of the Fund's net assets at
April 30, 1996) dated August 11, 1995, where the Fund receives a quarterly
payment, representing the total return (defined as market appreciation and
dividend income) on a basket of three Taiwanese common stocks ('Common Stocks').
In return, the Fund pays quarterly the Libor rate (London Interbank Offered
Rate), plus 1.25% per annum (6.508% on April 30, 1996) on the market value of
the Common Stocks ('Notional amount') which is currently $10,512,575. The
Notional amount is marked to market on each quarterly reset date. In the event
that the Common Stocks decline in value, the Fund will be required to pay
quarterly, the amount of any depreciation in value from the notional amount. The
equity swap agreement will terminate on August 11, 1996.
During the term of the equity swap transaction, changes in the value of the
Common Stocks as compared to the Notional amount is recognized as unrealized
gain or loss. Dividend income for the Common Stocks are recorded on the
ex-dividend date. Interest expense is accrued daily. At April 30, 1996, the Fund
has recorded an unrealized gain of $3,166,123 and interest payable of $148,230
on the equity swap transaction.
72
<PAGE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
73
<PAGE>
<PAGE>
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
6. CAPITAL SHARE TRANSACTIONS
The Capital Appreciation Fund is authorized to issue three billion of full
and fractional shares of beneficial interest, $.001 par value per share, of
which one billion shares are classified as Series 2 Shares (the Advisor Shares).
The Emerging Growth Fund, the International Equity Fund, the Japan OTC Fund, the
Emerging Markets Fund, the Post-Venture Capital Fund, the Japan Growth Fund and
the Small Company Value Fund are each authorized to issue three billion full and
fractional shares of capital stock, $.001 par value per share, of which one
billion shares of each Fund are designated as Series 2 Shares (the Advisor
Shares).
Transactions in shares of each Fund were as follows:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND EMERGING GROWTH FUND
COMMON SHARES ADVISOR SHARES COMMON SHARES ADVISOR SHARES
-------------------------- -------------------------- -------------------------- -------------------------
FOR THE SIX FOR THE SIX FOR THE SIX FOR THE SIX
MONTHS ENDED FOR THE MONTHS ENDED FOR THE MONTHS ENDED FOR THE MONTHS ENDED FOR THE
APRIL 30, YEAR ENDED APRIL 30, YEAR ENDED APRIL 30, YEAR ENDED APRIL 30, YEAR ENDED
1996 OCTOBER 31, 1996 OCTOBER 31, 1996 OCTOBER 31, 1996 OCTOBER 31,
(UNAUDITED) 1995 (UNAUDITED) 1995 (UNAUDITED) 1995 (UNAUDITED) 1995
------------ ------------ ------------- ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 4,579,854 6,020,619 889,944 201,782 12,327,414 9,808,362 2,888,960 3,172,686
Shares issued to
shareholders on
reinvestment of
dividends 1,964,278 850,478 140,665 46,554 976,986 0 392,736 0
Shares redeemed (1,876,798) (3,638,974) (484,121) (110,027) (3,830,967) (4,294,179) (239,620) (383,922)
------------ ------------ ------------- ------------ ------------ ------------ ------------ -----------
Net increase
in shares
outstanding 4,667,334 3,232,123 546,488 138,309 9,473,433 5,514,183 3,042,076 2,788,764
------------ ------------ ------------- ------------ ------------ ------------ ------------ -----------
------------ ------------ ------------- ------------ ------------ ------------ ------------ -----------
Proceeds from
sale of shares $74,358,783 $ 85,992,655 $14,693,585 $ 2,970,800 $378,940,320 $256,886,928 $86,731,975 $78,682,150
Reinvested dividends 29,110,611 10,670,876 2,066,378 575,876 27,951,581 0 10,992,670 0
Net asset value of
shares redeemed (30,640,105) (51,907,650) (7,933,266) (1,551,821) (117,237,246) (106,777,032) (6,935,193) (9,503,812)
------------ ------------ ------------- ------------ ------------ ------------ ------------ -----------
Net increase from
capital share
transactions $72,829,289 $ 44,755,881 $ 8,826,697 $ 1,994,855 $289,654,655 $150,109,896 $90,789,452 $69,178,338
------------ ------------ ------------- ------------ ------------ ------------ ------------ -----------
------------ ------------ ------------- ------------ ------------ ------------ ------------ -----------
</TABLE>
74
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND JAPAN OTC FUND
COMMON SHARES ADVISOR SHARES COMMON SHARES ADVISOR SHARES
- ------------------------------- ------------------------------ ----------------------------- ----------------------
FOR THE
FOR THE SIX FOR THE SIX FOR THE SIX FOR THE SIX YEAR
MONTHS ENDED FOR THE MONTHS ENDED FOR THE MONTHS ENDED FOR THE MONTHS ENDED ENDED
APRIL 30, YEAR ENDED APRIL 30, YEAR ENDED APRIL 30, YEAR ENDED APRIL 30, OCTOBER
1996 OCTOBER 31, 1996 OCTOBER 31, 1996 OCTOBER 31, 1996 31,
(UNAUDITED) 1995 (UNAUDITED) 1995 (UNAUDITED) 1995 (UNAUDITED) 1995
- ------------ -------------- ------------- ------------ ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
36,114,359 68,096,606 4,400,425 7,225,150 19,448,807 22,809,795 5 0
2,770,784 2,623,005 462,235 346,377 862,060 0 5 0
(14,704,936) (38,317,625) (353,539) (770,753) (14,578,459) (5,180,432) 0 0
- ------------ ------------- ------------- ------------ ------------ ---------- -- --
24,180,207 32,401,986 4,509,121 6,800,774 5,732,408 17,629,363 10 0
- ------------ -------------- ------------- ------------ ------------ ------------ -- --
- ------------ -------------- ------------- ------------ ------------ ------------ -- --
$729,116,738 $1,251,776,887 $88,661,416 $131,585,072 $177,370,878 $200,565,875 $ 48 $0
53,199,047 48,487,109 8,824,068 6,385,868 7,560,269 0 41 0
(295,259,300) (701,310,424) (6,951,353) (14,287,779) (130,373,825) (44,871,674) 0 0
-- -- -
- ------------ -------------- ------------- ------------ ------------
$487,056,485 $ 598,953,572 $90,534,131 $123,683,161 $ 54,557,322 $155,694,201 $ 89 $0
- ------------ -------------- ------------- ------------ ------------ ------------ --- --
- ------------ -------------- ------------- ------------ ------------ ------------ --- --
</TABLE>
75
<PAGE>
<PAGE>
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
6. CAPITAL SHARE TRANSACTIONS (CONT'D)
<TABLE>
<CAPTION>
EMERGING MARKETS FUND
COMMON SHARES ADVISOR SHARES
------------------------------ -------------------------------
FOR THE FOR THE
PERIOD PERIOD
DECEMBER 30, DECEMBER 30,
1994 1994
(COMMENCEMENT (COMMENCEMENT
FOR THE SIX OF FOR THE SIX OF
MONTHS ENDED OPERATIONS) MONTHS ENDED OPERATIONS)
APRIL 30, THROUGH APRIL 30, THROUGH
1996 OCTOBER 31, 1996 OCTOBER 31,
(UNAUDITED) 1995 (UNAUDITED) 1995
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold 14,049,400 694,008 0 22
Shares issued to
shareholders on
reinvestment of
dividends 17,172 1,267 1 0
Shares redeemed (1,080,269) (104,480) 0 0
------------ ------------- -- --
Net increase
in shares
outstanding 12,986,303 590,795 1 22
------------ ------------- -- --
------------ ------------- -- --
Proceeds from sale
of shares $176,191,838 $ 7,753,651 $ 0 $ 257
Reinvested dividends 191,472 13,802 14 0
Net asset value of
shares redeemed (13,419,946) (1,191,160) (3) 0
------------ ------------- -- --
Net increase from
capital share
transactions $162,963,364 $ 6,576,293 $11 $ 257
------------ ------------- -- --
------------ ------------- -- --
<CAPTION>
POST-VENTURE CAPITAL FUND
COMMON SHARES ADVISOR SHARES
----------------------------- ------------------------------
FOR THE FOR THE
PERIOD PERIOD
SEPTEMBER 29, SEPTEMBER 29,
1995 1995
(COMMENCEMENT (COMMENCEMENT
FOR THE SIX OF FOR THE SIX OF
MONTHS ENDED OPERATIONS) MONTHS ENDED OPERATIONS)
APRIL 30, THROUGH APRIL 30, THROUGH
1996 OCTOBER 31, 1996 OCTOBER 31,
(UNAUDITED) 1995 (UNAUDITED) 1995
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Shares sold 7,376,803 273,510 0 19
Shares issued to
shareholders on
reinvestment of
dividends 0 0 0 0
Shares redeemed (787,264) (473) 0 0
------------ ------------- - --
Net increase
in shares
outstanding 6,589,539 273,037 0 19
------------ ------------- - --
------------ ------------- - --
Proceeds from sale
of shares $108,506,952 $ 2,792,203 $0 $ 200
Reinvested dividends 0 0 0 0
Net asset value of
shares redeemed (11,738,318) (4,887) 0 0
------------ ------------- - --
Net increase from
capital share
transactions $96,768,634 $ 2,787,316 $0 $ 200
------------ ------------- - --
------------ ------------- - --
</TABLE>
<TABLE>
<CAPTION>
JAPAN GROWTH FUND SMALL COMPANY VALUE FUND
COMMON SHARES ADVISOR SHARES COMMON SHARES ADVISOR SHARES
------------- -------------- ------------- --------------
FOR THE PERIOD DECEMBER 29, 1995 FOR THE PERIOD DECEMBER 29, 1995
(COMMENCEMENT OF OPERATIONS) (COMMENCEMENT OF OPERATIONS)
THROUGH APRIL 30, 1996 THROUGH APRIL 30, 1996
(UNAUDITED) (UNAUDITED)
-------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,555,468 20 2,016,886 20
Shares issued to
shareholders on
reinvestment of
dividends 0 0 0 0
Shares redeemed (159,750) 0 (11,491) 0
------------- --- ------------- ---
Net increase in
shares outstanding 1,395,718 20 2,005,395 20
------------- --- ------------- ---
------------- --- ------------- ---
Proceeds from sale
of shares $15,808,678 $200 $22,657,265 $200
Reinvested dividends 0 0 0 0
Net asset value of
shares redeemed (1,650,457) (2) (138,157) (2)
------------- --- ------------- ---
Net increase from
capital share
transactions $14,158,221 $198 $22,519,108 $198
------------- --- ------------- ---
------------- --- ------------- ---
</TABLE>
76
<PAGE>
<PAGE>
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
7. NET ASSETS
Net Assets at April 30, 1996, consisted of the following:
<TABLE>
<CAPTION>
CAPITAL EMERGING INTERNATIONAL
APPRECIATION GROWTH EQUITY JAPAN OTC
FUND FUND FUND FUND
------------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
Capital contributed, net $254,983,813 $ 859,479,348 $2,848,598,049 $230,176,938
Accumulated net
investment income (loss) 489,220 (2,660,022) 32,258,657 7,571,458
Accumulated net realized
gain (loss) from
security transactions 34,914,605 24,043,138 3,895,807 (6,406,623)
Net unrealized
appreciation from
investments and foreign
currency related items 50,409,069 290,979,510 415,737,182 8,020,606
------------ -------------- -------------- ------------
Net assets $340,796,707 $1,171,841,974 $3,300,489,695 $239,362,379
------------ -------------- -------------- ------------
------------ -------------- -------------- ------------
<CAPTION>
EMERGING POST-VENTURE SMALL COMPANY
MARKETS CAPITAL JAPAN GROWTH VALUE
FUND FUND FUND FUND
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Capital contributed, net $169,640,925 $ 99,656,150 $ 14,258,419 $22,619,306
Accumulated net
investment income (loss) 206,407 (248,279) (51,999) (13,187)
Accumulated net realized
gain (loss) from
security transactions 942,062 4,172,908 (4,899) 476,234
Net unrealized
appreciation from
investments and foreign
currency related items 15,757,887 16,450,714 950,715 2,353,236
------------ ------------ ------------ -------------
Net assets $186,547,281 $120,031,493 $ 15,152,236 $25,435,589
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
</TABLE>
8. OTHER FINANCIAL HIGHLIGHTS
Each Fund currently offers one other class of shares, Advisor Shares,
representing equal prorata interests in each of the respective Warburg Pincus
Equity Funds. The financial highlights for an Advisor Share of each Fund are as
follows:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND
--------------------------------------------------------
ADVISOR SHARES
--------------------------------------------------------
FOR THE SIX APRIL 4, 1991
MONTHS ENDED (INITIAL
APRIL 30, FOR THE YEAR ENDED OCTOBER 31, ISSUANCE)
1996 ------------------------------------ THROUGH
(UNAUDITED) 1995 1994 1993 1992 OCTOBER 31, 1991
------------ ------ ------ ------ ------ ----------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.26 $14.22 $15.28 $13.28 $12.16 $12.04
------ ------ ------ ------ ------ -----
Income from Investment Operations:
Net Investment Income (Loss) .01 .00 (.08) .00 (.01) .05
Net Gain on Securities (both realized and
unrealized) 2.39 3.02 .23 2.76 1.20 .13
------ ------ ------ ------ ------ -----
Total from Investment Operations 2.40 3.02 .15 2.76 1.19 .18
------ ------ ------ ------ ------ -----
Less Distributions:
Dividends from Net Investment Income .00 .00 (.02) .00 (.02) (.06)
Distributions from Capital Gains (2.04) (.98) (1.19) (.76) (.05) .00
------ ------ ------ ------ ------ -----
Total Distributions (2.04) (.98) (1.21) (.76) (.07) (.06)
------ ------ ------ ------ ------ -----
NET ASSET VALUE, END OF PERIOD $ 16.62 $16.26 $14.22 $15.28 $13.28 $12.16
------ ------ ------ ------ ------ -----
------ ------ ------ ------ ------ -----
Total Return 16.38%`D' 23.41% 1.23% 21.64% 9.83% 1.53%`D'
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $ 20,932 $11,594 $8,169 $10,437 $1,655 $443
Ratios to average daily net assets:
Operating expenses 1.54%* 1.62% 1.55% 1.51% 1.56% 1.63%*
Net investment income (loss) .03%* (.18%) (.24%) (.25%) (.11%) .25%*
Decrease reflected in above operating
expense ratios due to
waivers/reimbursements .00% .00% .01% .00% .01% .01%*
Portfolio Turnover Rate 92.14%`D' 146.09% 51.87% 48.26% 55.83% 39.50%
Average Commission Rate # $ .0594 -- -- -- -- --
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased or sold during the period for which there was a commission
charged.
77
<PAGE>
<PAGE>
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996
- --------------------------------------------------------------------------------
8. OTHER FINANCIAL HIGHLIGHTS (CONT'D)
<TABLE>
<CAPTION>
EMERGING GROWTH FUND
-------------------------------------------------------------------------------
ADVISOR SHARES
-------------------------------------------------------------------------------
APRIL 4, 1991
FOR THE SIX (INITIAL
MONTHS ENDED FOR THE YEAR ENDED OCTOBER 31, ISSUANCE)
APRIL 30, 1996 --------------------------------------- THROUGH
(UNAUDITED) 1995 1994 1993 1992 OCTOBER 31, 1991
-------------- ------ ------ ------ ------ ----------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $29.38 $22.05 $23.51 $18.19 $16.99 $15.18
----- ------ ------ ------ ------ -----
Income from Investment
Operations:
Net Investment Loss (.05) (.09) (.08) (.08) (.06) .00
Net Gain (Loss) on
Securities (both
realized and unrealized) 5.82 7.42 (.02) 5.77 1.62 1.82
----- ------ ------ ------ ------ -----
Total from Investment
Operations 5.77 7.33 (.10) 5.69 1.56 1.82
----- ------ ------ ------ ------ -----
Less Distributions:
Dividends from Net
Investment Income .00 .00 .00 .00 .00 (.01)
Distributions from Capital
Gains (1.75) .00 (1.36) (.37) (.36) .00
----- ------ ------ ------ ------ -----
Total Distributions (1.75) .00 (1.36) (.37) (.36) (.01)
----- ------ ------ ------ ------ -----
NET ASSET VALUE, END OF PERIOD $33.40 $29.38 $22.05 $23.51 $18.19 $16.99
----- ------ ------ ------ ------ -----
----- ------ ------ ------ ------ -----
Total Return 20.79%`D' 33.24% (.29%) 31.67% 9.02% 11.97%`D'
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
(000s) $291,749 $167,225 $64,009 $26,029 $5,398 $275
Ratios to average daily net
assets:
Operating expenses 1.69%* 1.76% 1.72% 1.73% 1.74% 1.74%*
Net investment loss (1.00%)* (1.08%) (1.08%) (1.09%) (.87%) (.49%)*
Decrease reflected in above
operating expense ratios
due to
waivers/reimbursements .00% .00% .04% .00% .06% .42%*
Portfolio Turnover Rate 26.38%`D' 84.82% 60.38% 68.35% 63.38% 97.69%
Average Commission Rate # $.0563 -- -- -- -- --
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased or sold during the period for which there was a commission
charged.
78
<PAGE>
<PAGE>
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
-------------------------------------------------------------------------------
ADVISOR SHARES
-------------------------------------------------------------------------------
APRIL 4, 1991
FOR THE SIX (INITIAL
MONTHS ENDED FOR THE YEAR ENDED OCTOBER 31, ISSUANCE)
APRIL 30, 1996 --------------------------------------- THROUGH
(UNAUDITED) 1995 1994 1993 1992 OCTOBER 31, 1991
-------------- ------ ------ ------ ------ ----------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $19.16 $20.38 $16.91 $12.20 $13.66 $13.14
----- ------ ------ ------ ------ -----
Income from Investment
Operations:
Net Investment Income (Loss) .11 .03 .16 (.01) .13 .00
Net Gain (Loss) on
Securities and
Foreign Currency Related
Items
(both realized and
unrealized) 2.76 (.67) 3.35 4.86 (1.32) .58
----- ------ ------ ------ ------ -----
Total from Investment
Operations 2.87 (.64) 3.51 4.85 (1.19) .58
----- ------ ------ ------ ------ -----
Less Distributions:
Dividends from Net
Investment Income (.52) (.05) .00 (.01) (.12) (.06)
Distributions from Capital
Gains .00 (.53) (.04) (.13) (.15) .00
----- ------ ------ ------ ------ -----
Total Distributions (.52) (.58) (.04) (.14) (.27) (.06)
----- ------ ------ ------ ------ -----
NET ASSET VALUE, END OF PERIOD $21.51 $19.16 $20.38 $16.91 $12.20 $13.66
----- ------ ------ ------ ------ -----
----- ------ ------ ------ ------ -----
Total Return 15.31%`D' (3.04%) 20.77% 40.06% (8.86%) 4.44%`D'
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
(000s) $453,729 $453,729 $199,404 $44,244 $1,472 $153
Ratios to average daily net
assets:
Operating expenses 1.86%* 1.89% 1.94% 2.00% 2.00% 2.23%*
Net investment income (loss) .18%* .20% (.29%) (.36%) .54% .30%*
Decrease reflected in above
operating expense ratios
due to
waivers/reimbursements .00% .00% .00% .00% .07% .17%*
Portfolio Turnover Rate 15.52%`D' 39.24% 17.02% 22.60% 53.29% 54.95%
Average Commission Rate # $.0188 -- -- -- -- --
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased or sold during the period for which there was a commission
charged.
79
<PAGE>
<PAGE>
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
8. OTHER FINANCIAL HIGHLIGHTS (CONT'D)
<TABLE>
<CAPTION>
JAPAN OTC FUND
------------------------------------------------------------
ADVISOR SHARES
------------------------------------------------------------
FOR THE PERIOD
SEPTEMBER 30, 1994
FOR THE SIX (COMMENCEMENT OF
MONTHS ENDED FOR THE OPERATIONS)
APRIL 30, 1996 YEAR ENDED THROUGH
(UNAUDITED) OCTOBER 31, 1995 OCTOBER 31, 1994
-------------- ---------------- ------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.08 $9.85 $10.00
----- ----- -----
Income from Investment Operations:
Net Investment Loss (.03) (.02) .00
Net Gain (Loss) on Securities and
Foreign Currency Related Items (both
realized and unrealized) .74 (.75) (.15)
----- ----- -----
Total from Investment Operations .71 (.77) (.15)
----- ----- -----
Less Distributions:
Dividends from Net Investment Income (.36) .00 .00
Distributions from Capital Gains .00 .00 .00
----- ----- -----
Total Distributions (.36) .00 .00
----- ----- -----
NET ASSET VALUE, END OF PERIOD $ 9.43 $ 9.08 $ 9.85
----- ----- -----
----- ----- -----
Total Return 8.06%`D' (7.82%) (1.50%)`D'
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $1 $1 $1
Ratios to average daily net assets:
Operating expenses 2.00%* 1.31% 1.18%*
Net investment income (loss) (1.17%)* (.19%) .12%*
Decrease reflected in above operating
expense ratios due to
waivers/reimbursements .37%* 1.83% 4.74%*
Portfolio Turnover Rate 33.36%`D' 82.98% .00%
Average Commission Rate # $.0863 -- --
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased or sold during the period for which there was a commission
charged.
80
<PAGE>
<PAGE>
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING MARKETS FUND
--------------------------------------
ADVISOR SHARES
--------------------------------------
FOR THE SIX DECEMBER 30, 1994
MONTHS ENDED (COMMENCEMENT OF
APRIL 30, 1996 OPERATIONS) THROUGH
(UNAUDITED) OCTOBER 31, 1995
-------------- -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.30 $ 10.00
----- -----
Income from Investment Operations:
Net Investment Income .05 .14
Net Gain on Securities and Foreign Currency Related
Items (both realized and unrealized) 2.52 1.19
----- -----
Total from Investment Operations 2.57 1.33
----- -----
Less Distributions:
Dividends from Net Investment Income (.05) (.03)
Distributions from Capital Gains (.07) .00
----- -----
Total Distributions (.12) (.03)
----- -----
NET ASSET VALUE, END OF PERIOD $13.75 $ 11.30
----- -----
----- -----
Total Return 22.97%`D' 13.29%`D'
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $2 $1
Ratios to average daily net assets:
Operating expenses 1.74%* 1.22%*
Net investment income .62%* 1.76%*
Decrease reflected in above operating expense ratios due
to
waivers/reimbursements 1.96%* 16.36%*
Portfolio Turnover Rate 20.93%`D' 57.76%`D'
Average Commission Rate # $.0123 --
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased or sold during the period for which there was a commission
charged.
81
<PAGE>
<PAGE>
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
8. OTHER FINANCIAL HIGHLIGHTS (CONT'D)
<TABLE>
<CAPTION>
POST-VENTURE CAPITAL FUND
-------------------------------------
ADVISOR SHARES
-------------------------------------
FOR THE PERIOD
SEPTEMBER 29, 1995
FOR THE SIX (COMMENCEMENT OF
MONTHS ENDED OPERATIONS)
APRIL 30, 1996 THROUGH
(UNAUDITED) OCTOBER 31, 1995
-------------- ------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.68 $10.00
----- -----
Income from Investment Operations:
Net Investment Loss (0.09) .00
Net Gain on Securities both (realized and unrealized) 6.82 .68
----- -----
Total from Investment Operations 6.73 .68
----- -----
Less Distributions:
Dividends from Net Investment Income .00 .00
Distributions from Capital Gains .00 .00
----- -----
Total Distributions .00 .00
----- -----
NET ASSET VALUE, END OF PERIOD $17.41 $10.68
----- -----
----- -----
Total Return 63.02%`D' 6.80%`D'
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $2 $1
Ratios to average daily net assets:
Operating expenses 1.90%* 2.15%*
Net investment income (loss) (1.35%)* .09%*
Decrease reflected in above operating expense ratios due
to waivers/reimbursements .87%* 9.25%*
Portfolio Turnover Rate 79.38%`D' 16.90%`D'
Average Commission Rate # $.0554 --
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased or sold during the period for which there was a commission
charged.
82
<PAGE>
<PAGE>
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JAPAN GROWTH FUND
-------------------
ADVISOR SHARES
-------------------
DECEMBER 29, 1995
(COMMENCEMENT OF
OPERATIONS) THROUGH
APRIL 30, 1996
(UNAUDITED)
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-----
Income from Investment Operations:
Net Investment Loss (.01)
Net Gain on Securities and Foreign Currency Related Items (both
realized and unrealized) .78
-----
Total from Investment Operations .77
-----
Less Distributions:
Dividends from Net Investment Income .00
Distributions from Capital Gains .00
-----
Total Distributions .00
-----
NET ASSET VALUE, END OF PERIOD $ 10.77
-----
-----
Total Return 7.70%`D'
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $1
Ratios to average daily net assets:
Operating expenses 2.00%*
Net investment loss (.39%)*
Decrease reflected in above operating expense ratio due to
waivers/reimbursements 7.19%*
Portfolio Turnover Rate 5.01%`D'
Average Commission Rate # $.0857
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased or sold during the period for which there was a commission
charged.
83
<PAGE>
<PAGE>
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
8. OTHER FINANCIAL HIGHLIGHTS (CONT'D)
<TABLE>
<CAPTION>
SMALL COMPANY VALUE FUND
------------------------
ADVISOR SHARES
------------------------
DECEMBER 29, 1995
(COMMENCEMENT OF
OPERATIONS) THROUGH
APRIL 30, 1996
(UNAUDITED)
------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
-----
Income from Investment Operations:
Net Investment Loss (.01)
Net Gain on Securities (both realized and unrealized) 2.63
-----
Total from Investment Operations 2.62
-----
Less Distributions:
Dividends from Net Investment Income .00
Distributions from Capital Gains .00
-----
Total Distributions .00
-----
NET ASSET VALUE, END OF PERIOD $12.62
-----
-----
Total Return 26.20%`D'
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $2
Ratios to average daily net assets:
Operating expenses 2.00%*
Net investment income (.36%)*
Decrease reflected in above operating expense ratio due to
waivers/reimbursements 3.88%*
Portfolio Turnover Rate 27.22%`D'
Average Commission Rate # $.0570
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased or sold during the period for which there was a commission
charged.
84
<PAGE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<PAGE>
Further information is contained in the Prospectus, which must
precede or accompany this report.
[Logo]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874)
COUNSELLORS SECURITIES INC., DISTRIBUTOR WPEQF-3-0496
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as `D'
The division sign shall be expressed as [div]
<PAGE>
The views of the Funds' management are as of the date of the letters and
portfolio holdings described in this semiannual report are as of April 30, 1996;
these views and portfolio holdings may have changed subsequent to these dates.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS JAPAN GROWTH FUND -- ADVISOR SHARES
- --------------------------------------------------------------------------------
June 21, 1996
Dear Shareholder:
The objective of the Advisor Shares of Warburg Pincus Japan Growth Fund (the
'Fund') is 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.
For the four months ended April 30, 1996 (the Fund's inception date was
December 29, 1995), the Fund gained 7.70% vs. a 7.59% gain in the Lipper Japan
Funds Average.
The Fund benefited from its real-estate holdings and the performance of its
over-the-counter (OTC) issues during the period; the OTC market generally
escaped much of the carnage wrought among many larger stocks in January. Also
fortuitous was the Fund's heavy weighting in capital spending as well as its
light stake in bank issues. And the Fund's holdings in Honda and several of its
component suppliers were especially beneficial, as the company is having a
banner year.
The Fund was somewhat disadvantaged by its concentration in the
semiconductor-related sector. Companies in this sector performed strongly in
1995, when the weighting was a benefit. Semiconductor stocks fared poorly vs.
other sectors through April 1996, however, and the high exposure was a handicap.
We subsequently cut back our semiconductor-related holdings in May. An
additional brake on the Fund's performance was its holdings in the retail
sector -- the segment slumped in April when inclement weather led to
disappointing clothing sales. Retail recovered from this dip in late May,
however, and we are maintaining our retail-related investments.
One factor that potentially weakened the Fund's semiannual results was
unrelated to how its components fared. Rather, the issue was the Fund's launch
date. Its inception on the last business day of last year meant that the Fund
was not fully invested when the Japanese market surged on the very first day of
trading in 1996. Had its investments been more fully developed, the Fund would
likely have outperformed the Lipper Japan Funds Average by more than it did.
According to recently released figures, the Japanese economy grew 3% in the
March quarter from the previous three-month period, surpassing economists'
expectations of 1.2% growth. These data notwithstanding, some analysts remain
pessimistic about Japan's long-term economic recovery, which they perceive as
faltering. We disagree with this perception, however, and continue to be
extremely optimistic about the country's economic health. The macroeconomic
figures in general remain sturdy, in our opinion. April industrial production
was in line with forecasts, up 3.9% month-over-month, while inventories declined
more than expected, down 0.8% in the same period.
We believe that some analysts are gloomy about Japan's near-term prospects
because the country's economy is in the midst of formal deregulation, and this
process remains slow. What these analysts are perhaps missing is that many
companies are finding ways to side-step obstacles and take advantage of
7
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
opportunities within the economy. In particular, myriad smaller companies in the
rapidly expanding OTC market are benefiting from the country's ongoing changes.
Moreover, with the Bank of Japan still anticipating a weaker economy,
interest-rate hikes, if there are any, should be modest, and this will likely
benefit the stock market.
<TABLE>
<S> <C>
P. Nicholas Edwards
Portfolio Manager
</TABLE>
8
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS JAPAN GROWTH FUND
STATEMENT OF NET ASSETS
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<S> <C> <C>
COMMON STOCK (98.8%)
Aerospace (1.9%)
Mitsubishi Heavy Industries Ltd. 33,000 $ 294,412
-----------
Aerospace & Defense (1.7%)
Kawasaki Heavy Industries 50,000 258,382
-----------
Automobiles (2.3%)
Honda Motor Co. 15,000 342,440
-----------
Automotive Parts-Equipment (2.4%)
Hirata Technical Co., Ltd. 11,000 192,282
Keihin Seiki Mfg. 20,000 174,802
-----------
367,084
-----------
Banking (1.0%)
Toyo Trust & Banking 14,000 152,450
-----------
Business Services (1.0%)
Funai Consulting Co. 10,000 157,608
-----------
Chemicals (4.5%)
Noritsu Koki Co., Ltd. 6,500 264,495
Shin-Etsu Chemical Co., Ltd. 12,000 262,489
Showa Highpolymer Co., Ltd. 14,000 153,787
-----------
680,771
-----------
Communications & Media (3.4%)
Hikari Tsushin, Inc.`D' 1,000 166,205
NTT Data Communications Systems Co. 10 349,604
-----------
515,809
-----------
Computers (6.0%)
I.O. Data Device, Inc. 7,000 337,664
Nippon Systemware Co., Ltd. 5,000 239,278
Tokyo Electron Ltd. 9,000 334,416
-----------
911,358
-----------
Electrical Equipment (1.7%)
Shinmei Electric Co. 13,000 260,770
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
41
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS JAPAN GROWTH FUND
STATEMENT OF NET ASSETS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
COMMON STOCK (CONT'D)
<S> <C> <C>
Electronics (18.9%)
Advantest Corp. 7,000 $ 347,025
Anritsu Corp. 20,000 294,202
Keyence Corp. 1,500 197,727
Kyocera Corp. 2,000 150,540
NEC Corp. 25,000 317,604
Rohm Co., Ltd. 5,000 318,082
Sharp Corp. 16,000 278,155
Sony Corp. 3,000 194,861
TDK Corp. 6,000 343,299
Yamatake-Honeywell 13,000 245,869
Yokogawa Electric 15,000 174,802
-----------
2,862,166
-----------
Engineering & Construction (1.7%)
Nichiei Construction Co. 20,000 254,083
-----------
Financial Services (7.7%)
Daiwa Securities Co., Ltd. 10,000 153,787
Nikko Securities Co., Ltd 20,000 254,083
Orix Corp. 5,500 227,481
Shohko Fund & Co., Ltd. 1,100 286,847
Wako Securities 27,000 249,651
-----------
1,171,849
-----------
Industrial Mfg. & Processing (6.2%)
Denki Kogyo Co., Ltd. 20,000 217,786
Fujikura Ltd. 36,000 280,944
Kitagawa Industries Co., Ltd. 7,000 260,770
Kyoritsu Air Tech, Inc. 14,000 181,870
-----------
941,370
-----------
Machinery (Electric) (0.6%)
Sugimoto Co., Ltd. 5,000 86,446
-----------
Manufacturing (7.6%)
Kawata Manufacturing Co., Ltd. 12,000 132,964
Nikon Corp. 20,000 269,367
Nitta Industrial Corp. 16,000 281,211
Sodick`D' 13,000 166,396
Zuiko Corp. 13,000 301,748
-----------
1,151,686
-----------
Office Equipment (2.1%)
Canon, Inc. 16,000 317,891
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
42
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS JAPAN GROWTH FUND
STATEMENT OF NET ASSETS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
COMMON STOCK (CONT'D)
<S> <C> <C>
Office Equipment & Supplies (1.2%)
King Jim Co., Ltd. 7,000 $ 180,533
-----------
Oil Services (1.3%)
Cosmo Oil Co., Ltd. 30,000 196,294
-----------
Real Estate (6.8%)
Daibiru Corp. 16,000 215,493
Hankyu Realty 27,000 265,641
Mitsubishi Estate Co., Ltd. 20,000 280,829
Tachihi Enterprise Co., Ltd. 7,000 267,456
-----------
1,029,419
-----------
Retail (3.3%)
Circle K Japan Co., Ltd. 4,600 202,121
Homac Corp. 5,600 124,100
Ryohin Keikaku Co., Ltd. 2,000 178,623
-----------
504,844
-----------
Retail Food Chains (7.0%)
Chain Store Okuwa Co., Ltd. 18,000 295,730
Jusco Co., Ltd. 10,000 309,484
Nicchii Co., Ltd. 20,000 320,948
Uny Co., Ltd. 7,000 135,734
-----------
1,061,896
-----------
Retail Merchandising (1.3%)
Isetan 13,000 192,473
-----------
Steel (1.7%)
NKK Corp.`D' 82,000 256,911
-----------
Telecommunications (1.4%)
Nippon Denwa Shisetsu 22,000 206,992
-----------
Textiles (2.1%)
Shoei Co. 25,000 312,828
-----------
Utilities-Telecommunication (2.0%)
DDI Corp. 35 300,554
-----------
TOTAL COMMON STOCK (Cost $13,740,751) 14,969,319
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
43
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS JAPAN GROWTH FUND
STATEMENT OF NET ASSETS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
--------- -----------
SHORT-TERM INVESTMENTS (3.1%)
<S> <C> <C>
Repurchase agreement with State Street Bank & Trust
dated 04/30/96 at 5.24% to be repurchased at $467,068 on 05/01/96.
(Collateralized by $490,000 U.S. Treasury Bill due 10/03/96.
Market value of collateral is $478,975.) (Cost $467,000) $467,000 $ 467,000
-----------
TOTAL INVESTMENTS AT VALUE (101.9%) (Cost $14,207,751*) 15,436,319
OTHER LIABILITIES IN EXCESS OF ASSETS (1.9%) (284,083)
-----------
NET ASSETS (100.0%) (applicable to 1,405,618 Common Shares and 120 Advisor Shares) $15,152,236
-----------
-----------
NET ASSET VALUE, offering and redemption price per Common Share
($15,150,944[div]1,405,618) $10.78
------
------
NET ASSET VALUE, offering and redemption price per Advisor Share
($1,292[div]120) $10.77
------
------
</TABLE>
`D' Non-income producing security.
* Also cost for Federal income tax purposes.
See Accompanying Notes to Financial Statements.
44
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
STATEMENTS OF OPERATIONS
For the Six Months or Period Ended April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus
Capital Warburg Pincus Warburg Pincus Warburg Pincus
Appreciation Emerging International Japan OTC
Fund Growth Fund Equity Fund Fund
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 1,752,424 $ 1,140,311 $ 29,566,608 $ 710,893
Interest 506,008 1,770,583 2,793,960 326,883
Foreign taxes withheld 0 0 (4,398,575) (106,634)
-------------- -------------- -------------- --------------
Total investment income 2,258,432 2,910,894 27,961,993 931,142
-------------- -------------- -------------- --------------
EXPENSES:
Investment advisory 1,018,822 3,798,956 13,679,226 1,354,133
Administrative services 291,092 844,212 2,238,360 238,320
Audit 12,976 14,430 35,709 10,217
Custodian/Sub-custodian 45,511 127,462 999,377 73,878
Directors/Trustees 4,972 4,972 4,972 3,953
Distribution 0 0 0 270,825
Insurance 7,458 7,957 15,893 829
Interest 0 0 377,929 8,872
Legal 40,608 33,911 84,530 39,112
Organizational 0 0 0 21,108
Printing 12,487 23,162 77,550 8,909
Registration 30,017 64,685 271,542 74,832
Shareholder servicing 44,278 540,633 922,673 3
Transfer agent 50,290 121,667 896,518 194,945
Miscellaneous 16,951 18,299 74,186 7,246
-------------- -------------- -------------- --------------
1,575,462 5,600,346 19,678,465 2,307,182
Less fees waived and expenses reimbursed (12,074) (29,430) (108,848) (411,394)
-------------- -------------- -------------- --------------
Total expenses 1,563,388 5,570,916 19,569,617 1,895,788
-------------- -------------- -------------- --------------
Net investment income (loss) 695,044 (2,660,022) 8,392,376 (964,646)
-------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN FROM INVESTMENTS AND
FOREIGN CURRENCY RELATED ITEMS:
Net realized gain (loss) from security transactions 35,051,572 24,253,712 44,566,893 (1,765,836)
Net realized gain (loss) from foreign currency
related items 0 0 75,108,081 9,118,454
Net change in unrealized appreciation from
investments and foreign currency related items 8,079,386 155,554,780 279,254,351 8,251,073
-------------- -------------- -------------- --------------
Net realized and unrealized gain from investments
and foreign currency related items 43,130,958 179,808,492 398,929,325 15,603,691
-------------- -------------- -------------- --------------
Net increase in net assets resulting from operations $ 43,826,002 $177,148,470 $407,321,701 $ 14,639,045
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
50
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus Warburg Pincus Warburg Pincus
Emerging Post-Venture Japan Growth Small Company
Markets Fund Capital Fund Fund(1) Value Fund(1)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
$ 871,861 $ 7,405 $ 20,294 $ 11,275
131,321 115,266 9,591 25,599
(115,778) 0 (3,044) 0
-------------- -------------- -------------- --------------
887,404 122,671 26,841 36,874
-------------- -------------- -------------- --------------
393,664 281,291 23,045 28,606
69,285 45,006 4,056 5,722
9,940 6,095 5,942 6,270
136,197 50,816 1,844 8,224
4,412 4,350 3,345 3,005
78,731 56,256 4,608 7,150
149 2,486 397 1,682
0 0 0 0
27,502 14,701 13,131 6,010
22,360 11,706 22,295 16,949
7,512 6,559 4,332 6,610
62,736 18,730 9,521 12,426
4 5 2 2
25,408 19,989 10,337 10,092
3,702 3,847 2,901 826
-------------- -------------- -------------- --------------
841,602 521,837 105,756 113,574
(372,478) (150,531) (73,492) (63,513)
-------------- -------------- -------------- --------------
469,124 371,306 32,264 50,061
-------------- -------------- -------------- --------------
418,280 (248,635) (5,423) (13,187)
-------------- -------------- -------------- --------------
943,653 4,199,792 (4,899) 476,234
(107,843) 0 (46,576) 0
15,766,945 16,286,273 950,715 2,353,236
-------------- -------------- -------------- --------------
16,602,755 20,486,065 899,240 2,829,470
-------------- -------------- -------------- --------------
$ 17,021,035 $ 20,237,430 $893,817 $2,816,283
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
(1) For the period December 29, 1995 (Commencement of Operations) through April
30, 1996.
See Accompanying Notes to Financial Statements.
51
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months or Period Ended April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus Warburg Pincus
Capital Appreciation Fund Emerging Growth Fund International Equity Fund
-------------------------------- -------------------------------- --------------------------------
For the For the For the
Six Months Six Months Six Months
Ended For the Year Ended For the Year Ended For the Year
April 30, 1996 Ended April 30, 1996 Ended April 30, 1996 Ended
(Unaudited) October 31, 1995 (Unaudited) October 31, 1995 (Unaudited) October 31, 1995
-------------- ---------------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income
(loss) $ 695,044 $ 563,484 $ (2,660,022) $ (2,982,589) $ 8,392,376 $ 12,746,935
Net realized gain
(loss) from
security
transactions 35,051,572 31,649,453 24,253,712 49,113,782 44,566,893 (34,444,203)
Net realized gain
from foreign
currency related
items 0 0 0 0 75,108,081 16,792,905
Net change in
unrealized
appreciation
(depreciation) from
investments and
foreign currency
related items 8,079,386 12,386,702 155,554,780 84,670,426 279,254,351 (4,675,049)
-------------- ---------------- -------------- ---------------- -------------- ----------------
Net increase
(decrease) in
net assets
resulting from
operations 43,826,002 44,599,639 177,148,470 130,801,619 407,321,701 (9,579,412)
-------------- ---------------- -------------- ---------------- -------------- ----------------
FROM DISTRIBUTIONS:
Dividends from net
investment income:
Common Shares (205,824) (563,484) 0 0 (61,542,400) (11,671,023)
Advisor Shares 0 0 0 0 (8,824,069) (629,473)
Distributions from
capital gains:
Common Shares (29,718,914) (10,419,627) (29,520,528) 0 0 (42,332,078)
Advisor Shares (2,066,408) (575,892) (10,992,686) 0 0 (5,756,403)
-------------- ---------------- -------------- ---------------- -------------- ----------------
Net decrease from
distributions (31,991,146) (11,559,003) (40,513,214) 0 (70,366,469) (60,388,977)
-------------- ---------------- -------------- ---------------- -------------- ----------------
FROM CAPITAL SHARE
TRANSACTIONS:
Proceeds from sale of
shares 89,052,368 88,963,455 465,672,295 335,569,078 817,778,154 1,383,361,959
Reinvested dividends 31,176,989 11,246,752 38,944,251 0 62,023,115 54,872,977
Net asset value of
shares redeemed (38,573,371) (53,459,471) (124,172,439) (116,280,844) (302,210,653) (715,598,203)
-------------- ---------------- -------------- ---------------- -------------- ----------------
Net increase in
net assets from
capital share
transactions 81,655,986 46,750,736 380,444,107 219,288,234 577,590,616 722,636,733
-------------- ---------------- -------------- ---------------- -------------- ----------------
Net increase in
net assets 93,490,842 79,791,372 517,079,363 350,089,853 914,545,848 652,668,344
NET ASSETS:
Beginning of period 247,305,865 167,514,493 654,762,611 304,672,758 2,385,943,847 1,733,275,503
-------------- ---------------- -------------- ---------------- -------------- ----------------
End of period $340,796,707 $247,305,865 $1,171,841,974 $654,762,611 $3,300,489,695 $2,385,943,847
-------------- ---------------- -------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ---------------- -------------- ----------------
</TABLE>
52
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<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus Warburg Pincus
Japan OTC Fund Emerging Markets Fund Post-Venture Capital Fund
-------------------------------- -------------------------------- --------------------------------
For the Period For the Period
December 30, September 29,
For the For the 1994 For the 1995
Six Months Six Months (Commencement Six Months (Commencement
Ended For the Year Ended of Operations) Ended of Operations)
April 30, 1996 Ended April 30, 1996 through April 30, 1996 through
(Unaudited) October 31, 1995 (Unaudited) October 31, 1995 (Unaudited) October 31, 1995
-------------- ---------------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$ (964,646) $ (73,801) $ 418,280 $ 29,534 $ (248,635) $ 356
(1,765,836) (4,629,196) 943,653 102,219 4,199,792 (26,884)
9,118,454 7,895,010 (107,843) (4,992) 0 0
8,251,073 (195,368) 15,766,945 (9,058) 16,286,273 164,441
-------------- ---------------- -------------- ---------------- -------------- ----------------
14,639,045 2,996,645 17,021,035 117,703 20,237,430 137,913
-------------- ---------------- -------------- ---------------- -------------- ----------------
(8,403,516) 0 (114,242) (14,321) 0 0
(43) 0 (6) (3) 0 0
0 0 (103,802) 0 0 0
0 0 (8) 0 0 0
-------------- ---------------- -------------- ---------------- -------------- ----------------
(8,403,559) 0 (218,058) (14,324) 0 0
-------------- ---------------- -------------- ---------------- -------------- ----------------
177,370,926 200,565,875 176,191,838 7,753,908 108,506,952 2,792,403
7,560,310 0 191,486 13,802 0 0
(130,373,825) (44,871,674) (13,419,949) (1,191,160) (11,738,318) (4,887)
-------------- ---------------- -------------- ---------------- -------------- ----------------
54,557,411 155,694,201 162,963,375 6,576,550 96,768,634 2,787,516
-------------- ---------------- -------------- ---------------- -------------- ----------------
60,792,897 158,690,846 179,766,352 6,679,929 117,006,064 2,925,429
178,569,482 19,878,636 6,780,929 101,000 3,025,429 100,000
-------------- ---------------- -------------- ---------------- -------------- ----------------
$239,362,379 $178,569,482 $ 186,547,281 $ 6,780,929 $ 120,031,493 $ 3,025,429
-------------- ---------------- -------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ---------------- -------------- ----------------
</TABLE>
See Accompanying Notes to Financial Statements.
53
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<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (CONT'D)
For the Six Months or Period Ended April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus
Warburg Pincus Small Company
Japan Growth Fund Value Fund
----------------- -----------------
For the Period For the Period
December 29, 1995 December 29, 1995
(Commencement (Commencement
of Operations) of Operations)
through through
April 30, 1996 April 30, 1996
(Unaudited) (Unaudited)
----------------- -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment loss $ (5,423) $ (13,187)
Net realized gain (loss) from security transactions (4,899) 476,234
Net realized gain (loss) from foreign currency related items (46,576) 0
Net change in unrealized appreciation from investments and foreign
currency related items 950,715 2,353,236
----------------- -----------------
Net increase in net assets resulting from operations 893,817 2,816,283
----------------- -----------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 15,808,878 22,657,465
Reinvested dividends 0 0
Net asset value of shares redeemed (1,650,459) (138,159)
----------------- -----------------
Net increase in net assets from capital share transactions 14,158,419 22,519,306
----------------- -----------------
Net increase in net assets 15,052,236 25,335,589
NET ASSETS:
Beginning of period 100,000 100,000
----------------- -----------------
End of period $15,152,236 $25,435,589
----------------- -----------------
----------------- -----------------
</TABLE>
See Accompanying Notes to Financial Statements.
54
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS JAPAN GROWTH FUND
FINANCIAL HIGHLIGHTS
(For an Advisor Share of the Fund Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 29, 1995
(Commencement of
Operations) through
April 30, 1996
(Unaudited)
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
------
Income from Investment Operations:
Net Investment Loss (.01)
Net Gain on Securities and Foreign Currency Related Items (both realized and unrealized) .78
------
Total from Investment Operations .77
------
Less Distributions:
Dividends from Net Investment Income .00
Distributions from Capital Gains .00
------
Total Distributions .00
------
NET ASSET VALUE, END OF PERIOD $ 10.77
------
------
Total Return 7.70%`D'
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $1
Ratios to average daily net assets:
Operating expenses 2.00%*
Net investment loss (.39%)*
Decrease reflected in above operating expense ratio due to waivers/reimbursements 7.19%*
Portfolio Turnover Rate 5.01%`D'
Average Commission Rate # $.0857
</TABLE>
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased or sold during the period for which there was a commission
charged.
See Accompanying Notes to Financial Statements.
61
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Warburg Pincus Equity Funds are comprised of Warburg Pincus Capital
Appreciation Fund (the 'Capital Appreciation Fund'), Warburg Pincus
International Equity Fund (the 'International Equity Fund'), Warburg Pincus
Post-Venture Capital Fund (the 'Post-Venture Capital Fund') and Warburg Pincus
Small Company Value Fund (the 'Small Company Value Fund') which are registered
under the Investment Company Act of 1940, as amended (the '1940 Act'), as
diversified, open-end management investment companies, and Warburg Pincus
Emerging Growth Fund (the 'Emerging Growth Fund'), Warburg Pincus Japan OTC Fund
(the 'Japan OTC Fund'), Warburg Pincus Emerging Markets Fund (the 'Emerging
Markets Fund') and Warburg Pincus Japan Growth Fund (the 'Japan Growth Fund'),
together with the Capital Appreciation Fund, the International Equity Fund, the
Post-Venture Capital Fund, the Emerging Growth Fund, the Japan OTC Fund, the
Emerging Markets Fund and the Small Company Value Fund, the 'Funds') which are
registered under the 1940 Act as non-diversified, open-end management investment
companies.
Investment objectives for each Fund are as follows: the Capital Appreciation
Fund, the International Equity Fund, the Japan OTC Fund and the Small Company
Value Fund seek long-term capital appreciation; the Emerging Growth Fund seeks
maximum capital appreciation; the Emerging Markets Fund and Japan Growth Fund
seek growth of capital; the Post-Venture Capital Fund seeks long-term growth of
capital.
Each Fund offers two classes of shares, one class being referred to as Common
Shares and one class being referred to as Advisor Shares. Common and Advisor
Shares in each Fund represent an equal pro rata interest in such Fund, except
that they bear different expenses which reflect the difference in the range of
services provided to them. Common Shares for the Japan OTC Fund, the Emerging
Markets Fund, the Post-Venture Capital Fund, the Japan Growth Fund and the Small
Company Value Fund bear expenses paid pursuant to a shareholder servicing and
distribution plan adopted by each Fund at an annual rate not to exceed .25% of
the average daily net asset value of each Fund's outstanding Common Shares.
Advisor Shares for each Fund bear expenses paid pursuant to a distribution plan
adopted by each Fund at an annual rate not to exceed .75% of the average daily
net asset value of each Fund's outstanding Advisor Shares. The Common and the
Advisor Shares are currently bearing expenses of .25% and .50% of average daily
net assets, respectively.
The net asset value of each Fund is determined daily as of the close of
regular trading on the New York Stock Exchange. Each Fund's investments are
valued at market value, which is currently determined using the last reported
sales price. If no sales are reported, investments are generally valued at the
last reported mean price. In the absence of market quotations, investments are
generally valued at fair value as determined by or under the direction of the
Fund's governing Board. Short-term investments that mature in 60 days or less
are valued on the basis of amortized cost, which approximates market value.
The books and records of the Funds are maintained in U.S. dollars.
Transactions denominated in foreign currencies are recorded at the current
prevailing exchange rates. All assets and liabilities
64
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
denominated in foreign currencies are translated into U.S. dollar amounts at the
current exchange rate at the end of the period. Translation gains or losses
resulting from changes in the exchange rate during the reporting period and
realized gains and losses on the settlement of foreign currency transactions are
reported in the results of operations for the current period. The Funds do not
isolate that portion of gains and losses on investments in equity securities
which are due to changes in the foreign exchange rate from that which are due to
changes in market prices of equity securities. The Funds isolate that portion of
gains and losses on investments in debt securities which are due to changes in
the foreign exchange rate from that which are due to changes in market prices of
debt securities.
Security transactions are accounted for on a trade date basis. Interest
income is recorded on the accrual basis. Dividends are recorded on the
ex-dividend date. Income, expenses (excluding class-specific expenses,
principally distribution and shareholder servicing fees) and realized/unrealized
gains/losses are allocated proportionately to each class of shares based upon
the relative net asset value of outstanding shares. The cost of investments sold
is determined by use of the specific identification method for both financial
reporting and income tax purposes.
Dividends from net investment income and distributions of net realized
capital gains, if any, are declared and paid annually for all Funds. However, to
the extent that a net realized capital gain can be reduced by a capital loss
carryover, such gain will not be distributed. Income and capital gain
distributions are determined in accordance with Federal income tax regulations
which may differ from generally accepted accounting principles.
No provision is made for Federal taxes as it is each Fund's intention to
continue to qualify for and elect the tax treatment applicable to regulated
investment companies under the Internal Revenue Code and make the requisite
distributions to its shareholders which will be sufficient to relieve it from
Federal income and excise taxes.
Costs incurred by the Japan OTC Fund, the Emerging Markets Fund, the
Post-Venture Capital Fund, the Japan Growth Fund and the Small Company Value
Fund in connection with their organization have been deferred and are being
amortized over a period of five years from the date each Fund commenced its
operations.
Each Fund may enter into repurchase agreement transactions. Under the terms
of a typical repurchase agreement, a Fund acquires an underlying security
subject to an obligation of the seller to repurchase. The value of the
underlying security collateral will be maintained at an amount at least equal to
the total amount of the purchase obligation, including interest. The collateral
is in the Fund's possession.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.
65
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
The Funds have an arrangement with their transfer agent whereby interest
earned on uninvested cash balances was used to offset a portion of the transfer
agent expense. For the period ended April 30, 1996, the Funds received credits
or reimbursements under this arrangement as follows:
<TABLE>
<CAPTION>
FUND AMOUNT
---- --------
<S> <C>
Capital Appreciation $ 12,074
Emerging Growth 29,430
International Equity 108,848
Japan OTC 9,778
Emerging Markets 1,980
Post-Venture Capital 1,261
Japan Growth 55
Small Company Value 76
--------
163,502
--------
--------
</TABLE>
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR
Warburg, Pincus Counsellors, Inc. ('Warburg'), a wholly owned subsidiary of
Warburg, Pincus Counsellors G.P. ('Counsellors G.P.'), serves as each Fund's
investment adviser. For its investment advisory services, Warburg receives the
following fees based on each Fund's average daily net assets:
<TABLE>
<CAPTION>
FUND ANNUAL RATE
---- -----------
<S> <C>
Capital Appreciation .70% of average daily net assets
Emerging Growth .90% of average daily net assets
International Equity 1.00% of average daily net assets
Japan OTC 1.25% of average daily net assets
Emerging Markets 1.25% of average daily net assets
Post-Venture Capital 1.25% of average daily net assets
Japan Growth 1.25% of average daily net assets
Small Company Value 1.00% of average daily net assets
</TABLE>
66
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
For the period ended April 30, 1996, investment advisory fees, waivers and
reimbursements were as follows:
<TABLE>
<CAPTION>
GROSS NET EXPENSE
FUND ADVISORY FEE WAIVER ADVISORY FEE REIMBURSEMENTS
---- ------------ --------- ------------ --------------
<S> <C> <C> <C> <C>
Capital Appreciation $ 1,018,822 $ 0 $ 1,018,822 $ 0
Emerging Growth 3,798,956 0 3,798,956 0
International Equity 13,679,226 0 13,679,226 0
Japan OTC 1,354,133 (366,440) 987,693 0
Emerging Markets 393,664 (344,848) 48,816 0
Post-Venture Capital 281,291 (138,774) 145,217 0
Japan Growth 23,045 (23,045) 0 (48,216)
Small Company Value 28,606 (28,606) 0 (32,335)
</TABLE>
SPARX Investment & Research, USA, Inc. ('SPARX USA') serves as sub-investment
adviser for the Japan OTC Fund. From its investment advisory fee, Warburg pays
SPARX USA a fee at an annual rate of .625% of the average daily net assets of
the Japan OTC Fund. No compensation is paid by the Japan OTC Fund to SPARX USA
for its sub-investment advisory services.
Counsellors Funds Service, Inc. ('CFSI'), a wholly owned subsidiary of
Warburg, and PFPC Inc. ('PFPC'), an indirect, wholly owned subsidiary of PNC
Bank Corp. ('PNC'), serve as each Fund's co-administrators. For its
administrative services, CFSI currently receives a fee calculated at an annual
rate of .10% of each Fund's average daily net assets. For the period ended April
30, 1996, administrative services fees earned by CFSI were as follows:
<TABLE>
<CAPTION>
FUND CO-ADMINISTRATION FEE
---- ---------------------
<S> <C>
Capital Appreciation $ 145,546
Emerging Growth 422,106
International Equity 1,367,923
Japan OTC 108,331
Emerging Markets 31,493
Post-Venture Capital 22,503
Japan Growth 1,844
Small Company Value 2,861
</TABLE>
For its administrative services, PFPC currently receives a fee calculated at
an annual rate of .10% of the average daily net assets of the Capital
Appreciation Fund, the Emerging Growth Fund, the Post-Venture Capital Fund and
the Small Company Value Fund. For the International Equity Fund, the Japan OTC
Fund, the Emerging Markets Fund and the Japan Growth Fund, PFPC currently
receives a fee calculated at an annual rate of .12% on each Fund's first $250
million in average daily net assets, .10% on the next $250 million in average
daily net assets, .08% on the next $250 million in average daily net assets, and
.05% of the average daily net assets over $750 million.
67
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR (CONT'D)
For the period ended April 30, 1996, administrative service fees earned and
waived by PFPC were as follows:
<TABLE>
<CAPTION>
NET
FUND CO-ADMINISTRATION FEE WAIVER CO-ADMINISTRATION FEE
---- --------------------- -------- -------------------------
<S> <C> <C> <C>
Capital Appreciation $ 145,546 $ 0 $ 145,546
Emerging Growth 422,106 0 422,106
International Equity 870,437 0 870,437
Japan OTC 129,989 (35,176) 94,813
Emerging Markets 37,792 (25,650) 12,142
Post-Venture Capital 22,503 (10,496) 12,007
Japan Growth 2,212 (2,176) 36
Small Company Value 2,861 (2,496) 365
</TABLE>
Counsellors Securities Inc. ('CSI'), also a wholly owned subsidiary of
Warburg, serves as each Fund's distributor. No compensation is paid by the
Capital Appreciation Fund, the Emerging Growth Fund or the International Equity
Fund to CSI for distribution services. For its shareholder servicing and
distribution services, CSI currently receives a fee calculated at an annual rate
of .25% of the average daily net assets of the Common Shares for the Japan OTC
Fund, the Emerging Markets Fund, the Post-Venture Capital Fund, the Japan Growth
Fund and the Small Company Value Fund pursuant to a shareholder servicing and
distribution plan adopted by each Fund. For the period ended April 30, 1996,
distribution fees earned by CSI were as follows:
<TABLE>
<CAPTION>
FUND DISTRIBUTION FEE
---- ----------------
<S> <C>
Japan OTC $270,825
Emerging Markets 78,731
Post-Venture Capital 56,256
Japan Growth 4,608
Small Company Value 7,150
</TABLE>
3. INVESTMENTS IN SECURITIES
For the period ended April 30, 1996, purchases and sales of investment
securities (excluding short-term investments) were as follows:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
---- ------------ ------------
<S> <C> <C>
Capital Appreciation $290,731,151 $254,842,002
Emerging Growth 497,749,953 209,700,119
International Equity 925,234,824 406,226,464
Japan OTC 122,933,961 66,163,776
Emerging Markets 168,927,212 13,512,891
Post-Venture Capital 124,242,050 36,036,247
Japan Growth 23,119,410 290,760
Small Company Value 23,182,561 3,349,967
</TABLE>
68
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
At April 30, 1996, the net unrealized appreciation from investments for those
securities having an excess of value over cost and net unrealized depreciation
from investments for those securities having an excess of cost over value (based
on cost for Federal income tax purposes) was as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
---- ------------ -------------- --------------
<S> <C> <C> <C>
Capital Appreciation $ 52,754,467 $ (2,480,919) $ 50,273,548
Emerging Growth 302,641,446 (11,858,559) 290,782,887
International Equity 518,554,076 (106,585,313) 411,968,763
Japan OTC 23,989,323 (14,393,658) 9,595,665
Emerging Markets 17,034,584 (1,273,816) 15,760,768
Post-Venture Capital 18,657,288 (2,206,574) 16,450,714
Japan Growth 1,248,768 (20,200) 1,228,568
Small Company Value 2,553,211 (199,975) 2,353,236
</TABLE>
4. FORWARD FOREIGN CURRENCY CONTRACTS
The International Equity Fund, the Japan OTC Fund, the Emerging Markets Fund,
the Post-Venture Capital Fund, the Japan Growth Fund and the Small Company Value
Fund may enter into forward currency contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date. Risks may arise
upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar. The
Funds will enter into forward contracts primarily for hedging purposes. The
forward currency contracts are adjusted by the daily exchange rate of the
underlying currency and any gains or losses are recorded for financial statement
purposes as unrealized until the contract settlement date.
At April 30, 1996, the International Equity Fund, the Japan OTC Fund and the
Japan Growth Fund had the following open forward foreign currency contracts:
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
- -------------------------------------------------------------------------------------------------------
FOREIGN UNREALIZED
FORWARD CURRENCY EXPIRATION CURRENCY CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE TO BE SOLD AMOUNT VALUE GAIN/(LOSS)
- ----------------- --------- -------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
French Francs 09/24/96 681,529,150 $135,860,209 $132,836,150 $ 3,024,059
Japanese Yen 03/05/97 18,772,784,400 185,700,000 186,700,431 (1,000,431)
Japanese Yen 03/05/97 15,981,700,000 158,000,000 158,942,340 (942,340)
Japanese Yen 03/05/97 12,662,950,000 125,500,000 125,936,472 (436,472)
Japanese Yen 03/05/97 4,594,026,000 45,400,000 45,688,834 (288,834)
Japanese Yen 03/05/97 3,273,712,500 32,440,296 32,557,959 (117,663)
Japanese Yen 03/05/97 1,668,150,000 16,500,000 16,590,204 (90,204)
Japanese Yen 03/05/97 951,280,000 9,400,000 9,460,738 (60,738)
------------ ------------ ----------------
$708,800,505 $708,713,128 $ 87,377
------------ ------------ ----------------
------------ ------------ ----------------
</TABLE>
69
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
4. FORWARD FOREIGN CURRENCY CONTRACTS (CONT'D)
<TABLE>
<CAPTION>
JAPAN OTC FUND
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOREIGN UNREALIZED
FORWARD CURRENCY EXPIRATION CURRENCY CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE TO BE SOLD AMOUNT VALUE GAIN/(LOSS)
- ----------------- --------- -------------- ------------ ------------ ----------------
Japanese Yen 05/31/96 23,205,000,000 $221,000,000 $222,589,928 $ (1,589,928)
Japanese Yen 05/31/96 314,100,000 3,000,000 3,012,950 (12,950)
Japanese Yen 05/31/96 311,400,000 3,000,000 2,987,050 12,950
------------ ------------ ----------------
$227,000,000 $228,589,928 $ (1,589,928)
------------ ------------ ----------------
------------ ------------ ----------------
</TABLE>
<TABLE>
<CAPTION>
JAPAN GROWTH FUND
- --------------------------------------------------------------------------------------------------
FOREIGN UNREALIZED
FORWARD CURRENCY EXPIRATION CURRENCY CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE TO BE SOLD AMOUNT VALUE GAIN (LOSS)
- ----------------- --------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Japanese Yen 03/05/97 485,088,000 $ 4,800,000 $ 4,824,346 $ (24,346)
Japanese Yen 03/05/97 217,801,500 2,100,000 2,166,101 (66,101)
Japanese Yen 03/05/97 187,488,000 1,800,000 1,864,625 (64,625)
Japanese Yen 03/05/97 176,570,500 1,700,000 1,756,047 (56,047)
Japanese Yen 03/05/97 102,700,000 1,000,000 1,021,382 (21,382)
Japanese Yen 03/05/97 92,367,000 900,000 918,618 (18,618)
Japanese Yen 03/05/97 71,540,000 700,000 711,487 (11,487)
Japanese Yen 03/05/97 41,144,000 400,000 409,189 (9,189)
Japanese Yen 03/05/97 40,460,000 400,000 402,387 (2,387)
----------- ----------- ----------------
$13,800,000 $14,074,182 $ (274,182)
----------- ----------- ----------------
----------- ----------- ----------------
</TABLE>
5. EQUITY SWAP TRANSACTIONS
The International Equity Fund (the 'Fund') entered into a Taiwanese equity
swap agreement (which represents approximately .41% of the Fund's net assets at
April 30, 1996) dated August 11, 1995, where the Fund receives a quarterly
payment, representing the total return (defined as market appreciation and
dividend income) on a basket of three Taiwanese common stocks ('Common Stocks').
In return, the Fund pays quarterly the Libor rate (London Interbank Offered
Rate), plus 1.25% per annum (6.508% on April 30, 1996) on the market value of
the Common Stocks ('Notional amount') which is currently $10,512,575. The
Notional amount is marked to market on each quarterly reset date. In the event
that the Common Stocks decline in value, the Fund will be required to pay
quarterly, the amount of any depreciation in value from the notional amount. The
equity swap agreement will terminate on August 11, 1996.
During the term of the equity swap transaction, changes in the value of the
Common Stocks as compared to the Notional amount is recognized as unrealized
gain or loss. Dividend income for the Common Stocks are recorded on the
ex-dividend date. Interest expense is accrued daily. At April 30, 1996, the Fund
has recorded an unrealized gain of $3,166,123 and interest payable of $148,230
on the equity swap transaction.
70
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<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
71
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
6. CAPITAL SHARE TRANSACTIONS
The Capital Appreciation Fund is authorized to issue three billion of full
and fractional shares of beneficial interest, $.001 par value per share, of
which one billion shares are classified as Series 2 Shares (the Advisor Shares).
The Emerging Growth Fund, the International Equity Fund, the Japan OTC Fund, the
Emerging Markets Fund, the Post-Venture Capital Fund, the Japan Growth Fund and
the Small Company Value Fund are each authorized to issue three billion full and
fractional shares of capital stock, $.001 par value per share, of which one
billion shares of each Fund are designated as Series 2 Shares (the Advisor
Shares).
Transactions in shares of each Fund were as follows:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND EMERGING GROWTH FUND
Common Shares Advisor Shares Common Shares Advisor Shares
-------------------------- -------------------------- -------------------------- -------------------------
For the Six For the Six For the Six For the Six
Months Ended For the Months Ended For the Months Ended For the Months Ended For the
April 30, Year Ended April 30, Year Ended April 30, Year Ended April 30, Year Ended
1996 October 31, 1996 October 31, 1996 October 31, 1996 October 31,
(Unaudited) 1995 (Unaudited) 1995 (Unaudited) 1995 (Unaudited) 1995
------------ ------------ ------------- ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 4,579,854 6,020,619 889,944 201,782 12,327,414 9,808,362 2,888,960 3,172,686
Shares issued to
shareholders on
reinvestment of
dividends 1,964,278 850,478 140,665 46,554 976,986 0 392,736 0
Shares redeemed (1,876,798) (3,638,974) (484,121) (110,027) (3,830,967) (4,294,179) (239,620) (383,922)
------------ ------------ ------------- ------------ ------------ ------------ ------------ -----------
Net increase
in shares
outstanding 4,667,334 3,232,123 546,488 138,309 9,473,433 5,514,183 3,042,076 2,788,764
------------ ------------ ------------- ------------ ------------ ------------ ------------ -----------
------------ ------------ ------------- ------------ ------------ ------------ ------------ -----------
Proceeds from
sale of shares $74,358,783 $ 85,992,655 $14,693,585 $ 2,970,800 $378,940,320 $256,886,928 $86,731,975 $78,682,150
Reinvested dividends 29,110,611 10,670,876 2,066,378 575,876 27,951,581 0 10,992,670 0
Net asset value of
shares redeemed (30,640,105) (51,907,650) (7,933,266) (1,551,821) (117,237,246) (106,777,032) (6,935,193) (9,503,812)
------------ ------------ ------------- ------------ ------------ ------------ ------------ -----------
Net increase from
capital share
transactions $72,829,289 $ 44,755,881 $ 8,826,697 $ 1,994,855 $289,654,655 $150,109,896 $90,789,452 $69,178,338
------------ ------------ ------------- ------------ ------------ ------------ ------------ -----------
------------ ------------ ------------- ------------ ------------ ------------ ------------ -----------
</TABLE>
72
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
Common Shares Advisor Shares
- ------------------------------- ------------------------------
For the Six For the Six
Months Ended For the Months Ended For the
April 30, Year Ended April 30, Year Ended
1996 October 31, 1996 October 31,
(Unaudited) 1995 (Unaudited) 1995
- ------------ -------------- ------------- ------------
<S> <C> <C> <C>
36,114,359 68,096,606 4,400,425 7,225,150
2,770,784 2,623,005 462,235 346,377
(14,704,936) (38,317,625) (353,539) (770,753)
- ------------ -------------- ------------- ------------
24,180,207 32,401,986 4,509,121 6,800,774
- ------------ -------------- ------------- ------------
- ------------ -------------- ------------- ------------
$729,116,738 $1,251,776,887 $88,661,416 $131,585,072
53,199,047 48,487,109 8,824,068 6,385,868
(295,259,300) (701,310,424) (6,951,353) (14,287,779)
- ------------ -------------- ------------- ------------
$487,056,485 $ 598,953,572 $90,534,131 $123,683,161
- ------------ -------------- ------------- ------------
- ------------ -------------- ------------- ------------
<CAPTION>
JAPAN OTC FUND
--------------------------------------------------------------
Common Shares Advisor Shares
---------------------------- -----------------------------
For the Six For the Six
Months Ended For the Months Ended For the
April 30, Year Ended April 30, Year Ended
1996 October 31, 1996 October 31,
(Unaudited) 1995 (Unaudited) 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C>
19,448,807 22,809,795 5 0
862,060 0 5 0
(14,578,459) (5,180,432) 0 0
------------ ------------ --- --
5,732,408 17,629,363 10 0
------------ ------------ --- --
------------ ------------ --- --
$177,370,878 $200,565,875 $ 48 $0
7,560,269 0 41 0
(130,373,825) (44,871,674) 0 0
------------ ------------ --- --
$54,557,322 $155,694,201 $ 89 $0
------------ ------------ --- --
------------ ------------ --- --
</TABLE>
73
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
6. CAPITAL SHARE TRANSACTIONS (CONT'D)
<TABLE>
<CAPTION>
EMERGING MARKETS FUND POST-VENTURE CAPITAL FUND
Common Shares Advisor Shares Common Shares
------------------------------ ------------------------------- ------------------------------
For the For the For the
Period Period Period
December 30, December 30, September 29,
1994 1994 1995
(Commencement (Commencement (Commencement
For the Six of For the Six of For the Six of
Months Ended Operations) Months Ended Operations) Months Ended Operations)
April 30, through April 30, through April 30, through
1996 October 31, 1996 October 31, 1996 October 31,
(Unaudited) 1995 (Unaudited) 1995 (Unaudited) 1995
------------ ------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 14,049,400 694,008 0 22 7,376,803 273,510
Shares issued to
shareholders on
reinvestment of
dividends 17,172 1,267 1 0 0 0
Shares redeemed (1,080,269) (104,480) 0 0 (787,264) (473)
------------ ------------- --- ----- ------------ -------------
Net increase
in shares
outstanding 12,986,303 590,795 1 22 6,589,539 273,037
------------ ------------- --- ----- ------------ -------------
------------ ------------- --- ----- ------------ -------------
Proceeds from sale
of shares $176,191,838 $ 7,753,651 $ 0 $ 257 $108,506,952 $ 2,792,203
Reinvested dividends 191,472 13,802 14 0 0 0
Net asset value of
shares redeemed (13,419,946) (1,191,160) (3) 0 (11,738,318) (4,887)
------------ ------------- --- ----- ------------ -------------
Net increase from
capital share
transactions $162,963,364 $ 6,576,293 $11 $ 257 $96,768,634 $ 2,787,316
------------ ------------- --- ----- ------------ -------------
------------ ------------- --- ----- ------------ -------------
<CAPTION>
POST-VENTURE CAPITAL FUND
Advisor Shares
------------------------------
For the
Period
September 29,
1995
(Commencement
For the Six of
Months Ended Operations)
April 30, through
1996 October 31,
(Unaudited) 1995
------------ -------------
<S> <C> <C>
Shares sold 0 19
Shares issued to
shareholders on
reinvestment of
dividends 0 0
Shares redeemed 0 0
-- -----
Net increase
in shares
outstanding 0 19
-- -----
-- -----
Proceeds from sale
of shares $0 $ 200
Reinvested dividends 0 0
Net asset value of
shares redeemed 0 0
-- -----
Net increase from
capital share
transactions $0 $ 200
-- -----
-- -----
</TABLE>
74
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JAPAN GROWTH FUND SMALL COMPANY VALUE FUND
Common Shares Advisor Shares Common Shares Advisor Shares
- ------------- -------------- ------------- --------------
For the Period For the Period
December 29, December 29,
1995 1995
(Commencement (Commencement
of Operations) of Operations)
through April 30, through April 30,
1996 1996
(Unaudited) (Unaudited)
- ------------------------------------------- -------------------------------------------
<S> <C> <C> <C>
1,555,468 20 2,016,886 20
0 0 0 0
(159,750) 0 (11,491) 0
- ------------- ----- ------------- -----
1,395,718 20 2,005,395 20
- ------------- ----- ------------- -----
- ------------- ----- ------------- -----
$15,808,678 $200 $22,657,265 $200
0 0 0 0
(1,650,457) (2) (138,157) (2)
- ------------- ----- ------------- -----
$14,158,221 $198 $22,519,108 $198
- ------------- ----- ------------- -----
- ------------- ----- ------------- -----
</TABLE>
75
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<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
7. NET ASSETS
Net Assets at April 30, 1996, consisted of the following:
<TABLE>
<CAPTION>
Capital Emerging International
Appreciation Growth Equity Japan OTC
Fund Fund Fund Fund
------------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
Capital contributed, net $254,983,813 $ 859,479,348 $2,848,598,049 $230,176,938
Accumulated net
investment income
(loss) 489,220 (2,660,022) 32,258,657 7,571,458
Accumulated net realized
gain (loss) from
security transactions 34,914,605 24,043,138 3,895,807 (6,406,623)
Net unrealized
appreciation from
investments and foreign
currency related items 50,409,069 290,979,510 415,737,182 8,020,606
------------ -------------- -------------- ------------
Net assets $340,796,707 $1,171,841,974 $3,300,489,695 $239,362,379
------------ -------------- -------------- ------------
------------ -------------- -------------- ------------
<CAPTION>
Small
Emerging Post-Venture Japan Company
Markets Capital Growth Value
Fund Fund Fund Fund
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Capital contributed, net $169,640,925 $ 99,656,150 $14,258,419 $22,619,306
Accumulated net
investment income
(loss) 206,407 (248,279) (51,999) (13,187)
Accumulated net realized
gain (loss) from
security transactions 942,062 4,172,908 (4,899) 476,234
Net unrealized
appreciation from
investments and foreign
currency related items 15,757,887 16,450,714 950,715 2,353,236
------------ ------------ ----------- -----------
Net assets $186,547,281 $120,031,493 $15,152,236 $25,435,589
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
</TABLE>
76
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<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
8. OTHER FINANCIAL HIGHLIGHTS
Each Fund currently offers one other class of shares, Common Shares,
representing equal prorata interests in each of the respective Warburg Pincus
Equity Funds. The financial highlights for a Common Share of each Fund are as
follows:
<TABLE>
<CAPTION>
Capital Appreciation Fund
----------------------------------------------------------------
Common Shares
----------------------------------------------------------------
For the Six
Months Ended For the Year Ended October 31,
April 30, 1996 ----------------------------------------------
(Unaudited) 1995 1994 1993 1992 1991
-------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $16.39 $14.29 $15.32 $13.30 $12.16 $ 9.78
------- ------ ------ ------ ------ ------
Income from Investment Operations:
Net Investment Income .04 .04 .04 .05 .04 .15
Net Gain on Securities (both realized and
unrealized) 2.41 3.08 .17 2.78 1.21 2.41
------- ------ ------ ------ ------ ------
Total from Investment Operations 2.45 3.12 .21 2.83 1.25 2.56
------- ------ ------ ------ ------ ------
Less Distributions:
Dividends from Net Investment Income (.01) (.04) (.05) (.05) (.06) (.18)
Distributions from Capital Gains (2.04) (.98) (1.19) (.76) (.05) .00
------- ------ ------ ------ ------ ------
Total Distributions (2.05) (1.02) (1.24) (.81) (.11) (.18)
------- ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $16.79 $16.39 $14.29 $15.32 $13.30 $12.16
------- ------ ------ ------ ------ ------
------- ------ ------ ------ ------ ------
Total Return 16.61%`D' 24.05% 1.65% 22.19% 10.40% 26.39%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $319,865 $235,712 $159,346 $159,251 $117,900 $115,191
Ratios to average daily net assets:
Operating expenses 1.04%* 1.12% 1.05% 1.01% 1.06% 1.08%
Net investment income .51%* .31% .26% .30% .41% 1.27%
Decrease reflected in above operating
expense ratios due to
waivers/reimbursements .00% .00% .01% .00% .01% .00%
Portfolio Turnover Rate 92.14%`D' 146.09% 51.87% 48.26% 55.83% 39.50%
Average Commission Rate # $.0594 -- -- -- -- --
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total
number of shares purchased or sold during the period for which there was a
commission charged.
77
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996
- --------------------------------------------------------------------------------
8. OTHER FINANCIAL HIGHLIGHTS (CONT'D)
<TABLE>
<CAPTION>
Emerging Growth Fund
----------------------------------------------------------------
Common Shares
----------------------------------------------------------------
For the Six
Months Ended For the Year Ended October 31,
April 30, 1996 ----------------------------------------------
(Unaudited) 1995 1994 1993 1992 1991
-------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $29.97 $22.38 $23.74 $18.28 $16.97 $10.83
------- ------ ------ ------ ------ ------
Income from Investment Operations:
Net Investment Income (Loss) (.02) (.05) (.06) (.10) (.03) .05
Net Gain on Securities
(both realized and
unrealized) 5.99 7.64 .06 5.93 1.71 6.16
------- ------ ------ ------ ------ ------
Total from Investment
Operations 5.97 7.59 .00 5.83 1.68 6.21
------- ------ ------ ------ ------ ------
Less Distributions:
Dividends from Net Investment Income .00 .00 .00 .00 (.01) (.07)
Distributions from Capital Gains (1.75) .00 (1.36) (.37) (.36) .00
------- ------ ------ ------ ------ ------
Total Distributions (1.75) .00 (1.36) (.37) (.37) (.07)
------- ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $34.19 $29.97 $22.38 $23.74 $18.28 $16.97
------- ------ ------ ------ ------ ------
------- ------ ------ ------ ------ ------
Total Return 21.06%`D' 33.91% .16% 32.28% 9.87% 57.57%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $880,093 $487,537 $240,664 $165,525 $99,562 $42,061
Ratios to average daily net assets:
Operating expenses 1.19%* 1.26% 1.22% 1.23% 1.24% 1.25%
Net investment income (loss) (.50%*) (.58%) (.58%) (.60%) (.25%) .32%
Decrease reflected in above operating
expense ratios due to
waivers/reimbursements .00% .00% .04% .00% .08% .47%
Portfolio Turnover Rate 26.38%`D' 84.82% 60.38% 68.35% 63.35% 97.69%
Average Commission Rate # $.0563 -- -- -- -- --
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased or sold during the period for which there was a commission
charged.
78
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International Equity Fund
------------------------------------------------------------------
Common Shares
------------------------------------------------------------------
For the Six For the Year Ended
Months Ended October 31,
April 30, 1996 ------------------------------------------------
(Unaudited) 1995 1994 1993 1992 1991
-------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $19.30 $20.51 $17.00 $12.22 $13.66 $11.81
------- ------ ------ ------ ------ ------
Income from Investment Operations:
Net Investment Income .14 .12 .09 .09 .15 .19
Net Gain (Loss) on Securities and Foreign
Currency Related Items (both realized and
unrealized) 2.79 (.67) 3.51 4.84 (1.28) 2.03
------- ------ ------ ------ ------ ------
Total from Investment Operations 2.93 (.55) 3.60 4.93 (1.13) 2.22
------- ------ ------ ------ ------ ------
Less Distributions:
Dividends from Net Investment Income (.56) (.13) (.04) (.02) (.16) (.33)
Distributions in Excess of Net Investment
Income .00 .00 (.01) .00 .00 .00
Distributions from Capital Gains .00 (.53) (.04) (.13) (.15) (.04)
------- ------ ------ ------ ------ ------
Total Distributions (.56) (.66) (.09) (.15) (.31) (.37)
------- ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $21.67 $19.30 $20.51 $17.00 $12.22 $13.66
------- ------ ------ ------ ------ ------
------- ------ ------ ------ ------ ------
Total Return 15.58%`D' (2.55%) 21.22% 40.68% (8.44%) 19.42%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $2,846,760 $2,068,207 $1,533,872 $378,661 $101,763 $72,553
Ratios to average daily net assets:
Operating expenses 1.36%* 1.39% 1.44% 1.48% 1.49% 1.50%
Net investment income .68%* .69% .19% .38% .88% 1.19%
Decrease reflected in above operating
expense ratios due to
waivers/reimbursements .00% .00% .00% .00% .07% .17%
Portfolio Turnover Rate 15.52%`D' 39.24% 17.02% 22.60% 53.29% 54.95%
Average Commission Rate # $.0188 -- -- -- -- --
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased or sold during the period for which there was a commission
charged.
79
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996
- --------------------------------------------------------------------------------
8. OTHER FINANCIAL HIGHLIGHTS (CONT'D)
<TABLE>
<CAPTION>
Japan OTC Fund
-----------------------------------------------------------
Common Shares
-----------------------------------------------------------
For the Period
For the Six September 30, 1994
Months Ended (Commencement of
April 30, 1996 For the Year Ended Operations) through
(Unaudited) October 31, 1995 October 31, 1994
-------------- ------------------ -------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.09 $ 9.85 $ 10.00
------- ------- -------
Income from Investment Operations:
Net Investment Income .01 .00 .00
Net Gain (Loss) on Securities and Foreign Currency
Related Items (both realized and unrealized) .71 (.76) (.15)
------- ------- -------
Total from Investment Operations .72 (.76) (.15)
------- ------- -------
Less Distributions:
Dividends from Net Investment Income (.38) .00 .00
Distributions from Capital Gains .00 .00 .00
------- ------- -------
Total Distributions (.38) .00 .00
------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.43 $ 9.09 $ 9.85
------- ------- -------
------- ------- -------
Total Return 8.23%`D' (7.72%) (1.50%)`D'
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $239,361 $178,568 $19,878
Ratios to average daily net assets:
Operating expenses 1.75%* 1.41% 1.00%*
Net investment income (loss) (.89%)* (.15%) .49%*
Decrease reflected in above operating expense
ratios due to waivers/reimbursements .37%* 1.35% 4.96%*
Portfolio Turnover Rate 33.36%`D' 82.98% .00%
Average Commission Rate # $.0863 -- --
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased or sold during the period for which there was a commission
charged.
80
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Emerging Markets Fund
-------------------------------------
Common Shares
-------------------------------------
For the Period
For the Six December 30, 1994
Months Ended (Commencement of
April 30, 1996 Operations) through
(Unaudited) October 31, 1995
-------------- -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.28 $ 10.00
------- -------
Income from Investment Operations:
Net Investment Income .07 .08
Net Gain on Securities and Foreign Currency
Related Items (both realized
and unrealized) 2.53 1.25
------- -------
Total from Investment Operations 2.60 1.33
------- -------
Less Distributions:
Dividends from Net Investment Income (.08) (.05)
Distributions from Capital Gains (.07) .00
------- -------
Total Distributions (.15) (.05)
------- -------
NET ASSET VALUE, END OF PERIOD $13.73 $ 11.28
------- -------
------- -------
Total Return 23.29%`D' 13.33%`D'
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $186,546 $6,780
Ratios to average daily net assets:
Operating expenses 1.49%* 1.00%*
Net investment income 1.33%* 1.25%*
Decrease reflected in above operating
expense ratios due to
waivers/reimbursements 1.18%* 11.08%*
Portfolio Turnover Rate 20.93%`D' 57.76%`D'
Average Commission Rate # $.0123 --
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased or sold during the period for which there was a commission
charged.
81
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996
- --------------------------------------------------------------------------------
8. OTHER FINANCIAL HIGHLIGHTS (CONT'D)
<TABLE>
<CAPTION>
Post-Venture Capital Fund
-------------------------------------
Common Shares
-------------------------------------
For the Period
For the Six September 29, 1995
Months Ended (Commencement of
April 30, 1996 Operations) through
(Unaudited) October 31, 1995
-------------- -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.69 $ 10.00
------- -------
Income from Investment Operations:
Net Investment Income (Loss) (.04) .00
Net Gain on Securities (both realized
and unrealized) 6.82 .69
------- -------
Total from Investment Operations 6.78 .69
------- -------
Less Distributions:
Dividends from Net Investment Income .00 .00
Distributions from Capital Gains .00 .00
------- -------
Total Distributions .00 .00
------- -------
NET ASSET VALUE, END OF PERIOD $17.47 $ 10.69
------- -------
------- -------
Total Return 63.42%`D' 6.90%`D'
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $120,029 $3,024
Ratios to average daily net assets:
Operating expenses 1.65%* 1.65%*
Net investment income (loss) (1.10%)* .25%*
Decrease reflected in above operating expense ratios due to
waivers/reimbursements .66%* 23.76%*
Portfolio Turnover Rate 79.38%`D' 16.90%`D'
Average Commission Rate # $.0554 --
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased or sold during the period for which there was a commission
charged.
82
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Japan Growth Fund
-------------------
Common Shares
-------------------
For the Period
December 29, 1995
(Commencement of
Operations) through
April 30, 1996
(Unaudited)
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
----------
Income from Investment Operations:
Net Investment Income .00
Net Gain on Securities and Foreign Currency Related Items (both realized and unrealized) .78
----------
Total from Investment Operations .78
----------
Less Distributions:
Dividends from Net Investment Income .00
Distributions from Capital Gains .00
----------
Total Distributions .00
----------
NET ASSET VALUE, END OF PERIOD $ 10.78
----------
----------
Total Return 7.80%`D'
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $15,151
Ratios to average daily net assets:
Operating expenses 1.75%*
Net investment loss (.29%)*
Decrease reflected in above operating expense ratio due to waivers/reimbursements 4.42%*
Portfolio Turnover Rate 5.01%`D'
Average Commission Rate # $.0857
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased or sold during the period for which there was a commission
charged.
83
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1996
- --------------------------------------------------------------------------------
8. OTHER FINANCIAL HIGHLIGHTS (CONT'D)
<TABLE>
<CAPTION>
Small Company Value
Fund
-------------------
Common Shares
-------------------
For the Period
December 29, 1995
(Commencement of
Operations) through
April 30, 1996
(Unaudited)
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
----------
Income from Investment Operations:
Net Investment Loss (.01)
Net Gain on Securities (both realized and unrealized) 2.63
----------
Total from Investment Operations 2.62
----------
Less Distributions:
Dividends from Net Investment Income .00
Distributions from Capital Gains .00
----------
Total Distributions .00
----------
NET ASSET VALUE, END OF PERIOD $ 12.62
----------
----------
Total Return 26.20%`D'
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $25,434
Ratios to average daily net assets:
Operating expenses 1.75%*
Net investment loss (.46%)*
Decrease reflected in above operating expense ratio due to waivers/reimbursements 2.22%*
Portfolio Turnover Rate 27.22%`D'
Average Commission Rate # $.0570
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased or sold during the period for which there was a commission
charged.
84
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
ADEOF-3-0496
Warburg Pincus Advisor Funds
Counsellors Securities Inc., distributor
800-369-2728
Further information is contained in the
Prospectus, which must precede or
accompany this report.
[LOGO]
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as `D'
The division sign shall be expressed as [div]
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements included in Part A:
(1) Financial Highlights(Unaudited)
(b) 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(a) By-Laws.(1)
2(b) Amendment to Bylaws.
3 Not applicable.
4 Forms of Share Certificates.(2)
5 Form of Investment Advisory Agreement.(5)
6 Distribution Agreement.(3)
7 Not applicable.
8(a) Form of Custodian Agreement with Fiduciary Trust Company.(5)
(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.(5)
- ----------
(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>
Exhibit No. Description of Exhibit
- ----------- ----------------------
10(a) Consent of Willkie Farr & Gallagher, Counsel to the Fund.
(b) Opinion of Willkie Farr & Gallagher, Counsel to the Fund.(5)
11 Consent of Coopers & Lybrand L.L.P., Independent Auditors.
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.(5)
(d) Form of Distribution Agreement.(2)
(e) Rule 18f-3 Plan.(5)
16 Schedule for Computation of Total Return Performance Quotation.
17(a) Financial Data Schedule relating to Common Shares.
(b) Financial Data Schedule relating to Advisor Shares.
- ------------------
(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).
(5) Incorporated by reference to the corresponding exhibit in Pre-Effective
Amendment No. 1 to Registrant's Registration Statement on Form N-1A, filed
on December 18, 1995.
<PAGE>
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
Number of
Record Holders
Title of Class as of June 25, 1996
-------------------------- -------------------
Common Stock par value 329
$.001 per share ---
Common Stock par value 0
$.001 per share - Series 1 ---
Common Stock par value 5
$.001 per share - Series 2 ---
(Advisor Shares)
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 Warburg,
Pincus Balanced Fund, Inc.; Warburg, Pincus Capital Appreciation Fund; Warburg,
Pincus Cash Reserve Fund; Warburg,
<PAGE>
Pincus Emerging Growth Fund; Warburg, Pincus Emerging Markets Fund; Warburg,
Pincus Fixed Income Fund; Warburg, Pincus Global Fixed Income Fund; Warburg,
Pincus Growth & Income Fund, Inc.; 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; Warburg, Pincus Small Company Value Fund, Inc.;
Warburg, Pincus Tax Free Fund, Inc. and Warburg, Pincus Trust.
(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)
<PAGE>
(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)
(9) Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, Massachusetts 02171
(records relating to its functions as transfer agent and
dividend disbursing agent)
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
(a) Registrant hereby undertakes to call a meeting of its
shareholders for the purpose of voting upon the question of removal of a
director or directors of Registrant when requested in writing to do so by the
holders of at least 10% of Registrant's outstanding shares. Registrant
undertakes further, in connection with the meeting, to comply with the
provisions of Section 16(c) of the 1940 Act relating to communications with the
shareholders of certain common-law trusts.
(b) Registrant hereby undertakes to furnish each person to
whom a prospectus is delivered with a copy of Registrant's latest annual report
to shareholders, upon request and without charge.
<PAGE>
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 1st day of July, 1996.
WARBURG, PINCUS JAPAN GROWTH FUND, INC.
By:/s/ Arnold M. Reichman
-----------------------------------
Arnold M. Reichman
President
<PAGE>
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 July 1, 1996
- ---------------------------------- Board of Directors
John L. Furth
/s/ Arnold M. Reichman Director and Executive July 1, 1996
- ---------------------------------- Vice President
Arnold M. Reichman
/s/ Stephen Distler Vice President and July 1, 1996
- ---------------------------------- Chief Financial
Stephen Distler Officer
/s/ Howard Conroy Vice President, July 1, 1996
- ---------------------------------- Treasurer and Chief
Howard Conroy Accounting Officer
/s/ Richard N. Cooper Director July 1, 1996
- ----------------------------------
Richard N. Cooper
/s/ Donald J. Donahue Director July 1, 1996
- ----------------------------------
Donald J. Donahue
/s/ Jack W. Fritz Director July 1, 1996
- ----------------------------------
Jack W. Fritz
<PAGE>
/s/ Thomas A. Melfe Director July 1, 1996
- ----------------------------------
Thomas A. Melfe
/s/ Alexander B. Trowbridge Director July 1, 1996
- ----------------------------------
Alexander B. Trowbridge
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit No. Description of Exhibit
- ----------- ----------------------
2(b) Amendment to Bylaws.
10(a) Consent of Willkie Farr & Gallagher, Counsel to the Fund.
11 Consent of Coopers & Lybrand L.L.P., Independent Auditors.
16 Schedule for Computation of Total Return Performance Quotation.
17(a) Financial Data Schedule relating to Common Shares.
(b) Financial Data Schedule relating to Advisor Shares.
<PAGE>
Amendment to the By-Laws
of
Warburg, Pincus Japan Growth Fund, Inc.
The first sentence of the second paragraph of Article I, Section 8 of
the By-Laws of Warburg, Pincus Japan Growth Fund, Inc. shall be deleted in its
entirety and the following shall be inserted in its place:
Each stockholder entitled to vote at any meeting of
stockholders may authorize another person to act as proxy
for the stockholder by (a) signing a writing authorizing
another person to act as proxy or (b) any other means
permitted by law. Signing may be accomplished by the
stockholder or the stockholder's authorized agent signing
the writing or causing the stockholder's signature to be
affixed to the writing by any reasonable means, including
facsimile signature.
<PAGE>
CONSENT OF COUNSEL
Warburg, Pincus Japan Growth Fund, Inc.
We hereby consent to being named in the Statement of
Additional Information included in Post-Effective Amendment No. 13 (the
"Amendment") to the Registration Statement on Form N-1A (Securities Act File
No. 33-63655, Investment Company Act File No. 811-07371) of Warburg,
Pincus Japan Growth Fund, Inc. (the "Fund") under the caption "Auditors
and Counsel" and to the Fund's filing a copy of this Consent as an exhibit to
the Amendment.
/s/ Willkie Farr & Gallagher
Willkie Farr & Gallagher
New York, New York
June 28, 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the following with respect to Post-Effective Amendment No. 1
pursuant to the Securities Act of 1933, as amended, to the Registration
Statement on Form N-1A, (File No. 033-63655):
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.
The reference to our Firm under the caption "Independent
Accountants and Counsel" in the statement of Additional
Information.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
July 1, 1996
0141456.01
<PAGE>
Warburg Pincus Japan Growth Fund
For the Period December 29, 1995 to April 30, 1996
Schedule 16 Calculations
Common Shares
Aggregate Total Return With Waivers:
((10,780 - 10,000)/10,000) = 7.80%
Aggregate Total Return Without Waivers:
((10,730 -10,000)/10,000) = 7.30%
Annualized Total Return With Waivers:
((10,780/10/000)1/.33973 -1) = 24.74%
Annualized Total Return Without Waivers:
((10,730/10,000)1/.33973 -1) = 23.05%
Advisor Shares
Aggregate Total Return With Waivers:
((!0,770 - 10,000)/10,000) = 7.70%
Aggregate Total Return Without Waivers:
((10,530 - 10,000)/10,000) = 5.30%
Aggregate Total Return With Waivers:
((10,770/10,000)1/.33973 - 1) = 24.40%
Aggregate Total Return Without Waivers:
((10,530/10,000)1/.33973 -1) = 16.42%
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